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Sunday, 30 November 2008

China losing competitive edge

BEIJING - PRESIDENT Hu Jintao has warned China's economy is losing its competitive edge amid the ongoing global financial crisis, state media reported on Sunday.

Mr Hu made the downbeat remarks on Saturday at a meeting of the Communist Party's elite Political Bureau, according to party mouthpiece the People's Daily.

'There is a clear slowdown in global economic growth, with a marked weakening in external demand, and China is losing its competitive advantages,' he was quoted as saying.

'Global competition is intensifying and the pressure from protectionism is increasing.'

In October, China's export growth slowed to 19.2 per cent from 21.5 per cent in September.

'The global financial crisis continues to expand, and the external conditions facing our economy are getting more complex,' Mr Hu said, according to the paper.

'The impact of the global financial crisis on the Chinese economy continues to deepen.'

China's economy, the world's fourth-largest, expanded by 9.0 per cent in the third quarter, the lowest level in more than five years.

The World Bank said last week it expected the Chinese economy to grow by 9.2 per cent in 2008 before hitting a 19-year low of 7.5 per cent in 2009. -- AFP

Misconceptions About Investing

Surprise! Even your young adults don't know everything, and they could use guidance on when and where to invest -- especially in these tough times.
By Janet Bodnar

I recently wrote about a conversation I had with my 25-year-old son, John. John had just read a story in Kiplinger's Personal Finance about a young investor named Deirdre, also 25, who had amassed more than $100,000 in Vanguard index mutual funds. "How come you never told me about mutual funds?" he asked.

Having grown up with a mother who writes about kids and money, my children are accustomed to being the subjects of amusing anecdotes in this column. But one reader wasn't amused. "You've spent more than 15 years writing about kids and money and you apparently never told your son about mutual funds," wrote Rob from Knoxville, Tenn. "I almost found myself speechless."

Rob, let me explain. John and I had discussed mutual funds; in fact, his Roth IRA was invested in one of the same index funds as Deirdre's money.

John thought that because Deirdre had a much bigger balance, there was some gonzo fund that I had neglected to tell him about. The real difference was that Deirdre had been living at home with her parents and socking away more than 60% of her income during the bull market of the early 2000s.

John also thought that I had steered him wrong by suggesting he stash his money in an IRA, which was earmarked for retirement, instead of an investment he could tap more easily -- say, to pay for grad school.

That kicked off yet another mother-son discussion, in which I explained the benefits of a Roth IRA: John can get access to his contributions at any time, and he can even withdraw earnings to pay for education expenses without incurring a penalty.

The point is that even with 25-year-olds you have to take things one step at a time. Basic information goes a long way.

With the stock market in the tank, that point was brought home to me yet again when I told all three of my twentysomething kids that they should contribute to their IRAs. "Shouldn't I wait till the market starts going up?" John asked. Nope, I told him, buy now when stocks are on sale (see Start Investing in Three Simple Steps).

I did tell him I'd give him a pass this year because he's borrowing money to pay grad-school tuition. So I was surprised a couple of weeks ago when he informed me he'd kicked in $500 to his IRA after all.

Assuming that the stock market eventually snaps back to its historical average return of 10% a year, that tiny contribution of $500 will grow to $26,850 by the time John's ready to retire.

And I have no doubt that the lessons he continues to learn about saving and investing will make him a millionaire, perhaps several times over.

Buying a car? Read this

Drawn by lower car prices and certificate of entitlement (COE) rates at record-low levels, potential buyers have been flooding showrooms to check out their dream set of wheels.

The buying frenzy was ignited on Nov 19, when the COE premium for cars with engine size up to 1,600cc crashed to $2, a level never seen before.

Said Ms Helen Neo, head of consumer banking at Maybank Singapore: 'With the Category A (below 1,600cc) COE at a record low of $2, new cars are currently priced at attractive levels.

'Furthermore, with the sharp plunge in petrol prices to a 20-month low, it is definitively a good time to consider buying a car.'

How does a lower COE contribute to savings for the buyer?

The fall in COE to $2 from $10,455 early this month has led many car dealers to cut car prices by between $3,000 and $6,000 for the smaller-car segment.

For instance, car dealer Borneo Motors has cut prices by up to $6,000, bringing its cheapest model, the Toyota Vios, to below $44,000.

Honda agent Kah Motor has cut the Civic's price by $2,700 to $72,500.

Motor Traders Association (MTA) president Tan Kheng Hwee said that car prices are lower today than at any other time in the last 10 years.

This can translate to lower monthly instalments too.

Ms Neo said that lower car prices mean that any loan taken is likely to be smaller too. Hence, the cost of financing would be correspondingly lower.

She gave this example: Let us say the car price was lowered by $5,000.

Assuming a corresponding reduction in loan amount by $5,000, this would translate into monthly savings of about $70 for a seven-year loan.

Besides the lower cost of financing, Ms Tan said that another reason to own a new car is that today's cars have improved features.

'Dollar for dollar, buyers today are also getting a superior product in terms of features and quality.'

For example, a new Honda Civic offers more space, better performance and higher horsepower, plus improved fuel economy compared to the last-generation Civic model, she added.

'And it costs less to buy today. It's a good deal.'

Still, you cannot ignore how the world is facing a prolonged financial downturn and the looming threat of more job cuts.

To add to the gloomy outlook, anecdotal evidence points to an emerging trend of bankruptcy arising from defaulting on car loans. Recent statistics also suggest a rising trend of cars being repossessed here because of loan defaults.

So, before you go ahead and book a car, consider these first:

1. Positive cash flow

Given the current economic conditions, Mr Tony Ong, director at IPP Financial Advisers, cautions potential car buyers to ensure that they have a positive cash flow for at least one to two years first.

This means an adequate cash flow to cater for living and household expenses and the servicing of the car loan.

Mr Leong Chin Huah, a senior consultant at wealth management firm Providend, said that as a guide, the total amount of your gross income that goes towards servicing all loans, and not just the car loan, should be capped at below 35 per cent. Avoid having to dip into your emergency funds.

2. Costs of owning a car

Mr Leong said consumers should consider other costs on top of the purchase price of the car.

These include the car loan (if you take up a loan), regular maintenance costs, fuel charges, road tax, insurance premium, Electronic Road Pricing (ERP) charges and parking fees.

He noted that while car taxes were reduced by about 15 per cent recently, there are also more ERP gantries being erected.

3. Needs versus wants

Ask yourself if you really need a car or is it just to pander to your desires. After all, it is a big-ticket item.

Ms Tan of the MTA said you should consider if you and your family are going to need a car for the next five to 10 years.

'If so, then this is a good time to buy when prices are at a historical low,' she said.

'Consider also that the COE quota will definitely be cut come April next year, so all other things being equal, car prices should trend up from here.'

4. Determining the type and size of car

IPP's Mr Ong suggests using your budget and potential usage of the car to help determine the type and size of car you should get.

5. Buying from an established firm

In these times, it is important to buy from an established company, be it cars or any big-ticket item, said Ms Tan. This is because you want to be sure that your deposit or down payment is safe.

In particular for cars, you want to be sure that the distributor that sold you the car will be around to deliver on promises on repair and warranty services down the road.

6. Should you choose the highest car loan available?

The advice from most financial experts is buyers should fork out a higher down payment if they can afford to, so as to reduce the amount of interest they have to pay.

This means that even if you can get a car loan of up to 100 per cent of the purchase price, do not go for it.

7. Find out the 'effective' loan interest rate

While it might make sense to take up a car loan, experts point out that many buyers are not aware that the 'effective' or real interest rate of a car loan works out to be higher than the published loan interest rate.

For example, a loan amount of $40,000 over seven years at a 2.5 per cent interest rate attracts an effective rate of about 4.8 per cent per annum.

This is because interest is payable on the original principal and not on a reducing principal, Mr Leong of Providend pointed out.

8. Check around for suitable loan packages

Loan packages vary, so buyers should take their time to suss out good deals.

The current economic climate has led to slower car sales, so car distributors are hungry for customers.

Market observers noted that current loan packages are about 3.35 per cent for a one- to six-year loan package and 3.5 per cent for a seven- to 10-year loan package.

At some car distributors, cash rebates are being offered when you take up a loan.

For instance, Malayan Motors, which distributes Jaguars and Bentleys, offers a cash rebate of 8 per cent of the loan. This means that for a $100,000 car loan, you will get $8,000 in cash.

At Kah Motor, the cash rebate is based on 30 per cent of the total loan interest. This works out to a $5,000 cash rebate for a $70,000 loan with a seven-year tenure.

However, consumers who wish to enjoy cash rebates should be aware that they have to refund the entire rebate if they wish to redeem their loans fully within the first two years. Loan interest rates for packages tied with cash rebates are also higher.

At Malayan Motors and Kah Motor, the cash rebate package comes with a higher 3.5 per cent per annum interest rate and a longer loan tenure of seven years and above.

On the other hand, those who do not wish to take the offer of a cash rebate can enjoy a lower interest rate of 2.28 per cent per annum at Malayan Motors and 2.2 per cent per annum at Kah Motor.

The latter offers 100 per cent financing, while Malayan Motors offers financing for up to 95 per cent of the cost of the car, subject to the bank's approval.

The bottom line: The choice of a suitable loan package depends on what you are comfortable paying each month.

9. What if you are an existing car owner - should you sell your car to get a new one?

Ms Tan said you should compare the depreciation of your current car and the terms of your current car loan to those of the new car you are considering.

Check the amount of outstanding loan payable, the resale price of your car and do your sums. Do note that new cars are also under warranty and maintenance costs tend to be lower.

In addition, Ms Neo suggested checking your existing car's COE and scrap rebate. The latter is also known as the Preferential Additional Registration Fee (Parf) rebate and it is the sum your existing car can fetch when it is de-registered.

'If the existing car has high COE and Parf rebates, which will translate into higher resale value of the car, it may be worthwhile to consider selling it off and switching to a new car,' she said.

