Bernard Madoff

From Wikipedia, the free encyclopedia

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

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

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

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

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

Personal

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

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

[edit] Career

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

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

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

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

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

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


[edit] Methods of operation, accusations, and case

[edit] Investment strategy

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

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

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

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

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

[edit] Sales methods

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

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

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

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

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

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

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

[edit] Previous SEC investigations

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

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

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

[edit] Red flags

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

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

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

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

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

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

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

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

[edit] Signs of trouble

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

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

[edit] Other Madoff-companies involved

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

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

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

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

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

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

[edit] Others involved

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

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

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

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

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

[edit] Recovery of funds

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

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

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

[edit] Affected clients

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

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

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

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

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

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

[edit] Largest stake-holders

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

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

[edit] Suicide of client

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

[edit] Philanthropy

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

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

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

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

10 Predictions for 2009

ByDavid Sterman, RealMoney Contributor

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

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

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

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

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

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

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

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

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

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

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

The Worst Predictions About 2008

By Peter Coy

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Mr. Steele, meet President-elect Barack Obama.

No quick fix for mkt woes

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

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

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

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

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

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

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

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

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

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

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

How to Invest in 2009

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

By Steven Goldberg, Contributing Columnist, Kiplinger.com

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

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

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

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

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

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

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

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

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

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

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

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

What to Do When Layoffs Loom

By Elizabeth Brokamp

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

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

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

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

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

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

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

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

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

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

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

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

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

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

China sees challenges ahead

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

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

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

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

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

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

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

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

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

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

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

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

UAE may see massive layoffs

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

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

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

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

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

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

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

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

US economy shrinks as IMF warns of Great Depression

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Bleak outlook for construction

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

After 30 Years, Economic Perils on China’s Path

By JIM YARDLEY
Published: December 18, 2008

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Singapore says 10,000 homes bought via deferred payment

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

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

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

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

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

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

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

'Worldwide problem' in '09

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Singapore economy worsens

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


Singapore to convene wage council, may cut pensions
Kevin Lim
Reuters

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

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

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

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

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

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

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

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

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

http://www.forbes.com/afxnewslimited/feeds/afx/2008/12/15/afx5824997.html





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

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

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

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

http://www.antara.co.id/en/arc/2008/12/16/singapores-labour-market-shows-signs-of-softening-govt/



Singapore reports fall in shipping traffic
John Burton
Financial Times

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

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

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

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

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

http://www.ft.com/cms/s/0/2275d384-cb2e-11dd-ba02-000077b07658.html?nclick_check=1


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

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

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

The storm ahead

Han Ming Wen
Guest Writer

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

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


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

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

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

On the economic front

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

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

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

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

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

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

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

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

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

On the political front

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

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

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

On the social front

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

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

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

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

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

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

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

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

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

Grim '09 for venture capitalists

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

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

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

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

'The operative word is 'survive'.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Nov key exports fall 17.5%

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

582,000 Canadian jobs at risk

TORONTO - CANADA could lose more than 580,000 jobs within five years if Detroit's Big Three automakers go out of business, according to a Ontario government commissioned report.

The review, prepared for Ontario's Ministry of Economic Development and released on Tuesday, warns that the collapse of General Motors Corp, Ford Motor Co and Chrysler LLC would send lasting shock waves through the economy.

If auto output by US-based manufacturers in Canada were cut in half, at least 157,400 jobs would be lost right away, 141,000 of them in Ontario.

By 2014, job losses would rise to 296,000 nationally, including 269,000 in Ontario.

If production were to cease completely, 323,000 jobs would be lost immediately in Canada, including 281,800 in this province, rising to 582,000 nationally and 517,000 in Ontario by 2014.

The Ontario Manufacturing Council, a provincial government panel, commissioned the 11-page report, which was prepared by the Center for Spatial Economics.

The report paints a gloomy picture if the provincial government and Ottawa and Washington do not bail out the US automakers.

Ontario Economic Development Minister Michael Bryant said on Tuesday a proposed $3.4 billion Canadian (S$4.09 billion) rescue package is needed to avoid a 'catastrophic' chain of events.

Mr Bryant said Canada 'is better off providing life support to GM and Chrysler, because the demise of auto in Canada is the economic equivalent of a nuclear freeze with catastrophic effects that would knock us into a deep recession'.

Canadian Federal Industry Minister Tony Clement said last week that Ottawa and Ontario will provide the equivalent of 20 per cent of whatever emergency aid the Bush administration gives to the companies - a figure proportional to the number of vehicles produced in Canada. -- AP

Economic crisis batters Europe

PARIS - EUROPEAN car sales slumped, inflation slowed and governments issued gloomy forecasts on Tuesday ahead of an expected record cut in US interest rates aimed at breathing life into the world's largest economy.

Consumer prices in the United States plunged a record 1.7 per cent in November, raising fears of deflation that were echoed in Britain and France, which both reported sharp drops in their 12-month inflation in November.

'This disinflation movement is very brutal,' Mr Nicolas Bouzou, head of Asteres, an economic consultancy, said in reference to the sharp slowdown in France's inflation which he blamed on falls in world commodity prices.

In another round of economic gloom, US housing starts took a record 18.9-per cent tumble during November and European trade body ACEA reported a year-on-year plunge of 25.8 per cent in new car sales in Europe in November.

'The collapse has become clear,' said the Kommersant business newspaper in Moscow, referring to an industrial output slump during November of 10.8 per cent - the worst result since the fearsome 1998 financial crisis.

The news from Russia's ex-Soviet neighbour Ukraine was even more alarming.

Ukrainian President Viktor Yushchenko said economic contraction in the first quarter of 2009 could be as high as 10 percent following a crisis in the banking system and a slump in demand for steel, Ukraine's main export.

In Europe's biggest economy, Germany, the Frankfurter Allgemeine Zeitung quoted a government memo saying contraction in 2009 could be three per cent or more, which would be the worst recession in Germany's post-war history.

South Korea also cut its 2009 economic growth forecast by one percentage point to three per cent, with President Lee Myung Bak telling the cabinet that 'next year will be the most difficult year, especially the first half'.

And in Japan, French global luxury group Louis Vuitton announced that it was scrapping ambitious plans for a flagship store in central Tokyo, which had been set to rival its Paris outlet, because of a slump in demand.

The grim economic news came as the fallout continued from a massive alleged scam run by Wall Street figurehead Bernard Madoff, which could force some of the world's biggest banks to wipe billions off their balance sheets.

London-based HSBC, Spain's Santander and Fortis Bank Netherlands alone revealed potential losses of more than five billion dollars as a result of the pyramid scheme fraud, which has turned the spotlight on US market regulation.

Wall Street appeared to shrug off the downbeat reports and stocks swung higher in early trading on Tuesday ahead of the expected US interest rate cut.

A meeting of the Federal Reserve was expected to end at around 1915 GMT (3.15am Singapore time).

European Central Bank (ECB) president Jean-Claude Trichet meanwhile urged Europe's banks to pass on the ECB's historic interest rate cuts to the eurozone economy, suggesting the central bank might mark a pause in the cuts.

Now 'we have to get it in the real economy', Mr Trichet said late on Monday.

In other market developments, the dollar fell while oil prices held steady ahead of an Opec meeting on Thursday expected to announce output cuts.

In Vienna, Opec said that global demand for oil was shrinking and that if the recession deepened, 'the growing imbalance on the oil market ... presents a real challenge for all market participants'.

Amid all the economic doom and gloom, Spanish pawnshops have reported brisk trade, with the Confederation of Spanish Savings Banks saying 11.6 per cent more loans were made in the first half of 2008 than during the same time last year.

'The amount of pawnshop loans has increased bit by bit until this year, probably because of the crisis it has grown in a much more pronounced way,' said Mr Javier Ubeda, head of the confederation's pawnshops division.

On a more encouraging note, Christmas tree growers in Denmark said sales were holding up despite the crisis.

'Crisis or no crisis, the demand from importers is as strong as in the past, and is even greater than the supply available,' said Mr Kaj Oestergaard, head of the Danish Christmas tree growers' association. -- AFP

Growth may fall below 2.5%

TRADE Minister Lim Hng Kiang said growth could fall below the 2.5 per cent forecast this year due to the unprecedented fallout from global financial markets.
Mr Lim told the media yesterday: 'Nobody expected this to happen but the conditions have changed very negatively since September.

'If you ask businessmen, they were caught unawares by this change...so I am afraid the economy will come down lower than we expected.'

Mr Lim was speaking after the Asean Economic Agreements Signing Ceremony held at the new Crowne Plaza hotel at Changi Airport Terminal 3.

The minister's warning comes on the back of a Monetary Authority of Singapore (MAS) poll just last week that painted a similarly bleak outlook.

The 17 economists and analysts told the MAS they expected 2.2 per cent growth this year - below the official forecast of 2.5 per cent.

Mr Lim said Singapore's small, open economy made it vulnerable to global market conditions but he maintained there was light at the end of the tunnel.

'Within the Singapore economy, there are some sectors which are holding up rather well,' he said, pointing to new manufacturing plants coming up next year and in 2010, that will boost production capacity and help grow the economy.

'We are looking at these investments coming on stream because we have been successful in attracting new flows of investments in the last few years.'

Mr Lim also addressed the government's monetary policy: 'Singapore's monetary policy is set by MAS and I think that is very conducive to growth...We're looking towards the Budget to have a fiscal policy that will also be pro-growth.'

Singapore's economy is in a technical recession - defined by two consecutive quarters of year-on-year contractions.

Last month, the Ministry of Trade and Industry cut its official forecast for this year to 2.5 per cent from the 3 per cent it stated in October - its fourth revision this year. The downgrade was mainly due to poorer than anticipated figures from the services and manufacturing sectors in the third quarter.

Manufacturing registered its sharpest fall since 2001, causing the economy to shrink 0.6 per cent over the previous year and 6.8 per cent from the second quarter.

HSBC exposed to ponzi scam

LONDON - EUROPE'S biggest bank, HSBC, joined a list of top names in world finance admitting huge potential losses on Monday in a suspected pyramid fraud scam run by ex-Wall Street heavyweight Bernard Madoff.
Shares in Santander, the biggest bank in Spain and the second-largest in Europe after HSBC, plunged after the lender said it had an exposure of more than three billion dollars to Madoff Investment Securities in New York.

British, French, Japanese and Spanish banks and funds said investments totalling billions of dollars (euros) could be wiped off their balance sheets by a scandal that is set to affect some of the richest people in the world.

'In the interests of clarity, HSBC confirms that it has provided financing to a small number of institutional clients who invested in funds with Madoff,' London-based HSBC said in a statement.

'On the basis of information presently available, HSBC is of the view that the potential exposure under these financing transactions is in the region of one billion US dollars (S$1.48 billion).'

Royal Bank of Scotland said it could lose about 400 million pounds (S$882.6 million) and two British investment funds announced potential losses in the hundreds of millions of dollars.

