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Tuesday, 30 December 2008

Bernard Madoff

From Wikipedia, the free encyclopedia

Bernard Lawrence Madoff (IPA: /ˈmeɪdɑf/) (born April 29, 1938) is a businessman and former chairman of the NASDAQ stock market. He started the Wall Street firm Bernard L. Madoff Investment Securities LLC in 1960 and was its chairman until December 11, 2008, when he was arrested and charged with securities fraud.

Bernard L. Madoff Investment Securities, which is in the process of liquidation, was one of the top market maker businesses on Wall Street (the sixth-largest in 2008),[1] often functioning as a "third-market" provider that bypassed "specialist" firms and directly executed orders over-the-counter from retail brokers.[2] The firm also encompassed an investment management and advisory division that is now the focus of the fraud investigation.[3]

On December 11, 2008, at 8.30 a.m. Federal Bureau of Investigation agents arrested Madoff on a tip-off from his sons, Andrew and Mark, and charged him with one count of securities fraud. On the day prior to his arrest, Madoff told his senior executives at the firm that the management and advisory segment of the business was "basically, a giant Ponzi scheme."[4] Five days after his arrest, Madoff's assets and those of the firm were frozen and a receiver was appointed to handle the case.[5] Madoff's alleged fraud may be valued at a loss of up to a US$50 billion in cash and securities. [3][6] Banks from outside the U.S. have announced that they have potentially lost billions in U.S. dollars as a result.[7][8] The FBI complaint states that Madoff told his sons he believed the losses from his scheme could exceed that $50 billion sum. To date, it is the largest investor fraud ever attributed to a single individual.[9]

Madoff was a prominent businessman and philanthropist.[10][11] The freeze of his and his firm's assets significantly affected businesses around the world and a number of charities, some of which, including the Robert I. Lappin Charitable Foundation, the Picower Foundation, and the JEHT Foundation, have been forced to close as a consequence of the fraud.[10][12][13][14]

Investors have questioned Madoff's statement that he alone is responsible for the large-scale operation, and investigators are looking to determine if there were others involved in the scheme.[15]


Madoff was born in the New York City borough of Queens to a Jewish family,[16] and graduated from Far Rockaway High School, where he was a member of the swim team.[17] He is married to his high school sweetheart Ruth Madoff,[18] and has two sons, Mark and Andrew.[19] He graduated from Hofstra University (then Hofstra College) in 1960 with a degree in political science. A source told The Wall Street Journal that Madoff wished he had attended Stanford University or the Wharton School of Business.[20]

Although he lived in a ranch house in Roslyn, New York through the 1970s,[20] Madoff has owned an ocean-front residence in Montauk since 1981.[21] His primary residence, valued at more than US$5 million, is on Manhattan's Upper East Side.[22] Madoff is listed as chairman of his Upper East Side building's co-op board.[23] He also owns a home in France[24] and a US$9.3 million mansion in Palm Beach, Florida on the Intercoastal Waterway just north of Flagler Memorial Bridge.[25] He is a member of the Palm Beach Country Club and owns a 55-foot (17 m) fishing boat named Bull.[23]

[edit] Career

Madoff started his firm in 1960 with an initial investment of US$5,000 (US$35,000 in today's dollars) that he said was earned from working as a lifeguard and installing sprinklers.[26] At first, the firm made markets (quoted bid and ask prices) via the National Quotation Bureau's Pink Sheets. In order to compete with firms that were members of the New York Stock Exchange trading on the stock exchange's floor, the firm began to use information technology to disseminate its quotes and set itself apart from competitors.[27] After a trial run, the technology the firm helped develop became the NASDAQ.[28] These technologies allowed the advent of online trades and brokers, such as Ameritrade and Charles Schwab.[1] At one point, Madoff Securities was the largest "market maker" at the NASDAQ, both buying and selling.[27]

He was active in the National Association of Securities Dealers (NASD), a self-regulatory organization for the U.S. securities industry. His firm was one of the five most active firms in the development of the NASDAQ, and he served as its chairman of the board of directors, and on its board of governors.[29]

He brought several relations into his business. His younger brother, Peter, was a senior managing director and chief compliance officer.[27] Both of Madoff’s sons, Mark and Andrew, joined the team after finishing their education and worked in the trading section of the business.[27] Charles Weiner, Madoff’s nephew, also joined the firm, and Peter Madoff’s daughter, Shana, took a job with the company as a compliance attorney.[11] Employees of the company were invited to Madoff's Montauk house for a weekend each year.[1] Andrew Madoff invested his own money in his father's fund, but Mark had not done so for about eight years.[30]

While according to sources involved in the government inquiry into Madoff, the fraud in the investment management and advisory division may have gone back to the 1970s,[31] by the 1980s, the apparently legitimate market maker division of Madoff's firm traded up to five percent of the total trades made on the New York Stock Exchange.[27] Madoff's firm was "the first prominent practitioner"[32] of "paying for order flow", in other words paying a broker to execute a customer's order through Madoff, which has been called a "legal kickback".[33] Using this method, the firm became the largest dealer in NYSE-listed stocks in the U.S., trading about 15% of transaction volume in these stocks.[34]

Madoff viewed the payments as a normal business practice: "If your girlfriend goes to buy stockings at a supermarket, the racks that display those stockings are usually paid for by the company that manufactured the stockings. Order flow is an issue that attracted a lot of attention but is grossly overrated."[35] Academics have questioned the ethics of these payments.[36][37] Madoff has argued that these payments did not alter the price that the customer received.[35]

By the 2000 Internet boom, Madoff Securities held approximately US$300 million in assets and was considered to be one of the top traders of securities in the nation.[27] The operation was conducted out of floors 17 to 19 of the Lipstick Building, with 18 and 19 used for administration and stock-trading. The investment management division, which employees referred to as the "hedge fund," was on the 17th floor, occupied by no more than 24 employees.[38] Since funds controlling billions as Madoff did would usually require hundreds of employees for the administrative work involved, employees from other floors say that they always assumed Madoff had an office in another location in addition to the Manhattan headquarters.[38] Madoff did keep a London office with 28 employees which was entirely separate from Madoff Securities and only handled investments for his family; mostly traders and investment analysts who handled about £80 million.[39]

[edit] Methods of operation, accusations, and case

[edit] Investment strategy

Through the years, Madoff claimed his investment strategy consisted of purchasing blue-chip stocks and taking options contracts on them, although he may not have invested much at all.[40] Sources from the investigation assert that it appears Madoff chose a trading strategy that failed, at which point he began the Ponzi scheme.[30] In 1992, Madoff told The Wall Street Journal about his stock strategies: in the 1970s, he had placed invested funds in "convertible arbitrage positions in large-cap stocks, with promised investment returns of 18% to 20%."[40] Madoff said that beginning in 1982, he began using futures contracts on the stock index, and he said he was in index puts (a form of options contract) during the 1987 stock market crash.[40]

Barron's Magazine reported in 2001[41] that a Madoff hedge fund document (a so-called "Offering Memorandum") described Madoff's strategy as follows: "Typically, a position will consist of the ownership of 30–35 S&P 100 stocks, most correlated to that index, the sale of out-of-the-money calls on the index and the purchase of out-of-the-money puts on the index. The sale of the calls is designed to increase the rate of return, while allowing upward movement of the stock portfolio to the strike price of the calls. The puts, funded in large part by the sale of the calls, limit the portfolio's downside."

This split-strike or collar trade involves three steps: 1) buying a stock at price X — say 100, 2) selling a call option with a strike price Y — say 120 — which is above X, and 3) purchasing a put option with a strike price Z — say 80 — which is below X. If the price of the stock is 125, which is above Y at expiration, the stock will be called away and the investor receives Y (120) for the stock. If the price is 70, which is below Z at expiration, the put can be exercised and Z (80) received in cash. This effectively caps the maximum gain (until the options expire) at the Y minus X (120 − 100 = 20), and the maximum loss at the X minus Z (100 − 80 = 20). The options transactions can generate positive or negative cash-flow depending on the cost of purchasing the put (say 3%), the premium received to write the call (say 4%) and dividends from the stock holdings (say 5%). To create an effective collar for a long-term stock holding, the option contracts should be rolled into contracts farther out prior to expiration.

Madoff's strategy as described in Barron's is not a perfect hedge since options are purchased/sold on an index which contains a much larger basket of stocks than the 30–35 purchased to hold. A few analysts performing due diligence on Madoff did raise alarms because they were unable to replicate the fund's past returns using historic price data for US stocks and options on the indexes.[42][43] There is no credible evidence that Madoff actually made all the required trades dictated by this strategy.[44] Barron's raised the possibility that Madoff's returns were not due to this strategy, but rather from front running the firm's brokerage clients.

Rival fund managers were unable to replicate the same returns, using the strategies from Madoff's quarterly reports.[45]

[edit] Sales methods

The New York Post reported that before his arrest Madoff, himself Jewish and on the boards of directors of several prominent Jewish institutions, "worked the so-called 'Jewish circuit' of well-heeled Jews he met at country clubs on Long Island and in Palm Beach."[46] The New York Times reported that Madoff courted many prominent Jewish executives and organizations among those investing in his funds — Jeffrey Katzenberg, Eliot Spitzer, Yeshiva University, the Elie Wiesel Foundation, and charities set up by the publisher Mortimer Zuckerman and Hollywood film director Steven Spielberg. Among one of the most prominent Jewish promoters was J. Ezra Merkin, whose fund Ascot Partners steered US$1.8 billion towards Madoff's firm.[47] A scheme like this that targets members of a particular religious or ethnic community is a type of affinity fraud.