You can check your rebates at the Land Transport Authority (LTA) website, www.onemotoring.com.sg by clicking on 'LTA e-Services', then 'online enquiries' and then 'Parf/COE rebate' and keying in the required information.

A higher resale value means you have more to channel towards the down payment of the new car.

Another factor to consider is the higher running cost of your existing car - due to lower petrol efficiency, higher servicing or maintenance costs and higher parts replacement costs due to wear and tear - compared to that of a new car.

However, it is generally not worthwhile switching to a new car if the existing car is less than a year old. As it is still very new, it would normally be within the warranty period of three years and running and maintenance costs will generally not be high. You won't enjoy much savings by switching.

10. Find out your new car's potential COE rebate

Singapore Vehicle Traders Association president Neo Nam Heng said consumers should be aware that if their new cars came with a $2 COE, the refund on the COE five years down the road will only be half that, or $1.

This applies even if the dealer has sold you a car that comes with an Open Category COE - which can be used for any vehicle type - of about $6,000.

This is because the LTA will base the rebate on the $2 COE, which is the lower of the two premiums.

'It is better to wait for the next COE bidding and bid for the actual Category A, so there will be no confusion leading to any potential disputes with your dealers,' he advised.

Saturday, 29 November 2008

S'porean hostage killed

From Straits Times.com

http://www.straitstimes.com/Breaking%2BNews/Singapore/Story/STIStory_308041.html


THE Mumbai terror attacks claimed a Singaporean victim when lawyer Lo Hwei Yen, 28, was confirmed among the dead last night.

She is the first Singaporean to die in a terrorist attack.

The tragic task of identifying her body fell to her husband, Mr Michael Puhaindran, who had flown to Mumbai on Thursday night.

The couple held their wedding in Bali only in June last year.

Mr Puhaindran, 37, last heard from his wife through two phone calls she made to him on Thursday after being taken hostage at The Oberoi Trident Hotel.

She had gone to Mumbai on Wednesday to attend a business seminar and it was meant to be only a one-night trip.

Last night, the Ministry of Foreign Affairs confirmed that the worst had happened.

Her body, found on the 19th floor of the hotel, was identified at 9.35pm Singapore time by Mr Puhaindran, accompanied by the High Commissioner and an aunt.

She was among 24 Oberoi hotel hostages found dead yesterday.

Acting Prime Minister S. Jayakumar said in a statement last night that he and his Cabinet colleagues were painfully saddened, and added that all Singaporeans shared the family's grief.

Senior Minister Goh Chok Tong also expressed sadness, saying that he had attended the couple's wedding last year.

Ms Lo's father-in-law, Mr Stanley Puhaindran, has been a long-time grassroots leader in Mr Goh's Marine Parade constituency. SM Goh visited the family last night.

Over at the home of Ms Lo's parents in Lower Delta, her younger sisters Hwei Shan, 25, and Hwei Rong, 23, had been waiting anxiously all day for news.

Ms Lo was the eldest of the three children of a businessman and housewife. Her father has been away on business but was returning home, the family said.

A law graduate of the National University of Singapore, Ms Lo worked with Stephenson Harwood, a foreign law firm based here.

She called her husband twice from Mumbai on Thursday, Hwei Shan told The Straits Times.

In the first call at 2am on Thursday, she said that she had heard gunfire and the hotel staff had told her to move to another level.

In her second call, at about 6am, she said that she had been taken hostage.

Foreign Affairs Ministry official Jai S. Sohan confirmed last night that Ms Lo had passed her husband a message from her captors.

An Indian news channel had reported that the terrorists had held the woman at gunpoint and ordered her to tell the Singapore Government to tell the Mumbai authorities to refrain from acting against them, or she would lose her life.

Mr Sohan said the ministry conveyed the message to the Indian authorities at a very senior level.

'We ask for your understanding as we could not confirm this earlier as the situation at that time was fluid and fast-evolving. It was also not appropriate at that time for us to do so for operational reasons,' he added.

Ms Lo's husband left for Mumbai on Thursday evening, accompanied by an aunt and ministry officials.

Family members in Singapore kept monitoring the news closely hoping for any hint that she might be safe.

But they began to fear the worst at about 5pm yesterday, when her husband got word that her wallet and handbag had been found.

He and his aunt were with Singapore diplomats keeping vigil near the Oberoi when news came that more bodies had been found inside.

They were led inside to identify the body and came out looking shaken.

Mr Puhaindran and Foreign Ministry officials broke the tragic news to the family here at 10pm, just before the ministry held a press conference that was broadcast live on television.

'She was bubbly, cheerful and very protective of us as the older sister,' said Hwei Shan.

Friday, 28 November 2008

Recession-Proof Your Job

In the current economy downturn, we may want to refer to the famous quote from John Kennedy, 35th President of the United States:
“Ask not what your country can do for you - ask what you can do for your country.”

It may be appropriate here to modify this famous saying as follows:
“Ask not what your company can do for you - ask what you can do for your company.”

Why? Because if your company does not make it, neither will you. You lose your job and if you are lucky, you find your next job quickly. But ask yourself: how likely will that be during the current market situation.

Another timely quote from Theodore Roosevelt, 26th President of the United States:
“Whenever you are asked if you can do a job, tell 'em, 'Certainly I can!' Then get busy and find out how to do it."

Companies are struggling! In the United States, former leading brand names like GM, Ford and Chrysler are fighting for survival. Companies in Singapore are foreseeing a difficult time ahead. So, what should you do? Whine and wait for the worst or stand up for your company and live to fight another day? Below are some suggestions how you can stand up and make a difference to recession-proof yourself.

Attitude counts a lot.
It is all about attitude. In the current difficult time, the importance of attitude cannot be over-emphasized. Positive attitude will help boost morale and enhance harmony and unity. This is made more important during difficult times where morale is typically low.

Take a macro view/look at the whole picture.
Look at the company as a whole and see yourself as part of the whole company. Do not wait to be told to do something. Now is the crucial time when you should look hard around and help the company to be stronger to be able to secure the diminished available business.
Be aware of and anticipate the needs of your co-workers and other departments. If you come across an article that might be useful to your co-workers, send it to them with a note.

Think of ways to generate revenues or cut costs.
During an economy downturn, the opportunity to generate revenues is diminished. Even then, we should always pro-actively think of ways to generate revenues. It is only when we ‘give up’ and stop thinking that we get into trouble.
We should keep the cost factor firmly in mind and cut costs wherever possible. Whatever costs that can be postponed should be postponed. Differentiate between needs and wants. All the wants should be firmly put on hold.
Cutting costs means that you can offer a more competitive price to your customers. Cutting costs is different from cutting corners. It means doing things in a more efficient way and doing away with non-essential stuff, without any adverse effect to quality.

Make positive contributions.
Make positive contributions whenever possible. Think of all possible ways to make positive contributions, even if it is not in your area of responsibility. Share your ideas willingly and be helpful to everyone.

Talk up your contributions.
There is no need to boast about your contributions. But keeping silent about contributions is not going help either. Subtly mention how your contributions have helped and offer more help whenever possible.

Doing your job well will not help.
In good times, doing your job well may suffice. In the current difficult situation, doing well just is not enough. Why? Because of the diminished available business opportunity, we must do our job exceptionally well to be able win the projects.

Build a strong rapport with other departments.
Unity is strength. Unity enhances morale. This is more crucial during the current downturn when morale can be low.

Make yourself stand out. Strive to be leader in your industry.
In such difficult times, it becomes more essential be best as we are competing for a limited number of available projects in the market. You can write articles, do a presentation at a seminar or even make use of the current trend and use a blog.

Get your skills up to date.
Ask yourself. If your skill is outdated, how can you contribute to the company? During the downturn, normal people start to worry. Progressive people think of how to contribute to the company by upgrading their skills, in line with the company’s requirements. Doing so will demonstrate to your company your positive attitude.

Continue networking.
It is more about who you know than what you know. What you know is important of course, but who you know can go a long way to help you succeed in difficult times. With your strong network and through the network of your network, you will be surprised how much can be achieved. This is particularly true in the current difficult time.

Be visible.
Be visible. In such difficult times, the company needs all contributions it can get. Now is not the best time to go on long vacation. The risk is that you may return to find out your job has become redundant. Make yourself useful and visible. Offer whatever help you can to whichever department that needs help.

China says impact of global crisis deepening

By Joe Mcdonald, AP Business Writer
Impact of global crisis on China deepening, official warns job losses could fuel instability

BEIJING (AP) -- China's top economic planner warned Thursday that the impact of the global financial crisis is worsening and said rising job losses could fuel instability.

Beijing announced its biggest interest rate cut in 11 years on Wednesday to boost consumer and company spending, reflecting its growing urgency about reviving growth as it launches a multibillion-dollar stimulus package.

"This crisis is spreading all over the world and its impact on China's economy is deepening," Zhang Ping, chairman of the Cabinet's National Development and Reform Commission, said at a news conference. He said economic indicators for November were showing an "even faster decline," though he gave no details.

China's economic growth is expected to fall to about 9 percent this year, down from last year's 11.9 percent. That would be the fastest of any major economy, but Chinese leaders worry about possible unrest as unemployment rises, especially in export industries where factories are shutting down as global demand plummets.

"Excessive production halts and closing of enterprises will cause massive unemployment, which will lead to instability," Zhang said.

The 1.08 percentage-point cut in China's key one-year lending rate on Wednesday -- China's biggest rate cut since 1997 and the fourth in three months -- is "one of the essential measures to stimulate our economic growth," Zhang said.

Zhang said the 4 trillion yuan ($586 billion), two-year stimulus package announced Nov. 9 should add about 1 percentage point to China's growth rate. That was below the 2 percentage point increase forecast by independent analysts.

Zhang said Beijing will take steps to boost growth and ensure the economy continues to create jobs. But he did not respond to a question about whether Beijing is planning to enact additional stimulus plans.