France's Natixis investment bank, already brought low by subprime losses, put its maximum exposure at 450 million euros (S$894.5 million). Retail banking giant BNP Paribas revealed potential losses of 350 million euros.

Japanese financial giant Nomura said it could lose up to US$303 million and officials in South Korea said financial institutions there a total exposure of some US$95 million to Madoff's scandal-hit investment scheme.

Madoff, a 70-year-old Wall Street veteran, was arrested last Thursday.

He is alleged by US prosecutors to have confessed to defrauding investors of US$50 billion in a long-running scam that collapsed after clients asked for their money back as a result of the global financial crisis.

International Monetary Fund chief Dominique Strauss-Kahn said he was shocked US regulators had failed to identify and prevent the alleged fraud.

'The surprise is not that there are some thieves in the system, the question is where were the police? It's very surprising to find you're living in a system where a failure of the regulatory system was so big,' he told a news conference in Madrid.

Banks have rushed to disclose potential losses in an apparent bid to avert any deepening of the suspicion which has frozen credit markets, and in stark contrast to reticence as the subprime mortgage crisis unfolded.

US authorities allege that Madoff delivered consistently strong returns to clients by secretly using the principal investment from new investors to pay out to other investors in the scheme in what is known as a 'pyramid fraud'.

The scheme apparently worked as long as he could attract new investors but seems to have unravelled when some of Madoff's clients asked to withdraw their investment - only to discover that his seemingly brimming coffers were empty.

British investment fund Bramdean Alternatives Limited, which revealed it had put about US$31.2 million in Madoff's company, said the scandal raised 'fundamental questions' about the American financial regulatory system.

'It is astonishing that this apparent fraud seems to have been continuing for so long, possibly for decades, while investors have continued to invest more money into the Madoff funds in good faith,' the firm said in a statement.

Spain's El Pais newspaper reported that the country's second-biggest bank, BBVA, could lose hundreds of millions of euros in the scam. The report said 'some managers put the figure at around 500 million'. French insurance giant Axa on Monday said its potential losses were below 100 million euros and top banks Societe Generale and Credit Agricole each said that their exposure was under 10 million euros.

Italy's biggest bank, UniCredit, said that its exposure was around 75 million euros and that one of its investment unit may also have been indirectly affected. Banco Popolare said its exposure amounted to 68 million euros.

In Switzerland, Geneva private banks could lose up to US$5 billion in the scam, Swiss newspaper Le Temps reported, while private bank Reichmuth & Co said it may have lost US$328 million. -- AFP

Fashion sector fears crisis

ROME - EMPLOYERS and union leaders in Italy's fashion sector on Monday called for an 'urgent' meeting with Prime Minister Silvio Berlusconi to discuss ways to limit the impact of the world financial crisis.
They called for the meeting in a joint letter to Berlusconi and his finance, labour and economic development ministers, the textile and fashion federation Sistema Moda Italia (SMI) said in a statement.

Signatories include associations representing the textile, shoe, leather and eyeglass industries - representing tens of thousands of companies - as well as the main unions in the fashion sector.

The letter asks for 'an urgent meeting to enable us to face together the effects of the current heavy global, financial, economic and social crisis on the sector's businesses'. Industry representatives on Monday drafted proposals mainly concerning investment and tax breaks for the sector.

Italy is the European Union's leading importer of textiles, according to SMI, which represents some 60,000 businesses.

In the first seven months of 2008, Italy exported 10.6 billion euros (S$21.3 billion) worth of clothes, a 4.3-per cent increase over the same period in 2007. -- AFP

China economy slowing

BEIJING - CHINA'S capital spending rose close to 27 per cent in the first 11 months of 2008 over a year earlier, slowing from the first 10 months, rounding off a batch of data that has pointed to an abrupt slowdown in the world's fourth-biggest economy.
Its trade surplus swelled to a record in November, but exports and imports unexpectedly shrank, industrial output hit its weakest pace in years and sluggish demand globally and domestically pushed inflation down sharply, raising the risk of deflation.

The latest data showed investment in urban areas in fixed assets, such as road and factories, rose 26.8 percent in the first 11 months of the year compared with the same period in 2007.

That was marginally below expectations for a rise of 26.9 per cent and 27.2 per cent in the first 10 months of the year.

Real estate investment growth slowed to 22.7 per cent from 24.6 per cent.

'They're year-to-date data, so they understate the extent of the contraction in investment, particularly on the real estate side,' said Mr Paul Cavey, China economist at Macquarie Securities in Hong Kong.

'The much better numbers to look at are the volume numbers, so real estate under construction, which is now contracting by about 20 per cent year-on-year.'

Economists have been cutting their forecasts for China's growth as November data was released in the past week. The economy expanded 11.9 per cent in 2007, but was running at an annual pace of 9 per cent in the third quarter of this year.

The head of the International Monetary Fund, Mr Dominique Strauss-Kahn, forecast on Monday that economic growth could slump to around 5 per cent next year, well below the 8 per cent that the government is targetting.

'The possibility of a global recession is real, we realise something must be done,' he said at a conference in Madrid.

Beijing has acknowledged that the global downturn will cause unemployment to soar and could jeopardise social stability. Export firms, for example, employ tens of millions of rural migrants.

Reflecting official concern at the deterioration in economic growth, the central bank has cut lending rates sharply and the government last month unveiled a 4 trilliion yuan (S$879 billion) stimulus package.

China will face pressure to cut interest rates until the middle of 2009, the governor of the central bank, Mr Zhou Xiaochuan, said in Hong Kong. -- REUTERS

In five minutes, his life changed

Benson Ang
Sat, Dec 13, 2008
The New Paper


HE sees himself as a victim of the organisation's actions whereas another retrenched relationship manager sees himself as a victim of the market's collapse.

Alvin, a former DBS relationship manager, is bitter because he is jobless.

We are not using his real name because, under the terms of his retrenchment package, he cannot speak to the media.

Just one year ago, he had it all - cash, car, condominium and a challenging career.

In his heyday, the bachelor raked in more than $8,000 a month, drove a car, owned a condominium apartment, had three credits cards and a country-club membership.

Last month, his life changed - in just five minutes.

When news broke about three months ago that thousands of retail investors who bought structured products had lost their life savings, relationship managers like Alvin were perceived as the villains of the fiasco.

Now, he thinks he is the victim. Alvin, who is in his 30s, was laid off last month.

Other relationship managers were among the 450 Singapore employees let go by DBS last month.

They are also known as wealth managers, personal bankers or personal financial consultants.

DBS declined to reveal the exact number of such employees who were retrenched. A spokesman would only say that the staff cut was 'across different functions and ranks'.

Alvin was with DBS for more than three years, and is a graduate, although he declined to reveal in what field.

He claimed the first hint he had about DBS' retrenchment exercise was through the media last month.

'Then, I was worried. I knew the odds were not in our favour. But I tried not to think about it,' he said.

Bad news

A few days later, the bad news hit him.

His version of events, which could not be verified, is that he was told by a secretary from the bank to go down to the DBS head office in Shenton Way.

At the office, Alvin sat and waited with several other employees, whom he did not know. He was then called into a room with staff from the human resources department.

He recalled that he was told he no longer had to report for work, and had to return his access pass, staff pass and handphone SIM card on the spot.

His retrenchment benefits included a month's pay for each year of service.

Alvin added that DBS arranged for people to help him write his resume and gave him a list of over 20companies that were hiring.

'That was it. The whole thing took five minutes,' he claimed.

Mr Lim Swee Say, secretary-general of the National Trades Union Congress, had criticised the bank then for not consulting its staff union about the layoffs and using retrenchment as a first resort.

In reply, DBS said that it had frozen hiring before deciding on the retrenchment, and gave reasons why the retrenchment exercise was necessary. (See box on facing page.)

But Alvin still cannot understand the rationale.

'The company is showing profits, and the risk of products are mostly borne by investors,' he said.

Was he laid off because he was under-performing?

'I've been hitting targets, and was banded favourably for the past few years,' he claimed.

Did he mis-sell products? No, he asserted.

He said relationship managers were caught between a rock and a hard place. On one hand, they have to recommend suitable products to their clients. On the other, they have to meet sales targets to keep their jobs.

Alvin claimed that relationship managers must sell about $1 million in investments every month, which works to about $60,000 worth of products a day.

He admitted that relationship managers in general could have been overly-aggressive in pushing the products. (He does not think he himself is over-aggressive.)

He has sold some structured products to relatives of colleagues and does not know how to face them now.

He has yet to find a new job despite sending resumes to other banks. He also does not mind a job in a different industry or a lower-paying job.

Meanwhile, he says he is having problems paying his insurance bills and housing instalments, and has resorted to selling his car.

But he remains optimistic.

'I've been there, done that. I won't be jobless for too long.'

This article was first published in The New Paper on December 11, 2008.

Condo-style losing allure

The Straits Times
Dec 12, 2008
Condo-style losing allure
Falling prices in private home market chipping away at demand for DBSS flats
By Joyce Teo, Property Correspondent

PRICEY condo-style HDB flats have not been spared in the property downturn, going by what has been left for sale at Park Central @ AMK.

While over 70 per cent of the project's 578 units have been sold, the larger five-room units costing $600,000 to $670,000 each are still available.

These levels put the flats in the same price bracket as older condominiums, which might prompt some potential HDB buyers to turn to the private home market, where prices are falling.

Developer United Engineers announced the figures yesterday, and also said foundation works had begun at the Ang Mo Kio estate, which is being developed under the HDB's design, build and sell scheme (DBSS). Under the scheme, public flats are designed, built and sold by private developers.

Sales at Park Central have been favourable in view of the challenging economic climate, said Mr David Liew, the managing director of the group's integrated facility management and property development business.

Buyers include young couples, retirees and those with proceeds from collective sales, the group said.

The DBSS concept has been quite popular, but some experts fear the fall in private condo prices could leave buyers spoilt for choice.

Price is the key factor in DBSS projects as they are targeted at HDB buyers whose household income must not exceed $8,000 a month.

'It's a price-sensitive sector. These buyers can choose between HDB flats and lower-end condos,' said Associate Professor Sing Tien Foo, the deputy head of the National University of Singapore's real estate department.

'During a downturn, the price gap between these segments will narrow, so demand (at DBSS projects) may be affected,' he noted.

Most DBSS flats are priced at $500,000 to $700,000 each, roughly the level for executive condos, said ERA Asia Pacific associate director Eugene Lim. 'There is already an overlap.'

For a $600,000 unit, the monthly instalment on a 30-year, 80 per cent loan is about $2,000, assuming an interest rate of 2.6 per cent.

When the property market was rising in 2006, DBSS products met the needs of buyers who could not afford private homes.

The first such project, Premiere @ Tampines, was an instant hit, drawing 5,700 applications for 616 homes in late 2006. Although it sold only 500 flats initially, long queues formed when the remaining units were released for sale.

City View @ Boon Keng received 3,500 applications for 714 flats early this year, but only 460 were sold. Nearly 90 per cent of the flats have since been taken up, including all the three-roomers.

