Half of bankers would quit UK if bonuses capped: poll

LONDON (Reuters) - Half of British bankers would consider leaving the country if a cap were put on their cash bonuses, a survey showed on Friday.

The poll by jobs website eFinancialCareers.com found that 49 percent of British-based bankers would consider voting with their feet such a limit to their income were introduced. That figure rose to 71 percent among financiers with six to ten years experience.

"Were bonuses to be capped unilaterally in the UK, the country would run the risk of an exodus of top financial talent," said John Benson, chief executive of eFinancialCareers.

However, the number of alternative locations in which to work has shrunk dramatically as the credit crisis has hit hiring and pay around the world.

"(That) 71 percent (of people with six to 10 years experience) would move abroad I don't doubt, given the opportunity. That last word is the operative word," said Shaun Springer, who heads recruitment firm Napier Scott.

"If you could tell me of the areas that could harbor those skill sets (of bankers), please let me know -- I'll be flying out there."

U.S. President Barack Obama this month set a $500,000 cap on executive pay at state-backed banks -- pocket money on Wall Street before the crisis.

European banks are also under pressure to curb bonuses, especially those that have taken government help, and many have cut them.

Thirty-three percent of bankers polled said they believed caps on cash bonuses are the most likely change to be implemented over the next year and 39 percent support such caps.

The poll was conducted between February 16 and February 20, with 888 financial professionals responding.

(Reporting by Olesya Dmitracova; editing by Karen Foster)

More pain to come for Big 3 banks

Net interest income will not race ahead: Analysts
By Gabriel Chen

ANYONE holding bank shares would have been jittery these past months, and with the three big guns having reported their fourth-quarter results it is clear investors had good reason to be nervous. DBS Group Holdings, OCBC Bank and United Overseas Bank all posted net earnings that fell below market expectations.

UOB was the last to report, announcing yesterday that profit for the three months to Dec 31, 2008, had fallen 34 per cent to $332 million.

Its two rivals did not fare much better.

DBS saw a 40 per cent drop in quarterly profit to $295 million, its worst result in three years. The fall was 30 per cent at OCBC, with profits at $301 million.

Much of their weakness was down to steep falls in the cash-generating, non-interest-based portion of earnings, like trading and capital-market activities.

The three banks also made sharply higher bad debt provisions, which took the shine off their earnings.

While net interest income (NII) - seen as a bank's lifeblood - rose, there are fears that it may not grow as fast as before. Certainly, NII - or what a bank earns from borrowers after paying interest to depositors - was a big winner for the three lenders this time.

OCBC's NII rose 28 per cent from a year ago to $783 million in the quarter, helped by a 12 per cent growth in loans. DBS saw NII rise 5 per cent to $1.12 billion, while NII at UOB surged 28.8 per cent to $957 million.

Those good NII numbers are no longer sure things. While net interest margins could inch up further this year, loan growth is expected to stay muted.

And given the sluggish lending environment, net interest income is unlikely to jump by much, stifling earnings growth.

'We expect 0 per cent loan growth for all three banks for this year,' said UBS analyst Jaj Singh.

This would be a dramatic turnaround for the lenders, as they all posted healthy loan growth for the full year.

UOB's net customer loans rose 7.7 per cent from the previous year while at DBS, they expanded by 17 per cent.

Morgan Stanley analyst Matthew Wilson said DBS confronts a challenge: 'As deposits will continue to grow, does DBS stop loan growth to preserve capital, or is it prepared to run capital down to maintain its loan-to-deposits ratio?'

All three banks saw quarter-on-quarter improvement in net interest margins.

Mr Trevor Kalcic, regional bank analyst at ABN Amro Asia Securities, said it is 'likely that at least some of the net interest margins improvement at the fourth quarter will recur this year'.

So what more can investors expect? The quality of loan books will remain an issue because there are likely to be more bankruptcies, corporate failures and increasing unemployment across Asia.

Analyst Leng Seng Choon at DMG & Partners Securities tips OCBC's non-performing loan (NPL) rate to rise from 1.5 per cent to 3.7 per cent by this December.

At DBS it could surge to 4.4 per cent from 1.5 per cent while UOB's rate is also expected to rise from its current 2 per cent, he added.

There might also be more cost-cutting. UOB has cut its final dividend to 40 cents from 45 cents a year ago and implemented a wage freeze across the board.

Deputy chairman and chief executive Wee Ee Cheong yesterday rejected talk that UOB needs to raise capital, saying: 'We've gone through a few (stress) tests. And we believe if NPL levels go up by 100 basis points, we'll be able to withstand it without getting affected.'

Are You Taking Too Much (or Too Little) Risk?

by Christine Benz

Assessing a client's risk tolerance--an individual's own assessment of his or her ability to withstand investment losses--is standard practice in the financial-planning world. The Web is full of tools to help investors gauge how they would respond if the market dropped 10%, 20%, or even 50%, and I often hear from readers who tell me that their risk tolerance is "high" or "low."

The basic premise behind getting investors to identify their pain thresholds makes sense. After all, reams of data, including Morningstar Investor Returns, show that investors often buy high and sell low. By identifying their ability to handle losses and avoiding those investments that will cause them to sell at the wrong time, investors should be able to improve their overall return records.

Yet relying disproportionately on your risk tolerance to shape your investments carries its own big risk: namely, that you'll end up with a portfolio that doesn't help you reach your goals because you've been too aggressive or too timid. Instead, risk tolerance should take a back seat to the really important considerations, such as the size of your current nest egg, your savings rate, the years you have until retirement, and the number of years you expect to be retired. Only after you've developed a portfolio plan based on those factors should you consider making adjustments around the margins to suit your risk tolerance.

The Risk of Being Too Aggressive ...

Generally speaking, I'm happy to hear from investors who rate their risk tolerance as "high." These folks' long-term mind-sets allow them to tune out the market's inevitable day-to-day gyrations and weather big losses from time to time--characteristics that usually go hand in hand with profitable investing.

Yet being too aggressive isn't always a good thing. For one thing, it's possible that you're misreading your own risk tolerance and won't behave as you think you will if and when your investments lose money. Studies from the field of behavioral finance indicate that investors' confidence level--and in turn their perceived ability to handle risk--ebbs and flows with the market's direction. Thus, an investor might rate highly his own ability to handle risk at the very worst time--when the market is skyrocketing and stock valuations are high--only to exhibit much less confidence in the event of a market drop. (Not surprisingly, buoyant markets are also when most financial-services firms hawk the riskiest products.)

Moreover, being loss-averse has a foundation in simple math. After all, the stock that drops from $60 to $45 has lost 25% of its value, but it will have to gain 33% to get back to $60. The same cruel math holds for the whole of your portfolio, so it's no wonder that investors are inclined to rate themselves as risk-averse; losses are tough to recover from.

Big losses can be particularly painful for those who are getting close to retirement, because their portfolios have less time to recover from the hit. If you're 30 and your 401(k) balance goes down by 37%--as the S&P 500 did last year--it's a painful but not cataclysmic blow. After all, you might have 30 years or more to recoup those losses, and depressed stock valuations give you the opportunity to buy stocks on the cheap.

By contrast, if you're in your mid-60s and saw your retirement-plan balance shrink from $800,000 to little more than $500,000 over the past year, you don't have as many options. You could continue working to amass more savings or dramatically scale back your planned standard of living in retirement, neither of which is particularly appealing. The bottom line is that there are real reasons to grow more protective of your nest egg as you grow closer to needing your money, and there are real risks to letting your own assessment of your risk tolerance guide your asset-allocation decisions.

... Or Too Conservative

However, with the market dropping sharply over the past year, I'd wager that being too conservative is a bigger risk for many investors right now than is maintaining a portfolio that's too aggressive. Just as investor confidence improves as stocks march upward, so does pessimism take over when stocks are in the dumps.

Yet anyone tempted to make his portfolio more conservative should ponder a real risk of that tactic. By avoiding stocks and sticking exclusively with "safe," fixed-rate securities such as CDs or short-term Treasuries, you also put a cap on your portfolio's upside potential, which in turn heightens the risk of a shortfall come retirement. True, stocks have greater loss potential than do short-term fixed-income investments, but they also have the potential for greater gains. Moreover, the gains from short-term, high-quality investments are pretty darn skimpy right now: You're lucky to earn 3% on a one-year CD.

That might not sound terrible. After all, the S&P 500 Index has lost about 3%, on an annualized basis. Yet while inflation is currently minimal right now, it won't always be so benign. In fact, inflation has the potential to gobble up most, if not all, of the return you earn from any fixed-rate investment. The upshot? For retirees, pre-retirees, and 20-somethings alike, hunkering down in safe, fixed-rate investments is a luxury you probably can't afford, even if it helps you sleep at night. To help offset the effects of inflation, you need to have at least part of your portfolio in stocks, whose returns have the potential to outstrip inflation over time.

Just Right

So if it's a bad idea to let your gut guide your stock/bond mix, what should you do? Your key mission is to let hard numbers--rather than your own comfort level--be the chief determinant of your asset-allocation plan. Employ an online asset-allocation tool, such as Morningstar's Asset Allocator, to help you optimize your asset allocation based on your goals, your savings rate, and the number of years you have until retirement. Alternatively, you could hire a financial advisor for even more customized help or look to the asset allocations of target-maturity funds for back-of-the-envelope guidance. (David Kathman discussed how to do that in a recent The Short Answer column.)

Once you've put your basic asset-allocation framework in place, it's fine to make some adjustments around the margins based on your own comfort level. For example, if you determine that you should have the majority of assets in equities, you could focus on underpriced large-cap stocks or invest with a stock-fund manager who places a premium on limiting losses. On the bond side, you could limit your portfolio's risk level by going light on more-volatile asset classes like high-yield bonds and sticking with high-quality short- and intermediate-term bonds.

Beyond these small adjustments, it's a big mistake to let your emotions--and that's essentially what irrational risk aversion is--drive your portfolio planning. If the market's ups and downs leave you with excess nervous energy to burn, focus on factors you can actually influence, such as improving your security selection and lowering your overall investment-related and tax costs.

Copyrighted, Morningstar, Inc. All rights reserved.

You've Sold Your Stocks. Now What?

provided by
The New York Times

Back in the summer of 2007, Ben Mickus, a New York architect, had a bad feeling. He and his wife, Taryn, had invested in the stock market and had done well, but now that they had reached their goal of about $200,000 for a down payment on a house, Mr. Mickus was unsettled. “Things had been very erratic, and there had been a lot of press about the market becoming more chaotic,” he said.

In October of that year they sat down for a serious talk. Ms. Mickus had once lost a lot of money in the tech bubble, and the prospect of losing their down payment made Mr. Mickus nervous. “I wanted to pull everything out then; Taryn wanted to keep it all in,” he said. They compromised, cashing in 60 percent of their stocks that fall — just before the Dow began its slide.

A couple of months later, with the market still falling, Ms. Mickus was convinced that her husband was right, and they sold the remainder of their stocks. Their down payment was almost completely preserved. Ms. Mickus said that in private they had “been feeling pretty smug about it.”

“Now our quandary is, what do we do going forward?” Ms. Mickus said.

Having $200,000 in cash is a problem many people would like to have. But there is yet another worry: it’s no use taking money out of the market at the right time unless it is put back in at the right time. So to get the most from their move, the Mickuses will have to be right twice.

“Market timing requires two smart moves,” said Bruce R. Barton, a financial planner in San Jose, Calif. “Getting out ahead of a drop. And getting back in before the recovery.”

It’s a challenge many investors face, judging from the amount of cash on the sidelines. According to Fidelity Investments, in September 2007 money market accounts made up 15 percent of stock market capitalization in the United States. By December 2008, it was 40 percent.

“In 2008 people took money out of equities and took money out of bond funds,” said Steven Kaplan, a professor at the Booth School of Business at the University of Chicago.

He cited figures showing that in 2007 investors put $93 billion into equity funds. By contrast, in 2008 they took out $230 billion.

Michael Roden, a consultant to the Department of Defense from the Leesburg, Va., area, joined the ranks of the cash rich after a sense of déjà vu washed over him in August 2007, as the markets continued their steep climb. “I had taken quite a bath when the tech bubble burst,” he said. “I would never let that happen again.”

With his 2002 drubbing in mind, he started with some profit taking in the summer of 2007, but as the market turned he kept liquidating his investments in an orderly retreat. But he was not quite fast enough.

“When Bear Stearns went under I realized something was seriously wrong,” he said. The market was still in the 12,000 range at that time. When the Federal Reserve announced it would back Bear Stearns in March 2008, there was a brief market rebound. “I used that rally to get everything else out,” he said.

Mr. Roden said he had taken a 6 percent loss by not liquidating sooner, which still put him ahead of the current total market loss. Now he has about $130,000, with about 10 percent in gold mutual funds, 25 percent in foreign cash funds and the rest in a money market account.

“I am looking for parts of the economy where business is not impaired by the credit crunch or changes in consumer behavior,” he said. He is cautiously watching the energy markets, he said, but his chief strategy is “just trying not to lose money.”

As chief financial officer of Dewberry Capital in Atlanta, a real estate firm managing two million square feet of offices, stores and apartments, Steve Cesinger witnessed the financial collapse up close. Yet it was just a gut feeling that led him to cash out not only 95 percent of his personal equities, but also those of his firm in April 2007.

“I spent a lot of time trying to figure out what was happening in the financial industry, and I came to the conclusion that people weren’t fessing up,” he said. “In fact, they were going the other way.”

Now, he said, “We have cash on our statement, and it’s hard to know what to do with it.”

Having suffered through a real estate market crash in Los Angeles in the early 1990s, Mr. Cesinger is cautious to the point of re-examining the banks where he deposits his cash. “Basically, I’m making sure it’s somewhere it won’t disappear,” he said.

The F.D.I.C. assurance doesn’t give him “a lot of warm and fuzzy,” Mr. Cesinger said. “My recollection is, if the institution goes down, it can take you a while to get your money out. It doesn’t help to know you’ll get it one day if you have to pay your mortgage today.”

His plan is to re-enter the market when it looks safe. Very safe. “I would rather miss the brief rally, be late to the party and be happy with not a 30 percent return, but a bankable 10 percent return,” he said.

Not everyone is satisfied just to stem losses. John Branch, a business consultant in Los Angeles, said his accounts were up 100 percent from short-selling — essentially betting against recovery. “The real killer was, I missed the last leg down on this thing,” Mr. Branch said. “If I hadn’t missed it, I would be up 240 percent.”

Mr. Branch said he had seen signs of a bubble in the summer of 2007 and liquidated his stocks, leaving him with cash well into six figures. Then he waited for his chance to begin shorting. The Dow was overvalued, he said, and ripe for a fall.

Shorting is a risky strategy, which Mr. Branch readily admits. He said he had tried to limit risk by trading rather than investing. He rises at 4:30 a.m., puts his money in the market and sets up his electronic trading so a stock will automatically sell if it falls by one-half of 1 percent. “If it turns against me, I am out quickly,” he said. By 8, he is off to his regular job.

Because Mr. Branch switches his trades daily based on which stocks are changing the fastest, he cannot say in advance where he will put his money.

And if he did know, he’d rather not tell. “I hate giving people financial advice,” he said. “If they make money they might say thank you; if they miss the next run-up, they hate you.”

Brace for 'recession crimes'

SINGAPORE courts are preparing to cope with more criminal and civil cases during this downturn.

In 1999 and 2002, when the country was battling recessions, the courts' workload hit record levels.

Chief Justice Chan Sek Keong expects the numbers to spike again. 'Recession brings many social and other difficulties and problems for people in their daily lives,' he noted yesterday, as he rolled out the workplan for the Subordinate Courts at a seminar.

'We must therefore brace ourselves again for an expected influx of cases this year and while the recession lasts.'

Home Affairs Minister Wong Kan Seng had warned last month about a possible rise in crimes such as theft, vice and loan-sharking; separately, Police Commissioner Khoo Boon Hui expressed worry about white-collar crime.

Senior Counsel Cavinder Bull said he has already noticed a 'very significant increase' in cases on the civil front, in the form of companies landing in court for winding-up proceedings and insolvency-related litigation. More are also seeking court protection from creditors, asking for time to restructure operations.

Figures from the Insolvency and Public Trustee's Office have it that 109 firms were forced to liquidate in the last four months of last year, up from 69 in the corresponding period the year before.