A state newspaper reported last weekend that Zhang's agency is working on an additional stimulus package that is meant to supplement the Nov. 9 package with more spending on health, education and other social programs.

The main stimulus package calls for insulating China from the global downturn by injecting money into the economy through higher spending on construction of airports, highways and other projects. It is meant to spur domestic consumption.

The cut in the one-year lending rate to 5.58 percent, effective Thursday, is aimed at encouraging consumers and businesses to borrow and spend, which is seen as a more effective way to fuel growth than government spending.

The stimulus package includes 1.8 trillion yuan ($263 billion) in spending on airports, highways and other, 370 billion yuan ($54 billion) to improve infrastructure in the poor countryside and 350 billion ($51 billion) for environmental projects, according to Zhang.

It also includes 280 billion yuan ($41 billion) for construction of low-income housing and 40 billion yuan ($5.8 billion) for health and education programs, Zhang said.

Zhang said the government is working on how local governments will pay for their share of the stimulus spending. The central government is to supply 1.2 trillion yuan ($175 billion) of the total stimulus spending, with the rest coming from lower-level governments and state companies.

Wednesday, 26 November 2008

Coping with joblessness: A personal account

Gilbert Goh

I COUNT myself lucky to have survived two tough years of unemployment with mounting financial problems during the period after 9/11 right up to the Sars epidemic. My family had just returned from overseas as we were away for a year on study purposes. The situation was made worse when we decided to buy a private house burdened with a mortgage loan.

Although my wife works, it was tough to make ends meet with only one income. We also had a young daughter to raise. I faced sleepless nights trying to meet the minimum income payments for all my credit facilities (one credit card and one other credit facility) especially when the bank account dried up. There was an unforgettable day when my ATM bank account showed a balance of less than $20. The worst moments of my life came when I had to borrow cash from friends to tide over. This is when you realise who your true friends are and whether they will stand by you when you are almost down and out. To this day, I am thankful to many who helped me financially in a willing manner.

During that period, I hovered between desperation and panic. Naturally, relations with my wife was not the best.

After about six months of unemployment, I realised the first step was to manage my emotional health above all else. I realised that, if I could manage my emotions better and stay positive, I had a better chance of coming out of my financial crisis stronger. I also drew up a timetable so my days could pass by fruitfully. When one does not work, one has much free time to idle and often negativity floods our minds. I hope to share some personal experiences and strategies and, if possible, help some who are depressed and affected by the current financial crisis. I dare not say these strategies are surefire solutions but at least they can provide hope to the depressed and fuel optimism in those who are unemployed. For readers who are still employed and unaffected, it is a good time to prepare for retrenchment as it will come like a thief without any warning. When unemployment hits, we may be too shocked to face up to it.

- Share your tensions and frustrations with your family. Our loved ones are the closest to us and they yearn to share in our happy and sad moments. By cutting them out of our darkest moments, we deny them a chance to support and help us. Though my wife did not speak to me much during that tough period, her unwavering support and toughness to hang in there with me helped me to tide through that difficult period.

- Seek help if things are too overwhelming. I was fortunate to have many good friends and a good support group in a church that met weekly. They gave me the platform to raise my needs and shared my frustrations. It was a relief for me to know that people cared how I felt. It would be disastrous to face unemployment alone. So learn to share and be humble.

- Network more than ever. Many jobseekers stayed at home due more to depression than anything else. Like many, I sent e-mail messages to prospective employers and attended countless interviews, to no avail. Much later, I managed to secure a part-time job through a meeting with a long-lost friend. Although it paid only $6.50 an hour, finally I was relieved to know there was income coming in after 20 months of unemployment. More important, my self-esteem was boosted by the part-time work. That experience helped me land a full-time job six months later. To this day, I am eternally grateful to the friend who recommended me. My life turned around after that. So don’t stay at home - go out and move around. Opportunities are out there, but if we stay at home we cannot seize them.

- Think positive. This is easier said than done, but very important for one to stay on top of the situation. I read a lot of motivation books during that period, so my mind was full of positive thoughts. This was often done immediately after I woke and right before I slept. This helped me start and end the day with the right frame of mind. If not, our mind is always filled with negative and depressing thoughts.

- Indulge in physical activities. I turned to jogging daily more to occupy my ample free time than anything else. However, I discovered after every run I felt light hearted and positive about my situation. My mind was also free when I jogged and it was very therapautic. I later realised that, when one exercises, feel-good chemicals called endorphins are released and this help one stay calm and relaxed. I still run regularly and have taken part in the annual Standard Chartered Marathon.

- Spend time with your loved ones. I began to spend a lot of time with my mother and daughter, who stay at home. This not only took a lot of the free time I had but also allowed to indulge in meaningful activity. I must say my mother remained the most influential person during that dark period, allowing me to recover fully.

- Face the situation bravely. I learnt to face relatives and friends when I met them. It was sometimes difficult as I had difficulty explaining why I was still unemployed after so many months. It could even be depressing if questions were raised insensitively. So I prepared my answers before I met relatives and friends in social gatherings so I would not be caught unprepared. I also realised that such meetings can be used for networking purposes.

I hope this will help many who may be laid off in the coming months. Remember the world will not end and you are not alone. The dark moments will pass you by but the important thing is to hang in there and face up to challenges. What does not kill you will make you stronger. You will end up stronger mentally than before when you are baptised in the fiery fire of unemployment.

Property market to soften

PROPERTY prices are set to soften and demand will weaken as the Singapore economy slows down, Minister for National Development Mah Bow Tan said on Wednesday evening.

Private housing prices have declined by 2.4 per cent in the third quarter of this year, and further price movements will 'depend on the severity of the economic slowdown', he added.

Speaking at the 49th anniversary dinner of the Real Estate Developers' Association of Singapore (REDAS) at the Shangri-La Hotel, Mr Mah said: 'Going forward, price movements will depend on the...ability of the industry to make adjustments in response to the changes in economic conditions.'

The good news is that home-ownership rate is high in Singapore - at more than 90 per cent - and the government has an important role in ensuring the long-term stability and smooth functioning of the property market, he said.

Among the measures it should take, he said, is to guard against 'irrational market behaviour such as excessive speculation that is not in sync with economic fundamentals.'

But there are limits to what the government can do.

The government cannot, for example, dictate to banks that they should extend loans to companies or individuals with weak financial standing.

It also cannot work against market forces and try to prop up property prices artificially.

Mr Mah explained: 'Such efforts are not sustainable and will not be beneficial to the health of the property market in the long-run. Any measure seen to be knee-jerk or excessive might even weigh market sentiment down further.

'It is in our interest to ensure that the property prices move in line with economic fundamentals, as it affects home ownership, asset values, retirement savings and other sectors of the economy.'

What Would Warren Do?

Or better yet - what is the Oracle up to in this market, and can you do the same?

Warren Buffett has already told the world what he's doing in this frightful market. The Oracle of Omaha proudly proclaimed that he's "been buying American stocks" with his personal funds.

But it should also be noted that Buffett has been putting his investors' money on the line as well. After sitting on piles of cash for several years and lamenting the lack of attractive opportunities, Buffett has made several key acquisitions through his investment conglomerate, Berkshire Hathaway, culminating in a flurry of late- September and early-October deals.

In just a two-week span, Buffett picked up Constellation Energy for the relative bargain price of $4.7 billion. He bought $5 billion in preferred stock from Goldman Sachs, receiving a fat 10% yield. And he purchased $3 billion in preferred shares of GE, also yielding 10%.

This doesn't mean Buffett is saying go out and buy Goldman or GE (GE) stock. In fact, there are plenty of reasons why you shouldn't try to follow his lead, not the least of which is the fact that Berkshire gets deals that individuals simply can't.

But that's not the point. The opportunity here is to pick up some valuable investing wisdom from the greatest practitioner alive. In this spirit, here's what I think you can learn from Buffett's moves:

Be Greedy When Others Are Fearful

It's the most famous of all Buffett-isms: "Be fearful when others are greedy and greedy when others are fearful." Today there's ample evidence that people are scared, as fund investors have been redeeming record amounts of money from their stock portfolios.

By contrast, Buffett is putting his money to work. Berkshire's cash balance, by my estimate, is at its lowest level in recent memory.

Now, this doesn't mean the market will turn around tomorrow. But Buffett's point is that this is not the time to flee U.S. stocks. In fact, now is a great time to be looking for shares of high-quality firms that have been beaten down to affordable levels.

For examples of attractively priced industry leaders, see the suggestions to the right.

Don't Be Hobbled by Past Mistakes

Buffett's investment in Goldman Sachs (GS) was surprising to many, given his frequent digs at Wall Street's casino culture and a problematic investment he made in Salomon Brothers.

In 1987, Buffett bought a stake in Salomon to ward off a hostile takeover, but the firm nearly collapsed amid a bond bid-rigging scandal a few years later, and Buffett had to step in as interim chairman.

Although the investment eventually worked out - Salomon was bought by Travelers, which merged with Citicorp to form Citigroup (C) - it's safe to say that it was a longer and harder road than he had anticipated.

Still, Buffett understood that investment banking, for all its recent woes, is an attractive business if managed properly. The group of top-tier firms is fairly small, and it would be hard for a new competitor to break into the business, which gives Goldman Sachs tremendous bargaining power over its customers.

There's an important lesson in this for individual investors. Just because many financial stocks in your portfolio have imploded recently, it doesn't mean you should sell out of this sector entirely - or turn your back on these stocks for good.

Don't Fall in Love With Your Stocks

Buffett is famous for having said that his favorite holding period is "forever." But he will sell a stock he loves if conditions warrant. For example, late last year, as crude-oil prices were approaching $100 a barrel, Buffett jettisoned his stake in PetroChina (PTR).

Why? After multiplying more than fivefold since he bought it a few years earlier, PetroChina shares had reached fair value, so he sold. Since he cashed out, PetroChina shares have been cut in half.