Park Central, Singapore's third DBSS project, garnered more than 2,300 applications. Prices average $490 to $500 per sq ft, putting the four-roomers at between $400,000 and $500,000 each.

The fourth DBSS project - Natura Loft in Bishan - saw about 680 applications for 480 flats last month. Its four-room units go for $465,000 to $586,000 each, while its five-roomers cost $600,000 to $739,000.

Once prices go above $600,000, the flats will be competing with old leasehold condos, executive condos and bigger executive flats, said Knight Frank's director of research and consultancy, Mr Nicholas Mak.

Unlike exec condos, which are initially subject to sale restrictions similar to those on public housing units, but become fully private after 10 years, a DBSS unit is just a value-added HDB flat, he said.

Indeed, demand for DBSS flats might be more severely affected than that for other segments as potential buyers have more choices, said Dr Sing.

Nevertheless, Mr Mak feels the DBSS concept is sustainable if the Government accepts lower land prices.

The problem is that most developers of DBSS sites bought them in good times.

There are two DBSS projects slated for launch in the first half of next year: one in Simei and a huge project of nearly 1,200 units in Toa Payoh.

The New Rules for Investing Your Money

A repeat of 2008, when almost everything tanked, is unlikely. It's still a good idea to spread your risk.
By Jeffrey R. Kosnett, Senior Editor
From Kiplinger's Personal Finance magazine, January 2009

The wisdom of investing in a smorgasbord of categories rests on the premise that something always works. U.S. stocks in a funk? Buy bonds and foreign stocks. The dollar is plunging? Offset it with income funds from countries with strengthening currencies. Worried about inflation? Add oil, gold and other commodities.

This strategy, which is known as diversification, rescued many an investor during the 2000-02 bear market. Even during the free fall of major U.S. stock indexes -- which tilt toward large companies -- bonds, small-company "value" stocks and real estate investment trusts made money, enabling investors with well-blended portfolios to avoid catastrophic damage.

This time, though, it really has been different. Aside from Treasury bonds, other cash-like investments and bank accounts, there have been no shelters from the storm. From dividend-paying blue chips to speculative small-company stocks, from long-term municipal debt to high-yield junk bonds, from real estate to commodities, virtually everything tanked. Even gold, the prototypical safe haven, saw its value decline. The average precious-metals mutual fund crumpled 51% in 2008 through November 7.

Some new ideas, such as foreign REITs, also failed miserably. Ditto for newly issued shares of private-equity companies, which promised growth plus high dividends from debt-fueled takeovers. And it turned out that real estate and banking failures in the U.S. did undermine rapid growth in developing nations such as Brazil, China and India. The idea -- or the desperate hope -- that these countries had grown so self-sufficient that they could prosper despite U.S. economic problems is as half-baked as it ever was.
Volatility here to stay

There is no immediate relief in sight from treacherous markets. Although Kiplinger's believes that U.S. stocks will end 2009 in the black, the market could fall another 10% to 20% before investors begin to anticipate an improving economy later in the year or in 2010. Terrifying daily swings will likely remain a constant.

Still, there are no certainties when it comes to forecasting markets. As unlikely as it may seem, stocks could surprise everyone and soar by 30% over the next year. But if you don't want to take a risk on the market, what then? You could forswear stocks and bonds and become a lifelong saver, although we don't recommend putting all your money in bank accounts and money-market funds. After inflation and taxes, and given today's low interest rates, this approach is a guaranteed loser over the long haul.

Your real decision, the way we see it, is between two different approaches to diversifying and managing your investments. The first, the traditional approach, is the one that worked so well during the 2000-02 implosion. In this scheme, you spread your money among as many as a dozen categories: stocks of big growth companies, small growth companies, bargain-priced large companies and undervalued small companies; shares of companies in developed foreign nations and emerging-markets stocks; and REITs and commodities. Add to that a variety of bonds with a wide range of maturities and issuer quality. Every so often -- say, every six months -- the traditionalist rebalances, buying more of the laggards and trimming those categories that have performed relatively well.

The nontraditional strategy is more daring. It requires more kinds of asset classes and a willingness to shift among them more frequently. ItUs a strategy that Jeff Seymour, managing director at Triangle Wealth Management, in Cary, N.C., calls "active, opportunistic and defensive." A leading advocate of the strategy is Mohamed El-Erian, co-chief executive and co-chief investment officer of Pimco, the well-known manager of bond funds. El-Erian believes that an investor who seeks to earn 8% to 10% annualized in coming years without taking undue risk will need to assemble a portfolio that has no more than one-third of its assets in U.S. stocks and the rest in real estate, precious metals and other commodities, foreign bonds, and European, Japanese and emerging-markets stocks. A return that good would be a fabulous outcome. But El-Erian's approach would also fall outside the comfort zone of millions of U.S. investors.

If the recession and bear market play out as previous downturns have, stocks are probably nearing a bottom. The economy should begin to grow again, albeit tepidly, in the second half of 2009 (see Outlook 2009). If that is the case, the bear market should end in the first half of '09 because stocks usually lead the economy by three to six months. Other economies and markets closely linked to the U.S., such as Canada, Japan and Western Europe, should revive as well.

Another reason to think we're closer to the end rather than the beginning of the bear market is the sheer ferocity of what has already struck us. Since World War II, the average bear market has lasted 15 months and slashed 29% off U.S. share prices. The current descent, which started in October 2007, has already lasted about that long and (through November 7) chopped 41% off Standard & Poor's 500-stock index. The rout is within shouting distance of the nearly 50% declines of the two worst post-World War II bear markets, 1973-74 and 2000-02.

If the past is indeed prologue, says Bruce Primeau, of Wade Financial Group, in Minneapolis, it makes sense to stick with the familiar. Long-term investors should keep 60% to 80% of their assets in U.S. stocks covering a variety of categories, including large companies, small companies, growth stocks and value stocks. Surround this "core" with funds that invest in developed foreign markets and in emerging markets, and reserve 10% to 20% for REITs, short-term or intermediate-term bonds, and cash reserves. Don't invest in anything that seems odd or unfamiliar, such as bond funds that invest heavily in derivatives. "At times like this, there's usually more risk in new ideas," says Primeau.

The secret to balancing goals

Make long-term targets No.1

Jill Gianola - The family's helper
Gianola Financial Planning, Columbus, Ohio

I start with clients' longest-term goals first - usually retirement - and see what it would take to fund those. Then I work backward. Their second-longest- term goal is often their children's college. The furthest goals are usually the big ones; if you don't start working on them now, you're not going to make it.

People are willing to rearrange their short-term goals - "Okay, we can't buy the house for another couple of years" - but they don't necessarily want to postpone retirement. You have to make progress on several fronts to make sure you get to the finish line.

Start with the minimum. With a 401(k), the minimum is to get the match. For me the minimum on a credit card is what it takes to pay it off in three years. If you have enough to meet both goals, you're good to go.

The secret to avoiding a high tax bill

Shelter your best investments

Jim Shambo - The tax cutter
Lifetime Planning Concepts, Colorado Springs, Colo.

You should always maximize tax-deferred 401(k)s and IRAs, but what assets do you hold in them? The usual argument is to keep stocks outside your 401(k) so that when you sell you're taxed on the capital gain, not ordinary income.

But most people ignore a fund's portfolio turnover to their detriment. Even if you don't sell a single share of your actively managed stock fund, you're going to have gains because the whole portfolio turns over every five years, maybe less. The longer you hold the fund, the better off you are having it in a tax-deferred account. If you're under 40, you've got maybe 40 years of tax deferral.

Outside an IRA you're paying capital-gains taxes every year. Turnover is why I like index funds. Their portfolios turn over maybe once every 20 years. If you invest only in index funds, keeping stocks on the outside of an IRA and a 401(k) and bonds inside makes sense.

Actually, it's important to have a blend of stocks and bonds inside and out of your retirement accounts so you have the flexibility to rebalance in the IRAs. You don't want to sell stocks in a taxable account and generate gains.

The secret making your money last

Keep two years in cash

Harold Evensky - The dean
Evensky & Katz, Coral Gables, Fla.

In retirement, if you start taking money out of stocks at the wrong time, you're in trouble: "Gosh, the market's down, but I've got to sell because I need groceries." So I developed the cash-flow-reserve strategy.

We don't believe in investing in stocks or bonds unless we expect to hold on for at least five years. Problem is, carving five years' worth of cash out of a portfolio puts too big a chunk in money markets. There's an opportunity cost to not being in the market. Two years of cash provides a significant cushion.

So if someone has a million dollars and needs 5% a year - $50,000 - we have two portfolios: a $900,000 stock and bond portfolio, and a $100,000 cash reserve. Maybe put the first year in a money-market account and the second in a short-term bond fund.

We've never run out of cash, but if we did, we would simply sell short-term bonds in the investment portfolio. We wouldn't have to sell stocks or long-term bonds when they're in the tank. The system worked well in the crash of '87 and the tech crash, and it's working very well now.

The secret to saving more money

Fund your goals before you spend

Peggy Cabaniss - The calm voice
HC Financial Advisors, Lafayette, Calif.

It's easy to fritter money away. What you need is a plan.

Let's say you make $10,000 a month gross. Write that down. Take out what your income tax is and what you pay for Social Security. Take out whatever is deducted from your paycheck for your health plan and your 401(k).

Notice that I set out goals first. What 95% of people do is, money comes into their checking account, they spend it, and at the end of the month there's nothing left. Of course they don't accomplish their goals.

On the day that money hits your checking account, have a certain amount automatically transferred to a savings or brokerage account. The main thing is that it doesn't sit around tempting you to spend.

The secret to creating the right mix

Tailor the averages to who you are

Lew Altfest - The teacher
L.J. Altfest & Co., New York City

Start out with a portfolio that's 65% stocks and 35% bonds and cash. That's my clients' average asset allocation. That's moderate: It gives you the upside of stock with significant protection for times such as now.

Then you have to take into account your personality and your circumstances. How safe is your job, how much money have you accumulated, can you afford to take risks?

If you're young and have decent risk tolerance, you could go to 80% stocks. If a lot of your money goes toward debt repayment, shift more toward bonds. But if your portfolio is less than 50% stocks, be prepared to accept a lower standard of living in retirement.

You can make tactical moves too. I think you should be overweighted in stocks now because you have the potential for above-average returns. Pull back when everybody says, "Why did we ever doubt the market?"

People want to tilt a portfolio toward that which has performed well and away from the areas that have not performed well. You should be doing the opposite. The thing that you should do robotically is rebalance and get back to your original allocation every quarter or once a year.

The secret to staying cool in this market

Know what you can control

Louis Barajas - The coach
Louis Barajas, Wealth Planning Santa Fe Springs, Calif.

Obviously, it's okay to feel upset. If you're really interested in helping yourself, think about what is within your control - and what isn't.

You can control how much money you're spending. You can control whether you're becoming more valuable at work. You can't control your office being shut down. You can control whether you put a résumé together and start looking for a job.