Key to the CJ's plans for the Subordinate Courts is reducing the time and manpower needed for criminal processes.

Those who can raise money for bail, for example, will no longer have to wait long to get out of remand. Guidelines say the bail process takes a day, but this has been cut down to an hour or so in practice.

The task of bringing those in remand to court for routine processes such as bail mentions is also being done away with. Video links are now used instead.

Europe's Crisis: Much Bigger Than Subprime, Worse Than U.S.

John Mauldin, president of Millennium Wave Advisors, was among the few analysts whose forecasts for 2008 proved accurate. Mauldin, author of the popular "Thoughts from the Frontline" e-letter, joined us to discuss the economic situation in Eastern Europe.

Scroll down to read highlights from Mauldin's analysis, and click "more" to embed the video.

From The Business Insider:

If you think things are bad here, take a quick peek at what's going on across the pond:

The Telegraph: Stephen Jen, currency chief at Morgan Stanley, said Eastern Europe has borrowed $1.7 trillion abroad, much on short-term maturities. It must repay – or roll over – $400bn this year, equal to a third of the region's GDP. Good luck. The credit window has slammed shut.

Not even Russia can easily cover the $500bn dollar debts of its oligarchs while oil remains near $33 a barrel. The budget is based on Urals crude at $95. Russia has bled 36pc of its foreign reserves since August defending the rouble.

"This is the largest run on a currency in history," said Mr Jen.

In Poland, 60pc of mortgages are in Swiss francs. The zloty has just halved against the franc. Hungary, the Balkans, the Baltics, and Ukraine are all suffering variants of this story. As an act of collective folly – by lenders and borrowers – it matches America's sub-prime debacle. There is a crucial difference, however. European banks are on the hook for both. US banks are not.

Almost all East bloc debts are owed to West Europe, especially Austrian, Swedish, Greek, Italian, and Belgian banks. En plus, Europeans account for an astonishing 74pc of the entire $4.9 trillion portfolio of loans to emerging markets.

They are five times more exposed to this latest bust than American or Japanese banks, and they are 50pc more leveraged (IMF data).

Spain is up to its neck in Latin America, which has belatedly joined the slump (Mexico's car output fell 51pc in January, and Brazil lost 650,000 jobs in one month). Britain and Switzerland are up to their necks in Asia.

Whether it takes months, or just weeks, the world is going to discover that Europe's financial system is sunk, and that there is no EU Federal Reserve yet ready to act as a lender of last resort or to flood the markets with emergency stimulus.

A note from Strategic Energy, as quoted by John Mauldin:

"The sums needed are beyond the limits of the IMF, which has already bailed out Hungary, Ukraine, Latvia, Belarus, Iceland, and Pakistan -- and Turkey next -- and is fast exhausting its own $200bn (€155bn) reserve. We are nearing the point where the IMF may have to print money for the world, using arcane powers to issue Special Drawing Rights. Its $16bn rescue of Ukraine has unravelled. The country -- facing a 12% contraction in GDP after the collapse of steel prices -- is hurtling towards default, leaving Unicredit, Raffeisen and ING in the lurch. Pakistan wants another $7.6bn. Latvia's central bank governor has declared his economy "clinically dead" after it shrank 10.5% in the fourth quarter. Protesters have smashed the treasury and stormed parliament.

"'This is much worse than the East Asia crisis in the 1990s,' said Lars Christensen, at Danske Bank. 'There are accidents waiting to happen across the region, but the EU institutions don't have any framework for dealing with this. The day they decide not to save one of these one countries will be the trigger for a massive crisis with contagion spreading into the EU.' Europe is already in deeper trouble than the ECB or EU leaders ever expected. Germany contracted at an annual rate of 8.4% in the fourth quarter. If Deutsche Bank is correct, the economy will have shrunk by nearly 9% before the end of this year. This is the sort of level that stokes popular revolt.

"The implications are obvious. Berlin is not going to rescue Ireland, Spain, Greece and Portugal as the collapse of their credit bubbles leads to rising defaults, or rescue Italy by accepting plans for EU "union bonds" should the debt markets take fright at the rocketing trajectory of Italy's public debt (hitting 112pc of GDP next year, just revised up from 101pc -- big change), or rescue Austria from its Habsburg adventurism. So we watch and wait as the lethal brush fires move closer. If one spark jumps across the eurozone line, we will have global systemic crisis within days. Are the firemen ready?"

This is why some folks think the dollar is going to remain strong over the coming months: Because the rest of the world is falling apart even faster than we are.

Just as the global economy wasn't "decoupled" at the beginning of 2007, however (when the majority of Wall Street strategists believed that it was), it's not "decoupled" now. So the collapse of Eastern Europe--and, with it, the Western European banks--would almost certainly jump across the pond.

John Mauldin summarizes:

Eastern Europe has borrowed an estimated $1.7 trillion, primarily from Western European banks. And much of Eastern Europe is already in a deep recession bordering on depression. A great deal of that $1.7 trillion is at risk, especially the portion that is in Swiss francs. It is a story that could easily be as big as the US subprime problem.

In Poland, as an example, 60% of mortgages are in Swiss francs. When times are good and currencies are stable, it is nice to have a low-interest Swiss mortgage. And as a requirement for joining the euro currency union, Poland has been required to keep its currency stable against the euro. This gave borrowers comfort that they could borrow at low interest in francs or euros, rather than at much higher local rates.

But in an echo of teaser-rate subprimes here in the US, there is a problem. Along came the synchronized global recession and large Polish current-account trade deficits, which were three times those of the US in terms of GDP, just to give us some perspective. Of course, if you are not a reserve currency this is going to bring some pressure to bear. And it did. The Polish zloty has basically dropped in half compared to the Swiss franc. That means if you are a mortgage holder, your house payment just doubled. That same story is repeated all over the Baltics and Eastern Europe.

Austrian banks have lent $289 billion (230 billion euros) to Eastern Europe. That is 70% of Austrian GDP. Much of it is in Swiss francs they borrowed from Swiss banks. Even a 10% impairment (highly optimistic) would bankrupt the Austrian financial system, says the Austrian finance minister, Joseph Proll. In the US we speak of banks that are too big to be allowed to fail. But the reality is that we could nationalize them if we needed to do so. (And for the record, I favor nationalization and swift privatization. We cannot afford a repeat of Japan's zombie banks.)

The problem is that in Europe there are many banks that are simply too big to save. The size of the banks in terms of the GDP of the country in which they are domiciled is all out of proportion. For my American readers, it would be as if the bank bailout package were in excess of $14 trillion (give or take a few trillion). In essence, there are small countries which have very large banks (relatively speaking) that have gone outside their own borders to make loans and have done so at levels of leverage which are far in excess of the most leveraged US banks. The ability of the "host" countries to nationalize their banks is simply not there. They are going to have to have help from larger countries. But as we will see below, that help is problematical.

As John Mauldin explains, fixing the problem in Europe will be even more difficult than it is here:

This has the potential to be a real crisis, far worse than in the US. Without concerted action on the part of the ECB and the European countries that are relatively strong, much of Europe could fall further into what would feel like a depression. There is a problem, though. Imagine being a politician in Germany, for instance. Your GDP is down by 8% last quarter. Unemployment is rising. Budgets are under pressure, as tax collections are down. And you are going to be asked to vote in favor of bailing out (pick a small country)? What will the voters who put you into office think?

We are going to find out this year whether the European Union is like the Three Musketeers. Are they "all for one and one for all?" or is it every country for itself? My bet (or hope) is that it is the former. Dissolution at this point would be devastating for all concerned, and for the world economy at large. Many of us in the US don't think much about Europe or the rest of the world, but without a healthy Europe, much of our world trade would vanish.

However, getting all the parties to agree on what to do will take some serious leadership, which does not seem to be in evidence at this point. The US almost waited too long to respond to our crisis, but we had the "luxury" of only needing to get a few people to agree as to the nature of the problems (whether they were wrong or right is beside the point). And we have a central bank that could act decisively.

As I understand the European agreement, that situation does not exist in Europe. For the ECB to print money as the US and the UK (and much of the non-EU developed world) will do, takes agreement from all the member countries, and right now it appears the German and Dutch governments are resisting such an idea.

As I write this (on a plane on my way to Orlando) German finance minister Peer Steinbruck has said it would be intolerable to let fellow EMU members fall victim to the global financial crisis. "We have a number of countries in the eurozone that are clearly getting into trouble on their payments," he said. "Ireland is in a very difficult situation.

"The euro-region treaties don't foresee any help for insolvent states, but in reality the others would have to rescue those running into difficulty."

That is a hopeful sign. Ireland is indeed in dire straits, and is particularly vulnerable as it is going to have to spend a serious percentage of its GDP on bailing out its banks.

It is not clear how it will all play out. But there is real risk of Europe dragging the world into a longer, darker night. Their banks not only have exposure to our US foibles, much of which has already been written off, but now many banks will have to contend with massive losses from emerging-market loans, which could be even larger than the losses stemming from US problems. Plus, they are more leveraged.

Banks discuss tough times in recruitment

Simon Mortlock

Security and stability are replacing pay and bonuses as the key career factors for bankers, according to a seven-strong panel of senior HR professionals from leading global banks in Hong Kong.

Delegates on the recent roundtable, which was organised by eFinancialCareers, agreed that uncertainly about the future prospects of financial institutions is prompting interviewees to probe more deeply into firms’ strengths and strategies.

One panelist commented: “Junior candidates are especially scared of being last in, first out. They want to join a prudently run organisation. The monetary aspects of a job are less important than getting some degree of security.”

Flexibility to the fore

If HK bankers are becoming less money-obsessed, many of them are also getting more flexible with their careers. Since the financial crisis escalated in October last year, some banks have relocated a few front-office staff into mid-office positions rather than make them redundant. “We try to ensure that they see this move as a long-term option, but of course it’s difficult to tell that staff aren’t doing it purely out of desperation.”

Investment banking candidates are also more open to opportunities in retail and commercial banking. And Chinese firms in Hong Kong are now able to cherry pick talent more easily. “Chinese banks can often move faster with an offer, depending on the job function. They have more money to hire and might even still give sign-ons,” said one attendee.

Recruitment on the ropes

The roundtable delegates, who all asked not to be named, were downbeat on when mass redundancies will be over in HK and when hiring levels will pick up. The fourth quarter of this year remains an optimistic bet for a turn-around in the employment market, with many believing 2010 is more realistic.

In the meantime, most recruitment will continue to be limited and focused on upgrading. “If we can get a better person to do the job then now is a good time to do so…In a bull market, when candidates are in short supply, quality suffers. These days mid to exceptional-level people are out on the street.”

Small pockets activity of remain, especially in private banking where banks still consider taking on experienced relationship managers who can give them new assets-under-management. There are also replacement vacancies in business-critical functions such as risk and compliance.

The young and the jobless

If you have been laid off in HK and only have one or two years’ experience, your immediate job prospects aren’t great, according to the roundtable. “These people are in a bad position and unfortunately we don’t have the time to train them up. So in a couple of years there could be a skills shortage created at the four-year level.”

And even if you ace your interview, the approval process is likely to be complicated and often three to five times as long as it was a year ago. In the words of one delegate: “Head office wants to know about every role we do.”

Change is here to stay (or is it?)

Roundtable attendees agreed that there will be fundamental and lasting changes to the way bonuses are calculated – equities will make up a greater percentage of reward and performance will be measured across longer timescales.

The change-jobs-every-six-months culture of the mid-decade boom has disappeared and attrition rates have dropped markedly as a result. “We have gone from one extreme to the other,” said one delegate.

But the roundtable was divided as to whether bankers will value stability so much when the market picks up. “Candidates could just go back to how they were before the crisis.”

Commentary by Kathy Lien: Dollar Rallies Despite Bernanke's Pessimistic Comments and Weak US Data

The US dollar continues to rally against the Japanese Yen (USD/JPY) despite pessimistic comments from Federal Reserve Chairman Ben Bernanke and weaker US economic data. The bleaker outlook for the US economy is sending investors flocking into the safety of US dollars. In his prepared comments, Bernanke warned that a recovery could take more than 2 to 3 years. A turnaround in 2010 is only possible if the the markets and banks stabilize. This is why Bernanke has been a big supporter of focusing relief efforts on the financial sector. He believes that there are still significant stresses in many markets and a sharp contraction in economic activity is expected in the first quarter. Therefore US interest rates will remain at an exceptionally low level for some time. His pessimistic sentiment was shared by US consumers. According to the Conference Board's report, consumer confidence hit a record low in the month of February. In addition, house prices and manufacturing activity have plunged.

Yet the dollar's rally remains unabated against the Japanese Yen despite weak economic data. It is important to realize that the state of the US economy is not driving the dollar higher. Instead it is the expectation that if the US does not recover, no one else will. Therefore if it will take 2 to 3 years for the US economy to start recovering, it may take 3 to 4 years for other countries to stabilize.

There could still be more surprises in Bernanke's testimony, which is only beginning as he will be facing questioning by the members of the Senate. Although the Q&A session could set the tone for trading this afternoon, the USD/JPY rally has been voracious. Unless there are new revelations from Bernanke, USD/JPY could be headed to 98.

5 Childhood Lies That Are Costing You Money

Mom and Dad were right a lot of the time: Scratching only makes it worse; high school's not the end of the world; and that style (whatever "that style" was in your day) isn't flattering, even if all the popular girls are wearing it.

But they got a few things wrong, too -- your face didn't stick permanently in that expression, and your eyebrows did grow back. Eventually.

Still, some false kernels of wisdom passed down the family tree could be stunting your financial growth to this day. So settle in for some regression therapy, as we identify the little white lies from your tender years that you need to relinquish.

"Don't cry at the checkout counter." Actually, go ahead and unleash the tears. When you let yourself feel the physical loss of spending money (actually taking cash from your wallet and handing it over to the clerk), you're more likely to make better decisions about what you buy. Credit cards -- like Vegas gambling chips -- on the other hand, remove the emotion from the transaction. And numb spending leads to dumb spending.

"Money doesn't buy happiness." Oh yes it does. Sorta. You don't need a behavioral economist to tell you that a raise or unexpected windfall puts a kick in your step. But you should consult a scientist to measure your buzz. We consistently overestimate (or don't accurately remember) how joyful something makes us feel. Studies show that once you're financially stable (meaning you can cover your bills and still have some fun money left over), extra financial padding has only a limited and rapidly diminishing effect on your overall happiness. Making the pursuit of wealth one of your top goals in life will more likely lead to depression, anxiety, and stress.

"Everyone is not staring at you." Well, maybe not in that way. But acquaintances and strangers are sizing you up all the time. It's not your jeans or prom date that they're judging, but your banking, driving, renting, and health habits. Employers, insurers, landlords, and credit card companies (as well as the IRS, DOJ, FBI, and other acronym-happy entities) regularly pull your consumer files. Luckily, you don't have to read the rumors about yourself on a bathroom wall. You are entitled to see your consumer disclosures (there could be as many as 14) for free once a year. Take a peek into your secret files to see what everyone's saying about you.

"You'll never be sorry if you play it safe." No dad in history ever said, "Let 'er rip!" before handing Junior the keys to the car. But he'd have done his progeny a favor if he gave that advice about money. It's true that gambling and uninformed risk-taking is bad for your bottom line. But so is playing it too safe with your money. If you stash your cash in the mattress, sure, it'll still be there years later (provided mom didn't find your hiding place). But its buying power will be severely hampered. Historically, inflation runs between 3% and 4%, meaning the spending power of that cash kitty you hid your senior year in high school will be cut in half by your 20-year reunion. You'd be better served if your parents warned you that inflation was a silent killer.

"Soda and cigarettes are bad for you." Physically, yes, but the companies behind these products -- PepsiCo (NYSE: PEP - News) and Altria (NYSE: MO - News) -- have provided a healthy kick to shareholders by paying handsome dividends over time. In fact, there are mutual funds solely devoted to investing in all those vices your elders said to avoid. Unfortunately, the rub with many such investments is the higher-than-average fees they charge investors to buy into them. That exposes yet another white lie -- nice guys don't necessarily finish first (financially, at least).

Your parents obviously did a great job raising you. (You're around to read this, right?) Now it's time to fully take the reins of your finances and show Mom and Dad that their kids can teach them a few things, too.

Tracking the bear: How bad could it get?