Fairfield Greenwich Group, based in Greenwich, Connecticut, had a Fairfield Sentry fund which was one of several dozen so-called feeder funds that gave foreign investors portals to Madoff. Fairfield, in turn, set up further feeder funds such as Lion Fairfield Capital Management in Singapore and Stellar US Absolute Return, all ultimately conduits to Madoff, having directed a total of US$7 billion.[47]

The Wall Street Journal reported that "Several investors say Mr. Madoff's main go-between in Palm Beach was Robert Jaffe. Mr. Jaffe is the son-in-law of Carl Shapiro, the founder and former chairman of apparel company Kay Windsor Inc. and an early investor and close friend of Madoff. Jaffe, a philanthropist in Palm Beach, Florida, attracted many investors from the Palm Beach Country Club."[23]

Madoff also promoted in Europe and South America, mostly indirectly through Fairfield fund founder Walter Noel's son-in-law Andrés Piedrahita's connections.[48] Another Noel son-in-law's territory included Asia, most recently targeting China, though by that time, Madoff was advertising to anyone with money (contrary to his initial strategy, when he handpicked investors).[47] The Madoff sales force were well-dressed, multilingual sales representatives in the financial capitals of Europe.

Madoff was a "master marketer",[20] and his fund was also considered exclusive, as he was initially giving the appearance of being very selective of which investors to take on, giving the appearance of a "velvet rope."[47][20] Some Madoff investors were wary of removing their money from his fund, in case they couldn't get it back in later.[1] One New York real estate investor said she "literally begged" Madoff to take her money, and he refused.[39]

Madoff had a very successful track record year after year, with returns that were "unusually consistent."[48] As well, his returns around 10% were a key factor in the perpetuation of Madoff's fraud for decades; other Ponzi schemes that paid out higher returns of 20% or higher typically collapsed much more quickly. A hedge fund run by Madoff, which described its strategy as focused on shares in the Standard & Poor's 100-stock index, averaged a 10.5% annual return over the past 17 years. Through November 2008, amid a general market collapse, the fund reported that it was up 5.6% year-to-date, while the year-to-date total return on the S&P 500-stock index had been negative 38%.[10] One investor who declined to be named said “The returns were just amazing and we trusted this guy for decades — if you wanted to take money out, you always got your check in a few days. That’s why we were all so stunned.”[43][49]

A Swiss bank that invested explained that because of Madoff's huge volume as a broker-dealer, the bank felt he had a "perceived edge" on the market and was able to time his trades well.[50]

[edit] Previous SEC investigations

In 1992, the SEC investigated one of Madoff's feeder funds, Avellino & Bienes, which invested solely with Madoff.[40] Avellino & Bienes was accused of selling unregistered securities, and in its report the SEC mentioned the fund's "curiously steady" promised yearly returns to investors of 13.5% to 20%; however, the SEC did not look any more deeply into the matter.[40] Avellino shut down in 1993, with investors receiving their money back.[40] At the time, Madoff said that he didn't realize the feeder fund was operating illegally and that his own investment returns tracked the previous 10 years of the S&P 500.[40] Avellino & Bienes, previously an accounting firm, had turned to full-time investments in 1984 in a partnership with Madoff.[40] At the time of the investigation, the SEC did not publicly name Madoff because he was not accused of wrongdoing.[51] Michael Bienes later became a philanthropist donating at least US$30 million in Florida and the United Kingdom, with a news report explaining that he "got lucky on the New York Stock Exchange."[52]

The SEC said it conducted two inquiries of Madoff in the last several years and did not find major problems.[53] An SEC statement detailed that inspectors examined Madoff's brokerage operation in 2005, finding three violations of rules requiring brokers to obtain the best possible price for customer orders, while in 2007, SEC enforcement staff completed an investigation and did not refer the matter to the SEC commissioners for legal action.[54]

The SEC has been accused of missing numerous red flags and ignoring tips on Madoff's alleged fraud.[55] As a result, the SEC's chairman Christopher Cox has said that an investigation will ensure into "all staff contact and relationships with the Madoff family and firm, and their impact, if any, on decisions by staff regarding the firm."[56] A former SEC compliance officer, Eric Swanson, married Madoff's niece Shana, a Madoff firm compliance attorney.[56]

[edit] Red flags

Outside analysts raised concerns with Madoff's firm for years.[10] Financial analyst Harry Markopolos complained to the SEC's Boston office in May 1999 telling the SEC staff they should investigate Madoff because it was impossible to legally make the profits Madoff claimed using the investment strategies that he claimed to use. In 2005 Markopolos sent a detailed 17 page memo directly to the SEC, entitled The World's Largest Hedge Fund is a Fraud.[57] The paper specifies 29 numbered red flags. In part, the memo concluded: "Bernie Madoff is running the world's largest unregistered hedge fund. He's organized this business as 'hedge fund of funds privately labeling their own hedge funds which Bernie Madoff secretly runs for them using a split-strike conversion strategy getting paid only trading commissions which are not disclosed.' If this isn't a regulatory dodge, I don't know what is."

Among the suspicious signs was the fact that Madoff's company avoided filing disclosures of its holdings with the SEC by selling its holdings for cash at the end of each period.[10] Such a tactic is highly unusual. Madoff's use of a small auditing firm, Friehling & Horowitz, which has only one active accountant, is also highly unusual and was noted by hedge fund advisory fund firm Aksia LLC when it advised its clients in 2007 not to invest with Madoff.[58][59] Friehling & Horowitz has reported since 1993, in writing, to the American Institute of Certified Public Accountants that it doesn't conduct audits.[60] David Friehling assumed control of the firm from partner Jerry Horowitz, his father-in-law, who reportedly did accounting work for Madoff for decades.[30][59]

While hedge funds typically hold their portfolio at a securities firm that acts as the fund's prime broker (typically a major bank or brokerage), allowing an outside investigator to verify their holdings, Madoff's firm was its own broker-dealer and supposedly processed all its trades.[43]

Although Madoff was a pioneer of electronic trading, he refused to provide his clients online access to their accounts.[10] He sent out account statements by mail,[61] whereas most hedge funds email statements and allowed them to be downloaded via computer for easier analysis by investors.[24]

Improbably steady investment returns despite exceedingly volatile markets were another red flag.[62] A longtime friend said that "his rate of return [...] was never attention-grabbing, just solid 12–13 percent year in, year out".[11] Robert Ivanhoe, chairman of the real estate practice of the law firm Greenberg Traurig, added that Madoff increased his allure by refusing some investors.[11]

Charles Gradante, co-founder of hedge-fund research firm Hennessee Group, observed that Madoff "only had five down months since 1996",[63] and commented on Madoff's investment performance: "You can't go 10 or 15 years with only three or four down months. It's just impossible."[62] A 2001 story in MARHedge interviewed traders who questioned how Madoff could have 72 gaining months in a row, saying that type of stock success had never occurred before.[1]

Madoff also operated as a broker dealer with an asset management division. Joe Aaron, a longtime hedge fund professional, found the structure suspicious and in 2003 warned a colleague to steer clear of the fund, saying "Why would a good businessman work his magic for pennies on the dollar?"[64]

At the same time as potential investors such as Société Générale were finding red flags from Madoff's firm, clients such as Fairfield and Union Bancaire Privee claimed that they had been given an "unusual degree of access" to look into Madoff's funds and had seen nothing wrong with his firm's investments.[48]

[edit] Signs of trouble

Early indications that Madoff may have been in trouble emerged in 2007. The Madoff Family Foundation donated only US$95,000 to charitable groups. This was a major drop from previous years. In 2006, the foundation had donated US$1,277,600.[65]

The scheme began to unravel when, in 2008, clients wanted to withdraw US$7 billion from the firm, and Madoff was struggling to raise US$7 billion to cover redemptions. On December 10, 2008, he suggested to his sons that the firm pay out several million dollars in bonuses two months ahead of schedule, from US$200 million in assets that the firm still had.[1] Then at his apartment, he admitted to his sons that his firm was a fraud.[53] His sons Mark and Andrew were allegedly unaware of the imminent insolvency of Madoff Investment Securities.[10] According to the authorities, the sons confronted their father, asking him how the firm could pay bonuses if it could not pay investors, prompting Madoff's admission that he was "finished", after which they reported him to the authorities.[10] The FBI investigation shows no signs of implicating family members of fraud,[66] with federal authorities saying his wife Ruth is not accused of wrongdoing.[67]

[edit] Other Madoff-companies involved

Apart from 'Bernard L. Madoff' and 'Bernard L. Madoff Investment Securities LLC ("BMIS")' , the order to freeze all activities[68] also forbids acting and trading from the companies:

* Madoff Securities International Ltd. ("Madoff International")
* Madoff Ltd.

[edit] Criminal and civil charges
Sister project Wikinews has related news: Market maker Bernard L. Madoff arrested in $50B 'giant Ponzi scheme'

Madoff was arrested by the FBI on December 11, 2008 on criminal charges of securities fraud, turned in by his sons after he allegedly told them that his business was "a giant Ponzi scheme."[69][70] According to the SEC, Madoff confessed to an FBI agent that there was “no innocent explanation” for his behavior,[71] and that he "paid investors with money that wasn't there".[72] The alleged behavior involves an asset management unit of his firm, rather than the better known market making unit.

The criminal complaint alleges that investors lost US$50 billion because of the scheme,[71] though The Wall Street Journal reports "that figure includes the alleged false profits that Mr. Madoff's firm reported to its customers for decades. It's unclear exactly how much investors deposited into the firm."[73] He was charged with a single count of securities fraud. He faces up to 20 years in prison and a fine of US$5 million if convicted.[69] His attorney, Ira Sorkin, stated that Madoff "will fight to get through this unfortunate set of events."