Chalk this up to a lesson the Oracle learned in the late '90s. As he admitted in 2003, "...I made a big mistake in not selling several of our larger holdings during the Great Bubble."

Buffett similarly made what may be one of his best decisions when he sold Berkshire Hathaway's long-held stake in Freddie Mac (FRE) in 2000. He's never written about exactly why, but he noted presciently at his 2001 annual shareholder meeting that Freddie Mac's "risk profile had changed."

Keep Your Powder Dry

While the rest of the world gorged on cheap credit, Buffett maintained Berkshire's conservative profile. This hindered his returns when times were good, but having lots of cash on hand enabled Buffett to snap up once-in-a-lifetime deals, like Constellation Energy (CEG).

Buffett, who owns several utilities, jumped on Constellation in September after its shares tumbled from around $60 to his purchase price of $26.50 in a mere matter of days. The result: He nabbed a company that produces nearly $1 billion in earnings a year for less than $5 billion.

Now, you may not be in a position to keep $40 billion in the bank. But as Buffett showed, it's smart to have some cash on hand for opportunistic purchases. What's more, there's nothing wrong with being disciplined enough to turn your back on stocks that you're not 100% confident in. That's sage advice.

Why He's Warren Buffett — and You're Not

If investing were as simple as mimicking Warren Buffett, then all you'd have to do to retire rich would be to download a free copy of the Berkshire Hathaway annual shareholder letter and shadow the Oracle's moves.

Given that you're reading this article instead of relaxing at your seaside villa, it's clear copying Buffett is no easy task. So as you marvel at the Sage, keep the following in mind:

Warren Can Strike Deals You Can't

Buffett's reputation and Berkshire's financial heft are enormous advantages that regular investors simply don't share. Take his recent investment in Goldman Sachs (GS). It was made in preferred stock that was offered only to Berkshire and pays a 10% fixed yield.

That's twice what Uncle Sam is initially earning on the preferred shares it got from Goldman in exchange for injecting capital into the bank. But chalk that up to the Buffett premium. Firms want the Oracle to invest in them for his seal of approval.

Berkshire's purchase of Constellation Energy offers a great example. Constellation's shares had fallen 75% from their highs because the market was worried about the financial health of the company's energy-trading operations.

If you or I bought the stock at that level, we would have been making a bet that Constellation would pull through. But we would not have been able to affect the odds. However, Berkshire's financial strength and Buffett's name assured Constellation's survival, making the investment more valuable as soon as Warren bought the company.

Warren Is Smarter Than You Are

Many casual observers assume that Buffett simply buys great companies and hangs on to them. Simple, right? But the real key to Buffett's success is far more complicated.

Buffett has created enormous value for Berkshire by buying all kinds of securities, from common stock and preferred shares to currencies, distressed debt and options.

He has also made money through merger arbitrage and fixed-income arbitrage. These are all areas that only the most sophisticated investor should dabble in.

Why Mimic Warren When You Can Hire Him?

Your best bet for benefiting from Buffett's wisdom is the most obvious: Buy Berkshire Hathaway (BRK.B) stock.

It's really an investment company. But unlike a fund, it doesn't charge annual management fees. Buffett has deployed a lot of cash into attractive deals lately, which should add value for years to come.

Tuesday, 25 November 2008

'Worst still to come'

WASHINGTON - PRESIDENT-ELECT Barack Obama named his economic brain-trust, as he acknowledged millions more American workers could lose their jobs next year and played down expectations his administration could engineer a quick turnaround of the financial crisis.

Hoping to hit the ground running when he takes office Jan 20, the next president urged the new Congress on Monday to pass quickly what was expected to be a massive economic stimulus package, pledged help for the troubled US auto industry and blessed the Bush administration's moves to bail out the financial industry.

At the same time, Mr Obama said he planned a second news conference in as many days on Tuesday to discuss the need 'to scour our federal budget, line-by-line, and make meaningful cuts and sacrifices as well.' Mr Obama named New York Federal Reserve President Tim Geithner the next treasury secretary at a Monday press conference, where he said the United States faces a 'crisis of historic proportions' and played down expectations his administration could put the brakes on quickly.

'This will not be easy. There are no shortcuts or quick fixes to this crisis, which has been many years in the making, and the economy is likely to get worse before it gets better,' he said.

'Full recovery will not happen immediately.' 'Most experts now believe that we could lose millions of jobs next year,' he said.

Mr Obama ordered his team over the weekend to work on a programme to create or save 2.5 million jobs by the end of 2010. He would not put a figure on how large a stimulus package he wants from Congress, saying only that it would be 'costly,' but Democratic lawmakers speculated the price tag could reach US$700 billion (S$1.06 trillion) over two years.

At his Monday news conference, Mr Obama was critical of the country's top three automakers, saying he was surprised they did not have a precise plan for their future before asking Congress last week to approve US$25 billion in emergency loans. But, he said, once he sees a plan, he expected 'to be able to shape a rescue.'

Mr Obama also named Lawrence Summers as director of his National Economic Council. Summers was treasury secretary under former President Bill Clinton and is a former president of Harvard University.

He also intends to name Peter Orszag as his budget director, Democratic officials said on Monday, turning to Congress' chief adviser on spending and taxes as he fills out his economic team. Mr Orszag, 39, is serving a four-year term as head of the Congressional Budget Office. Mr Obama was set to make the announcement at his Tuesday news conference.

Mr Obama said the economic and financial crisis confronting the United States and the world demanded the 'sound judgment and fresh thinking' his new team would bring to bear on problems as great as any since the Great Depression in the 1930s.

The president-elect expressed confidence the nation would pull out of the economic morass 'because we've done it before.' Mr Geithner and Mr Summers are seen as reassuring economic and political voices for the incoming Obama administration.

Senator Judd Gregg, the top Republican on the Senate Budget Committee, said the appointment of Mr Geithner and Mr Summers means the federal government is committed to ensuring 'the solvency and orderly functioning of the credit markets and key institutions that underwrite and energize businesses across the nation, from Wall Street to Main Street.'

Kicking off the Thanksgiving holiday week in the United States, Mr Obama also announced two other members of his new economic team. He named Christina Romer as chairman of his Council of Economic Advisers, and Melody Barnes as director of his White House Domestic Policy Council.

Mr Geithner is an Asian affairs veteran who has studied Japanese and Chinese and has lived throughout the region. He earned an Asian studies degree from Dartmouth College and international economics and East Asian studies degrees from the Johns Hopkins School of Advanced International Studies, according to the Federal Reserve website.

The scope of the recovery package he plans would be far more ambitious than Mr Obama had spelled out during his presidential campaign, when he proposed US$175 billion to be used for in spending and tax-cutting stimulus. The new plan will be significantly larger and incorporate his campaign ideas for new jobs in environmentally friendly technologies. It also would include his proposals for tax relief for middle- and lower-income workers.

Significantly, the plan would not offer an immediate tax increase on wealthy taxpayers. During the campaign, Obama said he would raise taxes of people making more than US$250,000. On Monday he signaled his intention to go forward with the tax hike on wealthier earners but was less clear about when that might occur, suggesting it might wait until cuts implemented by President George W. Bush expire in 2011.

In the country's latest financial bailout, the US government said late Sunday it had agreed to shoulder hundreds of billions of dollars in possible losses at the banking giant Citigroup and to put a fresh US$20 billion into the stricken company.

Mr Bush said he consulted with Mr Obama on the Citigroup rescue, noting 'close cooperation' between his administration and the incoming Obama camp. -- AP

IT sector to slump next year

By Serene Luo

TOUGH times are likely to force IT market growth worldwide next year down to a measly 2.3 per cent, revised downward from 5.8 per cent.

IT spending by companies will also be slow, even flat or negative, in developed economies, particularly in the United States and Western Europe, and in Asian countries like Singapore, South Korea and Japan too.

Yet, the Asia-Pacific markets are likely to be one of the least affected in this downturn, said technology market research firm Gartner, in a media briefing on Tuesday.

This is because 'emerging powerhouses' such as China and India, and growing markets like the Philippines, Vietnam and Indonesia will drive growth, and thus IT spend on products and services.

Gartner's managing vice-president Matthew Boon, who is based in North Sydney, also pointed out that many companies are likely to cut or delay discretionary IT spend, but preserve essential expenditures.

He, however, warned that companies should look at the long term in order to support growth once economies begin to recover.

OECD warns of worst recession since early 1980s

By Pan Pylas, AP Business Writer
OECD says developed world could face worst recession since early 1980s; warns of deflation

LONDON (AP) -- The financial crisis will likely push the world's developed countries into their worst recession since the early 1980s, the Organization for Economic Cooperation and Development (OECD) said Tuesday.

In its half-yearly economic outlook, the Paris-based organization said economic output will likely shrink by 0.4 percent in 2009 for the 30 market democracies that make up its membership, against the 1.4 percent growth prediction for 2008. As a result, the OECD said it supported fiscal rescue measures, including tax cuts, provided they were targeted and temporary.

The OECD said the number of unemployed across its members could rise by 8 million over the next two years and that there is a risk, "albeit small," that some countries will experience deflation -- falling prices.

The OECD said the U.S. was likely to contract by 0.9 percent in 2009 following a 1.4 percent expansion this year. Japanese output is only expected to contract by 0.1 percent in 2009 following 0.5 percent growth this year, while the 15-nation euro-zone will likely shrink by 0.6 percent next year after 1.0 percent growth this.

The OECD's latest 2009 projections for the world's leading three economic areas are more or less the same as the preliminary forecasts made earlier this month ahead of the G-20 meeting of world leaders in Washington, with only 2009 growth in the euro-zone revised down from the previous estimate of -0.5 percent.

The OECD said economic growth of its membership fell by an annualized quarter-on-quarter 0.2 percent in the third quarter this year and will keep contracting until the middle of 2009. The biggest loss of output in the OECD is expected to occur during the fourth quarter of 2008, with a 1.4 percent contraction predicted.