Major indexes have tumbled to 12-year lows, only to rally right back. Experts weigh in on what to expect next.
By Eugenia Levenson, writer-reporter

NEW YORK (Fortune) -- Don't let Tuesday's rally fool you. While the Dow roared back more than 236 points and the S&P 500 gained 4%, Monday's 12-year lows showed that this bear market may still grow bigger and meaner.

To start the week, both the S&P 500 (SPX) and the Dow Jones industrial average (DJIA) slipped past their November troughs to close at their worst levels since 1997. The Dow's 49.8% drop from its October 2007 peak marked the index's second-sharpest decline since 1901, according to Ned Davis Research. The only steeper drop occurred in the 1930s, during the 813-day free fall that ended with an 86% loss.

Now comes the question: Have we hit the bottom, or will we resume our downward slide?

To make sense of this bear, we sought out some of the smartest market watchers we know and asked them to interpret the signs.

The bottoming out process. First things first. As Charles Schwab Investment Management CIO Jeff Mortimer points out, bear markets rarely hit their low points only once before turning around. More commonly, they go through a "bottoming process" -- a months-long period during which the market retreats to recent lows multiple times.

"The double-bottom we're seeing here is still a natural occurrence, as long as it holds," says Mortimer. "We're in that range on the Dow where we want to see if the buyers who came in last time will step in again at this valuation, or have things changed to [whether] they no longer find it attractive."

And the fact that the Dow sank below 7,200 on Monday doesn't necessarily mean the whole market broke the bottom, says BlackRock vice chairman Bob Doll. For one, he says the 30-stock index is simply too narrow to serve as a market proxy.

Doll prefers to look at broader indexes like the S&P 500 and the Value Line Arithmetic Index. The S&P 500 ended Monday at 743, several points below its November low (On an intraday basis, the S&P 500 hasn't dipped below its Nov. 21 trading low of 741.) But Value Line, a broad equal-weighted index, remained 9% above its November trough; as of Tuesday, it's up 15%.

Another positive indicator Doll says is the number of "new low" stocks -- shares that sink to their cheapest price of the year. That number has not exceeded last fall's levels. "That indicates to me that the average stock is slowly but surely working its way higher," he says.

In fact, of the 4,700 stocks in the Dow Jones Wilshire 5000 index, 2,503 hit or matched their 52-week lows on Nov. 20, according to Wilshire Associates. That's more than three times the number of stocks that sank to new lows on Feb. 20.

Doll says the fact that 2009 started at the tail end of a late-year double-digit percentage rally has overshadowed those and other encouraging signs. "If the calendar ended in mid-November, we wouldn't be feeling so bad because stocks would still be up a little bit," he points out.

He expects that the November low could still hold -- though it might be tested several more times -- and predicts that the S&P 500 could end the year in the 1,000 to 1,050 range.

More bad news on the horizon? On the other end of the spectrum, one of the gloomier voices belongs to bear market investor Doug Noland, who shorts individual stocks and ETFs in his $1.1 billion Federated Prudent Bear fund. In his view, the recent credit bubble warped the economy to such an extent that current valuations are largely meaningless.

"Bubbles distort the nature of spending throughout the economy," says Noland. "People won't spend as much on luxury items, they won't consume as much. It's this change on spending patterns that has this big impact on companies and industries, so you can't value them on historic metrics."

Not only that, but Noland expects that many companies won't survive the current downturn. For one, he says, our services- and finance-fueled economy will need to return to a broader manufacturing base.

"This readjustment period is not going to be kind to a lot of companies that prospered during the boom. They're going to look cheap all the way down, and their earnings are just going to disappear," he says.

Meanwhile, GMO chairman Jeremy Grantham is more upbeat -- though he does expect more pain to precede any recovery.

Looking back at historic bear markets, Grantham draws comparisons to 1974 and 1982, when the S&P 500 lost roughly half its value. Since he estimates the current S&P 500 fair value at 900, Grantham puts his worst-case bottom at a hair-raising 450.

"That's fairly scary, but on the one hand we look at the massive stimulus, and then on the other we try to work out the fact that the global economy is in worse shape than it was in '74 or '82," says Grantham. "I'd say there are three-to-one odds that we go to a material new low. We should count on [the S&P 500] hitting 600 for a little while, and we should hope like mad it doesn't get deep into the 500s."

Patience rules. Another looming threat is that the market may enter an extended period of drops and rebounds that flatten long-term returns and strand buy-and-hold investors for decades.

Japan's stalled stock market is one recent example, but the U.S. has had its shares of quagmires, too. Grantham likes to point out that investors who bought at market crests in 1929 and 1965 had to wait 19 years each time just to break even.

Still, Grantham says buy-and-hold still makes sense for long-term investors when stocks are trading below fair value. He especially favors U.S. blue chips, and his fund is on a strict, slow schedule to invest as valuations dip even lower.

"If you don't have a schedule for investing, you will not do it," he says. "When the market goes down, it reinforces the hoarding of cash. By the bottom, you suffer what we called in 1974 terminal paralysis -- you cannot pull the trigger. Almost everyone who avoids the great pain is very slow to get back."

Schwab's Mortimer says that dollar-cost averaging -- or regularly investing fixed amounts, regardless of share price -- can be also be a good strategy in a falling or stagnant stock market. "You'll still get volatility, and with dollar-cost averaging you'll benefit by buying more at the lows, less on the highs. You just won't know it yet," he says.

1/4 of the deposit in Switzerland banks were withdrawed last year!

瑞士银行业去年损失　四分之一存款
（2009-02-25）
（日内瓦美联电）瑞士各家银行的存户去年提取出了1万4100亿瑞士法郎（约1万8500亿新元）的存款，这超出了该国银行存款总数的25%。对原已面对严重财经危机、两家主要银行严重亏损，以及面对美国官司的瑞士银行业而言，简直是雪上加霜。
　　瑞士国家银行一份月度报告显示，瑞士各家银行的存款额下跌27％，现在只有3万8200亿法郎，是自2005年8月以来的新低。

　　据报道，外国存户去年所提取的款项，比他们存入户口的多出8820亿法郎，而瑞士存户的净提款额也高达5310亿法郎。

　　现在，外国存户在瑞士的存款剩1万3860亿法郎，减少了23％；而瑞士存户剩下的存款数额为4170亿法郎，减少了28％。

　　该份报告没有注明个别银行的提款额，但瑞士两家主要银行都表示，他们的存户去年提出了数千亿法郎。

　　瑞士银行（UBS AG）透露，该银行去年的净提款达到2260亿法郎。本月初，瑞士银行公布业绩，全年亏损高达197亿法郎，是瑞士企业史上最巨额损失。

　　与此同时，美国指控瑞士银行妨碍美国国内税务局办公的案件，也让瑞士银行的形象受损，并导致该银行的股价下跌9.1％至每股10法郎的新低。

　　另外，瑞士信贷的提款额也多达数百法郎，该银行去年的全年净亏损为82亿法郎。

Economist Warns Switzerland Could Go Broke

By: Julie Crawshaw Article Font Size

Economist Artur Schmidt says Switzerland could go broke because Swiss banks extended billions in credit to Eastern European countries which now can't pay back the money.

“Switzerland, like Iceland, is threatened with a potential national bankruptcy,” Schmidt told the Swiss daily Tagesanzeige.

Loans made in Swiss francs stimulated rapid economic growth in many Eastern European countries, Schmidt says, making Swiss currency very important.

Swiss banks lent francs to local banks, which in turn lent them to their customers. Such loans were especially attractive because interest rates were much lower than required for loans in local currency.

The system worked as long as exchange rates between Swiss and Eastern European currencies remained reasonably stable.

Now Eastern European currencies are falling and more borrowers are having problems repaying their loans.

“Because of the devaluations of the national currencies, the debt to Switzerland has increased by more than one-third,” Schmidt notes.

“Many of the Eastern European countries have serious payment difficulties and are virtually bankrupt.”

Schmidt says the value of Switzerland’s currency could drop severely or its credit rating could be massively downgraded, creating economic trauma in a country traditionally regarded as a stronghold of financial stability.

“The franc could become an unstable, soft currency,” Schmidt says.

“Then Switzerland would perhaps be forced to abandon the franc and take on the euro.”

According to a report from the Bank for International Settlements, worldwide franc-denominated loans of about $675 billion are in circulation, with about $150 billion of that total from Switzerland.

ECB faces mutiny from national bank governors as recession deepens The European Central Bank is capitulating.

By Ambrose Evans-Pritchard
Last Updated: 8:04PM GMT 23 Feb 2009

For months the ECB held sternly to the high ground of orthodoxy as the US, Japanese, British, Canadian, Swiss and Swedish central banks slashed rates towards zero and embraced quantitative easing, but a confluence of fast-moving events is now forcing it to move.

The credit default swaps that measure bankruptcy risk on the debts of Ireland, Austria and a clutch of Latin Bloc states have vaulted to dangerous levels. In the case of Ireland, the slump is spilling on to the streets. Some 120,000 marched through Dublin over the weekend to protest austerity measures.

The slow fuse on Eastern Europe's banking crisis has detonated, leaving Austrian, Belgian, Italian and other West European banks with $1.5 trillion (£1 trillion) in exposure.
It is happening just as industrial output collapses in the eurozone's core states. Germany's economy contracted at 8.4pc annualised in the fourth quarter. ECB president Jean-Claude Trichet said on Monday that "a process of negative feedback" has set in where the banks and the real economy are pulling each other down in a self-reinforcing spiral. Eurozone credit is contracting. Banks are rationing credit as deleveraging gathers pace.

Rob Carnell, global strategist at ING, said the ECB has been painfully slow to acknowledge the global deflation tsunami sweeping across Europe.

"It seems divorced from reality. It is clearly nonsense to talk about inflation now: it has been negative on average for six months. The eurozone purchasing managers' index has fallen twice as fast as in the US, so the ECB should be acting even faster than the Fed," he said.

Mr Trichet said the ECB has increased its balance sheet by €600bn (£525bn) since the Lehman collapse in September. The bank is providing "unlimited liquidity" in exchange for a wide range of collateral, including mortgage bonds issued for the sole purpose of extracting ECB funds.

But the ECB's leading voices have adamantly refused to contemplate going to the next stage: buying bonds and other assets with "printed money". They see that as the Primrose path to hell. This week the tone has abruptly changed, suggesting that a majority of the 16 national bank governors on the ECB council are having second thoughts.

The apparent ring-leader is Cypriot member Anastasios Orphanides, a former Fed official and a world authority on deflation traps. He said on Monday that the ECB may have to go beyond "zero-bound" rates and revealed that an "internal discussion" was under way.

Italy's Mario Draghi is in the "activist-easing" camp. "The experience in the US in the 1930s and Japan in the 1990s suggests that it is necessary to fight, in the early phases of the crisis, the tendency for real interest rates to rise," he said.

Finland's Erkki Liikanen is of the same opinion. "We are facing the worst financial crisis in our time. It is important not to exclude, ex ante, any measures."

Julian Callow from Barclays Capital said 10 ECB governors are now doves.

This amounts to a mutiny against the Bundesbank-dominated executive in Frankurt. It is no great surprise. They have to answer to their democracies. The plot is thickening.

Another currency crisis that will lead to worldwide meltdown

Another currency crisis similar to 97 Asian currencies crisis is in the making..This time in Europe and potentially 100 times more explosive.


By Ambrose Evans-Pritchard
Last Updated: 2:05AM GMT 15 Feb 2009

Failure to save East Europe will lead to worldwide meltdown
The unfolding debt drama in Russia, Ukraine, and the EU states of Eastern Europe has reached acute danger point.

If mishandled by the world policy establishment, this debacle is big enough to shatter the fragile banking systems of Western Europe and set off round two of our financial Götterdämmerung.

Austria's finance minister Josef Pröll made frantic efforts last week to put together a €150bn rescue for the ex-Soviet bloc. Well he might. His banks have lent €230bn to the region, equal to 70pc of Austria's GDP.
"A failure rate of 10pc would lead to the collapse of the Austrian financial sector," reported Der Standard in Vienna. Unfortunately, that is about to happen.

The European Bank for Reconstruction and Development (EBRD) says bad debts will top 10pc and may reach 20pc. The Vienna press said Bank Austria and its Italian owner Unicredit face a "monetary Stalingrad" in the East.

Mr Pröll tried to drum up support for his rescue package from EU finance ministers in Brussels last week. The idea was scotched by Germany's Peer Steinbrück. Not our problem, he said. We'll see about that.

Stephen Jen, currency chief at Morgan Stanley, said Eastern Europe has borrowed $1.7 trillion abroad, much on short-term maturities. It must repay – or roll over – $400bn this year, equal to a third of the region's GDP. Good luck. The credit window has slammed shut.

Not even Russia can easily cover the $500bn dollar debts of its oligarchs while oil remains near $33 a barrel. The budget is based on Urals crude at $95. Russia has bled 36pc of its foreign reserves since August defending the rouble.

"This is the largest run on a currency in history," said Mr Jen.

In Poland, 60pc of mortgages are in Swiss francs. The zloty has just halved against the franc. Hungary, the Balkans, the Baltics, and Ukraine are all suffering variants of this story. As an act of collective folly – by lenders and borrowers – it matches America's sub-prime debacle. There is a crucial difference, however. European banks are on the hook for both. US banks are not.

Almost all East bloc debts are owed to West Europe, especially Austrian, Swedish, Greek, Italian, and Belgian banks. En plus, Europeans account for an astonishing 74pc of the entire $4.9 trillion portfolio of loans to emerging markets.

They are five times more exposed to this latest bust than American or Japanese banks, and they are 50pc more leveraged (IMF data).
Spain is up to its neck in Latin America, which has belatedly joined the slump (Mexico's car output fell 51pc in January, and Brazil lost 650,000 jobs in one month). Britain and Switzerland are up to their necks in Asia.

Whether it takes months, or just weeks, the world is going to discover that Europe's financial system is sunk, and that there is no EU Federal Reserve yet ready to act as a lender of last resort or to flood the markets with emergency stimulus.

Under a "Taylor Rule" analysis, the European Central Bank already needs to cut rates to zero and then purchase bonds and Pfandbriefe on a huge scale. It is constrained by geopolitics – a German-Dutch veto – and the Maastricht Treaty.

But I digress. It is East Europe that is blowing up right now. Erik Berglof, EBRD's chief economist, told me the region may need €400bn in help to cover loans and prop up the credit system.

Europe's governments are making matters worse. Some are pressuring their banks to pull back, undercutting subsidiaries in East Europe. Athens has ordered Greek banks to pull out of the Balkans.

The sums needed are beyond the limits of the IMF, which has already bailed out Hungary, Ukraine, Latvia, Belarus, Iceland, and Pakistan – and Turkey next – and is fast exhausting its own $200bn (€155bn) reserve. We are nearing the point where the IMF may have to print money for the world, using arcane powers to issue Special Drawing Rights.

Its $16bn rescue of Ukraine has unravelled. The country – facing a 12pc contraction in GDP after the collapse of steel prices – is hurtling towards default, leaving Unicredit, Raffeisen and ING in the lurch. Pakistan wants another $7.6bn. Latvia's central bank governor has declared his economy "clinically dead" after it shrank 10.5pc in the fourth quarter. Protesters have smashed the treasury and stormed parliament.

"This is much worse than the East Asia crisis in the 1990s," said Lars Christensen, at Danske Bank.
"There are accidents waiting to happen across the region, but the EU institutions don't have any framework for dealing with this. The day they decide not to save one of these one countries will be the trigger for a massive crisis with contagion spreading into the EU."

Europe is already in deeper trouble than the ECB or EU leaders ever expected. Germany contracted at an annual rate of 8.4pc in the fourth quarter.

If Deutsche Bank is correct, the economy will have shrunk by nearly 9pc before the end of this year. This is the sort of level that stokes popular revolt.

The implications are obvious. Berlin is not going to rescue Ireland, Spain, Greece and Portugal as the collapse of their credit bubbles leads to rising defaults, or rescue Italy by accepting plans for EU "union bonds" should the debt markets take fright at the rocketing trajectory of Italy's public debt (hitting 112pc of GDP next year, just revised up from 101pc – big change), or rescue Austria from its Habsburg adventurism.

So we watch and wait as the lethal brush fires move closer.

If one spark jumps across the eurozone line, we will have global systemic crisis within days. Are the firemen ready?