The case is U.S. v. Madoff, 08-MAG-02735, U.S. District Court for the Southern District of New York (Manhattan).[26] Madoff was released on the same day of his arrest after posting US$10 million bail.[69] Madoff and his wife have surrendered their passports, and he at first was subject to travel restrictions, a 7 p.m. curfew at his co-op, and electronic monitoring as a condition of bail. Although Madoff only had two co-signers for his US$10 million bail, his wife and his brother Peter, rather than the four required, a judge allowed him free on bail but ordered him confined to his penthouse.[74] Madoff wears an electronic ankle bracelet to ensure compliance.[74] Madoff has reportedly received death threats that have been referred to the FBI, and the SEC referred to fears of "harm or flight" in its request for Madoff to be confined to his Upper East Side apartment.[74][75] Cameras will monitor the apartment's doors, its communication devices will send signals to the FBI, and his wife will be required to pay for additional security.[75]

[edit] Others involved

Investigators are looking for others involved in the scheme, despite Madoff's statement that he alone was responsible for the large-scale operation.[15] Harry Sussman, an attorney representing several clients of the firm, stated that "someone had to create the appearance that there were returns," and further suggested that there must have been a team buying and selling stocks, forging books, and filing reports.[15]

The role of Frank DiPascali, an official at the firm, is being considered. DiPascali is represented by Marc Mukasey, the son of U.S. Attorney General Michael Mukasey, who has recused himself of any involvement in the case. According to an SEC memo, DiPascali "responded evasively" to questioning following Madoff's arrest.[73]

Federal investigators have discovered apparently fraudulent documents and records in Madoff's Manhattan offices, and are looking into who prepared them.[15]

Madoff's accountant was David G. Friehling, the only active accountant at Friehling & Horowitz according to the AICPA. The accounting firm has informed the AICPA in writing for 15 years that it does not conduct audits.[76] An investigation into Friehling by Rockland County, New York district attorney Thomas Zugibe was stopped in deferment to the investigation by the US Attorney's office out of Manhattan.[59]

J. Ezra Merkin, a prominent investment advisor and philanthropist, has been sued for his role in running a "feeder fund" for Madoff.[77] Merkin informed investors in his US$1.8 billion Ascot Partners fund on December 11 that he was among those who suffered substantial personal losses, since all of the fund's dollars were invested with Madoff.[78] The Connecticut Attorney General is looking into the possible role the boards of nonprofits might have played, in not conducting due diligence with donors' contributions.[79]

[edit] Recovery of funds

Madoff's assets have been frozen, and he has been ordered to develop a list of his clients.[75] The victims of the alleged fraud are considering how to best recover some of their investments.[80] The SEC filed a separate civil suit against Madoff on December 11, 2008.[26][81] Separately, individual investors have filed civil suits against Madoff. The two firms leading the suits announced on December 12, 2008 that the firms have been retained by dozens of individual investors.[82]

The use of the legal doctrine of fraudulent conveyance in bankruptcy proceedings might mean that investors who withdrew their money before the fraud was revealed might be forced to return their profits or even part of their initial investments. Returning funds is uncontroversial for clients who may have known that the Madoff's business was fraudulent, but it is not so clear for clients who were not aware of Madoff's activities.[83][84] The current statute of limitations on cases involving fraudulent conveyance is six years, which means that clients who withdrew their money from Madoff's firm more than six years ago could not lose their withdrawals. But clients who withdrew their funds less than six years ago might have to return their withdrawals.

Investors may also have access to funds from the Securities Investor Protection Corporation (SIPC), which offers assistance to investors of failed brokerage firms. Investors may receive a maximum of US$500,000, but only for cash or securities that are missing from their accounts. It could take several years before investigations into the scandal are concluded and investors are able to file claims.[85][86] Victims may also file suit to have taxes already paid on "fictitious income" restored to them.[87]

[edit] Affected clients

The Securities Investor Protection Corporation (SIPC) is liquidating Madoff’s brokerage and attempting to sell it before its 120 employees find other jobs, with Irving Picard acting as trustee.[27] The SIPC provides up to US$500,000 in insurance for missing money or securities in individual brokerage accounts, but does not protect against bad investments.[88]

Stephen Harbeck, president of the SIPC, stated that the investment management department's financial records, which according to other sources are in "disarray,"[27] will take six months to sort out. Assets are frozen, but employee salaries are still being paid.[27] “There are some assets, but I have no idea what the relationships of the assets available are to the claims against them. The records are utterly unreliable on this case.”[89]

Although Madoff filed a report with the SEC in 2008 stating that his advisory business had only 11–25 clients and about US$17.1 billion in assets,[90] dozens of investors have reported losses, and Madoff estimated the fraud at US$50 billion. According to Bloomberg, “in all, companies, individuals and foundations have disclosed about $24 billion of investments with Madoff.”[88] Those affected include banks, Wall Street investors, charities, as well as individuals.

Many European banks invested in Madoff; the largest was the private Swiss bank Union Bancaire Privée, with US$700 million of clients' funds invested.[48] The large sovereign wealth fund Abu Dhabi Investment Authority also indirectly invested US$400 million with Madoff.

In December 2008, the Elie Wiesel Foundation for Humanity issued a press release[91] on its website stating that nearly all of the foundation's assets (approximately US$15.2 million) have been lost through Madoff's firm.[92]

Steven Spielberg and Eric Roth are two of the Hollywood investors defrauded by Madoff.[93] Roth stated that his losses were heavy, although the full extent is unknown.

[edit] Largest stake-holders

Potential losses between US$100 million and US$1 billion include Natixis SA, Carl J. Shapiro (a 95-year-old Boston philanthropist, and the individual who seems to have lost most, US$500 million; see also above), Royal Bank of Scotland Group PLC, BNP Paribas, BBVA, Man Group PLC, Reichmuth & Co., Nomura Holdings, Aozora Bank,[94] Maxam Capital Management, EIM SA, and AXA SA. The potential losses for these investors total US$4.02 billion. Twenty-three investors with potential losses of US$500,000 to US$100 million were also listed, with total potential losses of US$540 million. They included Bramdean Alternatives run by Nicola Horlick. The grand total potential losses in the December 16, 2008 Wall Street Journal table is US$26.9 billion.

However, the most updated list, as reported by Bloomberg News on December 24, 2008, places the total amount of current financial losses related to Madoff's fraud at US$36 billion.[95][96] A partial list of Madoff's victims from the updated Bloomberg report includes US Senator Frank Lautenberg's charitable foundation, the Horowitz Association at US$800 million, BNP Paribas SA at up to US$478.2 million, US$696 million in losses to Notz, Stucki & Cie, US$302 million in losses to Nomura Holdings Inc., US$400 million in losses to Fix Asset Management, up to US$614 million to Natixis SA and US$110 million to Yeshiva University.[95]

[edit] Suicide of client

On 23 December 2008, one of the founders of Access international Advisors LLC, René-Thierry Magon de la Villehuchet, was found dead in his company office on Madison Avenue in New York City. Both of his wrists were slit and de la Villehuchet had taken sleeping pills, in what appeared to be suicide.[97][98] Access international Advisors LLC had invested US$1.4 billion with Madoff's firm. De la Villehuchet had also invested his personal money with Madoff's business. De la Villehuchet lived in New Rochelle, New York and came from a prominent French family. Access international Advisors LLC had connections to wealthy and powerful aristocrats from Europe.[98][97] No suicide note was found at the scene.[97] The FBI and SEC do not believe de la Villehuchet was involved in the fraud.[98]

[edit] Philanthropy

Before his arrest, Madoff's family was involved in philanthropic circles.[11] When his nephew, Roger Madoff, died of leukemia in April 2006, paid death notices appeared in newspapers from a range of charitable organizations, including the Lower East Side Tenement Museum.[11] Madoff donated approximately US$6 million to lymphoma research after his son Andrew was diagnosed.[65]

Madoff served as the Chairman of the Board of Directors of the Sy Syms School of Business at Yeshiva University, as well as Treasurer of its Board of Trustees.[11][12] He resigned his position at Yeshiva University after his arrest.[12] Madoff also serves on the Board of New York City Center, a member of New York City's Cultural Institutions Group (CIG).[99] He served on the executive council of the Wall Street division of the UJA Foundation of New York, a Jewish foundation which declined to invest funds with him due to the conflict of interest.[100]

Madoff undertook charity work for the Gift of Life Bone Marrow Foundation, and through The Madoff Family Foundation, a US$19 million private foundation, which he managed along with his wife.[10] They donated money to hospitals and theaters.[11] The foundation has also contributed to many Jewish educational, cultural, and health charities. The various organizations were mostly given charity funds backed by Madoff securities.[16][12] Madoff was also a major contributor to the Democratic Party, donating about US$25,000 a year.[101][1]

In the wake of Madoff's arrest, the assets of the Madoff Family Foundation have been frozen by a federal court.[12][10]

10 Predictions for 2009

ByDavid Sterman, RealMoney Contributor

Here's a list of trends that may play out, both expected and unexpected.

# New jobless claims peak in the second quarter; net job creation takes two to three more quarters. The largest U.S. employers make their biggest restructuring moves by the end of March. A surge in bankruptcies among large and small firms pushes the peak of new unemployment claims out into the second quarter. The Obama stimulus plan helps to create positive employment numbers in the second half of 2009, but private sector employment doesn't start to build up steam until 2010 or 2011.

# Fueled by another large deal, airline stocks deliver the strongest gains. Although demand for air travel remains fairly weak, the sharp drop in oil prices, coupled with recent large headcount reductions, enable the sector to generate an impressive earnings snapback. Investors come to view the sector as poised for record profits when the economy rebounds. Noting the impressive synergies ultimately derived from the merger of Delta and Northwest, Continental , UAL and/or Southwest seek out deals.

# Steve Jobs gets kicked upstairs. Realizing that investors are overlooking Apple's management bench strength, Steve Jobs relinquishes the CEO title and remains as Chairman, as Microsoft's Bill Gates did a few years back. Shares of Apple drift lower in the first half of the year as rivals roll out increasingly competitive new products. Shares of Apple post a solid second-half rebound as the company introduces its next breakthrough device. Apple's 2008 decision to open up application development to third parties spawns a range of hot-selling new uses for the iPhone in 2009.

# Brazil becomes an investor magnet. Global investors begin to differentiate Brazil from China and India, highlighting Brazil's strong finances, impressive agricultural and oil output and anchor status in South America. The Bovespa posts the strongest record of any major index, augmented for U.S. investors by a strengthening in the real against the dollar.

# Venture capitalists start to get anxious. With pensions and endowments looking to pull some money out of venture capital funds, the venture capitalist firms seek ways to monetize their holdings. As the IPO market remains largely closed, they seek out large public tech companies to buy out their stakes at large discounts to recent financing rounds.