You're saying, "I've lost $50,000. I've lost $100,000." You can't change the event. What you need to focus on is the outcome you want. I've gone through this with a lot of clients: "What was the money for?" I ask. "For my retirement," they say. "I just wanted to play golf a couple of times a week and travel once in a while."

And we've sat down and looked at their portfolios. A lot of times they're still on target for that retirement. Or maybe instead of playing golf three times a week, they're going to be able to play twice a week. The feeling of having lost control of outcomes is what creates panic and fear. Don't forget that you do have options.

When a depression is depressing

Dhany Osman looks at how to stay resilient in these recessionary times.

AS I worked on my depression story out in Mind Your Body today, it came to my attention that the doctors I spoke to were reporting only small rises in number of patients who were anxious or depressed by the economic downturn.

It seemed strange to me, what with all the financial doom and gloom being reported in the newpapers world-wide.

I think Dr Chua Hong Choon, vice chairman of the Institute of Mental Health (IMH) medical board, summed it up best when he said: "Singaporeans are generally quite resilient."

He added that during the last recession, in the late 1990s, Singapore saw only a small rise in suicide cases compared to other Asian countries like Korea and Thailand. While I can't comment on what attitudes are like overseas, I do believe in the truth to Dr Chua's comment on the Singaporean's mental fortitude, especially when it comes to dealing with economic hardship.

By and large, I think Singaporeans have very strong survival instincts and will do what it takes to survive the financial crisis. As much as the younger generation may be criticised for taking things for granted, a lot of people I know have already steeled themselves for tough times and seem to have made ample preparations.

Take for instance a long-time friend of mine, who started work this year with a small start-up internet advertising company. He also got married recently and purchased his first home. With bills to pay and shaky business prospects ahead, I was sure he would be stressed by the recent global economic developments.

Instead, he seemed to see is as an exciting challenge to work in such a climate. "Bigger companies are fat and may need to slim down, mine is lean and mean," he said.

This, I believe, is the kind of resilience that Dr Chua was talking about; the problem-solving kind of pragmatism that one can apply to get out of any situation.

In my life, I've also learned a lot about dealing with depression from those around me that have fought it.

A close relative of mine once sat me down years ago and explained to me how she dealt with post-natal depression. Her detailed account of having to drag herself out of bed each morning, and go through the day with a leaden heart - despite the recent birth of her second child - was a truly sobering experience.

Up to that point, I had the tendency to use the word 'depression' rather frivolously, referring to homework and examinations as 'depressing' while idolising the 'depressing' music of my favourite bands at the time. (They're just melancholic or emotional, really.) These days, I'm more careful about how I use the term.

While this relative of mine did seek counselling, which helped to a certain extent, she also said that it was more a matter of resolutely bearing with the veil of sadness drawn over her, until it lifted on its own around a year later.

This just made me wonder if depression is a trial by fire which one emerges from stronger after overcoming the test.

I've seen friends emerge from severely traumatising periods in their lives as more determined and strong-willed people. But I've also lost friends to depression and know that it's no game, nor is it a condition to be treated flippantly.

As the current recession progresses, depression stemming from monetary or job anxieties may be the 'trial-by-fire' faced by some of us. While there may be no guaranteed solutions to fixing the recessionary blues, the act of trying to solve one's problems can in itself provide some relief. Inactivity, will only lead to a downward spiral of negative thinking.

To sum up what the expertssay: Take stock of your life during this time if you feel you're getting down. Prioritise what's important in your life (whether it's your family, your career or your home), and discard the unneccessary worries. Set modest goals, like managing to save a certain amount of money within a period, for yourself and see if you don't feel better for achieving them.

Solidarity and communication, too, are vital during hard times and this applies to family, friends and colleagues. Be each other's listening ear and look out for those in emotional distress.

A local bank staff member told me how morale at his workplace was at an all-time low following the global financial crash. He said that in lieu of actions taken by his employers (to provide emotional support), his colleagues had taken turns to play counsellor to one another to keep their spirits up at work.

"It helps us get by," he said.

As comrades hunker down together this recession, there is a lesson to be learn in the above example. Things may get rough in the months - or even years - to come, but by doing what it takes, we may all survive this ordeal together.

Canada is in recession

WASHINGTON - THE World Bank offered a grim 2009 outlook on Tuesday of just 0.9 per cent growth for the global economy, while a recession was declared in Canada and a rescue for US automakers hung in the balance.

In its 'Global Economic Prospects' report, the World Bank sharply cut its growth forecast and predicted world trade volume would fall 2.1 per cent as a worldwide credit crisis hits rich and poor nations alike.

Developing countries' economies would likely expand at a reduced annual pace of 4.5 per cent while wealthier, developed economies are expected to contract 0.1 per cent, the multilateral development lender said.

'The global economy is at a crossroads, transitioning from a sustained period of very strong developing country-led growth to one of substantial uncertainty as a financial crisis rooted in high-income countries has shaken financial markets worldwide,' said World Bank chief economist Justin Lin.

In Canada, the central bank lowered its key interest rate Tuesday by 0.75 point to 1.50 per cent and said the Canadian economy had slid into a recession amid the global financial crisis.

'The outlook for the world economy has deteriorated significantly and the global recession will be broader and deeper than previously anticipated,' the bank said in a statement.

In Washington, the White House demanded that Detroit automakers prove their 'long-term viability' in return for a US$15 billion (S$22.6 billion) rescue bailout but said a deal with Congress was in sight.

President George W. Bush's administration is making 'good progress' in its talks with congressional leaders over legislation to shore up General Motors, Ford and Chrysler, White House spokesman Dana Perino told reporters.

'We are still working through a number of issues, some of them just small and technical, and other ones a little bit more meaty in scope, but, all in all, making sure we're headed in the right direction,' she said.

In Geneva, the International Air Transport Association forecast that airlines would likely lose US$2.5 billion in 2009 due to the economic crisis.

'The outlook is bleak,' said Giovanni Bisignani, the association's director general and chief executive.

'We face the worst revenue environment in 50 years.' In Britain meanwhile, data showed manufacturing output sank 1.4 per cent in October from September, the eighth monthly drop in a row, and was down 4.9 per cent on a 12-month basis, the Office for National Statistics said.

The monthly fall was the largest decline since March 2005 and marks the country's longest consecutive contraction in manufacturing output since 1980.

In Japan, Sony said it would cut investment in its electronics business by 30 percent, cut 10 percent of its manufacturing sites and exit unprofitable businesses to cope with the downturn.

The announcement came just hours after Tokyo said the Japanese economy shrank 0.5 per cent in the third quarter - 1.8 percent on an annualised basis - even worse than initially estimated.

'The data suggests that the economy is contracting faster than previously thought, and the depth of the recession will be more severe,' said Glenn Maguire, chief Asia economist at Societe Generale in Hong Kong.

Stock markets saw mixed fortunes on Tuesday, but investor fear was underscored by new precedents on the bond market as investors flocked to safety.

The yield on the three-month US Treasury bill fell below zero - as low as negative 0.051 per cent around 1500 GMT (11pm Singapore time), ending the day at negative 0.001 per cent - for the first time as worried investors snapped up government bonds in search of shelter.

'Investors are desperate to cover short-term and end-of-year funding needs, making them willing to accept negligible - and now even negative - returns to protect their capital,' said Sara Kline at Economy.com.

On Wall Street, the Dow Jones industrials sank 2.72 per cent, ending a two-session winning streak. The tech-dominated Nasdaq dropped 1.55 per cent and the broad Standard & Poor's 500 index lost 2.31 per cent.

The London FTSE 100 index closed with a gain of 1.89 per cent, the CAC 40 in Paris added 1.55 per cent and the Frankfurt Dax closed 1.34 per cent higher, helped by a better-than-expected reading on German investor confidence.

'The market wants to believe in a rebound,' said Jean-Bernard Parenti of Swiss Live Gestion Privee. 'The selling pressure has eased a bit.'

In early Asian trading on Wednesday, Australian share prices opened 0.95 per cent lower as falling banking stocks weighed down the market for the second straight day. Japan's benchmark Nikkei-225 index fell 0.24 per cent in the first minute of trading. But South Korean shares opened 0.6 per cent higher, despite Wall Street's overnight fall. -- AFP

Britain in for long recession

LONDON - A BANK of England rate-setter warned on Tuesday that the current recession in Britain is likely to be as long and deep as the previous three major postwar downturns in the mid-1970s, early 1980s and early 1990s.

Andrew Sentance, one of the nine-strong monetary policy committee that is tasked with setting the level of official interest rates each month, said it would take time for recent cuts to the benchmark rate to have an effect.

The British central bank has trimmed its key rate by a total of 2.5 percentage points at its past two meetings, bringing the rate down to a 57-year low of 2 per cent as it attempts to minimize the economic slowdown - both the government and the Bank of England have warned that the British economy will contract by over 1 per cent in 2009.

But while the bank has forecast in November that the current downturn will be somewhat less acute than the three major postwar recessions, Mr Sentance noted recent survey data suggest that might not be the case.

'Even if we do see a recovery beginning in the second half of 2009 ... this recession is likely to be comparable in length and depth,' Mr Sentance told a conference on monetary policy and markets in London.

He is widely considered one of the most hawkish on the bank's monetary policy committee, meaning he has typically favored higher borrowing costs relative to other rate-setters.

Mr Sentance said that in the short term the challenge for monetary policy was to counter the impact on demand from the global banking crisis and to head off potential deflationary risks, a sharp turnaround from just a few months ago, when the bank was concerned about inflation being far above its 2 per cent target.

Mr Sentance defended the use of monetary policy against criticism it has become irrelevant because rate changes are not effectively transmitted to the wider economy due to disruptions to the banking system.

'Rather, it gives added force to the argument for a significant relaxation of policy in the short-term, which the MPC has delivered,' he said.

However, he noted that policy makers needed to develop better instruments for maintaining the stability of financial systems in the longer term, while warning against 'heavy-handed regulatory interventions.'

'We need to take time to decide what a new regime for regulating the financial sector looks like,' he added. -- AP

Point of no return

Interest on T-bills hits zero

NEW YORK - INVESTORS are so nervous they're willing to accept the same return from government debt that they'd get from burying money in a coffee can - zero.

The Treasury Department said on Tuesday it had sold US$30 billion (S$45 billion) in four-week bills at an interest rate of zero percent, the first time that's happened since the government began issuing the notes in 2001.

And when investors traded their T-bills with each other, the yield sometimes went negative. That's how extreme the market anxiety is: Some are willing to give up a little of their money just to park it in a relatively safe place.

'No one wants to run the risk of any accidents,' said Mr Lou Crandall, chief economist at Wrightson ICAP, a research company that specialises in government finance.

At last week's government auction of the four-week bills, the interest rate was a slightly higher but still paltry 0.04 per cent.

Three-month T-bills auctioned by the government on Monday paid poorly, too - 0.005 per cent.

While everyday people can keep their cash in an interest-earning CD or savings account at the bank, institutional investors with hundreds of millions of dollars on their hands often use government debt as part of their investment strategy.

In the Treasury market, the US government, considered the most creditworthy of borrowers, issues IOUs of varying durations to raise money.