Not All Certificates of Deposit Are Plain Vanilla -- or Safe

by Ron Lieber

It was bad enough when big banks started going under. Then, money market funds became suspect. But now, even the humble certificate of deposit has become mired in scandal.

Last week, the Securities and Exchange Commission accused a Texas financier named Robert Allen Stanford of fraud. Investigators allege that the scheme revolved in large part around the sale of about $8 billion of suspiciously high-yielding C.D.’s through Stanford International Bank.

These C.D.’s were not insured by the Federal Deposit Insurance Corporation. So once again, we’re faced with images of forlorn people trying and failing to extract their life savings.

There’s some question as to whether Stanford ought to have been using the phrase “certificate of deposit.” Most investors who hear “C.D.” immediately assume that it’s safe.

Faulty terminology or not, it’s a bad time for C.D.’s to get a black eye, given that growing numbers of people are looking for secure investments as stocks approach their bear market lows. So now that C.D.’s have been sullied, it makes sense to take a step back and review the basic product as well as other, more exotic C.D.’s that are being offered at banks, brokerage firms and elsewhere.

BASIC C.D.’S When you buy a C.D. you hand over a pile of money to a bank and agree to keep it there for a certain period of time. In return for the certainty that it can use your funds for that long, the bank pays you interest, usually more interest than it would pay on a normal checking or savings account. Investments in C.D.’s are covered by the F.D.I.C., which currently offers insurance of up to $250,000 per person per bank. Additional coverage may be available depending on how you set up your accounts.

That $250,000 figure will fall to $100,000 for some types of accounts at the end of the year absent any new governmental action, so long-term C.D. investors need to keep that in mind.

There are plenty of places to shop for the best C.D. rates. Bankrate.com is one useful site, while MoneyAisle allows banks to compete for your business in an auction on the Web. Often, the banks offering the best rates are small banks you won’t have heard of or large banks that may be somewhat troubled.

As long as you don’t invest more than the F.D.I.C. limits, you don’t need to worry about losing your money. If the bank that issues your C.D. fails, however, another bank may end up with the failed bank’s deposits and has the right to lower your C.D. rate.

With any C.D., including the more complicated ones I outline below, there are a number of questions you should ask about the terms. Is the interest rate fixed? How long is the term? Is it callable, meaning the bank can give your money back to you before the term is up if it wants to? What sort of penalties exist if you need to take money out before the term is up? If the penalties are large enough, you could end up losing principal if you unexpectedly need the funds early.

You also want to check to see how the interest will be paid. Retirees may want a check, while others may want the money reinvested in the C.D. Also, how often does the bank pay out the interest? And will the bank try to automatically roll the money into a new C.D. when the term is up? Are there any commissions?

BROKERED C.D.’S These are C.D.’s sold by brokerage firms, both large investment firms like Charles Schwab and small operations that maintain Web sites or try to cold-call you. They generally pool money from investors and then invest it in C.D.’s from F.D.I.C.-insured banks that the brokers find on their own. Sometimes, the banks are willing to pay better rates on brokered C.D.’s if the brokerage firm can bring a large enough pile of money to the bank.

One advantage here, according to René Kim, a senior vice president of Charles Schwab, is that you can keep multiple C.D.’s of different maturities in one account. And if you have a lot of money to put to work, you can place it with different banks to stay under the F.D.I.C. limits. Just be sure that the broker doesn’t place it with a bank where you already have other accounts, if the new money would put you over the F.D.I.C. limits.

Brokerage firms may tell you that there are no fees for early withdrawal of a brokered C.D. The S.E.C. warns, however, that if you want to get your money out early, your broker may need to try to sell your portion of the C.D. on a secondary market. You may not be able to sell it for an amount that will allow you to get all of your principal back.

INDEXED C.D.’S These C.D.’s, also known as market-linked C.D.’s, generally guarantee that you’ll get your original investment back. They also let you share in the gain of a stock market index, like the Dow Jones industrial average or the Standard & Poor’s 500-stock index. If stocks are up during the term of your C.D., you’ll make some money. If not, you’ll still get your initial investment back, though inflation may have eroded its value.

While this downside protection and upside participation may be tempting at a time like this, these C.D.’s can be complicated. (They’re also a bit scarce at the moment, since stock market volatility makes it more expensive for banks to offer them.) Your return will depend on how the issuer of the C.D. calculates the average return on the index. So ask to see an example.

Also, the bank that offers the C.D. may not credit any of the money you earn until the end of the C.D.’s term, even though you still have to pay taxes each year on your interest.

Finally, while your initial investment may have F.D.I.C. protection, any gain during the term of the C.D. may not be covered if the bank goes under before the C.D.’s term is up, depending on how the interest is calculated and credited. Again, ask about this in advance. Also, don’t assume that your investment comes with F.D.I.C. insurance, because there are similar-sounding investments that may not.

FOREIGN CURRENCY C.D.’S Here, you’re using American dollars to make a bet. At EverBank, which offers many foreign currency C.D.’s, you earn interest in the currency that you choose and can earn even more money if it appreciates against the dollar. If it moves in the opposite direction, however, you can lose not just your interest but some of the principal, too.

While the F.D.I.C. does insure the principal here, EverBank notes that the coverage is only for failure of the institution, not for fluctuation in currency prices. “Please only invest with money that you can afford to risk, and as part of a broadly diversified investment strategy,” its disclosure says.

The bank might as well say that you should only invest what you can afford to lose, which is not how most people normally think about C.D.’s.

So if you’re trying to stay safe, consider a plain, old-fashioned C.D. instead. And don’t ever assume, as some of the Stanford investors may have done, that F.D.I.C. insurance is automatically part of the C.D. package.

Four Simple Steps to Resolve the Financial Crisis and Boost the Stock Market

President Obama, Fed Chairman Bernanke, Treasury Secretary Geithner, politicians, economists, strategists and pundits everywhere are doing back-flips trying to find a solution to the banking crisis and resulting stock market meltdown.

But Jon Najarian, president of OptionMonster.com, says there are some simple steps policymakers can take to at least alleviate the crisis and give the stock market a big boost:

* Cut taxes by 10% across the board for corporations and individuals alike: Najarian is a big believer in the healing power of tax cuts but admits it's highly unlikely any tax cuts will be enacted beyond what's in the stimulus bill.

* Raise the FDIC insurance limit to $1 million per account: FDIC insurance was temporarily raised to $250,000 per depositor in October. Najarian says raising it further will bring more capital into the banks - and out from under mattresses - both helping shore up the banks and providing them a base in which to lend. He also advocates for SIPC insurance on cash in security accounts to be raised above the current $100,000 limit.

* Suspend mark-to-market accounting: Critics say suspending mark-to-market accounting would reward banks for their bad behavior, and send a message that toxic assets are merely "temporarily" depressed vs. permanently damaged. Supporters say it will give the banks "breathing room" to sell those assets at something other than rock-bottom prices. Najarian does believe Secretary Geithner will announce an at least temporary suspension of mark-to-market sometime in 2009, spurring a huge rally in beleaguered bank stocks. (Personally, I think the government should put insolvent banks into receivership; but since it appears that's not in the cards, suspending mark-to-market makes sense in order to give banks some balance sheet relief and get more bang for out bailout bucks.)

* Reinstate the uptick rule: Because stocks trade in penny increments, reinstating the prohibition against shorting a stock on a downtick might not have much practical impact, Najarian says. But there was no good reason to get rid of the rule and reinstating it could do wonders to revive confidence in the market, which may be more than half the battle.

The 'buy and hold' strategy

Goh Eng Yeow on the wisdom of having your money professionally managed.

LIFE goes on as usual for fund managers even though the sky seems to be crashing down around them, as assets of all classes plunge in value.

Last night, they gathered at a posh hotel to celebrate the achievements of their peers and dished out awards to the outstanding performers.

But as my colleague, Gabriel Chen, pointed out in his article this morning, about $1.5 billion has walked out of Singapore unit trusts in the fourth quarter alone.

Indeed, these investors who have made their exit, might have been the smart ones. Stock prices have fallen further since the start of the year and there does not seem to be an end to the stock market carnage in sight.

For the "experts", it has been a trying time, even though some have put on a brave front, waxing lyrical about the need to stay invested.

But investors, who parked their money in unit trusts have discovered that they are doing as badly, if not worse, than those who choose to have fun making investments with their own money.

The super-rich, who get the dubious privilege of parking their money with hedge funds which supposedly have the inside track to even greater wealth, fare even worse. In some cases, they have lost the family silver, after placing their money with fraudsters like Bernie Madoff.

The cynical view is that it is impossible to beat fund managers at their own game. After all, they will continue to enjoy earning their keep, so long as investors are willing to park their nest-eggs with them.

But such cynicism aside, it is pertinent to ask why so few fund managers were able to forecast the current financial crisis and take steps to protect their investors’ interests, even though they were supposed to be spending much of their time looking at the market.

Indeed, many investors are now asking themselves if it is sensible for them to stick to the "Buy and Hold" strategy advocated by fund managers. Over the years, the mantra has been to behave like a sensible long-term investor - rather than a day-trader – because stocks outperform bonds and other assets if they are held long enough.

But as economist John Maynard Keynes once observed: In the long-term we will all be dead.

Anyone who followed the buy and hold advice given out by the fund managers will feel deceived.

Wall Street has fallen to an 11 year-low, wiping out any gains made in the past decade, while stock prices here have fallen to 2003 Sars crisis lows.

Since the global credit crisis erupted over a year ago, fund managers haven’t adjusted their portfolios from stock holdings to cash fast enough. Some of them have been buried by the avalanche of plunging stock prices.

For many investors, the best strategy is to hold on tight to your cash right now, after the vast destruction of wealth last year.

The biggest tragedy is to have to try to slowly accumulate your nesteggs once again, just when a huge financial storm is in full swing.

Commentary by Kathy Lien: Race to Zero Interest Rates

With no US economic data released this morning, we take this opportunity to discuss the Race to Zero Interest Rates. Of the eight major central banks, three have already taken interest rates as low as they can. These are the Federal Reserve, the Bank of Japan and the Swiss National Bank. Further interest rate cuts are expected from the other central banks but the question is who will win the race. In this competition, getting to the finish line quickly is not as important as getting there eventually. Not every central bank is expected to take interest rates to zero but at bare minimum it is interesting to talk about how many more rate cuts are expected.

The Federal Reserve – Onto Credit Easing


Growth: There is no question that from a growth perspective, the outlook is the US economy is bleak. More than 6.5 million Americans are claiming unemployment benefits and the unemployment rate is expected to rise to anywhere between 8.2 and 8.8 percent. Consumer spending has been weak and will continue to remain so as long as Americans are losing jobs or struggling to hang onto them. If interest rates did not already hit rock bottom, the central bank would be responding with aggressive rate cuts now. Any improvements that we have seen in the US economy is suspicious as every knows more trouble lies ahead. President Obama signed a $787 billion economic stimulus package. This will eventually help the US economy but it may be some time before the stimulus reaches the pocketbooks of Americans.


Inflation: In the month of January, both consumer and producer prices increased. However, despite the moment of optimism elicited by the monthly report, the annualized basis of CPI fell to 0%, the lowest price level in thirty years. Certainly, this fact is enough to declare that inflation is not a concern while and disinflation, a step above deflation is a very real possibility. Across America, we are already seeing price cuts in many different industries.


Central Bank Comments: In a recent speech given by the Federal Reserve Chairman, Ben Bernanke, cited the fact that inflation will remain low for some time, but resisted temptations to use the term deflation. In order to give the market some identifiable metric, Bernanke choose to set an inflation target of about 2.00 percent, far above the current plight in consumer prices. The Fed is currently embarking on Credit Easing which is very similar to Quantitative Easing which involves pumping money into the financial system by purchases assets like commercial paper and agency mortgage backed securities.


Outlook for Interest Rates: The Federal Reserve has run out of room to cut interest rates. With a target range of 0 to 0.25 percent, they are basically at zero. The only reasons why they didn’t take rates down to 0 officially is because it would be psychologically crippling and they did not want to threaten the viability of money market funds.



European Central Bank – Reluctantly Taking Rates to 1 Percent



Growth: Like the US, recession has hit the Eurozone. The difference however is that in addition to weaker growth, the Eurozone is vulnerable to further problems in their financial sector. Western European banks have extensive exposure to Eastern European nations. If borrowers from those nations default on their loans, there could be a domino effect on the Eurozone. Ireland is also at risk of default and if that occurs, it could an exodus out of Euros.


Inflation: Unlike the US, prices are falling and not rising in the Eurozone. The European Central Bank acknowledges that price pressures are easing, yet they are reluctant to aggressively cut interest rates and instead regularly warn about taking rates to ultra low levels.


Central Bank Comments: Jean-Claude Trichet has not been quiet about his desire to at least slow-down the magnitude of easing until the stimulus has time to filter through the system. Last month, he left interest rates unchanged at 2 percent. Most recently, Trichet is quoted as saying that he will provide an unlimited amount of cash for the euro-regions bank. It is possible that he will resort to using these liquidity measures rather than accelerated rate cuts to manage monetary policy. Trichet also holds that the threat of deflation is minimal.


Outlook for Interest Rates: The ECB will continue to cut interest but will probably stop at 1 percent. A 50bp rate cut is expected last month and Trichet has already confirmed that these are well placed expectations.


Bank of England – Rates Headed to US Levels, Adopting Quantitative Easing


Growth: The UK is in recession with growth currently running at minus 1.5%. The labor market is deteriorating, but consumer spending has been resilient. Problems in the housing market and the financial sector have hit the country hard and therefore the Bank of England expects weak growth to last for the next few years.


Inflation: Deflation concerns in the UK are probably the least prevalent out of the major central banks. Annualized CPI in January was 3 percent. The weakness of the British pound has driven Producer Prices higher but the BoE believes that inflation will undershoot their 3 percent target significantly this year. In their recent Quarterly Inflation report, they forecasted inflation to slow to 0.5 percent within the next 2 years. This will support their plans to keep monetary policy easy.


Central Bank Comments: Bank of England Governor King is very pessimistic about the outlook for the UK economy. Two weeks ago, he warned that the UK economy is in deep recession signaling that interest rates are headed lower. The minutes from the most recent monetary policy meeting revealed that central bank officials were reluctant to cut interest rates more aggressively even though their economic outlook was negative. They were not reluctant however to appeal to the Chancellor for the authority to embark on Quantitative Easing by starting to buy Gilts.


Outlook for Interest Rates: At their next monetary policy meeting in March, the BoE is expected to cut interest rates to 0.5 percent and officially begin Quantitative Easing. Their efforts to cut interest rates have been ineffective in stimulating the economy. King already had an initial meeting with Chancellor Darling and given the market’s expectation for QE, the Chancellor should oblige. The BoE could still take interest rates to zero. With US rates already at that level, the stigma of moving to ZIRP is not as significant.


Bank of Canada: Interest Rates Could be Headed to ZIRP

Growth: Canada is only beginning to feel the effects of the US recession. For the first time in 30 years, Canada reported a trade deficit. Weaker demand for auto exports and lower oil prices have dealt a double blow to the Canadian economy. In the month of January, the unemployment rate hit a 4-year high. Consumer spending is beginning to crumble and the recession is expected to deepen. The central bank expects growth to contract by 4.8 percent in the first quarter.


Inflation: Inflation is falling in Canada. Consumer Prices fell for the fourth consecutive month, putting the country at risk of deflation. The decline in oil prices is expected to drag the annualized pace of CPI growth below zero in the fourth and third quarter.


Central Bank Comments: Mark Carney, the Governor of the Bank of Canada shares our concern about inflation. After cutting interest rates in January, Carney said that he still has “considerable flexibility” to take further action. He believes that growth will not start until early 2010, but when it happens, it may be sharp.


Outlook for Interest Rates: Canada is probably the most likely central bank to take interest rates to zero. Another 50bp rate cut is expected in March. Their economy is just beginning to slow and the BoC will have to step up to the plate by cutting interest rates more aggressively.


Reserve Bank of Australia: Lucky Enough to Skirt Recession


Growth: Australia is one of the few countries lucky enough to not be in recession. Growth is currently lingering at very low levels, but has not since dipped into negative territory. The country has been showing varied levels of stabilization including a bounce in Retail Sales. Even though the Unemployment Rate rose to 4.8 percent, Australia is still reporting job growth, to the envy of their global counterparts.