# The British and Japanese economies are among the weakest in 2009. Britain's consumer hangover proves to be as deep as the U.S.'s, but a relative lack of stimulus leads to an even deeper economic contraction in the U.K. The British pound weakens anew to multi-decade lows, enabling tourism to be one of the country's few bright spots. Japan's strengthening currency creates even more pressure on the nation's exporters, while rapidly aging Japanese consumers grow even more cautious. The current government, which has few viable options, comes under fire, leading to early elections.

# The housing crisis is prolonged as investors look past the "new home formation" myth. While economists currently anticipate a spike in housing demand as the inventory of unsold homes should meaningfully shrink, they will eventually trim their rosy expectations as the weak economy leads many twentysomethings to stay with their parents. As a result, the percentage of people owning their homes falls more than 400 basis points from the recent peak, to below 64%. Offsetting this, very low mortgage rates stimulate rising demand from creditworthy buyers, which frees up savings by refinancing at lower rates.

# Community college enrollment soars. Many cash-strapped parents conclude that they should save money by asking their kids to start at a local two-year school before transferring to universities after the first or second year. Enrollment at many major universities falls, leading to cash flow pressures and service cutbacks.

# The biotech industry reaches a crisis point. Many promising biotech drug trials are trimmed or halted as the companies move to conserve remaining cash. M&A and joint venture funding provides a lifeline to the most promising later-stage drugs, but earlier-stage speculative drug development grinds to a crawl. A large drug company, such as Merck or Pfizer , chooses to change its business model and deploy its strong balance sheet to aggressively build biotech pipelines.

# Exogenous shock leads to capitulation. An unforeseen jolt to the market, such as a terrorist event or a natural disaster, leads to a sharp selloff, allowing many to finally and correctly call a market bottom. The next bull market begins. By the end of 2009, investors flock to small caps, as they have done near the end of previous downturns.

The Worst Predictions About 2008

By Peter Coy

Here are some of the worst predictions that were made about 2008. Savor them -- a crop like this doesn't come along every year.

1. "A very powerful and durable rally is in the works. But it may need another couple of days to lift off. Hold the fort and keep the faith!" -- Richard Band, editor, Profitable Investing Letter, Mar. 27, 2008

At the time of the prediction, the Dow Jones industrial average was at 12,300. By late December it was at 8,500.

2. AIG (NYSE:AIG - News) "could have huge gains in the second quarter." -- Bijan Moazami, analyst, Friedman, Billings, Ramsey, May 9, 2008

AIG wound up losing $5 billion in that quarter and $25 billion in the next. It was taken over in September by the U.S. government, which will spend or lend $150 billion to keep it afloat.

3. "I think this is a case where Freddie Mac (NYSE:FRE - News) and Fannie Mae (NYSE:FNM - News) are fundamentally sound. They're not in danger of going under I think they are in good shape going forward." -- Barney Frank (D-Mass.), House Financial Services Committee chairman, July 14, 2008

Two months later, the government forced the mortgage giants into conservatorships and pledged to invest up to $100 billion in each.

4. "The market is in the process of correcting itself." -- President George W. Bush, in a Mar. 14, 2008 speech

For the rest of the year, the market kept correcting and correcting and correcting.

5. "No! No! No! Bear Stearns is not in trouble." -- Jim Cramer, CNBC commentator, Mar. 11, 2008

Five days later, JPMorgan Chase (NYSE:JPM - News) took over Bear Stearns with government help, nearly wiping out shareholders.

6. "Existing-Home Sales to Trend Up in 2008" -- Headline of a National Association of Realtors press release, Dec. 9, 2007

On Dec. 23, 2008, the group said November sales were running at an annual rate of 4.5 million -- down 11% from a year earlier -- in the worst housing slump since the Depression.

7. "I think you'll see (oil prices at) $150 a barrel by the end of the year" -- T. Boone Pickens, June 20, 2008

Oil was then around $135 a barrel. By late December it was below $40.

8. "I expect there will be some failures. I don't anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system." -- Ben Bernanke, Federal Reserve chairman, Feb. 28, 2008

In September, Washington Mutual became the largest financial institution in U.S. history to fail. Citigroup (NYSE:C - News) needed an even bigger rescue in November.

9. "In today's regulatory environment, it's virtually impossible to violate rules." -- Bernard Madoff, money manager, Oct. 20, 2007

About a year later, Madoff -- who once headed the Nasdaq Stock Market -- told investigators he had cost his investors $50 billion in an alleged Ponzi scheme.

10. A Bound Man: Why We Are Excited About Obama and Why He Can't Win, the title of a book by conservative commentator Shelby Steele, published on Dec. 4, 2007.

Mr. Steele, meet President-elect Barack Obama.

Saturday, 27 December 2008

No quick fix for mkt woes

STOCK markets around the world have plummeted with investors spooked by the credit crunch, a swelling rate of unemployment, and a slumping economy - and if the smart money is any indication, do not bet on a quick recovery.

The consensus from a survey of 16 fund managers by OCBC Wealth Management is that equity markets have not bottomed out yet.

Investors should also be prepared for more market weakness and volatility in the months ahead.

But if there is a silver lining, it is the possibility that markets could stage a recovery in the second half of next year if the global economy shows signs of improvement.

The fund managers polled included Aberdeen Asset Management, UBS Global Asset Management, HSBC Global Asset Management, Fortis Investments, Schroder Investment Management, DBS Asset Management and Lion Global Investors.

ING Investment Management warned that caution is 'best heeded' as risk aversion has risen to heights rarely seen before, while Prudential Asset Management has tipped global growth to 'likely remain very weak' next year.

Most fund managers were confident that the countries in the Asia ex-Japan region will emerge from the crisis stronger.

According to Aberdeen Asset Management, these countries enjoy 'strong fiscal positions' and have accumulated 'large foreign exchange reserves' over the years, which should help them weather the slowdown.

But some fund managers also favoured developed markets like the United States and Britain.

UBS Asset Management regards such markets as attractive as they are 'profiting the most from proactive and aggressive interest rate cuts'.

'If risk aversion remains high in the coming months, these developed markets may prove to be safer,' it said.

Thursday, 25 December 2008

How to Invest in 2009

The worst bear market since 1937-38 has crushed investors, top fund managers and market strategists. Here's why I still think it's time to hold your stocks -- or buy more.

By Steven Goldberg, Contributing Columnist,

There has been no place to hide in this, the worst bear market since the 1930s. Precious metals, oil and gas, real estate, foreign stocks, small stocks, large stocks-they have all been pummeled this year.

Some of the best fund managers of our time have had their heads handed to them. Most notably, Bill Miller, manager of Legg Mason Value Trust (symbol LMVTX), which beat Standard & Poor's 500-stock index a record 15 years in a row, has lost 57% through December. 22. Longleaf Partners (LLPFX), one of the most storied value funds, has plunged 47% over the same period. Dodge & Cox Stock (DODGX), another value fund with a very long and very good record, is down 40%.

What did the managers of these funds do wrong? I think they became too conditioned to buy the dips. Buying stocks that are tremendously out of favor with most investors-stocks that look cheap -- has long been perhaps the most successful strategy in investing. But it didn't work this year -- certainly not with companies such as Fannie Mae, Freddie Mac, Lehman Brothers and Washington Mutual either failing or coming close to doing so.

Similarly, some of the best market strategists have been dead wrong. Steve Leuthold, who heads the Leuthold Group, a Minneapolis-based investment- research firm, has been a top market prognosticator for half a century. But he turned bullish this year, just as the market began its freefall. Like Leuthold, Sam Stovall, chief investment strategist at Standard & Poor's, spends a lot of time looking at market history in making his predictions. He, too, turned bullish when he should have shouted "Sell!"

I haven't been a hero to my readers this year either. I thought the market had hit bottom several times -- when it was just beginning to fall further. As the market fell more, I became increasingly sure that prosperity for stock investors was just around the corner.

What went wrong? Historically, when investors are panicked and the Federal Reserve is aggressively lowering interest rates, the market is ready to turn back up after an average bear-market loss of about 31%.

But there has been nothing average about this bear market. At its worst, so far, the market has plummeted 52%. The last bear market that bad was in 1937-38, and the only one appreciably worse than the current one was-you guessed it-1929-1932, when stocks plunged 89%.

Why is this market so much worse than the previous ones? Here, the answer is simple: The financial crisis and the recession, which is still deepening, turned out to be far worse than most experts anticipated. Almost all mainstream economists still think it's extremely unlikely that the U.S. economy will experience anything like the Great Depression this time around, but the current recession looks worse than any since World War II.

What should investors do now? I say, you have to keep investing. Stocks are cheap, the mood among investors could hardly be blacker, and the Federal Reserve states it's willing to do anything it can to fix the financial system.

We're now most of the way through the worst decade for stocks in the past 100 years -- including the Great Depression. On March 24, 2000, the S&P 500 stood at 1,527. The S&P closed December 23 at 872. That's a loss of 43%.

The darkest hour in stocks usually is just before the dawn. Bear markets typically end in gloom -- and high volatility. I'd rather be a buyer of the S&P at 872 than at 1,527 -- when investors were wildly exuberant -- or, for that matter arrives, it will do so without anyone firing a starting gun -- and stocks will likely rise far and fast. That's what usually happens at the end of bear markets, especially severe ones. Not that I know when this most severe bear market will end.

Steven T. Goldberg (bio) is an investment adviser and freelance writer.

What to Do When Layoffs Loom

By Elizabeth Brokamp

The possibility of layoffs is very real for a lot of households this year, with some sources estimating that unemployment could reach 10% this year. The sooner you start showing your boss that you're indispensable, the better chance you have of hanging on to your job if tough times hit your place of employment.

Here are some of the things that smart employees do to keep themselves relevant on the job:

* Act as if your job is always on the line, even if you're still on the company payroll. Strive to make yourself more valuable -- not just to your current employer, but to any potential employers you'll need to win over in the future.

* Imagine yourself interviewing for a new position. Can you point to specific ways in which you've improved your skills and grown on the job? If so, keep up the good work.

* Document your own accomplishments. Update your resume regularly to reflect your ever-increasing skills on the job -- you can use this during your performance review and salary negotiations now, or for finding other employment quickly, should the worst happen.