The figures indicate that the developed world has now entered a slump estimated to last at least four quarters; two consecutive quarters is a common definition of recession.

"Many OECD economies are in, or are on the verge of, a protracted recession of a magnitude not experienced since the early 1980s," said Klaus Schmidt-Hebbel, the OECD's chief economist

The OECD said the U.S. economy would contract by an annualized rate of 0.3 percent in the third quarter, followed by a massive 2.8 percent decline in the last quarter. Recovery is only anticipated in the third quarter of 2009 when output is set to spike 0.6 percent as the effects of the credit squeeze abate, the housing downturn bottoms out and low interest rates bear fruit.

In the euro-zone, output is seen to have fallen by 0.9 percent in the third quarter, followed by a 1.0 percent decline in the fourth. As in the U.S, output is not expected to rebound until the third quarter of 2009, and only then by the modest amount of 0.1 percent. Official European Union figures earlier this month confirmed that the euro-zone as a whole is in recession.

In Japan, the recession, which started in the second quarter of 2008, is only expected to last through to the first quarter of 2009, when output is expected to rebound by an annual rate of 0.8 percent. However, output is set to stagnate over the second half of 2009 as the global economic downturn and the recent rise in the yen hits demand for Japanese goods.

Because of the anticipated bounce-back in growth by the second half of next year, the OECD projected that economic output across its membership will rise in 2010 by 1.5 percent.

The OECD's Schmidt-Hebbel said "prompt and massive" policy action to restore confidence and provide liquidity in the banking sector appears to have "successfully limited the period of panic" but that financial institutions still need to repair their balance sheets.

"This process of adjustment will take some time and impair the flow of credit, and is the key factor weighing on activity going forward," he said.

The uncertainties around the projections are "exceptionally large", mainly on the downside and mostly relate to the assumption regarding the speed at which the financial market crisis is overcome, said Schmidt-Hebbel.

"Specifically, we assume that the extreme financial stress since mid-September will be short-lived but will be followed by an extended period of financial headwinds through late 2009, with a gradual normalization thereafter," he said.

The OECD added that there was a justification for governments around the world to cut taxes or raise spending to ameliorate the effects of the recession.

"Against the backdrop of a deep economic downturn, fiscal policy stimulus has an important role to play," Schmidt-Hebbel said.

"It is vital that any discretionary action by timely and temporary," he said.

The OECD highlighted a number of countries where the downturn will be severe, partly because of falling house prices. These include Britain, Hungary, Iceland, Ireland, Luxembourg, Spain and Turkey.

"These economies are most directly affected by the financial crisis, which in some cases has exposed other vulnerabilities, or by severe housing downturns," said Schmidt-Hebbel.

The OECD said Britain will see output decline by 1.1 percent in 2009 after growing by only 0.8 percent in 2008. The forecasts are similar to those announced Monday by the British government following its 20 billion pound ($30 billion) stimulus package.

Elsewhere, the OECD said economic growth in China will remain below the double-figure rates experienced over the last few years through to the end of the decade. For 2009, the OECD projected Chinese growth to moderate to 8.0 percent.

Civil service to cut pay

AMID a darkening economic outlook, cabinet ministers and senior civil servants would see their pay packets next year shrink by up to 19 per cent- with the President and the Prime Minister taking the biggest hit.

This is even as a planned salary increase is deferred.

Meanwhile, all civil servants across the board would get one month less bonus this year, as compared to last year.

In a statement yesterday, the Public Service Division (PSD), which oversees civil service matters, pointed to the slowdown in the global economy and in Singapore as the reason for these moves.

The top government officials - political leaders, administrative officers (AOs), judicial and statutory appointees - will feel the pain on two fronts:

First, a cut in their GDP Bonus, which is linked to Singapore's gross domestic product growth. This comprises a 'significant portion' - close to 25 per cent - of their annual salaries.

'With a weak economy, these components will automatically fall,' said the PSD.

This means a fall in total pay packets of 11 per cent to 19 per cent. The more senior the officials, the deeper the cut.

At the top, there will be a 19 per cent fall in the annual salaries of President S R Nathan (to $3.14 million) and Prime Minister Lee Hsien Loong (to $3.04 million).

Senior permanent secretaries and entry-grade ministers at the MR4 grade would take a 18 per cent cut (to $1.57 million).

AOs at the entry superscale grade of SR9 - these are usually top-performing AOs in their early or mid 30s, and directors in ministries - would see their packets drop 12 per cent (to $353,000).

Also not spared are the Members of Parliament, whose allowance would fall by 16 per cent (to $190,000).

Second, a planned move to adjust upwards the salaries of the ministers and permanent secretaries at the MR4 grade has been postponed.

In April last year, the Government had announced that it intended to adjust their annual salaries from 77 per cent to 88 per cent of the private-sector benchmark by the end of this year.

This is now deferred.

Instead, their pay packets are now at 56 per cent of the benchmark, which is set at two-thirds of the median pay of the top eight earners in each of six sectors such as banking and engineering.

On when the adjustment would eventually take place, the PSD told The Straits Times: 'When the economy recovers and private-sector salaries increase, civil service salaries will have to move up too in order to remain competitive with the private sector.'

Monday, 24 November 2008

5 Ways to Kick Bad Money Habits

Our parents, peers, the Joneses, and others have a lot of sway over our financial decisions -- both good and bad. All these outside influences can make it hard to heed that little voice inside our head -- the reasonable one, that is, telling us to shape up or declare bankruptcy and not go back to the fridge for a third helping of Chunky Monkey.

To kick bad money habits (or boost good ones), you've got to change the way you think about change, according to the authors of "The True Cost of Happiness." Change is not a punishment for failure; it's the process of getting you closer to what you really want.

So what exactly is it that you really want? Here's a five-step plan to help you figure it out and actually institute the changes that you most want to make in your financial life:

1. Identify your real goals.
Don't skip right to the numbers. Start with the "Financial Self-Reflection" worksheet from Fool.com's "How to Set Up a Spending Plan." Awareness isn't an automatic fix, but it helps you address your challenges.

2. Explore your behavioral influences.
Reflect on the familial, social, and personal powers at play in your financial choices. Write down things that trigger unwanted actions and tap into those that serve you well instead. (For help delving into those subconscious influences, see "Money Woes? Blame Your Mother.")

3. Adjust the numbers and make goals concrete.
After you have a clearer picture of your current spending (use the "Where Does My Dough Go?" worksheet, also found under the "Set Up a Spending Plan" Money Goal), make a concrete plan using the "Set Spending Priorities" worksheet to redirect your money to best reflect your real desires.

4. Use visual cues to remind yourself of your goals.
Keep the bad influences in check -- track your progress (post it on the fridge!) or carry a picture of your dream home in your wallet.

5. Remind yourself that change is gradual.
Money mindfulness isn't instantaneous. It takes continual work to alter a lifelong way of thinking. Use setbacks as tools to identify areas in which you're still vulnerable.

5 Things to Freak Out About

Our fellow Americans are experiencing a world of hurt -- layoffs, postponed retirements, foreclosures, bankruptcies, and, at best, angst and uncertainty. Your empathy is appreciated, but is that really the best use of your energy right now?

No it's not. Not that you need anyone's permission, but here it is: It's time to be self-centered -- to be selfish and absorbed with your own financial situation. Freaking out about things that are out of your control won't magically make the stock market bounce back and unemployment reverse itself.

If you want to freak out about something, freak out about your issues -- in particular, the things over which you do have some measure of control. Here are five:

1. Corral your cash flow: You know deep inside (or maybe not so deep) what you need and what you simply want -- in other words, stuff you don't need. It's time to prioritize -- formally, as in on paper tacked onto the fridge. Schedule a quarterly financial review -- here's an agenda you can use.

2. Make sure your short-term money is safe: It's never heartening to see a bank go belly up. Still, don't ignore the built-in safety net that your bank offers, namely FDIC insurance. First, check to make sure your deposits are indeed insured by the FDIC. The aptly titled "The New Rules of Safe Banking" will show you how. If your balances exceed coverage limits ($250,000 for most deposit accounts and $250,000 for qualified retirement accounts), move the excesses into another FDIC-insured institution, and not just a different branch of the same bank.

3. Remove some risk from your portfolio: If you neglected to review your portfolio before Wall Street imploded, it's still not too late. Take a look at how your assets are allocated. The idea is to hold a mix of asset classes that don't always move in the same direction. Are you properly diversified? Is your portfolio too stock-heavy for your time horizon? A portfolio spread out among, for example, small U.S. stocks, large international stocks, bonds, emerging markets and cash offers a much smoother ride. A bad run for one asset class can be offset by another that's having a bang-up year (or at least one that's not tragic).

4. Keep calm, think long: It may be hard to look at your investments and not have an emotional reaction. Try anyway. Investing decisions based on emotional reactions rarely ever work out well. Over the long term -- "long term" is key here, folks -- the stock market rewards plain old level-headedness. Markets like the one we're in now really test our risk tolerances. Maybe you thought you could handle volatility -- so how does it feel in practice?

Arlington, Va.-based financial life planner Lisa Kirchenbauer put this situation in perspective for her clients by posing a relatively simple question:

Will you be more upset if you stay in the market and it continues to go down for an extended time (i.e. months, not days or weeks)? Or will you be more upset if you were to get out of your stock investments now, only to watch the stock market rally and you miss the recovery?

As you can guess, there is no single right answer -- just the right answer for each individual. We presented five of our ideas in a special report: "What Investors Should Be Doing Right Now."

5. Do something. Or not: Depending on your response to the question above, you may need to make some adjustments to your investment approach. So hop to it! If you're feeling queasy about adding more money to stocks right now, funnel that savings into your emergency fund. If missing a recovery would upset you more, then this may be a great time to buy, or at least stay put for a while (so long as you are adequately diversified).

The point is that these are decisions you can control. It's your money, and there are many ways in which you call the shots. Yup, that's right -- in the end, it really is all about you.