Inflation: Despite the pleasing picture of Australian growth prospects, inflation is still retreating. Producer Prices have fallen to 1.3% while Consumer Prices were pushed down to -0.3%. The negative consumer price figure does create a certain disinflation concern and the decline in commodity prices could keep price pressures depressed.


Central Bank Comments: The members of the RBA have been expressing certain optimism about the prospects of their economy. Most recently, Deputy Governor Edey said that Australia would outperform because of the tremendous amounts of monetary and fiscal stimulus injected into the economy Combined, Edey belives that these forces should keep the country out of recessionary. Glenn Stevens, the central bank head, reiterated Edey’s comments by saying that the economy will recover as quickly as the end of 2009.


Outlook for Interest Rates: It may be true that the RBA continues their easing measures to some extent. However, since there is such a large buffer at 3.25%, there is little chance that conditions will worsen to the point where zero interest rates are warranted. In addition, the content attitudes of the RBA, signifies that the large cuts will no longer be the stable of policy decisions. For Australia zero or even 1 percent interest rates is out the question.


Reserve Bank of New Zealand: More Weakness, More Rate Cuts


Growth: Unlike Australia, New Zealand was one of the first countries to fall into recession. Despite aggressive rate cuts, they have not been able to engineer a recovery. The high beta country is still very sensitive to world developments. The only saving grace is that the weakness of the New Zealand dollar is boosting tourism. As for domestic demand, it remains weak with retail sales falling 1.0 percent. Employment on the other hand is mixed with a positive surprise in employment change but a big jump in the unemployment rate.


Inflation: Like other commodity currencies, New Zealand has faced an accelerated decline in prices. Producer prices have fallen an amazing 7% in three quarters, landing at about -2.2% in the most recent report. Consumer Prices have likewise faced pressures that have pushed inflation down to -0.5%. There is a very real threat that, as the result of the declines in commodity prices, New Zealand may experience deflationary conditions.


Central Bank Comments: Recent comments by Reserve Bank of New Zealand Governor indicated his concern over the lending conditions in the country, urging households and firms not to “pull down the shutter” and limit economic activity. He also adds that he feels that inflation remains under control despite the strong pull back in consumer prices. In late January, Bollard mentioned that the “toolbox” is by no means empty, indicating that further rate cuts can be implemented. Finance Minister English believes that there is more trouble ahead for the New Zealand Economy.


Outlook for Interest Rates: The RBNZ has way too much breathing room when it comes to cutting rates. With the highest interest rate among the 8 major countries, New Zealand has plenty of room to ease. Another 50bp of easing is expected but conditions would have to alter severely for the central bank to take interest rates to 1 percent, let alone zero.


Bank of Japan: Quantitative Easing Take 2


Growth: Growth concerns in Japan have hit the spotlight with annualized GDP showing a staggering drop of more than 12.0%, the largest contraction in more than three decades. This figure is enough to single-handedly describe the deterioration of the economy over the last year. Japan’s woes are very closely related to the unrelenting strength in the yen, which has posed a 15% gain against the dollar since its highs in August of 2008. As an exporting dependent economy, the combination of the weak international demand and strength in the currency has brought the region into recession. Their Trade Deficit has enlarged to -¥197.9B, a more than 100% increase over the prior month.


Inflation: Historically, Japan has held a very low inflation rate. This was one of the primary characteristics that followed them through a decade of stagnate growth. Currently, Tokyo Consumer Prices are on the move downward along with National Consumer Prices. The threat of deflation is a very real possibility for the region and could prove to further exaggerate the effects of their recession.


Central Bank Comments: In a report released by the central bank, current consensus indicates that “economic conditions have deteriorated significantly”. The BoJ Governor himself said that economic prospects are “extremely uncertain”. In response to these conditions, Masaaki Shirakawa announced a new extension to his asset purchase program that will now include corporate bonds. He concluded that despite these efforts, corporate lending will most likely remain depressed.


Outlook for Interest Rates: The BoJ’s target rate is too close to zero to pose the probability of further rate cuts. The 10bp buffer that they have left is merely a psychological amount as the central bank went to great lengths to stress that they are not returning to a zero interest or quantitative easing policy. In our opinion however, they will probably remain in the zero rate club for some time.


Swiss National Bank: Leaving Room to Cut Rates to Zero


Growth: Even though Switzerland has deployed recession-like monetary maneuvers, the region has not officially been sunk into the technical definition of a recession. Third quarter GDP fell to 0.0%; the next report is expected in early March. The KOF Economic Barometer has been retreating for a total of fifteen months. Retail Sales on the other hand made a comeback in the month of January, coming in at 3.6% versus -1.4% in the prior month.


Inflation: Deflationary concerns have been on the rise in Switzerland as well. Consumer Prices fell again to -0.8% from -0.5%. Producer Prices reflect similar levels. The fact that the price level has been negative for an extended period of time may mean that the region is currently experiencing some of the same symptoms.


Central Bank Comments: John-Pierre Roth, the head of the Swiss National Bank, seems confident that he we continue cutting rates, indicating that the target in 2003 was only 0.25%. At this level, it is pretty much a certainty that rates have reached the bottom. Others in the bank, like Thomas Jordan, have indicated interests in starting bond purchasing programs or even foreign exchange intervention. However, Roth has indicated that the effects of rate cuts will take time to push libor rates to the same level.


Outlook for Interest Rates: The SNB is definitely one of the few central banks that we suspect will actually make the move of taking interest rates to zero. The central bank has been very unhappy with the recent appreciation of the Swiss Franc and therefore cutting interest rates further could take some steam out of the currency.

99,000 jobs may go (Singapore)

Feb 25, 2009, The Straits Times Breaking News
Job losses in Singapore
99,000 jobs may go

SINGAPROE may lose 99,000 jobs amid the nation's worst economic slump, pushing the jobless rate to 5 per cent by mid-2010, said DBS Bank in a report on Wednesday. DBS also said the economy may contract 4.8 per cent this year, down from its earlier forecast of 3.3 per cent.

'Singapore is likely to experience its worst ever growth this year with a GDP contraction of 4.8 per cent. Labour markets are expected to deteriorate further, it said.

'The unemployment rate will likely hit 5 per cent with cumulative job losses expected to reach 99,000 by 2010. Policy measures that have been put forth so far will help to cushion the blows but the worst of the labour market cycle is yet to come.'

The Singapore economy shrank by 3.7 per cent in the fourth quarter of 2008, compared to a year ago. Singapore's non-oil domestic exports plunged by 17.7 per cent in the same quarter, down significantly from an average negatove 4.2 per cent for the first three quarters of last year.

Most recent NODX growth in January plummeted by 34.8 per cent - the sharpest single month decline ever and a clear reflection of the collapse in global demand

'On account of the sharp collapse in global demand and export sales, we have recently lowered our growth for 2009 to - 4.8 per cent, down from an already low forecast of - 3.3 per cent,' said the DBS report. 'This marks the worst recession in Singapore's history, surpassing the previous low of -3.8 per cent registered prior its independence in 1964.

'With growth this weak, labour market conditions are expected to deteriorate further. The unemployment rate will creep higher as job losses mount.'

Singapore's unemployment rate has risen in the previous two quarters as the labour market continued to feel the heat of the global recession.

About 73,100 Singapore residents were jobless in December last year, an increase of about 58 per cent over a year ago. Job growth also slowed significantly, with just 26,900 jobs created in the fourth quarter, which is less than half the total gain of 55,700 in the previous quarter.

'Against the backdrop of the dire economic conditions, this is probably just the initial stage of a protracted down-cycle in the employment market. Job losses and unemployment rate will continue to rise as companies struggle to cope with the impact of the global downturn,' said DBS.

It will be totally impossible for this crisis to end fast

The author of “The Black Swan,” Nassim Nicholas Taleb, predicts that the global financial crisis will be harder to end than the Great Depression and it may force the United States government to nationalize some banks.

The world has a much more complex financial system than in the 1930s, Mr. Taleb told Bloomberg Television, and that makes the current problems worse. Bonuses paid on Wall Street encouraged risk-taking with no regard for losses, he added.

Rare and unforeseen events are known as “black swans,” after Mr. Taleb’s 2007 book, “The Black Swan: The Impact of the Highly Improbable.” Mr. Taleb said the current financial crisis isn’t one.

“The black swan for me would be for us to emerge out of this unscathed and return to normalcy,” Mr. Taleb told Bloomberg. Compared to the Great Depression, he said, this crisis is “very different, and it requires much more drastic action.”

Taleb’s book was published in May 2007, about three months before the credit crisis exploded.

Mr. Taleb’s severe pessimism follows a similar warning by the billionaire investor George Soros last week that the world financial system had effectively disintegrated and that there was no prospect yet of a near-term resolution to the crisis. Mr. Soros said at Columbia University that the turmoil was actually more severe than during the Depression.

More missing debt payment

By Francis Chan

MORE consumers here are missing their credit card and personal loan payments but the numbers still fall below the highs recorded during the Sars outbreak in 2003.

According to the latest figures from Credit Bureau Singapore (CBS), the percentage of consumers, who missed at least one credit card payment rose slightly from 1.48 per cent in December 2007, to 1.67 per cent last December.

Similarly, the percentage of delinquent personal loans that were 30 or more days past due also increased from 3.73 per cent in December 2007 to 5.34 per cent in December last year.

The figures were compiled by CBS on a monthly basis from a data pool of over 1.1 million credit card accounts and more than 65,000 personal loan customers.

'The worsening economy, the rising unemployment level, and the need to ramp up their year-end spending have all taken a toll on consumers' ability to manage their credit card and personal loan payments in the fourth quarter of 2008,' said CBS executive director William Lim.

The latest statistics from CBS show that more consumers may be 'under stress from the impact of layoffs and the economic downturn, and are struggling to pay their bills on time,' he added.

CBS also found that over the last four months of last year, the percentage of consumers who missed at least one payment on one or more of their credit cards climbed steadily from 1.45 per cent in September to 1.51 per cent in October to 1.56 per cent in November before reaching 1.67 per cent in December.

The proportion of consumers who had delinquent personal loan accounts that were 30 or more days past also increased from 4.24 per cent in September last year to 5.34 per cent in December.

Missed payments for credit card bills and personal loans, however, remained below the levels registered during Sars.

In 2003, during the peak of the Sars outbreak, monthly average delinquency rates were 2.61 and 6.05 per cent for credit cards and personal loans respectively.

Laid Off? No New Job? How Bad Can It Get?

by Anna Prior

Yes, times are tough. The big banks are on life support. Home prices are in the pits. The stock market's tanked. Unemployment's way, way up.

And...uh-oh. How are you doing? What about your home? Your investments? Your job?

How safe is it? What's the worst that can happen to you?

We put that question to the expert -- Joshua Piven, author of the best-selling "Worst-Case Scenario Survival Handbook" series. His tongue-in-cheek answer is not pretty: "You lose your job, you run out of savings or a safety net, have to sell [your] home, it's a down market and you can't sell your house, you move, pull the kids out of school, it's not easy to get another job and your whole lifestyle has to change.

"Then there's homelessness, maybe spiraling alcoholism, and then living on the side of the train tracks."

Ugh. More people are facing an extended period of joblessness and the potential financial difficulties that go along with it.

Unemployment hit 7.6% last month, with 11.6 million people out of work, and the number of people experiencing joblessness for more than six months has continued to increase, growing to more than 2.6 million in January, according to the Bureau of Labor Statistics.

As jobless rates go up, duration usually follows, says Katharine Abraham, a University of Maryland economist.

With the Federal Reserve forecasting that the unemployment rate could hit 8.8% this year, the number of people unemployed for longer stretches of time is expected to increase as well.

Conventional wisdom has long called for you to stash away up to six months of living expenses to carry you through a financial emergency or job loss. But with more job hunts lasting longer than half a year, backup funds can dwindle, and you will have to make more and more tough financial choices.

"It may be painful to think about bad things happening, but you have to make sure you are budgeting appropriately and living below your means," says Liz Davidson, CEO of Financial Finesse, a financial-education firm.

Here are some things to keep in mind, starting now:

While You're Working

* Double that emergency fund. One way to do this is by making minimum payments on your credit cards. That runs counter to the usual advice, but for those worried about losing a job, these aren't usual times. Take the remaining money you would use to pay off the whole bill and stash it in a money-market or high-interest savings account, suggests June Walbert, a financial planner with USAA, which mainly serves military members and their families.
* Consider downsizing your living quarters. For example, after business began to slow at Saxon Anderson's teeth-whitening kiosk at a Los Angeles area mall, the 26-year-old downgraded from a nice single apartment to a house with five roommates.
* Since it's easier to get credit while you're employed, look into opening another credit card or a home-equity line of credit as a precaution in case money becomes hard to access if you are unemployed. But use this credit only as a last resort.

When the Word Comes Down

* File for unemployment benefits immediately, says Linda Robertson, a senior financial planner with Financial Finesse. A severance package from your employer could delay your eligibility, but "so many of the unemployment offices are overwhelmed right now and are behind," she says.
* Call your landlord or lender if your layoff results in immediate financial instability. Ask about deferred-payment plans for rent or find out if your lender offers programs to restructure any loans, says Ms. Robertson. If you're financially stable, you may still want to alert your landlord or lender to your employment situation in case you have trouble making future payments.
* Look into all your health-insurance options. The government made some modifications to the federal COBRA law, which allows people to extend their previous coverage, but know that this isn't always the most affordable plan. Young and healthy? A high-deductible plan might still be more affordable.

The First Six Months

* Develop a bare-bones budget -- and stick to it -- so your severance or emergency funds will last as long as possible.
* Prioritize your debts. When the bills come, pay the big ones -- such as rent or mortgage, utilities and car payments -- before making minimum payments on your credit cards, suggests Ms. Robertson.
* If money starts getting tight, consider further downsizing your home or selling any nonessential cars, electronics, jewelry or other valuables, says Dan Houston, president of retirement and investor services at Principal Financial Group.

Six Months and Beyond

* De-invest. Start by looking for securities you might liquidate in nonretirement accounts. Potential tax write-offs could help make the losses easier to stomach. "If they've got a capital loss, they can write that off against any gains," says Ms. Robertson. "Or they can write off up to $3,000 of a capital loss against any other income."
* Then tap your Roth IRA. Money grows tax-free in these retirement accounts, and you can usually withdraw contributions with no tax liability. "That should be one of your measures of last resort, because we want that money to remain in that tax shelter," says Ms. Walbert.
* Keep your hands off your traditional IRA or 401(k) until the very last moment. "You'll not only have to pay taxes on those withdrawals, but you'll also pay penalties," says Mr. Houston. "You'll lose all of the compounding interest and yield. Plus, the probability of you replacing those dollars down the road is pretty remote, since the tendency for most is to spend instead of replace."

The Index Funds Win Again

by Mark Hulbert

There's yet more evidence that it makes sense to invest in simple, plain-vanilla index funds, whose low fees often lead to better net returns than hedge funds and actively managed mutual funds with more impressive performance numbers.

Basic stock market index funds generally aspire to nothing more than matching the returns of a market benchmark. So in a miserable year for stocks, index funds may not look very appealing. But it turns out that, after fees and taxes, it is the extremely rare actively managed fund or hedge fund that does better than a simple index fund.

That, at least, is the finding of a new study by Mark Kritzman, president and chief executive of Windham Capital Management of Boston. He presented his results in the Feb. 1 issue of Economics & Portfolio Strategy, a newsletter for institutional investors published by Peter L. Bernstein Inc.

Mr. Kritzman, who also teaches a graduate course in financial engineering at M.I.T.’s Sloan School of Management, set up his study to accurately measure the long-term impact of all the expenses involved in investing in a mutual fund or hedge fund. Those include transaction costs, taxes and management and performance fees.

He is not the first to try such a measurement. But, he said in an e-mail message, it is surprisingly hard to measure these costs accurately. The bite taken out by taxes, for example, depends on the specific combination of positive years and losing ones, as well as the order in which they occur. That combination and order also affect the performance fees charged by hedge funds.

Mr. Kritzman devised an elaborate method to take such contingencies into account. Then he calculated the average return over a hypothetical 20-year period, net of all expenses, of three hypothetical investments: a stock index fund with an annualized return of 10 percent, an actively managed mutual fund with an annualized return of 13.5 percent and a hedge fund with an annualized return of 19 percent. The volatility of the three funds’ returns — along with their turnover rates, transaction fees and management and performance fees — was based on what he determined to be industry averages.