If, however, you've been coasting in your current position, it's time to take some initiative. Try these surefire ways to increase your value as an employee:

* Work while you're at work. According to a Gallup poll, most of us spend an average of 75 minutes a day using our office computers for activities other than work. Online shopping, online gaming, and personal email are just a few of the ways we waste our employer's time, to the tune of a more than $6,000 loss in productivity per employee per year. Do yourself (and your boss) a favor, and keep the other activities to a minimum.

* Hit the books. Take continuing-education credits at your local community college, enhance your computer skills with an advanced course relevant to your work, or look for weekend workshops that target a developing skill related to your job. Your employer may even have a program to help defray the costs. Take advantage of these paid continuing-education opportunities; ironically, it might be your old employer who writes your ticket (via updated job skills) to a fabulous new job.

* Be visible. Perception can be everything. You can be a productive, highly skilled employee, but if you continually skip companywide events or staff meetings, others may perceive you as slacking off. Make sure you attend functions where your presence will indicate commitment, arrive at meetings on time, and volunteer for tasks that will raise your profile in the larger organization.

* Look like you care. "Dress for success" means different things across different work cultures, of course, but there are always limits. Your work may not require that you wear a suit every day, but regardless, make an effort to look well-groomed, up-to-date, and ready to assume your supervisor's job.

* Communicate your ambition. Ask your supervisor what you need to do to progress in the company. Overtly expressing your ambition is the first step in setting high expectations; be ready to spring into action after that. Your supervisor may hand you extra challenges and responsibilities; these are your opportunities to differentiate yourself from the pack.

Even if you are never faced with a layoff, acting "as if" can enhance your value as an employee. Who knows? It might even win you a promotion.

This article was originally published in August 2007. It has been updated.

Fool contributor Elizabeth Brokamp is a licensed professional counselor who talks money with her honey, Robert Brokamp, editor of The Motley Fool's Rule Your Retirement newsletter service. The Motley Fool has a disclosure policy.

China sees challenges ahead

BEIJING - CHINA'S top economic planner warned on Wednesday that the global economic crisis would pose great challenges for China, as he urged the government to fine tune its large-scale stimulus plan.

'We are confronted with great challenges resulting from a dramatic change in the world economic and financial situation,' Zhang Ping, head of the National Development and Reform Commission, China's planning agency, told parliament.

'If we are unable to properly deal with the difficulties, we might be faced with grave risks in failing to realise our strategic goals in economic and social development.'

In the remarks carried by the official Xinhua news agency, Mr Zhang was referring to the government's hope to maintain fast-paced and sustainable growth to ensure employment for its huge population of 1.3 billion people.

The economic planner told parliament that since the third quarter the impact of the global meltdown had spread from China's coastal regions to its inland areas and from export-oriented industries to other sectors.

Along with slowing third quarter growth, investment demand had weakened and industries were facing falling revenues and lower profits, he said.

The government's announced $846-billion stimulus package aimed at stimulating domestic consumption was a good start, he said, but needed to be carefully targeted.

'Detailed plans on expansion of domestic demand over the next two years should be formulated as soon as possible,' Mr Zhang said. 'Measures to maintain stable export growth should be formed without delay.'

China's economic growth slowed to 9.0 per cent in the third quarter of this year as global financial woes started taking a toll, prompting the government to announce the stimulus package.

As a result of the slowdown, growth in the world's fourth-largest economy weakened to 9.9 per cent over the first three quarters of the year.

'Sustainable development should be emphasized by promoting energy conservation and emission reduction,' Mr Zhang said, referring to another strategic goal.

'Employment should be a priority in the government agenda over the next two years,' especially the employment of migrant workers, some who have already lost their jobs due to the economic slowdown, he said. -- AFP

UAE may see massive layoffs

DUBAI - UP to 45 per cent of the construction workforce in the United Arab Emirates could be laid off, with thousands already having lost their jobs due to the global financial crisis, a report said on Wednesday.

The Khaleej Times newspaper quoted Khalfan Al-Kaabi, a member of the board of directors at Abu Dhabi Chamber of Commerce, as saying the job cuts would occur in the new year if private sector projects in the UAE are delayed or cancelled.

'It is only but natural for the industry to cut those jobs,' Mr Khalfan told the paper.

The report said that thousands of workers have applied to the ministry of labour to finalise the termination of their contracts. The ministry said it is quickly processing those applications to enable the workers to look for new jobs.

In the UAE taking a new job is only possible when the old contract is terminated.

The report said most of those laid off are South Asians employed by companies in the booming city-state Dubai where property development has been badly hit by the credit crunch.

Emaar, the property group behind Burj Dubai, the tallest building on earth at around 700 metres (2,296 feet), has seen its share price plunge 80 per cent this year to stand at its lowest level since its listing eight years ago.

Rival Dubai developer Nakheel, promoter of several iconic schemes like three palm-shaped artificial islands, said last month it had decided to scale back its work and cut 500 jobs, or 15 per cent of its workforce. -- AFP

Wednesday, 24 December 2008

US economy shrinks as IMF warns of Great Depression

LONDON (AFP) - - The US economy shrank by 0.5 percent in the third quarter, official data showed on Tuesday as Britain edged ever closer to a recession and the IMF's top economist warned of a second Great Depression.

The abrupt contraction of gross domestic product (GDP) in the world's largest economy, confirming a first estimate, was seen by analysts as marking the start of a steep downturn for the United States after GPD growth of 2.8 percent in the second quarter.

Britain's economy also shrank by 0.6 percent in the three months to September compared to the previous quarter, against a previous estimate of 0.5-percent contraction, the Office for National Statistics said.

Britain and the United States will be in recession if their economies contract again in the fourth quarter, according to the traditional definition of a recession as two consecutive quarters of negative economic growth.

The IMF's top economist, Olivier Blanchard, warned governments around the world should boost domestic demand in order to avoid a Great Depression similar to the downturn that shook the world in the 1930s.

"Consumer and business confidence indexes have never fallen so far since they began. The coming months will be very bad," Blanchard said in an interview with the French newspaper Le Monde.

"It is imperative to stifle this loss of confidence, to restart household consumption, if we want to prevent this recession developing into a Great Depression," he added.

New data out in France offered some respite from the gloom, however, showing that household consumption of manufactured goods -- a key growth indicator -- rallied 0.3 percent last month after slumping in October.

"It is a first small Christmas present for the French economy," said Alexander Law, an economist at the Xerfi research centre in Paris.

But in Italy, retail sales figures went down 0.3 percent in October.

Denmark's economy contracted 0.4 percent in the third quarter and the Dutch economy showed zero growth, official data showed. Finland's unemployment rate rose to 6.0 percent in November from 5.8 percent a month earlier.

Elsewhere in Europe, the Polish central bank cut its key lending rate by 75 basis points to 5.00 percent, following a further cut in interest rates in Hungary on Monday by half a percentage to 10.0 percent.

The European Central Bank issued some heartening pre-Christmas data showing that the eurozone's current account deficit narrowed to 6.4 billion euros (9.0 billion dollars) in October from 8.8 billion euros in September.

News of weakening growth sent the British pound sliding under 1.0550 euros, nearing a record low of 1.0463 reached last week, as dealers bet on more interest rate cuts from the Bank of England and forecast parity with the euro.

The dollar also drifted lower against the euro and the yen in muted trading conditions ahead of the Christmas holidays. In late morning trading, the euro firmed to 1.3959 dollars, from 1.3944 dollars in New York late on Monday.

European stocks rose in early afternoon trading after the announcement of US GDP figures, with the FTSE 100 index in London up 0.80 percent, the Frankfurt Dax up 0.89 percent and the CAC 40 in Paris up 0.51 percent.

Asian stocks closed mostly down, with the Hong Kong stock market shedding 2.8 percent and Shanghai sinking 4.55 percent as a smaller-than-expected Chinese interest rate cut failed to boost market sentiment.

Oil prices also fell further to below 40 dollars a barrel in Asian trade, with New York's main futures contract, light sweet crude for delivery in February, shedding eight cents to 39.83 dollars a barrel.

The contract had fallen to 39.91 dollars in New York on Monday.

Energy analysts were also keeping a close eye on a meeting of key world gas exporters in Moscow amid fears of a "gas OPEC" similar to the Vienna-based oil cartel that could raise natural gas prices.

In a keynote speech, Russian Prime Minister Vladimir Putin told the conference that the "era of cheap gas" for consumers was coming to an end because of the expense of developing new fields.

Venezuelan Energy Minister Rafael Ramirez said: "We see in this forum an opportunity to build a solid organisation, which has in its foundation the same principles that gave birth to OPEC."

Saturday, 20 December 2008

Bleak outlook for construction

THE construction sector in South-East Asia and Hong Kong faces bleak times next year, a new report by information provider BCI Asia has found.

The value of projects under construction in the region would contract by at least 16 per cent next year, and in a worst-case scenario, would shrink by a hefty 32 per cent - or about one-third.

The preliminary forecast is part of a major study on the construction industry due to be released next month.

'All the data indicates that construction spending in this region peaked in 2008. The value of projects at design and documentation phases has contracted two per cent this year and we have seen major projects abandoned for lack of finance,' said BCI Asia's managing director Thor Kerr.

'There will be far fewer new industrial facilities and utilities being constructed from 2009. As local economic conditions deteriorate further, developers will postpone the construction of new offices, hotels, recreation facilities and downtown retail centres,' he said.

BCI Asia reported that the value of projects under construction leapt from US$107 billion (S$155 billion) last year to US$140 billion this year. It estimates that this will decline to US$118 billion in 2009 in the best case scenario.

In the most pessimistic recession scenario, the value of the projects under construction would slump to US$96 billion.

Despite the grim predictions, some analysts say Singapore will not be as badly hit as the region as a whole.

Mr David Cohen of Action Economics said: 'I think the situation in Singapore would not be as severe. There is still a substantial backlog of projects to go through,' he said.

'The growth might slow down next year and we might see some job losses, but there would not be a major impact on the economy.'

Mr Cohen predicted that there would a contraction of under 5 per cent in the construction sector here next year.