News of job cuts almost everyday...

Please try to recall the situation now when the next crisis hits again...and never make the same mistake during the next crisis...

This blog serves to keep a memory of the 2008/2009 financial crisis so that we will not forget the pain and get complacent again during the next crisis....

Citigroup is on its knees

NEW YORK - LESS than two months ago, Citigroup emerged from the wreckage of the financial crisis as one of the last titans left standing on Wall Street.

Now, in a stunning turnabout, the banking giant has fallen to its knees after a crisis in confidence erased half its stock-market value in three days - and left it running short on time and options.

The bank has started talks with the United States government, which may step in with a rescue bid. Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke may favour a rescue to avoid the aftermath of Lehman Brothers' bankruptcy in September.

Citigroup's US$2 trillion (S$3 trillion) worth of assets dwarfs companies such as American International Group that got support from the US government this year.

'Citi is in the category of 'too big to fail',' said Mr Michael Holland, chairman and founder of Holland & Co, which oversees US$4 billion. 'There is a commitment from this administration and the next to do what it takes to save Citi.'

While Citigroup executives say the company has adequate capital and liquidity to ride out the crisis, its tumbling share price may shake confidence. A similar scenario had played out at Lehman, when chief executive officer Richard Fuld declared the firm was 'on the right track' five days before the firm went bankrupt.

'The market may be implying some sort of regulatory intervention,' said former Lehman analyst Jason Goldberg.

Citigroup, which was born from the merger of Citicorp and Travelers Group, has been seeing a steady decline in its share price. This snowballed last week as speculation grew that the bank may require a government bailout, a forced merger or an ouster of the company's embattled chief executive Vikram Pandit.

In the last five days alone, more than half its market value was vaporised, with calls intensifying for it to find ways to lift its stock price, including splitting the firm, selling pieces, or selling itself outright. The bank has fought back vigorously saying its capital position is strong. Last Monday, it announced plans to cut costs and slash 52,000 jobs.

The speculation swirling round Citigroup comes as shares on Wall Street soared late Friday after reports that President-elect Barack Obama would name New York Federal Reserve president Timothy F. Geithner as his treasury secretary.

Still, Friday's gains were not enough to wipe away the losses of the last two days, which brought Wall Street to its lowest levels since 1997. The Dow ended the week down 5 per cent, and the S&P 500 was 8 per cent lower.

New York Times, Bloomberg

Tough economic times ahead

PARIS - INVESTORS braced on Sunday for another topsy-turvy week on trading floors as leading economies prepared new plans to emerge from a financial crisis that world leaders warned would take time to overcome.

US president-elect Barack Obama was expected to unveil his economic braintrust on Monday after announcing a plan to create 2.5 million jobs by 2011, while the British government pledged swift tax relief to households, with both countries staring at recession.

Meanwhile, leaders of 21 Asia-Pacific economies making up around half of world trade vowed during a summit in Lima to resist protectionism, saying it would only worsen the troubled global economy.

Mr Obama, who takes office on January 20, was reportedly expected to present on Monday New York central banker Timothy Geithner, 47, as his Treasury secretary to oversee the country's US$700 billion (S$1.07 billion) bailout package.

The Democrat on Saturday outlined in broad strokes his plan for a broad stimulus package to lift Americans out of economic peril fuelled by sweeping housing foreclosures and job losses.

'We'll be working out the details in the weeks ahead, but it will be a two-year, nationwide effort to jumpstart job creation in America and lay the foundation for a strong and growing economy,' Mr Obama said.

Wall Street staged a strong rally Friday as traders cheered reports that Geithner would become Treasury chief.

The Dow Jones Industrial Average and Nasdaq hit their lowest levels in over five years last week and the broad-market Standard & Poor's 500 fell to its weakest since 1997.

Investors will be looking this week for new indications about the health of the US economy as they pore over a barrage of data including figures on existing and new US home sales and consumer confidence.

Across the Atlantic, British finance minister Alistair Darling will deliver on Monday his pre-budget report to parliament where he is expected to outline plans to slash taxes and boost spending.

'I shall set out measures designed to help people pay their bills, keep businesses afloat, and maintain spending on health and education,' Mr Darling wrote in the Sunday Mirror newspaper.

'Every household will get support now - to help them through the difficult period ahead,' he wrote.

'Like every other country in the world hit by major economic shocks we are in a difficult position. And we, like many advanced economies, are moving into a recession.'

World leaders warned that tough times lie ahead.

German Chancellor Angela Merkel, whose cabinet has approved a 23-billion-euro (S$44 billion) stimulus package, warned in the Welt am Sonntag newspaper on Sunday that 2009 will be 'a year of bad news' for the economy.

But she said she hoped the stimulus plan, which has to be submitted to parliament, will protect jobs and put the economy 'back on its feet in 2010.' Germany has fallen into its first recession in five years.

Outgoing US President George W. Bush expressed a similar sentiment.

'As we look to the future, the tasks facing our nations are no doubt demanding,' he said from Lima where he attended the annual Asia-Pacific Economic Cooperation (Apec) forum.

'Recovering from the financial crisis is going to take time, but we'll recover, and in so doing begin a new era of prosperity,' Mr Bush said Saturday.

Apec leaders warned against sealing trade borders in the face of financial turmoil.

'There is a risk that slower world growth could lead to calls for protectionist measures which would only exacerbate the current economic situation,' Apec leaders said in a joint statement.

While Apec leaders vowed a united front against the crisis, they appeared unlikely to unveil bold initiatives before the meeting adjourns on Sunday.

In Britain, Prime Minister Gordon Brown called for bold and proactive government policies to steer the world economy through the financial crisis and a subsequent sharp downturn.

'Doing nothing is not an option,' Brown said in a speech to be delivered Monday at the annual conference of the Confederation of British Industry (CBI), which is the country's biggest employers' organisation.

'A new approach is now needed if we are to get through this unprecedented global financial recession with the least damage to Britain's long-term economic prospects,' he said, according to an advance copy of his speech. -- AFP

Pay cut for civil service?

THE Public Service Division (PSD) will make an announcement soon about year-end bonuses and salaries for civil servants, Finance Minister Tharman Shanmugaratnam said yesterday.
'The principles underpinning civil service pay as well as the pay of political leaders...are well known and you can just wait for the announcement before long on that,' he told reporters at a press conference held to announce measures to help businesses and workers.

A panel of ministers was asked if senior officers and leaders in the public sector would lead by example and take pay cuts in difficult times. 'We're not here to grandstand,' Mr Tharman said.

The response from labour chief Lim Swee Say, also a Minister in the Prime Minister's Office, suggested a wage cut might be in the offing: 'From the labour movement, I think we will not be surprised (if) the public sector sees a wage cut because with the GDP declining, that must factor into the flexible component of wages.'

A significant part of the annual pay for a senior civil servant or minister takes the form of a GDP Bonus, which is linked to growth in the gross domestic product. The bonus is paid in March each year, with the amount linked to GDP growth in the preceding year. Started in 2000, it was revised last year to form 20 per cent of the annual pay of top officials. It comes to three months if the economy grows by 5 per cent, and can go up to eight months if growth hits 10 per cent or more. It is not paid if growth is 2 per cent or less.

The civil service is also expected to make a related announcement on the third phase of previously disclosed salary adjustments for top civil servants and ministers. This concerns raising pay packages from the current 77 per cent of a salary benchmark to 88 per cent. The benchmark is set at two-thirds of the median pay of the top eight earners in each of six sectors.

Mr Lim said yesterday the labour movement has long advocated the adoption of a flexible wage system. Under the system, senior management would take more of its pay in the form of a variable component than lower-ranking staff would. Over the years, more organisations have heeded the call to switch over, he said.

'In the private sector, we expect to see many in senior management take a bigger cut in total wages than rank-and-file workers. In the public sector, likewise, I think flexibility has been enhanced over the years.'

Sunday, 23 November 2008

FOOLED by new client's posh appearance

Broker to pay $350,000 in stock market loss after client, who drove Jaguar and lived in condo, vanishes

By Tay Shi'an
November 23, 2008 / Source : The Electric New Paper



THEY are sometimes referred to as brokers. For one remisier, however, the word has taken an awfully literal meaning.

Reason: She may soon go broke having to make up for a rogue client's losses.

The client, a Malaysian woman in her 60s, had seemed financially reliable. She lived in private property. Her family gets around in a Jaguar. And she had put a US$50,000 ($76,600) deposit to begin trading.

The remisier, who has been in the industry for more than five years, said: 'I thought this client was able to trade and able to pay.'

But then the client lost US$227,000 after taking huge risks on the US stock market, betting on shares such as AIG and Fannie Mae.And she vanished.

Now, the remisier, who is in her 30s, will have to settle the debt with her brokerage firm if the client cannot be found.

That's because, under the remisier's agreement with her firm, if any of her clients do not honour their debts, it is the remisier who will have to pay the firm.

This is the standard practice in the industry, firms and remisiers told The New Paper when asked.

Ms Lim (not her real name) has since filed a police report and magistrate's complaint against the client.

She asked not to be named, as her colleagues do not know about her loss.

She said the walk-in client opened the trading account in April. In her application, the client stated that she had an annual income of between $100,000 and $200,000, and a net worth of $250,000 to $500,000, excluding properties and retirement assets.

She also stated that she was the director of a Malaysian company, and lived in private property in Singapore.

As she wanted to play the US stock market, she was asked to place a US$50,000 cash deposit with the brokerage firm. This amount varies on the discretion of the remisier.

Ms Lim said she did not do a check to verify the personal information provided by the client, and did not know if the firm did its checks.

The remisier said the Internet trading account was used by the client and the client's son, who appeared to be in his 40s.

For five months, the account was very active and volatile because of the wild swings in the US stock market.

The client and her son would frequently do contra-trading, meaning they would buy shares without coming up with any capital, hoping to sell them for a higher price within the three-day settlement period.