Mr. Kritzman found that, net of all expenses, including federal and state taxes for a New York State resident in the highest tax brackets, the winner was the index fund.

Specifically, he assumed that long-term capital gains were subject to a 15 percent federal tax and a 6.85 percent state tax; short-term capital gains and dividends were taxed at a combined federal and state rate of nearly 42 percent. The index fund’s average after-expense return was 8.5 percent a year, versus 8 percent for the actively managed fund and 7.7 percent for the hedge fund.

Expenses were the culprit. For both the actively managed fund and the hedge fund, those expenses more than ate up the large amounts — 3.5 and 9 percentage points a year, respectively — by which they beat the index fund before expenses.

IF such outperformance isn’t enough to overcome the drag of expenses, what would do the trick? Mr. Kritzman calculates that just to break even with the index fund, net of all expenses, the actively managed fund would have to outperform it by an average of 4.3 percentage points a year on a pre-expense basis. For the hedge fund, that margin would have to be 10 points a year.

The chances of finding such funds are next to zero, said Russell Wermers, a finance professor at the University of Maryland. Consider the 452 domestic equity mutual funds in the Morningstar database that existed for the 20 years through January of this year. Morningstar reports that just 13 of those funds beat the Standard & Poor’s 500-stock index by at least four percentage points a year, on average, over that period. That’s less than 3 out of every 100 funds.

But even that sobering statistic paints too rosy a picture, the professor said. That’s because it’s one thing to learn, after the fact, that a fund has done that well, and quite another to identify it in advance. Indeed, he said, he has found from his research that only a minority of funds that beat the market in a given year can outperform it the next year as well.

Professor Wermers said he believed that it was “exceedingly probable that any fund that has beaten the market by an average of more than one percentage point per year over the last decade achieved that return almost entirely due to luck alone.”

“By definition, therefore, such a fund could not have been identified in advance,” he added.

The investment implication is clear, according to Mr. Kritzman. “It is very hard, if not impossible,” he wrote in his study, “to justify active management for most individual, taxable investors, if their goal is to grow wealth.” And he said that those who still insist on an actively managed fund are almost certainly “deluding themselves.”

What if you’re investing in a tax-sheltered account, like a 401(k) or an I.R.A.? In that case, Mr. Kritzman conceded, the odds are relatively more favorable for active management, because, in his simulations, taxes accounted for about two-thirds of the expenses of the actively managed mutual fund and nearly half of the hedge fund’s. But he emphasized the word “relatively.”

“Even in a tax-sheltered account,” he said, “the odds of beating the index fund are still quite poor.”

Bernanke: economy suffering 'severe contraction'

Jeannine Aversa, AP Economics Writer

WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke told Congress Tuesday the economy is suffering through a "severe contraction" and pledged to use all available tools to lift the country out of the recession that already has cost millions of Americans their jobs.

In testimony prepared for the Senate Banking Committee, Bernanke said the economy is likely to keep shrinking in the first six months of this year. Housing, credit and financial crises -- the worst since the 1930s -- plunged the economy into its worst downhill slide in a quarter-century at the end of last year.

Bernanke hoped that the current recession, now in its second year, will end this year.

But he said there were significant risks to that forecast and any economic turnaround would hinge on the success of the Fed and the Obama administration in getting credit and financial markets to operate more normally again.

"Only if that is the case, in my view there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery," Bernanke said.

Among the risks to any recovery are if economic and financial troubles in other countries turn out to be worse than anticipated, which would hurt U.S. exports and further aggravate already shaky financial conditions in the United States.

Another concern is that the Fed and other Washington policymakers won't be able to break a vicious cycle where disappearing jobs, tanking home values and shrinking nest eggs are forcing consumers to cut back sharply, worsening the economy's tailspin. In turn, battered companies lay off more people and cut back in other ways.

"To break that adverse feedback loop, it is essential that we continue to complement fiscal stimulus with strong government action to stabilize financial institutions and financial markets," Bernanke said.

In an effort to revive the economy, the Fed has slashed a key interest rate to an all-time low and Obama recently signed a $787 billion stimulus package of increased government spending and tax cuts.

In addition, Treasury Secretary Timothy Geithner has revamped a controversial $700 billion bank bailout program to include steps to partner with the private sector to buy rotten assets held by banks as well as expand government ownership stakes in them -- all with the hopes of freeing up lending. The Obama administration also will spend $75 billion to stem home foreclosures.

Those and other bold steps -- including a soon-to-be-operational Fed program to boost the availability of consumer loans -- for autos, education, credit cards and other things -- should over time provide relief and promote an economic recovery, Bernanke said.

Radical actions taken by the government since last fall when the financial crisis intensified have relieved some credit and financial strains, Bernanke said.

"Nevertheless, despite these favorable developments significant stresses persist in many markets," he said. "Notably most securitization markets remain shut ... and some financial institutions remain under pressure."

Although Bernanke didn't mention any such financial institutions by name, Citigroup Inc. -- the industry's troubled titan -- is apparently in line for additional government help.

Critics worry the Fed's actions have the potential to put ever-more taxpayers' dollars at risk and encourage "moral hazard," where companies feel more comfortable making high-stakes gambles because the government will rescue them.

All the negative forces have battered consumers and businesses.

"The economy is undergoing a severe contraction," Bernanke said.

The nation's unemployment rate is now at 7.6 percent, the highest in more than 16 years. And it will climb higher -- even in the best-case scenario that an economic recovery happens next year.

The Fed expects the jobless rate to rise to close to 9 percent this year, and probably remain above normal levels of around 5 percent into 2011.

The recession, which started in December 2007, already has killed a net total of 3.6 million jobs.

To brace the economy, many analysts predict the Fed will leave its key rate at record lows through the rest of this year. The Fed has said repeatedly that it will explore expanding existing programs to provide loans or buy debt, or come up with new tools to fight the crises.

The Fed is "committed to using all available tools to stimulate economic activity and to improve financial market functioning," Bernanke told lawmakers Tuesday.

The Second Financial Tsunami has arrived, faster & deeper

For those betting on a China leading the recovery story...beware.


第二波金融海啸已到来 比预期更快更严重

(北京综合讯）因编著《货币战争》而闻名、并提前预警金融海啸的中国学者宋鸿兵表示，各国救市政策并没有阻止金融危机蔓延，“第二波海啸比预期来的更快、更严重”。
　　据中国媒体报道，他表示，第二波金融海啸已经到来，危机可能在今年下半年或明年上半年提前深化，引爆“利率火山”。所谓“利率火山”，就是由于信贷全面紧缩导致长期贷款利率飙升，引发将近600万亿美元（918万4800亿新元）利率掉期衍生品市场崩盘，导致更大规模金融市场如骨牌一样崩溃。

　　首先，已公布的美国多项经济指标非常差。美国2008年第四季国内生产总值（GDP）较上一季下跌3.8％，创26年来最大跌幅；续领失业金人数增至478万人，12月新屋销售较上月大跌14.7％，为1963年1月开始记录以来最低。

　　其次，美国商业银行体系暴露的问题越来越严重。美国银行最近公布17年来首个业绩亏损季度报告，新收购的美林证券亏损不断加剧。花旗集团受呆账和不良资产重创，近15个月以来已亏损285亿美元（436亿2780万新元）。“未来花旗集团、美国银行或许只有国有化一条路了。”

　　第三，企业债市场恶化程度比此前预测的更快。去年11月宋鸿兵预测，“企业债和地方政府债券”将是第二波金融海啸的引爆点，尤其是企业债中的垃圾债。当时他预估，垃圾债券的违约率将在今年9月底从2.68％急速爬升至12％至15％，急升500％。

　　宋鸿兵认为，花旗银行被国有化或申请破产保护，将是第二波危机中的“标杆性事件”。“从恶化速度看，花旗在上半年就会出现大问题。”

　　他指出，全球经济在未来一段时间都前景不妙。现在美、欧、日的经济数据显示出二战结束以来最严重的经济衰退，足与1929年大萧条时代相提并论。而美国这次衰退的时间可能长达10年至15年，“至少在5年内很难真正走出衰退”。

　　他认为，“中国还不具备率先复苏、拉动全球走出衰退的能力。因为中国还不是世界经济的发动机。”

SEC missed red flags

WASHINGTON - FOR years, there were red flags - so many they could have massed into a crimson blanket.

As with the Bernard Madoff case, the scandal surrounding billionaire R. Allen Stanford now seems clear and obvious in hindsight. Yet Stanford managed to run his alleged scheme while the Securities and Exchange Commission and other regulators stood by, well after he arose on their radar screens.

From his tiny accounting firm's office near a North London fish-and-chips shop to certificates of deposit promising outsized returns sold by a bank in Antigua, ample warning signs over the years suggested Stanford's business wasn't what it seemed.

Among them:
# A finding by regulators in June 2007 that Stanford's company lacked enough capital to function properly as a securities brokerage firm. The company paid US$20,000 to settle charges by the National Association of Securities Dealers without admitting or denying them.
# Stanford's businesses were inspected and investigated several times, starting in 2006 by the SEC and in 2004 by the NASD, the brokerage industry's self-policing group, now called the Financial Industry Regulatory Authority, or FINRA. NASD's scrutiny resulted in several disciplinary actions: the regulator fined his brokerage company four times, with penalties totalling US$70,000 (S$107,000), for violations that included misleading investors in sales materials about the risks of the CDs.
# A 2006 lawsuit by a former employee alleging that Stanford's company ran a pyramid scheme. Two other ex-employees asserted in a suit in January 2008 that Stanford's Antigua bank, Stanford International Bank Ltd, sold CDs based on inflated returns and had destroyed documents.
# A board of directors that included Stanford's father, his college roommate and a family friend who remained on the board years after suffering a debilitating stroke.
# The Antigua-based accounting firm that audited the offshore bank was tiny and little known.
# A 1999 Treasury Department advisory that warned US banks to scrutinise transactions involving Antigua. It said a new regulator in Antigua was essentially a captive of offshore banks it was meant to supervise. (The advisory was lifted in 2001.)

Last week, the SEC accused Stanford in a civil lawsuit of a 'massive' fraud. It said he peddled sham promises and funneled investors' money into real estate and other assets not easily turned into cash. FBI agents in Houston are running a parallel investigation.

Stanford, who was served legal papers by FBI agents last week, hasn't been charged with any crime.

Coming after the Madoff scandal, the case of another politically connected financier accused of a global fraud has deepened doubts about the SEC's oversight of such cases. -- AP

Top 5 new small business opportunities during the credit crunch

By Mike Jarocki

It’s a time of debt, liquidation and even bankruptcy for small businesses. Hopes that the credit crunch might prove more hype than hurt have long since faded. However, when the economy is leaning towards a recession, there are still opportunities for businesses to not only survive, but thrive.

Many of these involve risk of investment when funds are limited, but it’s risk you’re going to have to take on in order to expand your business, rather than straggling behind or, worse, filing for bankruptcy.

A deeper pool of desperate skilled workers to choose from

Financial and retail sectors tend to be hit hard in times of recession. Australia is no exception. Business managers have a window of opportunity - right now there exists a wide range of highly skilled people eager to get back in the workforce.

Be on the lookout, as it is not unheard of for teams of entire companies to be made redundant. If you’re in the same field of work as a redundant team, you can not only bring their extensive skill to your workplace, but also their brand recognition and status from their former company.

Eliminate unnecessary costs and expenditure

When business is booming or going strong, it’s easy to loosen up and lose track of what’s making you money and what isn’t. Since this kind of approach won’t keep you afloat with less customers, business and credit, it’s the best opportunity to fine tune your business and filter out anything holding you back during an economic downturn.

Consult with your biggest client(s) and ask what features of your business they like, and what you think you can do without. You’re bound to get a different and interesting perspective.

Purchase cheap capital from bankrupt companies

With bankrupt firms and businesses attempting to liquidate as much as possible, you’ll be able to take advantage of some dirt-cheap office supplies, furniture, computers and other business necessities. That’s the easy part - the challenge will be finding these liquid auctions and claiming the bargains before others do.

Think it’s time to cut back on advertising? Think again

Just because people are typically spending less, it doesn’t mean that there’s less demand for all products. Certain niches will thrive in a recession. If you can pin-point the perfect target market for your business - one that will appeal to consumers’ frugality - then you can unlock a new jackpot. Worried about the excessive cost of advertising and your lack of funds? So is every other business. That’s why in times when less companies advertise, there is less clutter and competition, and media outlets will provide cheaper rates.

Buy cheap, sell big

Looking to expand your shares assets and overall ownership? You should be. There’s no better time than now. Businesses struggling will be reluctant to sell cheap but many won’t have a choice. If you can survive past the crunch, you will have an expansive portfolio that will prosper in the next boom.

How can you fund all these purchases long enough to last past the economic downturn? Well, although it’s a credit crunch, credit is available. For instance, if you have a balance of $15,000 on one credit card, and perform a balance transfer to Citibank Personal Credit, you can effectively pay a 7.9% interest for the life of your balance. Two years later, you’ve repaid $17,370.

The $2,370 of interest repaid over two years may sound significant, but with your business’s new capital and assets thriving in an improved economic state, you’ll be patting yourself on the shoulder for your shrewd investment strategy.


Mike Jarocki is a financial writer and webmaster of http://www.creditcardfinder.com.au, which compares the latest and current credit offers from leading Australian financial providers.

How derivatives traders hoodwink their bosses

The Sunday Times

How derivatives traders hoodwink their bosses; A former banker lifts the lid on how greed eclipses prudence


MY ALARM went off at 5.30am and I stumbled into the kitchen to make a coffee, knowing it could be the last day I went to work for an investment bank.

It was September 15 last year and Lehman Brothers had just gone under. As a result, I had lost my bank about $1 billion (EUR 800m). Would they let me through the door? After 13 years in banking, it looked like my number was up.

The worst thing was none of it had come as a surprise. I had inherited the risky trades a year earlier and warned my bosses about the size of the potential losses, but they wouldn't let me get out of the positions. In an investment bank, nobody wants to hear about risks in their business — not while they are making money.

Until the end of 2008, I worked in a large investment bank, managing risks for the derivatives business. I was the guy who was supposed to mop up everyone else's problems. I looked at complex trades, worked out what the losses could be, then found a way to protect the bank. That was the theory. I saw every trade and could work out every trick employed by these "Masters of the Universe" to line their own pockets, whether the bank made money or not.

Derivatives are what really confuse everyone. It's a term that covers a whole range of contracts but, basically, they are bets on the future value of something — whether that's a share, a shipment of iron ore or even the creditworthiness of another bank.

I once tried to block a large derivative deal because the maths didn't make sense. It just wasn't going to make enough profit to justify the 30 years of credit risk on the balance sheet. But the head salesman, who was behind the trade, would be paid his bonus in one year, not 30.

I tried to face him down with my boss, but his appreciation of derivatives was weak. He lost the point in my first sentence and, by sentence two, the salesman sensed his moment and calmly said he would ensure we would be fired if my analysis turned out to be wrong. My boss backed down, and I left the room in disgust.

High finance had been decided by playground politics. The client in question went bust shortly after, brought down by complex derivatives sold to it by the investment banks. Shareholders lost out everywhere.

Bonuses were paid everywhere.

When you turn up for a job interview at an investment bank there is only one real answer to the question, "why do you want to work here?", but it is rarely answered truthfully.

While bankers give many reasons as to why they do the job, they are driven by nothing but money. Whether the bank actually makes any money is a secondary consideration.

Often the banks themselves have no idea if they are making money or not. The regulation of derivatives has been so weak, and the speed of innovation so fast, it has left a void on the trading floor. Cowboy traders have been taking advantage of a flawed system, knowing there is almost no chance of anything coming back to hurt them. So long as they can make it look like they have made a profit, they get their bonuses.

This is the financial equivalent of the Wild West, yet only those on the inside realise this.

When trading in complex credit products exploded into life a few years ago, a host of financial products were created with acronyms for names.

These are the same products that went on to blow up investment banks as the sub-prime crisis emerged.

In the early days, two big banks picked up that they had been dealing with each other on a regular basis in very large volumes. After a while they each enquired what the other was up to. Both thought they were making money on the trades — bank A was selling something to bank B, yet both reckoned they were making a profit on it. So both booked a profit in their accounts, and both sets of traders got bonuses..

You don't need to be a genius to see the problem here. Ultimately, only one set of shareholders will benefit.