Mr Ng Yek Meng, assistant secretary-general of the Singapore Contractors Association agreed that things were still looking stable for the year ahead.

'In general, the trend is that the construction industy is slowing down.

'But in the next one and a half years, most contractors should have enough jobs and work in hand. When they signed on for jobs in 2008, they signed two-year contracts,' he said.

'We also haven't seen any major retrenchments yet.'

He added that major construction projects such as that of the SMRT downtown line would continue to help boost the local industry.

But he warned of impending uncertainties for the industry in the year 2010, and after the two integrated resorts have been constructed and when contracts come to an end.

'After contractors have finished their jobs, there might be no new jobs and some might have to go overseas to search for new projects,' Mr Ng said.

'No one knows what's going to happen in the future for now.'

After 30 Years, Economic Perils on China’s Path

Published: December 18, 2008

SHENZHEN, China — The ruling Communist Party threw itself a big party on Thursday. The country’s leadership marked the 30th anniversary of the reform era that transformed China into a global economic power and, in doing so, changed the world.

At a triumphant ceremony at the Great Hall of the People in Beijing, President Hu Jintao invoked Deng Xiaoping, who consolidated power in 1978 and began “reform and opening.” Mr. Hu emphasized the party’s unwavering focus on economic development. “Only development makes sense,” said Mr. Hu, quoting Deng.

But beyond the oratory, Mr. Hu and other Chinese leaders are now facing a new era in which Deng’s export-led economic model, as well as his iron-fisted political control, face unprecedented challenges. Global demand for Chinese goods has slumped, unrest is on the rise in the industrial heartland, and China is scrambling for a new formula to preserve stability and ensure growth.

The downturn is so swift — exports fell last month for the first time in seven years — that Beijing is being forced to abruptly shift priorities. Until recently, Mr. Hu had been trying to curb excesses like rampant pollution and income inequality that posed environmental and social challenges to long-term development. Now, those priorities seem eclipsed.

Instead, leaders are restoring tax breaks for exporters and pushing down the value of China’s currency to encourage exports. At the same time, they are casting about for ways to spur domestic demand and wean China’s economy off its dependence on foreign markets swept up in the global financial crisis.

Politically, Chinese reformers had hoped the symbolic weight of the anniversary and the nation’s post-Olympic glow might propel some measure of political reform to address official corruption and help defuse rising social tensions.

But as Beijing worries about strikes and mass layoffs even in some of its most prosperous areas, official tolerance of political dissent has seemingly narrowed. This month, a prominent dissident was detained after writing an open letter calling for greater democracy. An editor at one of the country’s leading newspapers was reassigned after publishing articles deemed too politically provocative. “We must draw on the benefits of humankind’s political civilization,” Mr. Hu said in his Thursday speech, according to Reuters. “But we will never copy the model of the Western political system.”

If any place symbolizes China’s reform era, it is Shenzhen, a city conceived from Deng’s imagination — and one now in the cross hairs of the economic downturn. Thursday’s celebration was timed to a 1978 political meeting, the Third Plenum, which anointed Deng as China’s leader and introduced “reform and opening.” Two years later, Deng pointed at a sleepy fishing village in coastal southern China, near Hong Kong, and ordained it the country’s first “special economic zone” to experiment with foreign investment and export manufacturing. Today, Shenzhen is a city of more than 10 million people ringed by thousands of factories.

A factory district just outside Shenzhen, Fuqiao Industrial Park, is a snapshot of the economic troubles rippling through the region. Several small factories in the park have closed in recent months. At Wang Jinda Industries, the lettering had been scraped off the entrance after the owner closed last week. Two customers had arrived for a shipment of goods only to find an empty factory.

Meanwhile, some factories that remained open were struggling. Workers at a large printing factory said the owners had stopped recruiting new workers in September while many others had quit. Several workers said wages had dropped significantly as the owners were reducing the length of shifts. A few workers accused owners of deliberately trying to drive down wages to force workers to quit. “Everybody is worried,” said Lin Baozeng, 26, a cashier at a canteen inside the industrial park. Her daily lunch crowd has dwindled to about 100 migrant workers from 500.

“If the economy is bad,” Ms. Lin added as her 3-year-old daughter played nearby, “how can I afford to raise my child?”

As yet, gauging the scale of factory closings remains difficult in Shenzhen and surrounding Guangdong Province, the country’s main export engine. Guangdong was already making a concerted effort to move up the manufacturing value chain at a time when rising labor costs and greater government regulations were making some smaller, cheaper exporters unprofitable. But the recent export slowdown is having an unanticipated impact. More than 7,000 small- and medium-sized factories have closed in recent months. Shenzhen’s mayor said 50,000 people in the city alone had lost their jobs in the last few months.

And there are mounting signs that the problems could be far broader. Over all, China’s economy will continue to expand next year, but some economists say the rate of growth could fall as low as 5 or 6 percent, far slower than the double-digit pace of the preceding several years.

State media have reported that 4.85 million migrant workers have returned to the countryside early before next month’s annual Lunar New Year holiday. Some inland provinces have already announced subsidies for unemployed returnees. On Thursday, the country’s official news agency, Xinhua, reported that 6.5 million migrant workers may be jobless next year.

Beijing has recently restored some export subsidies that had been repealed as part of earlier efforts to rebalance the economy toward domestic demand. Huang Yasheng, a management professor at the Massachusetts Institute of Technology, said such subsidies made short-term political sense, given the huge numbers of jobs provided by factories, but did not address China’s long-term economic challenges. “I see the export supports as a crisis measure,” Mr. Huang said. “They really have no other way to maintain employment.”

Mr. Huang said the government’s focus on exports and expanding the role of state-owned corporations since the 1990s had meant too little of the country’s wealth had trickled down to ordinary people. He said household incomes had lagged well behind overall growth, meaning that hundreds of millions of ordinary people still had relatively little spending money — a major problem when the government is trying to rapidly increase domestic consumption. “It’s a huge challenge,” said Mr. Huang, author of a recent book, “Capitalism with Chinese Characteristics.”

China’s immediate answer is a stimulus program focused on infrastructure like railways and ports. State-owned banks are being ordered to make credit easily available, and business taxes on real estate sales were waived this week. Such steps may be crucial to buttressing the Chinese economy and preventing a deeper global recession. Yet some Chinese officials are wary of the potential impact of another phase of state-led industrial development.

The government stimulus program enacted in response to the 1997-98 Asian financial crisis enabled China to avoid the recessions suffered by neighboring nations. Yet it also propelled the enormous investment in heavy industry that is a major reason China is now the world’s largest emitter of greenhouse gases.

In an opinion article in the online edition of People’s Daily, Pan Yue, the outspoken vice minister of the Ministry of Environment, blamed Western excess for the global crisis and warned that China risked ruin if it blindly pursued Western industrial models.

“China’s reform and opening has achieved in 30 years the economic gains of more than 100 years in the West — yet more than 100 years of environmental pollution in the West have materialized in 30 years in China,” Mr. Pan wrote. “The present global economic crisis shows that if China continues down the old road of Western industrial civilization, it will only come to a dead end.”

China is a far more open and dynamic place than the country Deng first unleashed three decades ago. Much of that change has come from ordinary people pushing for more space in society, just as much of China’s economic success has come from the entrepreneurial energy and hard work of its work force. Yet Communist Party leaders have been careful to hoard political power: independent unions and political opposition remain illegal.

Earlier this year, Shenzhen’s leaders seemed eager to position the city as a pioneer of political reform. Shenzhen officials published a reform plan that advocated some local elections and greater leeway for local legislatures and courts to make decisions. But those plans, later tempered by provincial leaders, now seem derailed as officials are focused on maintaining social stability.

Some influential Chinese say more should be done. Yu Keping, a scholar at a leading Communist Party research institute who has advised top leaders, published essays this week in leading Chinese newspapers about the need for greater democratization to combat corruption.

In an interview with The New York Times, Mr. Yu called for “breakthrough reform.” But he also said that change must come incrementally, given the need for social stability, with an initial emphasis on better governing and rule of law. “We need to promote democratization in China,” Mr. Yu said. “On the other hand, we need to promote social stability. If we had an election right now, we might end up like Thailand.”

In fact, the limited momentum toward modest political change could well be sidelined by economic problems, some experts say. “A real huge question is how the economic downturn is going to affect any sort of political reform,” said Joseph Fewsmith, a Boston University professor who studies Chinese politics. He said officials might deliberately slow efforts to carry out a new rural land reform law approved this fall to grant farmers the ability to transfer their land rights.

“People worried about social stability are going to proceed very, very slowly,” Mr. Fewsmith said.

Global economy seen sinking into 'severe' 2009 recession: report

TOKYO (AFP) - - A major banking group warned the global economy will sink into "severe" recession next year as Japan's battle to stave off a prolonged contraction was Friday hit by predictions of zero growth into 2010.

The Japanese cabinet approved the country's first zero growth forecast in real terms in seven years, which came as the central bank continued a two-day meeting to consider slashing interest rates to rock-bottom.

With the world's second largest economy battered by slumps in domestic demand and exports, the Washington-based Institute of International Finance (IIF) said the global economy would shrink 0.4 percent in 2009, after 2.0 percent growth this year.

Charles Dallara, managing director of the IIF -- which represents more than 375 of the world's major banks and financial institutions -- called it "the most severe, globally synchronised recession in modern economic history".

The global crisis requires a global coordinated response, he said at a news conference.

Dallara said the economy was mired in a negative feedback loop of weakening economic activity and intense financial market strains.

"You'll see much more bang for the buck" with a coordinated response, he said, adding: "It will be important that these measures be complemented in Europe and in Japan."

In a grim assessment, the IIF said in its monthly Global Economic Monitor report: "It should be emphasised that an overall contraction in the global economy is a truly weak outcome, and the first time this has happened in the post-1960 period."

Mature economies -- including the US, Britain the 15-nation eurozone and Japan -- that are now in recession were forecast to contract a hefty 1.4 percent amid the worst financial crisis since the Great Depression.