Suspended account

They would then pocket any profits, or fork out the difference in losses to the brokerage firm.

Ms Lim said she suspended the account about five times, when the losses reached the deposit sum of US$50,000. But she reinstated them each time, after mother and son made good the losses.

Ms Lim said she met the son and his girlfriend once, when they drove up in a Jaguar to hand a cheque to her. She claimed the son rebuked her for suspending the account and was 'abusive'.

By September, the account had a profit of US$180,000.

But things went horribly wrong within the same month when the client and her son traded heavily on shares such as AIG, Fannie Mae, Lehman Brothers and Washington Mutual.

The share prices plummeted. Within a week, the account chalked up US$227,000 in contra losses.

Ms Lim said: 'They did Internet trading, so it was very hard to control. By the time I woke up, (the trades) were done.'

Ms Lim immediately suspended the account and contacted mother and son to settle the debt.

But in an SMS reply dated 29 Sep, the son wrote, 'want me honour my lost and yet u suspend my line..its nt profesional..talk to yr boss' (sic).

After several days of unreturned phone calls, Ms Lim made house visits alone on two occasions to the family's condo home in the west. Both times, she saw only two children in the house.

She got another SMS message from the son on 1 Oct, telling her not to 'disturb' his mother, but the next day, the son sent her a message promising to settle the debt a week after.

When she did not hear from him by then, Ms Lim made another house visit, this time with a debt collector - only to find the condo unit empty.

That was when she found out they were tenants who had lived there for only a few months.

Ms Lim lodged a police report on 12 Oct.

Her last contact with the family was an SMS message from the client on 13 Oct: 'U dun keep chasing. Give some time. Wil sort out.' The telephone numbers were disconnected soon after.

Ms Lim reported the client's account as delinquent to the Singapore Exchange on 21 Oct.

That was when she found out that another major brokerage firm had also blacklisted the same client on 10 Oct for failure to pay. It is understood that the sum owed to the other firm is about $5,000.

Ms Lim said that even if she hired a debt collector now, she would not be able to tell them where to look for the client.

She consulted a private investigator, but was reluctant to pay several thousand dollars to track down mother and son.

'It'll be throwing good money after bad money,' she said.

When speaking to The New Paper, Ms Lim appeared stoic about her loss, which she wryly compared to the cost of a Housing Board flat.

Ms Lim said she has told her family about the loss: 'My parents are very worried, but still very supportive.

'I just wish I let go of the account and passed it to someone else. Now, I've got to bear the debt.'

Ms Lim is still trying ways and means to track down the missing client, but she is also preparing for the worst.

She declined to reveal how she would repay the debt to her brokerage firm. 'I'll just have to come up with the money somehow,' she said.

Hope for investors in East?

HONG KONG - THERE could have been no worse time to hold an expo on the Asian property market this year than November.

As the impact of the global financial crisis on the region unravels - in the form a slumping stock market, company bankruptcies, steep falls in flat prices, and job cuts - even the most daring of property investors have taken a step back.

It was against this backdrop that the Asian version of an international real estate summit held annually in Cannes, France, was held last week in Hong Kong.

The number of exhibitors at the MIPIM Asia conference - developers, banks, fund managers, architectural firms, hotel groups and construction companies, mostly from Asia - dropped to 190 from last year's 236, organisers said.

Visitors were also down to 1,700 from more than 2,100 last year.

During the three days, November 19-21, there were times when the number of people manning the exhibition booths outnumbered visitors.

Despite the lukewarm attendance, however, those who did make it to the expo shared the same enthusiasm for answering the question: Is the Asia market the last bastion of hope for property investment?

'More than ever, we do need this kind of event, our trade delegates really need to communicate in this hard moment,' Mr Gilles Chaumet, MIPIM Asia director, said.

As the domestic property markets in the US and Europe are being battered by the credit crunch, many investment groups are starting to preach to their clients about the wisdom of shifting their capital to Asian properties.

'What we will probably see at some stage in early 2009 is that investment committees and fund managers will sit down to look at their asset allocations and say we want to have a certain amount in emerging markets,' Mr Glenn Maguire, chief Asia economist at Societe Generale in Hong Kong and keynote speaker at the expo, said.

'I think you will see a reweighting of asset allocation within the emerging market space which is more favourable to Asia, and less favourable to Latin America and Eastern Europe,' he said.

Given that a lot of wealth created over the past decade from the equity market has proved to be worthless, Mr Maguire said, investors will find themselves increasingly attracted to the tangibility of properties.

While Eastern Europe and Latin America both have high exposure to the international banking system, Asia, which is leveraged off China, has generally kept its financial system intact with relatively low borrowing levels, he said.

The resilience of Asian economies under the sub-prime crisis appears to be supported by recent economic data.

An analysis by AME Capital showed that gains made by real estate funds with an Asian mandate dropped to 0.25 per cent in 2007 from 33 percent in 2006 - which compares favourably with European and US mandated funds, which posted respective losses of 25 and 20 per cent in 2007.

Within Asia, Mr Maguire said he expected economies which have for a long time exported to China, such as Hong Kong, Japan, Taiwan and South Korea, to outperform those which have relied on US consumption, such as Singapore, Malaysia and Thailand.

Despite the downturn, funds targeting Asia have burgeoned in recent months, said Mr Andrew Weir, who looks after property and infrastructure at KPMG China.

Apart from continuing interest from the Middle East, he said, many sovereign funds had maintained high asset allocations to Asian properties 'behind the radar screen'.

'The other source of capital coming to the Asian market is what I call 'unlisted wealth' - high net-worth individuals in Asia who haven't been really affected by the stock market situation,' he said.

Mr Weir considered it a 'once-in-a-lifetime' opportunity for long-term investment into second-tier Chinese cities such as Chongqing and Wuhan as the central government had recently unveiled economic stimulus packages to boost infrastructure, speed up urbanisation and encourage domestic consumption.

'If you have the perspective that China's long-term demographics and urbanisation story is very solid, this is a historic opportunity to get sites in those cities,' he said.

'Quite a lot of people think that the next six months is the right time to enter into the market.' -- AFP

A Depression Coming? Not Likely

Expect to see a recession similar to those in the 1970s and early 1980s.

What are the odds that this economic slump will deepen into a genuine depression not seen since the 1930s? In my judgment, it's not likely. Instead, I foresee a moderately severe recession.

We're all hearing more and more comparisons being drawn to the Great Depression. Yes, we're in the worst financial crisis since that era, but by no means the worst economic crisis since then -- not comparable to, say, the mid-1970s.

Former Goldman Sachs chairman John C. Whitehead got a lot of attention last week with his statement that the federal government could face a downgrading of its credit rating, aggravating the recession. The result, he said, "would be worse than the Depression." Now, "would" is a squishy word in forecasting, but the headlines screamed, "Whitehead Sees Slump Worse Than Depression."

Whitehead, a distinguished American of 86 years, was an adolescent during the 1930s, so he should remember those horrible times well. I wasn't born until after World War II, so my knowledge of the Depression comes largely from books. Here are some things I've learned:

The Great Depression was a global economic collapse of unfathomable magnitude, and today's statistics of pain would have to be multiplied manyfold to match those of the 1930s.

And the Depression was preventable -- if governments worldwide had responded earlier and smarter after the stock market crash of 1929. The lessons learned since then greatly reduce the likelihood of a reprise of that decade of hardship.

Shrinking Production

America's national output plunged for four straight years, 1930-1933, with a total drop in dollar value of some 50%, because of a combination of lower volume and falling prices (deflation).

The massive federal spending of Franklin D. Roosevelt's New Deal caused the gross domestic product (GDP) to rise from 1934 through 1937. Then the nation was shocked by a severe relapse (the "Roosevelt Recession") that saw national production fall in 1938. The Great Depression was finally ended not by the New Deal, but by rising U.S. industrial output in 1940-1941 to aid our allies in Europe, under assault by Adolf Hitler.

By comparison, in this recession we're likely to see several quarters of low-single-digit declines of GDP over the coming year. A 7% quarterly contraction, last seen in mid-1980, would be highly surprising in this slump, and most quarterly declines will probably be smaller, on the order of 2% to 4%.

Unemployment

In the first year after the stock market crash of 1929, unemployment tripled from 3% of the labor force to 9%, and then it kept on rising -- from 16% in 1931 to an appalling 24% in 1932. That's nearly one out of every four workers, in an era when most families were supported by one wage earner. The New Deal's public works programs cut joblessness dramatically, but it was still running at 14% in 1937 and soared again to 19% during the 1937-1938 relapse.

Today, by contrast, we're just north of 6% unemployment in households typically supported by two earners, which staves off severe hardship while the jobless worker looks for new employment. At Kiplinger, we expect the unemployment rate to peak at 8% to 9% over the coming year as layoffs continue in sectors ranging from construction and autos to finance and retailing.

Personal Savings

With no federal deposit insurance in the early 1930s, the failure of some 9,000 banks caused an estimated $140 billion in depositor losses. Many Americans saw their entire life savings wiped out. But today's bank failures measure in the hundreds, and not a dime of insured money has been lost. Even depositors who were over the FDIC limits have received some protection. For example, in the July 2008 failure of California's IndyMac Bank, half of depositors' uninsured funds have been returned to them and more may eventually be recovered.

However, a much higher percentage of Americans own stocks today -- either directly or in mutual funds, and in IRAs and 401(k)s -- than in the 1920s, so today's market declines, though much milder than in the Great Depression, affect many more Americans than back then.

Falling Stock Prices

The Dow Jones Industrial Average plunged 89% from 1929 to 1932, and it didn't return to its pre-Depression high until the mid-1950s. Today the major indexes are down about 40% from their highs in the fall of 2007, and they are below their levels of a decade ago. So far, this latest bear market hasn't reached the 50% drop last seen in 2000-2002 and 1973-1975.

As I've noted before on this site, no one knows when a market bottom will be reached, but I believe stocks purchased now and in the coming months will see strong gains over the next few years as the global economy recovers.