The zero per cent interest rate is no reason to panic. As recently as Monday, investors were plowing cash into stocks, and averages like the Dow industrials are off their lows.

And long-term government bonds, while near record lows, are still paying decent money considering the tumultuous climate. The yield on a 30-year bond on Tuesday was a little higher than 3 per cent.

There's good news in all this for taxpayers: Low interest rates on government debt mean the United States is financing its US$700 billion bailout of the financial system very cheaply. The Treasury has sold mountains of debt to pay for it.

But the trend also underlines stubborn anxiety in the financial market that could keep the economy sluggish for years to come, and it translates into stagnant returns for people who have their money in places like money market funds.

'There's a price for safety,' said Mr Peter Crane, president of money market mutual fund information company Crane Data. 'Down slightly is the new up.'

As the stock market has taken its alarming plunge, people have been moving money from riskier assets to safer ones.

According to Crane Data, funds invested purely in Treasurys have surged more than 150 per cent over the past year, to US$726 billion.

Earning zero per cent on an investment for a short while may not seem that dire for the average person. But a zero per cent rate has serious consequences for the complex credit markets.

Those markets have been dysfunctional since Lehman Brothers Holdings went bankrupt in September, scaring away investors who normally buy bonds from seemingly creditworthy borrowers. Lending, the lifeblood of the economy, has frozen up.

One corner of the credit markets is the repurchase markets, known as 'repo,' where banks and securities firms make and receive short-term loans backed by collateral, usually Treasury bills.

When those T-bills are yielding nothing, there's little incentive to deliver them on time. If the holder loses the interest, it's no big deal.

'This is a particular problem in a time like this, because people are buying Treasury securities for their security, for their safety. It's important that they're delivered,' Mr Crandall said.

And high demand for government debt rather than corporate debt could stifle economic growth.

Corporate bond rates have been surging to record levels compared with Treasurys, which makes it more expensive for companies to raise money.

And when companies can't raise money, they often have to cut costs, sometimes through layoffs.

Only a few corporate bond deals have been going through lately, and most have been through the government, which has agreed to guarantee financial institutions' bond sales. American Express, for one, said on Tuesday it has issued US$5.5 billion through the government programme.

Many worry that the government will become the most attractive lender and borrower in the market - crowding out others in the private sector.

'Because they have a printing press, they can borrow ever greater quantities,' said Mr Howard Simons, strategist with Bianco Research in Chicago. -- AP

HK developers in denial

HONG KONG - HONG Kong's big developers have been in denial mode for the last week, countering grim forecasts of more property price slides with upbeat messages.
But faced with recession, looming job cuts and rising mortgage rates, few in the city believe them - although some analysts think their share prices reflect too much pessimism.

In property agency shop windows across the city, slashes of red marker pen and newly scribbled prices suggest apartments have already dropped 20 per cent in value in the last month.

Growing public expectations of a repeat of a 2003 slump, when the Sars respiratory disease ravaged Hong Kong's economy, prompted Sun Hung Kai Properties to predict last week that prices would rebound 5 percent in 2009.

And Henderson Land Chairman Lee Shau-kee, nicknamed Hong Kong's Warren Buffet for his savvy investing, ventured that the worst for the city's property market was past. He then added that the worst of the global economic slowdown was yet to come.

Many disagree with that property outlook, including Stephen Riady, president of Indonesia's Lippo Group, which invests in property across Asia, including in Hong Kong and mainland China.

'I doubt that,' Mr Riady said of the upbeat predictions. 'I think Hong Kong will probably go down much more. It's a very volatile market. It'll go down more than Singapore.'

A Reuters poll of analysts at the end of last month showed Hong Kong apartment prices were expected to drop 20 percent by the end of next year and Singapore prices would fall 21 per cent.

Brokers GFI Colliers say indicative property derivative levels suggest investors are betting Hong Kong prices will reach a bottom in December 2009, falling at least 25 percent from now.

Chris van Beek, vice president at GFI Colliers, said landlords, with anywhere between five or six apartments to portfolios worth US$65 million (S$97 million), were keen to switch to cash.

But they were dropping prices because buyers are scarce, partly because banks are demanding 30-40 per cent downpayments rather than 10 percent before the financial crisis.

'Some are offloading at 30 per cent discounts, but struggling to sell,' van Beek said. 'Many buyers think they might as well wait another four or five months for prices to come down more.'

Hong Kong property transactions fell to a 17-year low in November, down 87 per cent in value from a year earlier.

The territory is in recession, with exports hit by weakening global demand and consumers jolted by falling asset prices.

Dependent on the financial industry, people are now bracing for large-scale job cuts at investment banks and hedge funds.

Although Sun Hung Kai reported strong public interest at one of its projects last week - where buyers were given discounts of upto 13 percent - the firm has cut its target for apartment sales this financial year by a fifth.

Mortgage rate hikes by HSBC Holdings and Bank of China (Hong Kong) last week did not help, with the banks keen to address concerns over higher lending risks.

However, analysts do not expect a repeat of the negative equity on mortages seen in the early 2000s, because property prices have almost doubled since the beginning of 2004.

CLSA analyst Nicole Wong expects residential prices to fall 15 per cent in the next year, but believes investors have been too bearish on Hong Kong property stocks - pricing in a Sars-like scenario when that was unlikely.

She noted that property stocks outperformed the Hang Seng Index when home prices slid in 1998 and 2001, and pinpointed Sun Hung Kai, Henderson Land and Sino Land as good value. The stocks are trading at discounts of 48-62 per cent to net asset value. -- THOMSON REUTERS

HK economy 'highly exposed'

HONG KONG - HONG KONG'S economy is 'highly exposed' to the crisis in global financial markets and is headed for a marked slowdown, the International Monetary Fund said in a report released on Tuesday.

However, the Asian financial hub has made welcome moves to try to mitigate the effect of the global slowdown and its finances were in a solid position, the IMF said in a report on the territory's economy.

'As one of the most open economies in the world and with its focus on financial and trade services, Hong Kong... is highly exposed to the unfolding crisis in international financial markets and to the slowdown in the global economy,' the IMF's review of the city's economy during 2008 said.

'There are now clear signs of economic deceleration.' 'Following several years of impressive economic performance marked by robust growth and rising disposable incomes, the Hong Kong economy is headed for a marked slowdown,' it added.

Despite the challenges, the report said contingency planning in recent years and a large fiscal surplus would help the city battle the fallout from the global slowdown.

The IMF welcomed government measures to stimulate domestic demand and preserve liquidity in the troubled financial sector.

It added the city should retain the peg between the Hong Kong and United States dollars, continue with planned infrastructure projects and encourage greater co-operation with mainland China.

However, it warned that the city's worsening pollution provided a threat to the city's future growth prospects.

The IMF warning comes after Hong Kong chief executive Donald Tsang on Monday said the city, which is already technically in recession, faced a further slowdown in 2009, but insisted it remained in a strong position.

Mr Tsang also unveiled additional government measures to stimulate the economy, including boosting a loan scheme for small and medium-sized businesses to 100 billion Hong Kong dollars (S$19.33 billion). -- AFP

Gold shines on

NEW YORK (Fortune) -- Gold may have a special place in the hearts of many investors, but it has not been immune from the forces that have hammered commodities from aluminum to zinc this year - the rising dollar and drastic economic slowdown. Since hitting a record near $1,030 an ounce in March, the price of gold has fallen about 25% to $775 as of Monday. Even so, the precious metal should still shine for investors in 2009.

The case for gold begins with the fundamental weakness in the dollar. While investors have seen the dollar as a haven in the current economic crisis, that trend won't last, says Peter Sorrentino, a senior portfolio manager at Huntington Asset Advisors. That's because the vast amount of currency that the United States will have to print to fund TARP, potential auto industry aid and a massive U.S. government spending plan will create tremendous inflationary pressure and erode the value of the dollar.

Moreover, currencies all over the world are declining in value as countries slash interest rates to stave off even deeper economic recessions and the banking system struggles to deal with massive write-downs and illiquid assets. Europe and China are rolling out their own incentive and bailout plans, points out Jim Vail, a senior portfolio manager at ING. "Financial assets are under pressure and the global money supply is growing rapidly," says Vail. With few currencies holding up in value, he believes investors and sovereign nations will soon turn to gold as a preferred reserve currency.

Investors also want a liquid asset going into an uncertain economic environment. Over the past year, gold has been one of the few liquid assets that struggling money managers were able to sell to offset stock and bond losses. It pushed down the value of gold in the near term, but reinforced gold's reputation as safe and always valuable.

Finally, a shortage of gold will likely keep a floor under prices (currently bouncing between $700 and $800) and push them higher in the future. Mark Johnson, who manages the USAA Precious Metals and Minerals Fund, says gold production is flat and could even fall as mines close and no major new mines are opened. Gold production could drop by 5% a year for the next five years, Mark Cutifani, chief executive of South African mining company AngloGold Ashanti, told the trade publication Mining World. In an October interview Cutifani said that South Africa's production had dropped by 205 to 30% over the past five years and that the quality of gold at mines around the world is getting worse.

According to Sorrentino, the U.S. Mint ran through its annual gold supply marked for coins before the end of May. And Kitco, a popular Web site where investors can buy gold coins, says there is a delay in providing gold due to lack of supply.

If you buy the bullish case for gold, one efficient way to invest is via an exchange-traded-fund, or ETF, because ETF fees tend to be much lower than those of actively managed mutual funds. One popular choice is the SPDR Gold Shares ETF (GLD), which holds gold in a trust. It charges a 0.40% annual management fee and is trading at $76, near the mid-range of its 52-week range. Investors willing to pay a slightly higher 0.94% fee might consider the Permanent Portfolio fund (PRPFX). The goal of the fund is to preserve capital, making it a good choice for troubled times. The fund's assets are divided between precious metals and Swiss-franc bonds to guard against inflation, while also holding Treasuries to guard against deflation.

Lessons I learnt from layoffs

Gabriel Chen tells the human story behind all the recent job cuts.

FORMER United States president Harry Truman once said: “It’s a recession when your neighbour loses his job; it’s a depression when you lose yours.”

Well, I haven’t lost my job yet, but when I look at how my friends who’ve lost theirs are dealing with their emptiness, I would like to tell them not to give up.

First, it’s easy to get depressed. Their income, their self-worth, their sense of disposition all shattered.

Of course, there are ways to mitigate the uncontrollable, like making sure there is going to be enough money if income is lost or learning to plan so that your family can cope during these trying times.

But think rationally. There’ll be sadness and maybe a huge myraid of emotions tossed into the depressing unemployment picture, but the prospect of change can be eye-opening too.

I’ve changed during the financial crisis.

I used to think writing about job cuts was like flashing out a series of numbers, no responsibility on my part.

But I was very wrong.

In fact, job cuts concern real lives, emotions, people – things you can’t fudge and trivialise.

I learned it the hard way. I remembered a story I wrote sometime ago about how one bank was trimming jobs here.