The US economy, the world's largest and the epicentre of the financial tsunami, would shrink 1.3 percent in 2009 after growth of 1.2 percent this year, according to the IIF projections.

The eurozone would contract by 1.5 percent from 0.9 percent growth, and Japan would shrink 1.2 percent after zero growth, the IIF said.

France, a part of the eurozone, said Friday it will sink recession next year for the first time since 1993 while it also faces a steep rise in unemployment.

Tokyo share prices were down 1.10 percent by noon Friday following the zero growth forecast, though trade remained cautious ahead of the Bank of Japan decision on interest rate cuts.

Japanese news reports said auto giant Toyota is likely to suffer its first-ever operating loss in the year to March 2009 due to a stronger yen and a global industry slump

It would be Toyota's first operating loss since it began releasing earnings figures in 1941, the Nikkei business daily said.

The dollar bounced back from fresh 13-year lows against the yen, which retreated from earlier highs as investors debated whether rates will be cut from the already low 0.3 percent, dealers said.

By late morning, the dollar was at 89.48 yen, the same level as in New York late Thursday. It had fallen to as low as 87.16 Thursday.

The euro fell to 1.4228 dollars in Tokyo trade from 1.4268 in New York and to 127.30 yen from 127.70.

World crude prices held steady above 36 dollars on Friday, at their lowest levels in more than four years, as the OPEC oil cartel's announcement of a record 2.2 million barrels per day production cut failed to rally prices.

Meanwhile the United Nations Thursday warned countries struggling with the falling value of their currencies to resist hiking interest rates to prevent devaluations.

"Rising interest rates and falling government expenditure will only reinvite speculation and worsen matters in the real economy," said the UN Conference on Trade and Development (UNCTAD) in a policy newsletter.

UNCTAD cited Brazil, Hungary, Iceland, Romania and Turkey as countries facing devaluations.

Singapore says 10,000 homes bought via deferred payment

SINGAPORE, Dec 19 - Singapore said on Friday there were 10,450 uncompleted private homes purchased under the country's deferred payment scheme, revealing for the first time the potential number of homes that may be returned to developers.

About 4,560 of these homes are scheduled for completion next year while another 2,540 will be ready in 2010, the Urban Redevelopment Authority said in a statement.

Singapore introduced the deferred payment scheme in 1997 in a bid to boost the then-moribond property market. The scheme, which was withdrawn in 2007, allowed buyers to buy property under construction without lining up bank financing in advance so long as they made a downpayment of 10-20 percent.

The recent fall in Singapore home prices, coupled with the financial crisis that has made banks reluctant to lend, has led to concerns about a jump in the supply of unsold homes due to the failure of buyers to get loans.

"The data is provided to enable the public to make a better informed assessment of the private housing market," URA said.

Friday, 19 December 2008

look at how the news headlines has changed from last year till now...

from optimistic, to denial, to fear, to acceptance...

'Worldwide problem' in '09

WORLD Bank president Robert Zoellick has warned that the global economic slowdown will weigh on Asia well into the first half of next year.

'I'm afraid that the first six months of 2009 are going to be a problem worldwide, including in Asia and South-east Asia,' said Mr Zoellick on Thursday.

'This is a region that has gained enormously from international trade, and it will feel some of the dangers from the slowdown and actual decline that we're now forecasting in international trade for next year.'

Even in China, leaders who had expected to see a decline in growth were 'struck by the sharpness and the depth of the fall off in exports', Mr Zoellick said. China reported last week that exports fell last month for the first time in seven years.

'We've gone from a financial crisis to an economic crisis, and in early 2009 we'll see an unemployment crisis,' he added, paraphrasing Australian prime minister Kevin Rudd.

Whether the downturn will persist beyond the first half of next year depends on the policy actions now being taken by governments around the world, said Mr Zoellick.

So far, 'no one has a very good prediction for the length and depth of this crisis'.

But the positive news is that countries have acted in a 'co-operative fashion' as they come to the realisation that this is 'a global crisis and it will take global solutions'.

However, there is a danger that government actions to stimulate growth could lead to a trend of protectionism.

'The biggest concern that I have at this point is that some of the second-order ripple effects of various policy actions could lead to other actions by governments that might pull away from cooperation,' he said.

Calling the difficulties in the seven-year Doha round of trade talks 'particularly unfortunate', Mr Zoellick urged governments to 'stay on the offence on trade because protectionist forces will raise their head'.

Mr Zoellick was in town on Thursday to sign a memorandum of understanding with Singapore foreign minister George Yeo. Singapore will collaborate with the World Bank to lend its expertise in urban management to developing countries.

After the signing, Mr Zoellick participated in a dialogue hosted by the Lee Kuan Yew School of Public Policy, where he discussed issues such as common criticisms of the World Bank and the possibility of a shared Asian currency.

He also said he 'never believed in the decoupling logic', but that he believes in 'multiple poles of growth'.

As recently as 1992, no one thought China and India would be growth drivers, he said. 'One of our challenges in the World Bank would also be, can we help Africa become a pole of growth?'

The dialogue was held at the National University of Singapore's Bukit Timah campus, and attended by about 300 people, including Ambassador-at-large Tommy Koh and the Monetary Authority of Singapore's assistant managing director, Dr Khor Hoe Ee.

Thursday, 18 December 2008

Singapore economy worsens

Singapore's economy continued to worsen as the new year approaches. Everything from shipping to air traffic is slowing down, wage cuts are being planned, and layoffs are expected to increase significantly.

Singapore to convene wage council, may cut pensions
Kevin Lim

Singapore will convene its National Wages Council (NWC) in early January, four months ahead of schedule, in what economists say may be a prelude to a cut in employers' pension contributions.

"Given the weakening economic situation, there is a need for the NWC to take stock of the new situation and review its May guidelines to help companies and workers manage the downturn," the Manpower Ministry said in a statement on Tuesday.

The ministry did not immediately respond to questions about the detailed agenda for the NWC's January meeting.

"At the last crisis, they cut the CPF (Central Provident Fund) and I won't be surprised if they did it again," said Joseph Tan, Singapore-based Asia chief economist for private banking at Credit Suisse.

"Between cutting wages and letting people go, the government's preference is to keep jobs."

The government last cut employers' contributions to the CPF, the retirement fund for Singaporean workers, by 3 percentage points to 13 percent in October 2003 to help firms cope with the effects of the SARS outbreak.

The NWC, which comprises representatives from government, employers and unions, usually meets in May to come out with wage guidelines for the following 12 months.

The cuts were partially restored last year and the employers' contribution rate currently stands at 14.5 percent on the first S$4,500 ($3,049) of an employee's monthly salary.

Singapore fell into a recession in the third quarter and the government has warned that the economy may shrink by one percent next year.

Singapore's labour market shows signs of softening: govt
Antara News

Singapore's labour market has showed signs of softening as a result of the global economic downturn, according to the republic's Manpower Ministry.

It said Monday that total employment grew by 55,700 in the third quarter but lower than the growth in the second quarter which was 71,400.

The figure was even lower than that recorded a year ago which was 58,600. Overall unemployment rate remained at a seasonally adjusted 2.2 per cent in September 2008, unchanged from June 2008.

Singapore reports fall in shipping traffic
John Burton
Financial Times

Singapore, the world’s biggest container port, suffered last month its first fall in throughput traffic since 2001 due to a slowdown in global exports that has affected the Asian shipping industry.

Container traffic shrunk by 1.5 per cent in November from a year ago to 2.29m twenty-foot equivalent units (TEUs), the standard industry measurement, Singapore’s Maritime and Port Authority said. Monthly traffic volume has been slowing since July, although total shipments have increased by 9 per cent to 27.8m TEUs through November from a year ago.

PSA, Singapore’s biggest port operator, reported separately that container traffic expanded by 8.8 per cent during the first 11 months of this year, including an 8.9 per cent rise in November from October. The downturn appeared to be most severe at Jurong Port, the country’s secondary port operator, although it did not provide data for November.

A slowdown in the city-state’s container traffic had been expected after Neptune Orient Lines, the Singapore state-owned shipping operator, recently announced that it was cutting capacity by up to 25 per cent on its routes to Europe and North America.

Shipping rates for the Asia-Europe route also have fallen sharply by as much as 90 per cent due to the contraction in global trade.

Singapore's Keppel to scrap 140 mln euro contract
Kevin Lim

Singapore's Keppel Corp said on Tuesday it has decided to terminate a project to build a floating heavy lifter worth 140 million euros.

The Singapore firm said it had ceased work on the lifter after MPU Offshore Lift ASA, the firm that contracted the project, filed for bankruptcy in July 2008.

The storm ahead

Han Ming Wen
Guest Writer

There is a financial tsunami coming. It is slowly picking up speed and power. It will be devastating.

Of utter concern to us are the effects of the international crisis on Singapore. What is in store for us in the next 3 to 5 years (this is probably how long the U-shape recession will last)?

The Government may not be able to stimulate the economy on infrastructure projects anymore. Firstly, there are already too many white elephants around like the airport (especially T3), esplanade, "country" clubs (Safra, police, and grass roots ones) just to name a few.

Secondly, as a little red dot, there is only so much space that we can build things on before inefficiency sets in.

Singapore will have to be realistic or in our local army lingo: "We have to wake up our ideas!" To see Singapore through the next 5 years, we too need reforms like the rest of the world.

On the economic front

We have to wake up to the fact that we are a small geographic entity. We should not try to be a big world player when we are not. No matter how we try to present the figures our economy is at most a $220-billion one, peanuts by world standards. But small as we are we can still be a success without going down the road of financial dubiousness. How do we do this?

First, reduce cost of doing business even before we try to pick winners in the various industries. This is of great significance because whatever industries we target, business costs in Singapore is way out of proportion which makes doing business here rather difficult especially for the little players. We need to reduce costs and here are some of ways we can do it:

Reduce the myriad of taxes. Just check your utilities and vehicle taxes and you will see one layer of tax piled on top of another. In the utilities bill there is the water borne fee, sanitary appliance fee (have you ever wondered why we are paying $3 a month just to use your own toilet bowl?), water conservation tax, and the GST. For motorists you have the road tax, registration tax, ad valorem, radio licence fee and, of course, the ERP.