Every few years there is typically a market blow-up, and issues like this get conveniently washed away as over-inflated assets are then deliberately marked down below their true value in preparation for the next boom. That's the point in the cycle we have reached now.

Many senior managers have been as clueless as the outside world as to how to value these trades. They are simply sitting at the top of the pile, praying they have timed it well to enjoy a couple of good years and allow themselves the chance to cream off the mother of all bonuses.

It is wrong to think that all investment banks are the same. Some institutions have been getting to grips with these problems; others have not.

My old bank is far from unique. My exposure to Lehman came through credit insurance we had sold to investors. If Lehman defaulted on its bonds, we were one of the institutions asked to pay up. Bizarrely, we held these positions as part of a strategy designed to reduce the damage if one of our big clients went bust.

The problem I had spotted suggested that all of the bank's derivative trades could be valued incorrectly. This was more than just a minor hitch. But nobody wanted to listen or make a decision. I sent e-mails; no response. I asked the chief executive to sign off on the strategy himself, but I never heard back from him. Most of the other banks accounted for these trades in the same way.

So I was not the only guy who came unstuck last September, thanks to Lehman's collapse.

That was the event that turned the credit crunch from a crisis into a disaster.

When I arrived at work, they let me through the door as usual.

I took the decision myself that enough was enough. I suggested to my boss that I be made redundant and that my team be spared. Ironically, this was the only time the bank ever listened to me.

Exchange of news and information between US and Asia

Dear all,

As most of you would have noticed by now, the updates on my blog mostly pertain to Asia and the US.

I hope my US readers would benefit from my updates relating to Asia and my Asian readers would benefit from my updates relating to the US.

The world now is inextricably connected, same for this economic crisis. It is truly global.

The next time bomb now: Eastern Europe.

Thank you everyone for your support for the past year and a half.

Cheers,
Janny Cole.

Brace for worse times

PM Lee warns of a domino effect from Eastern Europe to Asia
By Clarissa Oon, Senior Political Correspondent

THE next six months will be especially tough for Singapore as there is worse to come in the global economy, Prime Minister Lee Hsien Loong told employers and unionists yesterday.
The US economy is sick, Western Europe has its own problems and Eastern European economies pose another danger because they have borrowed too much in foreign currencies from Western European banks.

If Eastern European economies crash, 'it's a big problem for the European banks who are exposed to Eastern Europe, (and) it's a problem for Asia too because these same European banks are very active and big lenders in Asia'.

The domino effect from Eastern Europe would be another example of 'something far away...coming back to our part of the world' and affecting business here, he said in a speech at the NTUC Centre.

One sector which has already felt the effects of such a chain reaction is manufacturing, which makes up a quarter of Singapore's gross domestic product.

Almost everything Singapore produces is exported, so with exports down by a third due to falling global demand, manufacturing also declines by almost a third and GDP goes down by one-twelfth, the Prime Minister noted.

Trade volumes are so dismal that 'containers are being shipped from China to Europe for free' and two-thirds of the cranes at the Port of Singapore Authority are sometimes standing idle, he added.

The financial crisis has created a global industrial crisis, the latest issue of financial news weekly The Economist reported. Industrial production has fallen year-on-year by 13.8 per cent and 16.4 per cent in the United States and Britain respectively.

'Half-empty freighters are just one sign of a worldwide collapse in manufacturing,' said The Economist, which observed that half of China's 9,000 toy exporters have gone bust and that Taiwan's shipments of notebook computers fell by a third last month.

Mr Lee noted that Asian economies have been badly affected by the crisis, putting paid to Singapore's initial hopes that 'Asia, further away from ground zero, would be immune'.

TOP PRIORITY NOW: LEGITIMATE AND SCAM FREE

Amidst this severe economic crisis, more scams have been revealed.

I hope my website can provide a good avenue for everyone to be alerted to scams around the world and identify the real, honest and legitimate income generators.

Volcker sees crisis leading to global regulation

Volcker sees greater international cooperation on regulations growing from economic crisis

Eileen Aj Connelly, AP Business Writer

EW YORK (AP) -- "Even the experts don't quite know what's going on."

Speaking to a number of those experts Friday, Paul Volcker, a top economic adviser to President Barack Obama, cited not only the lack of understanding of the global financial meltdown but the "shocking" speed with which it had spread across the world.

"One year ago, we would have said things were tough in the United States, but the rest of the world was holding up," Volcker told a conference featuring Nobel laureates, economists and investors at Columbia University in New York. "The rest of the world has not held up."

In fact, the 81-year-old former chairman of the Federal Reserve said, "I don't remember any time, maybe even the Great Depression, when things went down quite so fast."

He noted that industrial production is falling in countries across the globe faster than in the U.S., one result of the decline caused by the breakdown of unbridled financial markets that operated on a global scale.

"It's broken down in the face of almost all expectation and prediction," he noted.

Volcker didn't offer specifics on how long he thinks the recession will last or what will help start a recovery. But he predicted there will be some lasting lessons from the experience.

"I don't believe it will be forgotten ... and we will revert to the kind of financial system we had before the crisis," he said.

While he assured his audience of his confidence that capitalism will survive, Volcker said stronger regulations are needed to protect the world economy from such future shocks.

And he said he is concerned about the amount of power central banks, treasuries and regulatory agencies have acquired while trying to contain the meltdown.

"It is evident in the United States, and not just in the United States, the central bank is taking on a role that is way beyond what a central bank should be taking," he said.

Volcker stressed the importance of international cooperation in creating a new regulatory framework, particularly for major banks that operate across national boundaries -- the reverse of what's happened in recent years.

"The more international agreement we have on where we want to get to, the better off we'll be," Volcker said.

And while major banks should be more tightly controlled and less able to make the sort of risky bets that led to their current debacle, Volcker said there should also be more oversight of some kind for hedge funds, equity funds and the remaining investment banks.

He scoffed at the notion that those entities must be free to innovate -- stating that financial "innovations" like asset backed securities and credit default swaps have brought few benefits. The most important "innovation" in banking for most people in the last 20 or 30 years, he maintained, is the automatic teller machine.

The availability of credit in Singapore is delaying the pain. But the pain will eventually come. Because credit is not forever.

Taxi ridership falls

FEWER people are taking taxis, but despite this, cabbies are against cutting fares to bring back the passengers.

This is not the way to boost business and help drivers, said Comfort Taxi Operators' Association president Nah Tua Bah and CityCab Taxi Operators' Association president Robin Ng, speaking on behalf of five taxi operators here.

They noted that cabbies were making less daily now because fewer people were taking taxis, but said lower fares - besides further chipping away at drivers' incomes - did not guarantee the commuters would come back.

Some commuters, however, think differently. Civil servant Liew Nam Fatt, 40, who takes taxis four times a week, said he would do so more often if the peak-hour surcharge was cut.

'Of course I will take cabs if they were cheaper. That is a natural commuter reaction, isn't it?'

But there are also commuters like undergraduate Clarissa Chua, 21, who has declared she will stay away from taxis unless the fares come down - improbably - by half.

The numbers confirm a fall in the number of passengers: Taxis provided 10.9 million rides for the whole of last year, a 4 per cent fall from 2007, when there were 11.3 million rides.

On a monthly basis last year, January, October and November logged fewer than 900,000 rides each. No month in 2007 went below this number.

The slump has hit drivers' earnings: The Straits Times understands that a driver who clocks 10 hours a day earned about $2,250 last November, 6 per cent less than the previous month.

Those who drove a 'double shift', that is, more than 10 hours, took a bigger hit - their incomes shrank 8 per cent to $4,700 in November.

Antiguans to suffer

ST. JOHN'S (Antigua) - REGULATORS in the Caribbean took over Antiguan banks owned by Texas financier R. Allen Stanford on Friday, hoping to contain damage to the local economy as US investigators explore an alleged fraud scheme involving billions of dollars.

The Bank of Antigua suffered a run on deposits, even though it has not been named in the fraud complaint by the US Securities and Exchange Commission. A failure of the local bank could have severe consequences in the twin-island nation of Antigua and Barbuda, the Eastern Caribbean Central Bank said in explaining its intervention.

The SEC complaint filed Tuesday focuses on the billionaire's offshore investment bank, Stanford International Bank Ltd., where an estimated US$8 billion (S$12 billion) is now being controlled by a team of accountants working for Vantis Business Recovery Services. Antigua's banking regulatory commission said it appointed the British firm as receiver to protect 'the reputation and integrity' of its banking sector.

Private international banking has been used worldwide to protect assets from economic crisis, hyperinflation, political instability and high taxes. Such 'cross border assets' reached US$4.6 trillion in June 1999, with US$900 billion, or 20 per cent, stored offshore in some 13 Caribbean island nations, according to the most recent data available from the International Monetary Fund.

US authorities allege that Stanford lured these clients by promising unrealistic returns on certificates of deposit and other investments. And offshore banking experts say he chose an ideal headquarters - an island where he could acquire power, prestige and even a knighthood to help win investors' confidence while keeping enforcement agencies at bay.

While these clients' life savings are now at risk, experts say red flags were clearly flying in Antigua, one of the world's least-regulated and least-transparent banking havens.

'In the offshore world, you have a hierarchy and Antigua is at the bottom,' said David Marchant, an offshore banking analyst based in Miami, Florida. 'Antigua was the wild west and Stanford was the chief cowboy', Stanford was warmly welcomed in 1990 as Antiguan politicians sought to diversify their tourism-dependent economy. Before long, he acquired dual Antiguan citizenship, became the largest private employer and developed a level of influence over local regulators that worried US watchdogs.

Stanford also has had considerable influence in Washington, where his campaign donations, mostly to Democrats, reached a peak as efforts to strengthen financial regulations died in the Senate.

As the SEC and FBI pursue civil and criminal probes of Stanford's vast holdings, jobs are in jeopardy across Antigua, an island of some 80,000 people where rolling green hills are dotted with palm trees and the occasional stone foundations of old windmills from when sugar plantations were the main business of the former British colony. -- AP

Gold surges above US$1K

NEW YORK - A THOUSAND dollars will buy you a laptop, a Caribbean cruise or, these days, an ounce of gold.

The price of gold broke above US$1,000 (S$1,500) on Friday for the first time in almost a year as investors abandoned stocks and other securities seen as more risky.

The soaring price of gold is an indicator of how dire the overall state of the economy is. Investors are shaken by the weakening banking industry and rising unemployment as it becomes increasingly unclear where the bottom is for other investments.

Prices came down from an all-time high set last March as credit markets froze up and traders raced to unwind their positions for cash to cover huge losses. But gold has surged 48 per cent in just the past four months, trading as high as US$1,007.70 an ounce on the New York Mercantile Exchange Friday. And analysts say it will likely break a record as early as next week.

Traders are rushing to gold and the US dollar as a safe haven as the stock market plummets, oil prices sink and interest rates for Treasury bills, notes and bonds slide. On Thursday, the Dow Jones industrials closed at 7,465.95, their lowest level in six years.

'Gold seems to be the asset that has the most potential for price appreciation,' said Carlos Sanchez, an analyst with CPM Group in New York. 'Everyone's waiting to see what happens next, when the economy will begin to pick up, before they invest in other assets.

But there isn't any evidence right now that it will.' Gold has fared better than other commodities, Mr Sanchez said, because of its reputation as a currency substitute rather than a necessity like oil, copper or cotton, which have declined in value over the past year.

Meanwhile, as investors scramble to buy up gold, more of it has become available, according to Jeffrey Nichols, managing director at New York-based American Precious Metals Advisors. Demand for jewelry has evaporated as consumers scoff at the idea of buying luxury items, while a growing secondary market for gold scrap sends low-valued jewelry to refiners to be melted down to gold bars.

But Mr Nichols warns that could contribute to price instability.

'All over the world we're seeing gold in the form of jewelry disappear, and in the short-term that could really contribute to volatility and gold jumping or falling $25 or $50 in a night,' Mr Nichols said. -- AP

Criminal charges for Stanford

CHICAGO - TEXAS financier and cricket impresario Allen Stanford could soon face criminal charges if the fraud allegations laid out by securities regulators prove true, analysts said on Friday.

As Antigua joined the growing number of governments to seize Stanford banks, observers warned the global reach of the billionaire's banking operations could complicate the prosecution and the return of an estimated US$50 billion (S$75 billion) in assets belonging to an estimated 50,000 clients in 140 countries.

'While the US has many treaties in place (governing the retrieval of assets) I can see other countries like Peru wanting to protect their citizens,' said Lilly Ann Sanchez, a former prosecutor and securities enforcement officer who now works for the Florida firm Fowler White Burnett.

'Once it goes into the Texas receivership, Peru then falls in line with a bunch of other creditors.' Panicked investors who lined up outside Stanford-linked banks from Texas to Antigua this week were turned away empty handed.

With many of Stanford's operations now in receivership it could be weeks or even months before they find out if they will be able to recover their savings and access the funds.

The US receiver who has taken control of the US-based assets of the Stanford Financial Group issued a notice to investors Friday that they will not be able to withdraw funds or make payments out of their accounts 'for the foreseeable future.' 'Transfers out of these accounts are frozen until the receiver is able to verify there are no legal or equitable claims against those accounts,' Ralph Janvey wrote in a note to customers.

Meanwhile, Venezuela on Friday barred the directors of Stanford Bank Venezuela from leaving the country a day after their seized the bank and announced plans to sell its assets.

Antigua also announced plans to take over Stanford's Bank of Antigua and seize the assets of his Antigua-based offshore investment banks.

Peru, Panama, Ecuador and Colombia have also taken action against his banks and Britain has launched a probe of his actions.

The US Securities and Exchange Commission charged Stanford on Tuesday with perpetrating 'a fraud of shocking magnitude that has spread its tentacles throughout the world.' He is accused of lying to investors about the safety and real returns of eight billion dollars in 'certificates of deposits' and 1.2 billion dollars in mutual funds. -- AFP

US freezes Brookshire funds

NEW YORK - THE US Commodity Futures Trading Commission said on Friday it had obtained a court order freezing the assets of the Brookshire Raw Materials Management for allegedly misappropriating US$4.6 million (S$7.04 million) in a Ponzi scheme.

'(The asset freeze order), arises from a CFTC complaint filed the same day charging the defendants with misappropriating more than US$4.6 million of customer funds and destroying records, among other things,' the CFTC said in a release.

The freeze also prohibited the destruction of documents by the Barrington, Illinois, commodity pool operator, Brookshire Raw Materials Management, LLC, its principals John Marshall and Stephen Adams, as well as Brookshire Raw Materials Group Inc and Brookshire and Company Ltd, of Toronto, Ontario.

The asset freeze order was granted by the U.S. District Court for the Northern District of Illinois.

'Between September 2006 and December 2008, Marshall, Adams, and BRM accepted millions of dollars from customers for investment in a commodity pool known as the Trust and operated as a Ponzi scheme,' the CFTC said.

A Ponzi scheme is one in which early investors are paid off with the money of new clients. Officials from Brookshire could not immediately be located for comment.

The CFTC said the fund was supposed to invest investor cash in commodity futures and forward contracts designated to 'replicate the investment methodology of corresponding indices developed and managed by Brookshire Raw Materials Group, Inc'.

Instead, more than US$5 million was wired to bank accounts in Canada, the CFTC said.

In addition, the CFTC said Marshall and Adams closed their offices in December 2008 and destroyed company data while failing to acknowledge redemption requests. -- REUTERS

Stanford out of sight again

FREDERICKSBURG (Virginia) - TEXAS billionaire Allen Stanford was nowhere to be seen on Friday in this historic Virginia town, site of a fierce battle in the American Civil War and reputed through local lore to be haunted.

The home of relatives of a woman said to be a girlfriend of Stanford became a magnet for reporters and photographers, but there were no signs that anyone was inside.

Intense speculation had surrounded Stanford's whereabouts since Tuesday, when the US Securities and Exchange Commission filed civil charges against him, two of his colleagues and three of his companies, accusing them of an $8 billion fraud.

Stanford, who failed to respond to a subpoena earlier this week, surfaced here on Thursday and was served with court papers related to the SEC charges.

An American flag fluttered in the cold breeze above the doorway of this modest, three-story brick house that belongs to relatives of Andrea Stoelker, according to a cross-referencing data bank and the Free Lance-Star, a Fredericksburg newspaper.