Homes Lost

Homeownership was much lower at the beginning of the Depression than today, but homeowners' inability to refinance five-year balloon mortgages led to massive foreclosures.

Today an estimated 5% of U.S. homes are in foreclosure or at risk of being lost, a number that is likely to rise as layoffs mount. But home losses will be dampened by some sort of foreclosure prevention program envisioned by Congress. The 5% number is more than twice the level of a few years ago, but still a small share of all households.

Deflation Coming?

There is a mounting worry today about the threat of deflation -- a broad, sustained fall in consumer prices and wages. Falling prices cause consumers to postpone purchases in the hope of even lower prices later, which dampens the economy further.

Deflation last occurred in the early 1930s, because of a collapse of consumer purchasing power due to soaring unemployment, and it was aggravated by the Federal Reserve's foolish contraction of the money supply. In the three years after the market crash of 1929, the Fed apparently shrank the money supply by nearly one-third -- precisely the wrong medicine for a fearful and credit-starved economy.

Consumer prices fell for three straight years, 1930-1932, for a total drop of more than 10%. Over the following five years, because of the massive New Deal stimulus, the price level stabilized and then rose modestly, but there was a return to deflation during 1938-1939.

Today the risk of a long, sustained fall in wages and prices is much less. Yes, consumer and business spending will contract, but it won't collapse. The Federal Reserve is pulling out all the stops to get credit flowing better, and free spending by Washington will go a long way toward bolstering private sector demand.

Global Trade

Another governmental mistake that contributed to the Great Depression was shortsighted trade policy, such as the Smoot-Hawley tariffs of 1930, which raised duties on imported goods and led foreign governments to do the same. From 1929 through 1933, U.S. exports fell by some 50% in volume and by nearly two-thirds in dollar value.

Today global trade is more important to the U.S. and world economies than it was 80 years ago, and governments will not repeat the mistake of excessive protectionism. My colleagues and I at The Kiplinger Letter expect U.S. export growth -- a star of our economy today -- to cool from the double-digit annual gains of recent years, but not collapse. There will continue to be strong demand for American goods and services from such high-growth economies as China, India and Brazil.

In the 1930s, there was an absence of international cooperation in fighting the crisis. Today there is both coordination among central banks and rapid emulation of creative solutions born in one country or another.

Government Stimulus

Herbert Hoover's administration -- contrary to today's mythology -- did attempt a lot of stimulus. It boosted infrastructure spending on roads and dams, created the Reconstruction Finance Corporation to aid industry, banks and cities, and started unemployment benefits through the Emergency Relief Agency.

Roosevelt, as candidate for president in 1932, castigated Hoover for wild deficit spending and vowed to balance the federal budget. But in the five months between his election and inauguration day (in March back then), FDR did the most amazing about-face in political history.

His "brains trust" quickly decided that short-run stimulus was more important than budget deficits, and the New Deal embarked on a radical restructuring of the U.S. economy -- the efficacy of which is still being debated by economists generations later.

By the end of the 1930s, the accumulated U.S. national debt had multiplied from $17 billion to $43 billion, and it continued to soar through World War II.

In today's recession, Congress and the White House (both outgoing President George W. Bush and incoming President Barack Obama) seem inclined to spend whatever is necessary to forestall a deep, long recession -- budget deficits be damned. Next year, the deficit could hit $1 trillion dollars. At 7% of GDP, it would top the modern deficit record of 6% set in 1983, following the last severe U.S. recession. It would be well short of the 30% of GDP represented by the deficit in 1943, at the height of World War II.

Someday all of this borrowed money will have to paid off by inflation or higher taxes -- most likely by both.

Today's Safety Nets

Finally, it should be noted that America in the early 1930s was largely without the financial safety nets of today: Social Security, Medicare and Medicaid, unemployment insurance, bank deposit insurance and private pensions.

Though the finances of all of these are under severe pressure now and will need shoring up, they are still functioning and providing financial support to millions of Americans, whether employed, retired or jobless.

Frames of Reference

In short, in the past 75 years the world has learned how to prevent recessions from turning into cataclysmic depressions.

So if this recession is not likely to morph into a depression, what is more likely to happen?

I believe that better frames of reference are the last two bad U.S. recessions, in 1981-1982 and 1973-1975. Each lasted more than a year (about 16 months), with several single-digit quarterly declines in national output. Unemployment rates during those two slumps rose to the highest levels since the 1930s -- about 9% in 1974 and nearly 11% in 1982.

Many of today's middle-aged adults remember those recessions well, and they were awful. In the 1970s, the world was slammed by a ten-fold increase in oil prices -- far worse and longer lasting than the brief doubling of prices earlier this year, from which energy prices have now retreated to normal levels.

In the 1970s and early 1980s, high inflation pushed interest rates on business loans into the mid-teens and mortgages over 20%.

In the 1970s and early 1980s, the industrial heartland of American went through a massive restructuring, causing great pain in job losses but setting the stage for surging manufacturing productivity gains -- more output from fewer workers and hours worked -- during the late 1980s and 1990s.

Déjà Vu Anxiety

It should be noted that during these last two severe recessions, there was also deep anxiety, like today, about the possibility of another Great Depression looming.

I remember a cover story in Newsweek in mid-1982 that asked this very question. The question seemed plausible because the slump was severe, unemployment continued to rise, and people were scared. (For the record, Newsweek acknowledged the risk of depression but concluded it wouldn't happen.)

That summer turned out to be the darkest hour before the dawn. The Dow stocks ended their 16 years of price stagnation and took off like a skyrocket from a low of 777. And the broad economy entered a long, strong expansion of production and personal income.

As a business forecaster for some 30 years, I have learned never to say "never," so I'm not saying that a deep depression could not happen again. This year has been very humbling for forecasters. Things that I once thought to be inconceivable -- the collapse of AIG, Freddie Mac and Fannie Mae and the near bankruptcy of Detroit automakers -- have indeed come to pass.

When I hear my more pessimistic peers saying that this or that calamity "could happen" or "might happen," I do not dispute them because anything could or might happen.

Since the economic improvement won't be immediate -- indeed, things will get worse before they get better -- there is a risk that people will lose confidence in government plans before they are even implemented and act out their fears.

There is a risk that people who are able to consume normally -- secure in their jobs and earning what they always have -- will pull back unnecessarily and worsen the slump.

What's Likely?

At Kiplinger, we try to deal in likelihood and probability. And for all the reasons listed above, we believe it is likely that this slump can be contained to a duration and severity no greater, and probably less, than those of the slumps of the 1970s and early 1980s. And we believe that stock prices will start to recover when corporate earnings resume a modest upward path, probably near the end of next year.

Working our way through these challenges will be difficult and lengthy, with the fiscal hangover lasting many years. But as a nation, we seem to have decided that preventing near-term economic collapse is worth virtually any long-term cost.

Friday, 21 November 2008

Auto makers slash jobs

PARIS - FRANCE'S flagship car manufacturer PSA Peugeot Citroen slashed 3,550 jobs on Thursday as the global economic crisis cut a swathe through the world's auto sector.

Peugeot's news came as German luxury marque Daimler, Japanese truck maker Isuzu and car giant Mazda and Thailand's General Motors subsidiary announced similar cuts, in a market sapped by collapsing consumer confidence.

World manufacturing has been sucked into the storm whipped up by the global financial crisis, and job losses in the auto sector have contributed to the gloom haunting plunging stock markets.

Falling car sales are particularly bad news for France, where the sector plays a strategic role in the economy and directly or indirectly accounts for 10 percent of the jobs in the workforce.

Renault has already announced 6,000 job losses, including 4,900 in France, and Thursday's announcement saw the crisis cut deep into its larger competitor PSA Peugeot Citroen.

A statement from the firm said it hoped to trim headcount by 3,550 across all of its plants, including 850 at the factory in the western city of Rennes where it produces mid and high-end cars.

Peugeot hopes to make up these numbers through voluntary redundancies. A further 900 employees will be asked to leave Rennes and take up jobs elsewhere in France building smaller, cheaper vehicles.

'These measures are only aimed at employee volunteers,' Peugeot said. 'In this way, the group should be able to reduce its headcount without resorting either to a collective redundancy program with lay-offs or early retirements.'

Explaining the cutbacks, the company said European car sales would fall 17 per cent in the fourth quarter of 2008, and predicted: 'This recession will continue in 2009 (minimum forecast at least minus 10 percent).'

The German luxury car maker Daimler, meanwhile, will reduce the number of its temporary workers in Germany again, a spokeswoman told AFP, as the company sought to counter the effects of falling demand.

'We are going to reduce again the number of temporary workers and short-term contracts,' the spokesman said, while declining to say how many workers would be affected. German press reports estimated the figure at 570.

Outside Europe, it was a similar story.

Japan's Isuzu said it would axe 1,400 domestic posts and slash domestic production by 10 percent from an earlier target.

'With the way things are, we had no choice but to make adjustments,' said a spokesman for Japan's second-biggest truckmaker.

Mazda, Japan's fifth largest carmaker, said it would scrap 1,300 jobs. The group has lowered its production target for this financial year to 1.048 million vehicles, 48,000 units fewer than originally planned.

General Motors will halt assembly in Thailand for two months and shed 250 staff due to slow demand, a spokesman said on Thursday, as its struggling parent company pleaded for a bailout in the US.

The announcements on Thursday were only the latest in a series of job losses and plant closures to have swept through the industry since Aug, when fears over a collapse in the US sub-prime lending market triggered a credit crunch.

With their own jobs on the line, and credit deals harder to find, motorists turned their backs on new cars, placing the auto sector in the frontline as the financial crisis began to ravage the 'real economy.'

The US has been particularly hard hit, with lawmakers wrangling over a proposed US$25 billion (S$48 billion) government bail-out packages to save the 'Big Three' auto makers: General Motors, Ford and Chrysler. -- AFP

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