Is it any wonder that we have the highest public debt (as a percentage of the GDP) in the world?

Price in real cost, not inflated cost. For instance, if we are generating electricity from natural gas, then the cost base should be that of natural gas, not crude oil. Another example: Price in real cost for HDB flats, not inflate costs such as factoring in opportunity costs and buying land at "market rate". Why can't the Government base HDB prices on acquired prices which is the real cost paid.

Slash ministers' salaries and benefits. As a guide, the prime minister's salary should not be 6 times more than that of the US President's. Rather it should be 1/6 given the size and performance of our economy.

Second, the Government should withdraw from basic captive, domestic business. In many developed and semi-developed countries, retail businesses are in the hands of the people. Foreigners are not allowed to be in retail business unless they are multi-million dollar investments, with the size of these investments varying from country to country. In Singapore the NTUC seems to be in on every business -- even, some say, the coffin business. Small- and medium-sized private retail enterprises can only increase efficiency and spread the economic pie across a broader section of the local population.

Every country protects its private retail business except Singapore. Old arguments of international competition clobbering local entrepreneurs because of globalisation does not hold anymore. If Malaysia, Indonesia, the Philippines and even China can successfully keep their retail sector for their citizens, why can't Singapore?

Yet, with this grossly unfair advantage NTUC Fairprice is no more efficient than Cold Storage or Sheng Shiong. After so many years, it still operates only in Singapore. Is there an NTUC Fairprice Malaysia or NTUC Fairprice China? There may have been some justification in the past to have an NTUC Fairprice. Not anymore, especially in the current economic context. Return the sector of the retail trade to the people. We must reform.

On the political front

Political reforms are urgently needed. We need a more open society. Singaporeans have the Internet these days making media control irrelevant. The Government should come clean about what lies ahead in these disastrous times. Abraham Lincoln once said, "You can fool all of the people some of the time, and you can fool some of the all of the time but you cannot fool all the people all of the time."

In the past, people used to believe the PAP. Then, Mr Goh Keng Swee told it like it was when the British pulled out and Singaporeans responded, rallied around the Government and worked hard to overcome the difficulties.

Nowadays, because of its spin and unaccountability, people have become wary. As much as the government tries to paint a Utopian Singapore, only it believes its own propaganda.
If the Government believes that it has been doing right and that Singaporeans have not been short changed, then there is nothing to fear. In fact more will be gained by having an open society.

On the social front

For Singapore, the real asset is the populace. We need to stimulate creativity and encourage individualism. With an open society, Singaporeans will take care of Singapore. There won't be a need to buy transient sportsmen, there won't be a need to buy transient talent (whose talent is debatable in the first place), and there won't be a need to label foreign entrepreneurs as Singaporeans.

Perhaps the Government has not heard of Finland -- a country of 3 million, home of Nokia, Nobel laureates, Olympic champions, and a caring social service that few in the world can match.

Perhaps, too, the Government doesn't know about local folk heroes like Tan Howe Liang, our only Olympic silver medalist, and business tycoons like the Haw Par brothers, Tan Kah Kee, Lee Kong Chian, Tan Lark Sye, Sim Wong Hoo. These people helped build up Singapore and put Singapore on the map without the PAP's authoritarian help.

Going back to Singapore's history the British had left us a working and efficient civil service, including several institutions that we have today like the present-day Kepple Corp and Sembawang Corp. The British also gave us the English language that has helped us through the years. Last but not least, we have the all-important geographical location and a deep harbour.

These were the foundations of Singapore's economic pillars. PAP has taken away the credit of hardworking Singaporeans and claimed all the glory for itself. It has stifled the creative pioneering spirit and motivation that Singaporeans always had.

Remember that even before the PAP came into power, Singapore had always been ahead and more developed than our neighbours, be it Kuala Lumpur, Bangkok, or Jakarta. It is time to tap the potential of Singaporeans again. It doesn't make sense to oppress locals and stifle their creativity, and then turn to foreigners to build up our country.

Silencing voices of Singaporeans only feeds the denial syndrome of the powers that be. The authoritarian system has achieved little, and at a great cost to the future development of the country.

The present situation is like playing musical chairs. While the music is playing everything seems fine and there is much fun and laughter. But when the music stops, like the present time, some will be left standing with nothing to fall back. When the music starts playing again, we've got to make sure that it's not same tune.

Mr Han Ming Wen is a financial analyst and trader. He contributed the article to this website.

Grim '09 for venture capitalists

SAN FRANCISCO - THE coming year threatens to challenge the survival skills of startups and venture capital firms alike, but superstars may rise in 2010 from the world's scorched economic landscape.

Such was the sentiment reflected on Wednesday in the results of an annual 'predictions survey' of members of the National Venture Capital Association.

A survey of some 400 US venture capitalists (VCs) between November 24 and December 12 revealed that most expect Darwinian forces to be brutal for fledgling businesses and their investors in the coming year.

'We think things will be better in 2010 after a very rotten 2009,' said association president Mark Heeson.

'The operative word is 'survive'.

'Venture capitalists in general think 2010 will be an important year in that there will be many phoenixes rising from the ashes of 2009.' Investors see startups in clean fuel and biotechnology industries poised for starring roles in the evolving global economy.

For the coming year, though, investment in startups is expected to wane as venture capitalists channel more cash to supporting young companies they are already backing.

Venture capitalists typically get returns on their investments, and free up cash to put into new enterprises, when startups go public with stock offerings.

The market for initial public offerings is among the victims of the financial crisis.

Only six US companies have gone public this year as compared with 86 doing so in 2007, according to Mr Heeson.

Ninety-two per cent of the surveyed venture capitalists predict investment will slow by 10 per cent or more in 2009, dropping from the $30 billion annual figure of recent years to below $27 billion.

More than half of the VCs, however, expect to invest as much next year as they have this year, the survey shows.

Shrewd VCs realise that tough economic times have proven to give birth to winning companies, according to Mr Heeson.

'Entrepreneurs out in a difficult time are not tourists,' Mr Heeson said.

'These are driven individuals who believe strongly in their ideas and are extremely disciplined. These folks do get funding. Some of the best companies around are funded at the real low points in our economy.'

The consensus among VCs is strong that investment next year will tank in the hard-hit semiconductor, media, and wireless communications industries.

VCs predict the slowdown in investment will be global, with the outlook particularly grim for Europe.

'2009 will be a year of anticipation for the venture capital industry as the economic turmoil will engender a fair amount of Darwinian change,' Heeson said.

'The recession and shuttered IPO market will place tremendous pressure on portfolio companies to tighten their belts and re-tool. That said ... there is no recession on innovation and great ideas will still get funded.' -- AFP

Nov key exports fall 17.5%

SINGAPORE'S exports last month suffered their deepest plunge in almost seven years, signalling that the economy could shrink again in the fourth quarter.
Non-oil domestic exports dived for the seventh month in a row, down 17.5 per cent on top of a 15 per cent drop in October.

The 'usual suspects' - electronics and pharmaceuticals, which together make up half of exports - were mainly to blame, said HSBC economist Prakriti Sofat.

Electronics shipments fell for the 20th straight month by 17 per cent, while drug exports logged their ninth consecutive drop, falling almost 50 per cent.

But the decline has now gone beyond specific sectors and markets.

Demand for exports sank across all of Singapore's top 10 markets and most of its products, according to data released by IE Singapore yesterday.

Even excluding electronics and pharmaceutical products, exports dropped by nearly 10 per cent, the worst in at least five years, said Ms Sofat.

Shipments to the United States, Europe and China - Singapore's three biggest markets - plummeted by almost 30 per cent on average.

For the rest of Asia, including Malaysia, Hong Kong, Indonesia and Japan, exports fell by about 20 per cent.

Emerging markets were the only bright spot. Exports to places like Latin America, North Africa and the Middle East jumped 41 per cent, after falling 18 per cent in October.

The weak export numbers come on the heels of other dismal economic indicators. Retail sales dipped in October by the most in six years, while industrial production data last month sank to a record low.

This 'reinforces the likelihood' that economic growth in the fourth quarter will stay negative, said Citigroup economist Kit Wei Zheng.

Singapore's economy shrank by 0.6 per cent in the third quarter over a year earlier, the first time it has done so since the Sars period in 2003.

Exports are likely to remain below water for at least the first half of next year, economists said. Businesses and consumers will continue to cut back on spending, as economies around the world struggle to get back on their feet.

The US purchasing managers' index for new factory orders, which leads Singapore's exports by about four months, is standing at its lowest level in 30 years, said Morgan Stanley economists.

'As a benchmark, in the 2001 cycle, exports contracted by as much as 31 per cent at the trough,' they noted.

Mr David Cohen of Action Economics also predicted that things 'will get a little worse first before they get better'.

'The recent export data out of Japan, China, Korea and Taiwan have all shown similar weakness, and with the global economy still deteriorating, the first quarter is certainly not going to be pretty.'

China, in particular, disappointed last week when its exports declined for the first time in seven years, illustrating its vulnerability to the global downturn.

So far, the anticipated boost from the pharmaceuticals sector has yet to materialise, Mr Cohen added.

'For exports and production in general, we continue to wait for a pick-up in the biomedical sector, but that remains a disappointment,' he said. Drugs output is supposed to help smoothen the vagaries of economic ups and downs as it follows its own production cycles.

The weakening Singapore dollar is unlikely to be enough to offset falling exports, and at best can provide only limited relief for exporters, said Citigroup's Mr Kit.

Economists do not expect further depreciation of the Singdollar to help exporters. 'The exchange rate is primarily a medium-term policy tool and ineffective as a short-term counter-cyclical measure,' said DBS economist Irvin Seah.

'The problem we face now is demand weakness, not uncompetitive pricing in exports. Even if we weaken the currency, any benefits are likely to be offset by continued sluggishness in demand.'

Mr Seah expects exports to shrink about 6 per cent this year, with a further contraction of 6.5 per cent next year.

The Government has said it expects exports to fall 5 to 7 per cent this year, and to range between -1 and 1 per cent next year.

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