I said this lady – and I mentioned her full name – was axed from this certain bank. She wrote in to complain, saying that she wasn’t asked to go, but rather, she “had in fact resigned to embark on a change for personal reasons”.

So there, I was careless, flippant and bit too cocky, and I should have been more careful.

I made a bad mistake, learned about layoffs in a hard way, and for me, that was a lesson in itself. I had to change or face the prospect of my writer’s reputation going down the drain.

One of my friends, an ex-banker, pulled in a seven-figure sum last year, dealing with complicated investment products.

Today, he is earning zilch. He spends his time doing “nothing” and doesn’t see the point in finding a job at the moment.

Mark, not his real name, explains: “There’re 200 applicants for one opening, and it’s very competitive, especially when what you were doing in the past was very specific. The industry will change with time, so I’ll wait as well.”

Mark is quite right, you know, because the financial industry will evolve.

I talked to several bankers selling those toxic structured products that made its way to the retail market.

Banker John Tan, not his real name, 30, told me that he sold Lehman Minibonds last year.

That helped him earn about $7,000 a month, including commissions. Today, he is stuck with just his basic monthly pay of $3,000 and has been switched to do work like data trending and documentation.

“It’s different from what I did but I’ve no choice,” he tells me with a sigh. “I can quit, but where can I go? Every industry is down.”

Personal banker Alvin Lee, 27, is also trying to adjust his lifestyle during these “worrisome times”. He too is making an effort to change his lifstyle, whether he fancies it or not.

He was hitting about $1 million to $3 million worth of sales of structured products every quarter a year ago. This means that every quarter, he reaped about $15,000 to $30,000 in commissions alone.

He splashed a big portion of that on clothes and steaks at Lawry’s Restaurant.

“Today, anything goes,” he said. He works at a foreign bank, selling investment products, but his overall remuneration package has fallen by about 25 per cent.

“I’m trying to save,” he says wistfully.

Then there is Sharon, 28, a relationship manager who has since switched to selling general insurance and currencies to customers of her bank.

This is a far cry from the boom times during the middle of last year where equity-linked notes, a kind of structured product, comprised 80 per cent of her monthly sales.

I spoke to Mark yesterday. “My family is more worried than I am about myself. They belong to the old school and are not used to me doing nothing,” he concedes.

Mark now sees his family about 15 hours a day, compared with eight hours a day during those long arduous days he put in at his workplace last year. That, in itself, is an adjustment for him.

So what now, you say. Indeed, now is the time, that time of change. You might still have a job, but be prepared for a lot of changes down the road. This is a time where you have to step away from your comfort zone.

Downsizing and pink slips may be household names now, and sure, it may not be easy to deal with job losses, but don’t despair as there’s nothing to fear but fear itself.

The future is a construct that is shaped in the present, and that is why to be responsible in the present is the only way of taking serious responsibility for the future.

Keep saving, be prudent, and don’t fear the unknown.

The world will continue, and whether we know it or not, we are deciding its course every day.

Sometimes, in the midst of change, one’s character is stretched, and it can be quite painful.

Don’t be afraid to help others, if you can.

Remember, all it takes is an inspiring word of encouragement from one friend to another to make someone’s day.

Crisis in HK as bad as '98?

HONG KONG - HONG Kong's chief executive Donald Tsang said on Monday the city's economic slowdown in 2009 could be as bad as the Asian financial crisis in 1998.

'Negative growth for Hong Kong in 2009 now seems inevitable. Everyone should be psychologically prepared,' he said at a press conference.

Over the next 12 months, the impact of the global financial crisis on the domestic economy 'will be no less than the Asian financial crisis in 1998,' he said.

But he insisted that Hong Kong maintained a sound financial system and would be among the first to rebound when the external environment improved.

Mr Tsang unveiled further government measures to boost the economy on Monday, including the allocation of almost a quarter of its reserves, or 100 billion Hong Kong dollars (S$21 billion), to a special loan scheme for small and medium-sized firms.

The injection aims to prevent further job losses as an increasing number of companies have downsized or gone bust in recent months.

'Banks are now too careful (in approving loans), which is understandable.

But I am confident that the banks will look at the matter differently with our injection of 100 billion dollars,' he said.

Mr Tsang said the injection would also raise the maximum loan amount for each enterprise from HK$1 million to HK$6 million. The loan will be open to any firm except those which are listed, he said.

He added that another HK$40 billion would be spent on infrastructure projects to create 55,000 jobs next year, while the government would also hire 7,700 civil servants and open 4,400 temporary posts to boost employment.

Government departments have been told to expedite their screening and approval of private-sector projects, he said.

The measures are expected to be introduced before Christimas after the government secures the approval of the Legislative Council, Mr Tsang said.

The chief executive said that the government was also working closely with the Chinese authorities on measures to support Hong Kong-owned entreprises operating in the Pearl River Delta, expand the scope of mainland Chinese businesses operating in Hong Kong, and boost the number of mainland travellers to town.

Mr Tsang said he would present economy-boosting proposals to China's state leaders during a trip later this month to report his work.

Hong Kong slipped into recession in the third quarter as the global economic slowdown took its toll on the financial hub, government figures showed this month. -- AFP

US recession to deepen

WASHINGTON - A MEASURE of future US economic growth and its annualised growth rate both ticked up in the latest week, but they still suggest the recession will intensify in the near future, a research group said on Friday.

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose in the week ending November 28 to 109.9 from 106.9 in the previous week, revised from 106.8.

The index's annualised growth rate was also less negative at minus 28.5 per cent from last week's negative 29.2 per cent.

'Despite the first uptick in WLI growth since mid-September, it remains in a steep cyclical downtrend, suggesting that the recession will deepen further in the coming months,' said Mr Lakshman Achuthan, managing director at ECRI.

Stronger stock prices and housing helped the weekly index edge higher but lower commodity prices partly offset the gain, Mr Achuthan said.

Job losses shake confidence
The US economic picture darkened further on news of a massive loss of 533,000 jobs in November, raising fears that the recession gripping the global economy will be worse than anticipated.

The US Labour Department said the US economy lost 533,000 jobs last month, the highest monthly job loss in 34 years and much higher than the 325,000 forecast, taking the unemployment rate to a 15-year high of 6.7 per cent.

The department also made a sharp upward revision in the number of job losses in the prior two months: October saw a loss of 403,000 jobs (up from an earlier estimate of 240,00) and September job losses were revised up to 320,000 from 284,000.

Analysts said the fall was the worst monthly outcome since 1974 and likely means authorities will have to do more to combat the recession on top of the hundreds of billions of dollars already spent to bolster the world's largest economy.

'The employment reports punctuates the fact that the economy is in a deep recession that appears to be rapidly worsening as a result of the sharp decline in consumer spending and significant deflationary forces which discourage immediate business investment,' said Mr Frederic Dickson, chief market strategist for Davidson Companies.

'There is no sugar-coating this data,' said analysts at Briefing.com.

US President George W. Bush acknowledged for the first time that the US economy was in recession.

'Today's job data reflects the fact that our economy is in a recession,' Mr Bush said in hastily announced remarks on the South Lawn of the White House.

'My administration is committed to ensuring that our economy succeeds, and I know the incoming administration shares the same commitment.'

President-elect Barack Obama, who takes over on January 20, called for an 'urgent' effort to put people back to work and to stimulate the US economy.

'There are not quick or easy fixes to this crisis, which has been many years in the making, and it's likely to get worse before it gets better,' Mr Obama warned in a statement.

US authorities have already taken a variety of steps to induce growth, including injecting multi-billion dollar bailout packages to cushion the financial and other key sectors from collapsing.

A key anticipated measure is the US Federal Reserve likely to slash interest rates by at least 50 basis points next week from the current 1.0 percent.

The US stock market fell immediately after the bleak US job data but recovered ahead of the close for the week, with the benchmark Dow Jones Industrial Average up 229.79 points to 8,606.03 at around 2040 GMT.

The market expected the US authorities to move swiftly to address the crisis, some analysts said.

But in London, the FTSE 100 index of leading shares finished down 2.74 per cent to 4,049.37.

In Paris, the CAC 40 slumped 5.48 per cent to 2,988.01 and in Frankfurt the DAX fell 4.0 per cent to 4,381.39.

Commodity prices fell too on fears the US figures herald a very sharp drop in demand in the United States, the world's biggest energy consumer, with the Brent oil contract falling below 40 dollars to levels last seen in January 2005.

Dutch Prime Minister Jan Peter Balkenende said his country was probably heading for recession and economic growth might 'fall away' in the next two years.

Analysts said the latest developments were worrying after a series of unprecedented interest rate cuts in Europe on Thursday, led by the European Central Bank with a record reduction of 0.75 percentage points.

As interest rates move ever lower, the impact of each successive change weakens, meaning the authorities have to take increasingly dramatic action. -- AFP, REUTERS

No global depression

Instead, he sees a long downturn, then years of slow growth
By Sue-Ann Chia, Senior Political Correspondent

PRIME Minister Lee Hsien Loong does not foresee a global depression despite the current financial storm sweeping the world.

'I think that global depression is not on the cards. Governments have learnt the lesson of the 1930s and they will not repeat the same mistakes,' he said.

'So this is not the end of the world.'

Still, it could be a long downturn followed by several years of slow growth, he said, during an hour-long forum with members of the Foreign Correspondents' Association.

'The recession, to the best of the experts' judgment, may last a year, maybe if we're lucky, three-quarters (of a year),' he noted.

'But the recovery...is likely to be weaker than from previous recessions and we must be prepared for several years of slow growth.'

Mr Lee, however, noted that experts had been wrong many times before and they could be wrong again.

In a speech before the question- and-answer session, he noted that events had turned out worse than expected.

'Governments are improvising, making policy on the fly, venturing into uncharted territory, throwing every possible measure into the mix to try and restore confidence, restore stability, maintain employment and get growth going again,' he said.

Such swift action by countries such as the United States and China to counter the recession could prevent the world from sliding into a depression.

China's 4 trillion yuan (S$886 billion) stimulus package is 'a plus for the rest of the world', he said, but its impact is also marginal.

In the US, President-elect Barack Obama has assembled the 'strongest possible economic dream team'.

'But even with the best team and the best policies, it's not possible to turn things round overnight,' he said.

That is because it takes time to change habits. The Americans have to save more, consume less, and invest more in infrastructure, while Asian countries have to continue to save but also consume more.

'It will be some time before the world goes back to sustained growth again.'

Meanwhile, Singapore, which has suffered recession in the second and third quarters of this year, is taking steps to help workers and businesses cope, with a training programme and easier access to loans.

These measures precede the Budget next month. 'The most important thing we should try to do is to keep our businesses afloat and keep our people in jobs,' he said.

Lower-income families can look forward to aid in the Budget, Mr Lee added.

Economist Choy Keen Meng from Nanyang Technological University agreed with Mr Lee, saying that a long-lasting depression can be averted as policymakers worldwide produce a coordinated response and the right fiscal policies.

He said Singapore needed a 'substantial stimulus' Budget package, with cash handouts and rebates to encourage people to spend.

Search: Singapore may face years of slow growth after recession

SINGAPORE, Dec 5 - Singapore's economy, already in recession, may shrink in 2009 and face slow growth for years to come, the country's prime minister said, as the export-dependent city-state is hit by the fallout from the world economic crisis.

Lee Hsien Loong, at a lunch hosted by Singapore's Foreign Correspondents Association, said it was not government policy to weaken its currency -- a move that could help exporters but hurt the country's standing as place for investment.

"Singapore must be prepared for several years of slow growth," he said. "Even the most pessismistic bears did not anticipate the consequences of the bubbles," Lee added, referring to U.S. subprime housing woes and global trade imbalances.

The central bank, which sets monetary policy by managing the Singapore dollar against a secret basket of currencies, in October switched from allowing a gradual rise in the currency to a neutral stance of zero appreciation.

Some commentators expect the central bank to ease policy further by letting the currency weaken ahead of its next scheduled review in April.

Lee, the son of Singapore's founding father and former Prime Minister Lee Kuan Yew, is facing his biggest test since taking office four years ago, with the country's top trading partners the United States and Europe in recession and growth in Asian neighbours slowing.

Lee said policies to boost the economy would take effect immediately after being announced in an expansionary January budget. The government would partly rely on construction to help growth with project costs coming down, he said.

"It makes sense for us to take advantage of that," Lee said. "The budget emphasis will be on jobs." He expects unemployment to rise, particularly in manufacturing, which accounts for about a quarter of the economy.

Last month, the government pledged to spend S$2.3 billion to help firms get credit and said it would run a larger budget deficit to support an economy that it said could shrink 1 percent in 2009 and at best would expand 2 percent.

BANKING SECRECY

The government is trying to diversify away from manufacturing into service industries such as tourism and finance.

Singapore's banks have not suffered huge writedowns on risky debts unlike peers in the United States and Europe, though top bank DBS Group said last month it would cut 900 jobs after suffering a 38 percent drop in quarterly profit.

Lee said Singapore may face political pressure from the European Union and the United States over its role as a financial centre for rich foreigners, following a landmark deal by offshore haven Liechtenstein with the United States to drop bank secrecy in cases of tax evasion.

"I expect Singapore to come under pressure too," he said in response to a question on whether pressure on countries like Liechtenstein and Switzerland will help private banks based in Singapore.

The government has previously denied suggestions that the country is a tax haven. It has strict bank secrecy laws and has been promoting itself as a rival financial centre to Hong Kong to attract banks such as UBS , Credit Suisse and Citigroup to manage money for rich clients.

Why you should be buying stocks now

You've just discovered that you're not as brave as you thought. Don't make it worse by acting on your fear.

By the Mole, Money Magazine's undercover financial planner
December 3, 2008: 9:27 AM ET

(Money Magazine) -- When new clients come to me, I ask them a few questions about risk. One is "What would you do if the value of your stocks fell by 50%?"

The vast majority answer that they would buy more stocks. So now that the market has lost about 40% of its value, why are some of these same clients clamoring to sell?

Risk tolerance ebbs and flows. From 2003 to 2007, U.S. stock prices nearly doubled and international shares nearly tripled.

During such good years, you tend to believe that you have a high tolerance for risk. At times like these, your willingness to take chances drops sharply.

Such mood swings can lead you to jump in and out of the market and chase good performance, with devastating results.

According to a 2007 study of investor returns from 1991 to 2004 published in the Journal of Banking & Finance, the average investor pays a 1.5-percentage-point annual penalty for that kind of behavior.

My advice is to never rely on a risk questionnaire to tell you how much you should have in the market.

I ask about risk tolerance only to make the point that hypothetically losing half of your portfolio doesn't inspire the same fear that actually losing it will.

Your investment strategy should instead be based on your goals, your time horizon and what you've saved so far. Success will come from sticking to your plan.

But as you're learning now, buying stocks is emotional. Your investments represent security and freedom. And as you watch your balances decline, you see your dreams fade too. Hence the nervous calls.

What I'm saying is that while I can't make any promises, I wouldn't bet against capitalism over the long run. Chances are, you'll look back and see that this was a buying opportunity.

In times like these, you should push yourself to take more risk than feels comfortable. And in good times, go out on a limb less than you're inclined to.

I'm feeling shock too. But I've bought more stock-index funds. It's scary, but it's also likely the right thing to do

Property market now shows classic signs of downturn

Analysis of Q3 caveats by DTZ points to new trends relating to subsales, foreign buying, HDB upgraders

(SINGAPORE) Three classic signs of a Singapore property downturn have emerged in the third quarter - a slide in subsales and foreign buying, but a bigger share of HDB upgraders in the private home buying pie.

Property consultancy DTZ's analysis of caveats for private home purchases shows that total subsales of non-landed private homes fell 8 per cent to 473 units in Q3 from the previous quarter. Subsales also accounted for a smaller 13 per cent share of purchases of non-landed private homes in Q3, compared with 16 per cent in Q2.

Subsales of high-end condos/apartments slowed down even more in Q3 2008. The number of subsale purchases involving units priced at least $1,000 psf fell 24.2 per cent quarter-on-quarter to only 213 transactions, accounting for 45 per cent of overall subsales of non-landed private homes in Q3, against 54 per cent in Q2 2008.

The number of foreign buyers (including permanent residents) of private homes (both landed and non-landed) slid 6 per cent quarter-on-quarter to 903 in Q3. Also, these buyers made up 22 per cent of total private home deals in the quarter, down from 25 per cent in Q2.

DTZ senior director (research) Chua Chor Hoon said: 'A large proportion of foreigners buy for investment. Hence when prices are falling, there is less interest. Furthermore, with economies and property markets slowing down all over the world, many of the foreigners have been affected back home and they may pull out their overseas investments.'

DTZ executive director Ong Choon Fah also points out that attractive property values are emerging in other cities which Singapore will be competing with. 'Foreign investors have lots more opportunities to consider where to invest,' she added.

The dip in subsales may be due to the fact that it has become more difficult for 'specuvestors' and speculators to offload their properties in the current quiet market.

'For investors who take a long-term view, especially for better assets, the tendency would be to ride out the market,' says Mrs Ong.

HDB dwellers tend to make up a bigger proportion of private home buyers during a property downturn. 'Many of them are buying for owner occupation. Some may be sitting pretty on gains on their existing HDB flats which they bought directly from the HDB some years ago. Together with CPF savings, it may be easier for them to cross over to private homes,' notes Mrs Ong.

Buyers with HDB addresses picked up 1,718 private homes in Q3, up 34 per cent from the previous quarter.

Their share of caveats lodged for private home purchases rose to 41 per cent in Q3, from shares of 34 per cent in Q2 and 28 per cent in Q1 this year. HDB upgraders' 41 per cent share of private home purchases in the July-Sept quarter was the highest quarterly share in four years.

'The trend was supported by the narrowing gap between HDB resale flat prices and private home prices in Q3, as HDB resale prices continued to increase while private home prices fell,'

Ms Chua said the latest Q3 jump in private homes bought by HDB dwellers was mainly in the primary market. The number of units these HDB dwellers picked up from developers leapt 89 per cent from Q2.

Livia in Pasir Ris and Clover by the Park in Bishan were the two most popular projects among HDB buyers in Q3, with 192 units and 142 units respectively sold to HDB upgraders.

Analysts say HDB upgraders' share of total private home purchases may rise further. In Q2 2002, their share surged to 81 per cent and at the trough of the Asian Financial Crisis property slump in Q4 1998, the figure was 68 per cent.

Subsales refer to secondary market deals in projects that have yet to receive their Certificates of Statutory Completion. This may be anywhere from three to 12 months after the project gets its Temporary Occupation Permit (TOP).

DTZ said that for total subsale deals of non-landed private homes, the median price continued to fall in Q3, easing 11 per cent quarter-on-quarter to $941 psf - the lowest since Q3 2006, according to DTZ. 'In view of softening market demand, owners are more realistic in asking prices,' it said.

The Sail @ Marina Bay got the strongest subsale interest in Q3, with 30 deals (compared with 34 in Q2). The median subsale price for the project slid 6 per cent quarter-on-quarter to $1,719 psf, following a 14 per cent slide in Q2.

Median subsale prices also fell 3 per cent for Park Infinia at Wee Nam to $1,380 psf, The Esta (slipping 5 per cent to $910 psf) and City Square Residences (down 6 per cent to $960 psf).

Mrs Ong expects subsales to continue trending downwards although there will be spikes as major projects get their TOP. That's when there's usually more sales activity as the finished product can be viewed by potential buyers and the prospects of renting the units would increase the appeal of such homes to potential investors.

US in recession since '07

WASHINGTON - A US recession began in December 2007, a panel of economists charged with the official designation of business cycles said on Monday.

The Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) said it made the determination during a conference call on Friday.

Although a recession is generally defined as two consecutive quarters of declining activity, the panel has its own criteria for determining a downturn.

'A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income and other indicators,' the panel said.

'A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.'

The committee said it 'identified December 2007 as the peak month, after determining that the subsequent decline in economic activity was large enough to qualify as a recession'.

'The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months,' said NBER, a private economic group accepted as the official arbiter of business cycles.

According to official government data, the US economy contracted at a 0.2 per cent pace in the fourth quarter of 2007 but grew 0.8 per cent in the first quarter and 2.8 per cent in the second quarter of 2008. It then contracted 0.5 per cent in the third quarter, based on a provisional estimate.

But the gross domestic product (GDP) data may have been skewed by tax rebates that stimulated consumer spending, according to analysts.

The NBER said 'we do not identify economic activity solely with real GDP, but use a range of indicators' in determining the onset of recession. It said over the past year there have been unusually wide discrepancies between income and output.

A major factor in determining recession is employment, which has been declining since last December, the panel said. Other factors include monthly data on income, manufacturing and retail sales.

The NBER makes no forecast on how long a recession will last, but said that in the past they have run from six to 18 months. The panel said it has no definition of the term 'depression'.

The White House acknowledged the NBER conclusion and said it has been working to foster recovery.

'NBER determines the start and end dates of business cycles, and they've done that,' White House spokesman Tony Fratto said.

'But what's important is what is being done about it. The most important things we can do for the economy right now are to return the financial and credit markets to normal, and to continue to make progress in housing, and that's where we'll continue to focus.'

The NBER is a nonprofit organisation of economists from research firms, universities and other organisations.

The news came as little surprise to analysts, many of whom have been saying a recession was on the way if it had not already begun.

'So far in 2008, employers have slashed 1.2 million jobs, and the bad news is expected to continue when we get employment data for November this Friday,' said Mr Michael Fowlkes, analyst at Investor's Observer.

'Recession fears have now become a reality, and the questions that remain are just how bad and for how long this recession will linger over us.'

Mr Augustine Faucher at Moody's Economy.com said his firm expects the downturn to last through the first half of 2009 and to be 'the worst of the post-World War II era'.

'Even with a substantial stimulus package, unemployment is likely to peak close to 9.0 per cent in early 2010,' he said.

'However, this downturn is unlikely to be more severe than the combined impact of the 'double dip' recessions of the early 1980s.' -- AFP

Averting a crisis

Home > Breaking News > Money > Story
Dec 1, 2008
CAI JIN
Averting a crisis
Act now to contain any fallout from property purchases worth billions of dollars
By Goh Eng Yeow, Markets Correspondent

The fallout from the credit crisis has hit the property market where soaring prices last year saw speculators snapping up condos in the hope of making a quick profit. -- ST FILE PHOTO

IN MANY ways, the credit crisis crippling vast tracts of the global financial system resembles a guerilla war.
It is fiendishly difficult to work out exactly who the enemy is or where he might be lurking.

It is deeply frustrating. Each time a financial firestorm is doused, another even more intense blaze erupts.

Although there seems to be no imminent end to the crisis, there are many useful lessons to be learned from the calamity so far.

Take Citigroup's recent painful experience, for example. The giant lender had to be saved from potential oblivion by a US government bailout after its share price collapsed, even though it was healthier than other global banks by many measures.

It is a sobering reminder that, in a climate of fear, it is wise to stay a few steps ahead of the crisis, keep tabs on possible flashpoints and defuse them before they become a full-blown crisis.

Until recently, Singapore had been in the fortunate position of having escaped much of the fallout from the crisis.

But since September, jobs have been lost and companies are struggling to rollover their loans. This came after the collapse of US investment bank Lehman Brothers sparked panic among banks, which then clamped down on lending activities.

The fallout has been felt most profoundly in the local property market where soaring prices last year attracted hordes of speculators snapping up condos in the hope of making a quick profit.

This sudden reversal has prompted analysts to raise concerns over possible systemic risks posed to banks from the downward spiral in property prices, given their big exposure to real estate loans.

Their biggest worry is focused on the record 14,811 private properties sold by developers to homebuyers last year.

Many of these flats were sold under a 'deferred payment scheme', introduced 10 years ago during the Asian financial crisis to help developers offload unsold properties and which was scrapped only in October last year.

This scheme enabled a homebuyer to pay only the stamp duty and 10 per cent of the purchase price upfront. The rest is paid only when the flat is given its temporary occupation licence (TOP).

At the height of the property market fever last year, the scheme was blamed for fuelling excessive speculation in sought-after condos because they could rapidly change hands several times as prices rose. All the speculator needed was the downpayment for the flat.

It is a completely different story now. By some measures, property prices have fallen back to the levels of last January. This means that many of last year's new property launches are now under water, and current prices are likely to be less than what buyers paid last year.

Awkward questions are being asked, such as what will happen to buyers on the deferred payment scheme when the condos are completed next year.

Will they simply walk away - writing off their deposits as a loss - and leave the nightmare of reselling the property to the developer? This would depress an already falling property market still further.

And how about those buyers who had the foresight to arrange a bank loan? Will the bank insist on doing a fresh valuation of the property and offer a smaller loan amount? What happens if the buyer cannot make up the difference?

Nobody in the market knows exactly how many of these units were purchased on the deferred payment scheme. And when the scheme potentially covered billions of dollars' worth of property purchases last year, it raises plenty of concerns.

In a climate of uncertainty, when even big banks can be rocked by a crisis of confidence, the guessing game played by analysts over the scale of this potential problem can easily spread fear among both banks and investors alike.

The Government has sensibly refrained from trying to talk up the property market. Instead it has stated openly that it cannot work against market forces and try to prop up prices artificially.

But it can get the various agencies to work together to produce a breakdown of the homebuyers on the deferred payment scheme - preferably by condo project - along with details of when the projects are likely to be completed.

This would enable all the interested parties - banks, developers and homebuyers - to make an informed decision on the seriousness of the problem and take measures to avert it.

It is very likely that the problem is not a big one and that the banks and developers have been scaring themselves unnecessarily.

Given the low interest rate environment, most genuine buyers may have already opted to make progressive payments as construction proceeds on their dream homes.

So long as they have a job and continue to service their monthly instalments promptly, they are still good credit risks, even though the value of their dream home may have fallen sharply.

But the manner in which the credit crisis has ambushed sound companies and brought them to their knees is scary.

Coming to grips with the deferred payment issue is an exercise worth doing. It will enable us to get ahead of the curve on the credit crisis for a change.

Student investors caught in the meltdown, too

December 1, 2008 Business Times
Student investors caught in the meltdown, too
Young traders staring at huge paper losses, but hanging on to holdings

(SINGAPORE) The financial meltdown has become a double whammy for some university students - not only has it shrouded job prospects, it has also left them staring at investment losses.

Investment clubs have mushroomed in tertiary institutions here in recent years, with an increasing number of students active in the stock market. And they have not been spared the market meltdown.

One of them, 23-year-old Jason Low from Nanyang Technological University (NTU), said that while the value of his stock portfolio has dropped over the last few months, he is not pushing the panic button just yet. 'Right now, I'm actively trying to buy into more value stocks, because prices have come down,' he said.

Some of his fellow investor friends, however, have not been as lucky. One of them, said Mr Low, has suffered paper losses of $3 million. 'Everyone has been affected - it's just a matter of the scale of our losses. It happens in this kind of market, but my advice is to hold on to what you have for now. It's definitely not the time to sell,' he said.

According to previous reports, some young traders handle up to $200,000, turning to their parents and relatives for financial backing.

Student investors caught in the meltdown, too

December 1, 2008 Business Times
Student investors caught in the meltdown, too
Young traders staring at huge paper losses, but hanging on to holdings

(SINGAPORE) The financial meltdown has become a double whammy for some university students - not only has it shrouded job prospects, it has also left them staring at investment losses.

Investment clubs have mushroomed in tertiary institutions here in recent years, with an increasing number of students active in the stock market. And they have not been spared the market meltdown.

One of them, 23-year-old Jason Low from Nanyang Technological University (NTU), said that while the value of his stock portfolio has dropped over the last few months, he is not pushing the panic button just yet. 'Right now, I'm actively trying to buy into more value stocks, because prices have come down,' he said.

Some of his fellow investor friends, however, have not been as lucky. One of them, said Mr Low, has suffered paper losses of $3 million. 'Everyone has been affected - it's just a matter of the scale of our losses. It happens in this kind of market, but my advice is to hold on to what you have for now. It's definitely not the time to sell,' he said.

According to previous reports, some young traders handle up to $200,000, turning to their parents and relatives for financial backing.

Slowdown hits Asian M&As

THE global liquidity squeeze has put the brakes on regional merger and acquisition (M&A) activity, with the volume of deals dipping close to 10 per cent for the year to date, down from the same period last year.
Experts predict the slowdown in these transactions in Asia is set to last till the second half of next year, at the earliest.

According to financial data provider Thomson Reuters, the value of M&A activity in the Asia-Pacific excluding Japan had plunged 9.2 per cent to US$482.65 billion (S$730.6 billion) as at last Friday. For the same period last year, the figure was US$531.37 billion.

The number of deals has also fallen from 10,473 for the same period last year to 10,013.

The collapse of the US$66 billion hostile takeover bid by BHP Billiton for mining rival Rio Tinto last week is being seen as the end of an era of mega-mergers.

Globally, the value of all M&A activity is down 24 per cent to US$3.36 trillion so far this year, from an all-time high of US$4.42 trillion a year ago, according to data compiled by Dealogic.

Analysts cite the liquidity squeeze as the top reason for the Asian slump.

'For M&A, you need to leverage, you can't rely on pure cash. In a credit crunch, liquidity is hard to come by,' said Sias Research investment analyst Alan Lok.

He added that accounting to shareholders was another obstacle hindering potential deals. It may be harder to justify an M&A to shareholders now, he said.

The uncertain macroeconomic and financial climates increase the risks associated with M&A activity, which is another reason for the slowdown, said CIMB-GK regional economist Song Seng Wun.

He added: 'Credit is now much harder to get access to. The uncertain financial market condition means that corporates and banks are more risk averse.'

Another reason, say the experts, is plunging stock markets, which make it much harder to do valuations.

Analysts note that M&A transactions also dived by about 30 to 40 per cent in 1998 - during the Asian financial crisis - and recovered only in 2000.

The flipside of the current drop in M&A activity is that opportunities for such transactions are likely to emerge across all sectors once the crisis is over, said Mr Song.

He added: 'It will cut across all sectors, as the slowdown is affecting businesses big or small. Industry leaders may want to capitalise on this.'

Mr Song said the spotlight may centre on the financial sector, which is at the epicentre of the crisis.

Companies that have suffered huge falls in valuations due to credit woes or bad fundamentals, such as property firms, may also prove to be good takeover targets, said DMG & Partners Securities senior dealing director Gabriel Yap.

He added: 'Shipping companies may be attractive as well due to the recent sharp fall in the Baltic Dry Index, especially in instances in which the valuation of assets is more than the company's value.'

Mr Yap tipped that M&A activity would recover in 2010. He said: 'We are past the halfway point of the crisis, so we need pricing stability in listed companies first. You will also need stability of key anchors, such as a stop in fund redemptions and stable valuations.'

Mr Lok expects a regional M&A rebound around the third quarter of next year at the earliest, once the banking system has stabilised.

He said: 'When that happens, we will see big rounds of M&A in Asia and on the global front. There are just too much inefficiencies lying around, it will be a good time for companies to buy out to restructure or dismantle.'

However, the current crisis could also become a chance for stronger companies to embark on bottom-fishing or cherry-picking. As one analyst noted: 'It's like going to a shopping centre with big discount sales.'

China not facing major crisis

SHANGHAI - CHINA can weather the financial storm because the economy has no major bubbles while a year of policy adjustments have tamed the property market, a top central bank adviser said in comments published on Monday.

The economic slowdown is a 'benign correction', the official Shanghai Securities News quoted central bank adviser Fan Gang as saying.

'Slowdown in the economy is inevitable at this stage, but China remains one of the fastest growing economies in the world,' Mr Fan said .

Fiscal tightening policies aimed at preventing the economy from overheating have squeezed out bubbles in the real estate sector over the past year, he said.

'There are no big bubbles in China's economy at present. With no big bubbles, there will not be big crisis in future,' Mr Fan was quoted as telling a forum hosted over the weekend.

Mr Fan said China had resources to navigate through the financial turmoil such as abundant foreign exchange reserves and tax revenues.

China's foreign exchange reserves, already the world's largest, rose to 1.9056 trillion dollars (S$2.9 trillion) by the end of September.

China's property market has boomed for the past few years, prompting a series of government curbs to deter speculators. But recent data show property prices grew in October at the slowest pace in more than three years.

Beijing has announced a range of measures to prop up the slowing sector, including lifting stamp tax on purchases and cutting interest rates on mortgages for first-time home buyers.

It has also removed a value-added tax on land in property sales.

Further efforts to encourage purchases will be introduced in near term such as making it less expensive for families to buy second homes, China Business News reported on Monday, citing government officials. -- AFP