Mr Stoelker is a former local resident identified in published reports as president of the board of directors of a cricket tournament that Stanford sponsored in Antigua, headquarters of his Stanford International Bank (SIB).

No one at the Stoelkers' house returned a message left on an answering machine that greeted callers: 'You've reached the Stoelkers. We're not available to take your call right now.

Please leave a message, and we'll call you back as soon as possible.' Late in the afternoon, a young man dressed in jeans and who looked to be in his 30s, emerged from the house and stood at the top of the front steps. When asked about Stanford's whereabouts, he said, 'I don't have a clue,' and quickly turned to go inside. He declined to give his name.

The FBI said its agents were acting at the request of the SEC when they served Stanford with papers in Fredericksburg, about 50 miles (80 km) south of Washington, DC.

'We were helping out there to locate and serve papers,' said Bill Carter, an FBI spokesman in Washington. Stanford, 58, was not taken into custody, Carter said. He declined to discuss how Stanford had been located. Other officials said he was not a fugitive and had not been hiding.

SEC spokesman Kevin Callahan said that Stanford and his two co-defendants had surrendered their passports in keeping with a judge's order. The co-defendants are James Davis, SIB's chief financial officer, and Laura Pendergest-Holt, chief investment officer of a Stanford affiliate. -- REUTERS

No bottom for 'collapse'

NEW YORK - RENOWNED investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis.

Mr Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union.

He said the bankruptcy of Lehman Brothers in September marked a turning point in the functioning of the market system.

'We witnessed the collapse of the financial system,' Mr Soros said at a Columbia University dinner. 'It was placed on life support, and it's still on life support. There's no sign that we are anywhere near a bottom.' His comments echoed those made earlier at the same conference by Paul Volcker, a former Federal Reserve chairman who is now a top adviser to President Barack Obama.

Mr Volcker said industrial production around the world was declining even more rapidly than in the United States, which is itself under severe strain.

'I don't remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world,' Mr Volcker said. -- REUTERS

WHAT IS THE DOLLAR AND GOLD RALLY TELLING US?

By Kathy Lien

Capital flight has driven the US dollar higher. On a day when President Obama signed the Economic Stimulus Package into law, the banking turmoil in Europe and the resignation of Japan’s Finance Minister has turned investors away from other major currencies. Even though the greenback is yielding next to nothing, investors are willing to park their money with the US government as long as they keep it safe. The lack of negative game changing news from the US has been very positive for the US dollar. The greenback and gold prices have been moving in tandem since January 14th. This unusual correlation is actually sending a strong message to currency traders.

The Dollar and Gold Rally

It is not very often that we see the US dollar and gold prices move in the same direction. Since gold is priced in dollars, the value of the yellow metal tends to fall when the dollar rises and rise when the dollar falls. However this has not been the case since January 14th as the rally in the US dollar corresponds with the rise in gold prices, which closed today at a 7 month high of $970 an ounce. The last time we saw this traditionally negative correlation turn into a positive one was in 1982. At that time, recession hit many countries including the US. Although the rise in gold prices can be partially attributed to future inflation problems, the cohesive movement in the value of gold and the US dollar suggests that central banks around the world are losing credibility. There are growing concerns that a time bomb could explode in Europe leading to more troubles for the region as a whole. If that is the case, there may not be any safer form of investment than gold. The rally in the US dollar and gold is telling the market that investors are worried about global economic stability outside of the US and therefore they are preparing for the worst.

Why the Dow Could be Headed Lower

By Kathy Lien

I read this fascinating study by Barclays Bank this morning on how the performance of the Dow in the month of January can set the tone for trading throughout the year. In the first month of 2009, the Dow Jones Industrial Average fell 12 percent. According to Barclay’s study, if there is negative equity market performance in the month of January, the odds of stocks ending the year low rises from 32 to 69 percent. This is based upon 74 years worth of data. Since currencies are taking their cue from equities, further weakness in the Dow could mean further strength for the low yielding US dollar and Japanese Yen.

Too Late to Sell? Dow Trades Below 7400, Nearing 11-Year Low

The Dow opened Friday at six-year closing low and down 47% from its all-time high. Following the path of international markets, the index declined early Friday, trading as low as 7328 before rebounding a bit; in recent trading, the Dow was down 1% at 7395.

With the November closing and intraday lows now having been breached, the next major resistance level for the Dow is its Oct. 2002 low of 7286; falling below that would put the index at an 11-year low.

Faced with those grim realities, long-term "buy and hold" investors are now understandably asking: Is it too late to sell?

The answer, of course, depends a lot on your time horizon and risk tolerance. The stock market is now at "fair value" based on the S&P 500's long-term cyclically adjusted P/E ratios, but history suggests major averages will far further before this bear market ends.

How much further remains to be seen, but signs of "capitulation" do not preclude further losses; from 1929-1932 the Dow lost 90% of its value and Japan's Nikkei today is more than 80% below its January 1990 peak.

Meanwhile, renewed fears of bank nationalizations and this week's earnings miss from previously bulletproof Hewlett-Packard are so far preventing even a short-term recovery effort.

How the Mighty Banks Have Fallen

by David Gaffen

The destruction in the banking sector has been broad and deep and has taken the shares of the banking companies to lows not seen in 15, 20, or in some cases, 25 years. Bank of America Inc. shares today hit an intraday low of $3.19 a share — a level not seen since August 2, 1984, when the bank traded at $3.17 a share.

Now, the fear represents an expectation that the largest — and sickest — banks, one way or another, will be taken over by the government through some sort of temporary nationalization in order to avoid a Japan-style decade of malaise. This idea continues to gain currency, and it continues to hammer the valuation of the banks.

“The chatter is that people are really sort of pricing that in and anticipating that,” says Jared Woodard, trader at Condor Options. “With these bank stocks, the stock itself is an option. With Bank of America at $3 it’s really just an option — I don’t know anyone buying it now with an eye towards long-term value.”

At the end of October 2007, just after the market’s peak, the ten largest financial-services companies in the Standard & Poor’s 500-stock index had a combined market capitalization of $1.249 trillion, led by Bank of America Inc., which had a market value of $214.2 billion, making it the seventh-largest corporation in the S&P 500 at the end of that month. As of Thursday, the 10 largest financial-services companies in the S&P had a combined market cap of $298.6 billion — not much more than B of A’s market cap at the peak. None of the 10 largest in the S&P are members of the financial industry, according to S&P.

The unrelenting annihilation came after that, amid a series of revelations related to subprime mortgage exposure, off-balance sheet positions in complicated debt obligations, and later, write-downs on assets that had been marked to lower-than-anticipated levels. Wells Fargo’s intraday low represents its lowest level since September of 1996, and Citigroup touched levels it had not seen since January of 1991.

Mr. Woodard says that essentially, those playing in the stocks now are either expecting the equity to get wiped out completely, or they’re expecting the shares to double or triple based on some unforeseen positive outcome — one that few can foresee right now.

Where To Now, Brown Cow?

Courtesy of Conrad Alvin Lim

Well, it’s not quite the Bull run that geomancers were saying would happen in the Year of the Cow, is it?

The DOW, as of last night’s close, is sitting just above the critical level of 7,500, having gone to 7,480 early in yesterday’s intraday session. Whether it holds above 7,500 is going to be crucial over the next two days. I, however, am not that hopeful and am expecting a major sell-off this Expiration Friday. If that really happens, then we won’t be far away from my 6,000 point target before May this year.

Posted by Conrad at January 2, 2009

If you though that 2008 was a rough year, watch out … 2009 is going to get tougher! Expect more gyrations that could send the markets much lower than where it is now (DOW 8,776.39) …. although the DOW broke above the 50DSMA for the second time in two weeks, personally, I am not so hopeful - I suspect more downside before we get any upside. And we will test the Nov ‘08 lows of 7,500 before we can have any hope of it not getting down to 6,000.

Now here we are at the Nov 08 lows. And it’s not looking rosy at all. We might get a technical bounce but that is all it will be … another dead cat for the collection. The DOW seems hell bent on taking my trend lines down to the netherworld - it has broken below my five month channels and is on the 38.2% Fan line. It is also below the 6 month OP to the downside with an XOP at, where else but 6,000 (5,930 to be exact).

Just a reminder about what I said on 1 Dec 08;

So in summary, DOW for 6,000 on the low between now and May 2009 and daylight will not get much brighter than 9,500.

Weekly candles are forming a Three Outside Down formation which translates into a long term downside, especially if the current candle closes lower on the week (conviction candle). DOW is also below the 11 year historical retracement line of 8,044 - this one is going to be hard to break above now that it has become a resistance.

Someone asked me at the TA Masterclass if there was any possibility of a repeat of the 90% loss suffered in the Great Depression. It was thought provoking, to say the least. Let’s consider that …

* Current levels of 7,500 brings the DOW back to Mar 03 levels. Five months before that Mar 03 low, DOW had a low of 7,200. From its Jan 00 high of 11,722, this represented a loss of 38.5%.

* The AFC in 97/98 took the DOW down to 7,400 from 9′350 for a loss of 20.8%.

* The Oct 87 low of 1,616 from the Aug high of 2,735 was a loss of 40.9%.

* In Oct and Dec 74, DOW hit average lows of 575 from a Jan 73 high of 1,067 for an average loss of 46.1%.

Current levels of 7,500 from the Oct 07 high of 14,160 put the current losses at 47%. We are at loss levels not experienced since after the GD of the 30s. Can we get there? There is always a possibility. But it will be one heck of a slim possibility if you consider that the whole world is fighting this thing with a collective effort.

However ….

Those of you still harboring hopes of an early recovery, please be informed that the rest of this posting is really going to kill your mood.

The depth of this recession has forced dirty worms out of the cracks in the form of the Madoffs, Stanfords and Phuahs. Goodness knows how many more are going to get weeded out. The world would not have been the wiser if not for this terrible recession. China has also lost more than half its billionaires and the Trump is trumped again. If these are not signs of how deep in trouble we are, then one has to wonder what it will take to make people realize that we are in a world of deep s**t!

The ironic reality of this situation is that the pain levels amongst citizens here in Singapore is not what I thought it would be in this recession. Or maybe in sunny and hazy Singapore, it hasn’t reached those drastic levels yet and that I am being too optimistic thinking that we should be there now rather than later.

Compare the pain levels of 1987, 1997 and 2001 and you’ll notice that we’re not hurting now as much as we did back in those years. What’s wrong with this picture is that if you consider that this recession is by far the worse we’ve ever had since Independence in 1965, then why are the pain levels not worse than those three preceding recessions? Or like I said, maybe we’re not there yet.

One of the reasons could be attributed to the ease at which we are able to attain credit to sustain the lifestyle or delay the pain. Personally, I see it as a timebomb waiting to implode. While the world aches, Singapore is buying condos at $1,000 psf. While some auto industries are on the verge of extinction and others are clinging on by their nails, Singapore has plenty of cars with SJM plates. Where’s the recession?

The spending habits of Singaporeans doesn’t seem to have changed and the average Singaporean seems impervious to this recession. Property prices are still considered on the high side yet people are still snapping up new projects like they were going out of style. Jan/Feb 09 New Home Sales is actually outpacing Jan/Feb 08’s numbers - and Feb 08 had averagely LOWER prices! People seem unaffected and won’t think twice about splurging on a two bedroom condo for $1,000 psf (albeit at an ownership price that is below $500K for a condo) in Queensway while larger ready-to-TOP projects in Katong and East Cost, selling for $700psf are not moving as fast.

People are still buying cars, flashy ones at that, without batting an eyelid. COEs are going to get thin which will surely spike car prices. Yet talk on the street is that cars will still be affordable. But on the darker and quieter side of the business, owners are slowly returning their cars because the pain is starting to get to the owners of flashier cars now. These returned exotic cars are being sold by the dealers but the dealers are not buying back the cars to sell them. Soon enough, the sporty street cars are going to do the same.

Credit, or should I say, bad debts as a result of credit, is starting to take its toll. Car owners with 100% financing are now regretting their decision as crunch time dawns on them. Deferred-payment house owners/speculators are falling victim to a credit time bomb that has caught them on the upside as the market goes down. As TOP dates near, funds and financial muscles get severely tested and already, some have been found wanting. More and more people are building up unhealthy credit card bills and racking up the ready-credit interests. The number of credit defaulters appears to be increasing as indicated in the (lagging indicator) Classfied Ads’ Notices.

All this in the name of delaying the pain. And maybe that is why SIngapore is not yet in full pain … we have credit to delay or stave off the pain.

Back in 1987 and 1997, credit wasn’t so accessible. I remember having to qualify for my first AMEX card in 1992 with a S$45K per annum income tax statement. I got my VISA and Mastercard Gold Cards with a $36K p/a proof. Today, credit arrives in your mail box in the form of a pre-signed check that only requires you to fill in your name and deposit it into your account.

If it was credit that got us into this mess and the lack of credit that squeezed out the likes of Madoff, Stanford and Phuah, then it seems that Singapore has not learned its lesson yet. Or maybe we are too confident in our Reserves. Although I accept our President’s reasons for releasing the funds, the general and undeniable consensus is that it was too quick and easy. And maybe for that reason, Singaporeans are counting on more.

We are no where near the pain levels of recessions past. No one has thrown himself off a rooftop and crime is not half as rife as it was back when. The pain has only just begun. Will credit save us? delay the pain? or destroy a few lives in the name of Interest Payable?

Another tiny statistic that scares me is the number of patients doctors are seeing … its less than average. One reason could be that minor ailments are no longer deemed important when you factor in the cost of treatment, especially amongst those who are already tightly strapped. Self medication seems to have picked up. You only have to go the Guardian and watch the pharmacist - they’re busier than I’ve ever noticed. Another reason is that people may be realizing that MCs for a cold or cough are not a good way to recession-proof yourself.

The scary prospect of this trend is that when someone with a serious ailment doesn’t see a doctor, that person could be carrying the next pandemic and spreading it all around. And with all these little hotspots increasing around Asia, that possibility scares me.

QUICK MARKET UPDATE

Enough of the doom and gloom. Let’s quickly catch up on the market and see what happened …

Posted by Conrad at January 2, 2009

For those who want to take more risks with the possibility of high returns can look at Gold ($XAU) ….

I also mentioned that at my Gatherings and in my forum that HMOs would be a safe buy too.

Those who got it are really reaping it big time today. For those who didn’t, wait for the next pull back because these two sectors have a few more up-waves left in them. Gold is going to be a little sticky, however, as $1,000 is going to prove a stiff resistance so you may want to wait for the breakout and confirmation before timing an entry.

All in all, there are opportunities abound in the equity, forex and bond markets. You only need to know where to look and how to do it safely. For now, let me leave you with a hint; watch the Biotech and Big Pharma sectors for the next two months.

Cheers! (if you’re still happy after reading all this) and Safe Trading!

Euro zone in dire descent

BRUSSELS - THE economic crisis is biting ever deeper into Europe with no end in sight, a blast of bad data showed on Friday, increasing the urgency of a G20 planning meeting on Sunday.

A research group's survey put business activity in the 16 euro zone nations at a record low point in February. And an index of buying by businesses in the euro zone's vast service sector fell to a record low level.

Official industrial confidence data in France also showed a record low reading.

The global slump in industrial demand hit London-based mining giant Anglo American, with big interests in South Africa, which reported a 29-per cent drop in 2008 net profit and said it would cut 19,000 jobs this year, blaming a sharp fall in commodity prices.

The euro zone figures were 'dire, disappointing and worrying', said chief European economist at IHS Global insight in London, Howard Archer.

The 'renewed downward lurch' to record low points 'undermines hopes that the rate of contraction in euro zone economic activity could be bottoming out'. Capital economics said the figures suggested 'that the economy continued to contract at breakneck speed in the first quarter of this year'.

Car output in Britain slumped by 60 per cent in January on a 12-month basis, trade data showed. And in Sweden, high-class auto maker Saab, a subsidiary of crippled US giant General Motors, filed for protection from bankruptcy.

European stocks slumped by about three per cent after the Tokyo market shed 1.87 per cent and Wall Street fell to a six-year low point overnight on grim US unemployment figures.

Shares in the biggest Swiss bank UBS fell 10 per cent on a widening US probe into its tax practices.

The euro fell sharply to 1.2609 dollars in London from 1.2673 late on Thursday reflecting gathering alarm about the depth of the downturn in Europe, and particularly on reluctance by German Chancellor Angela Merkel to comment on whether Germany would help bailout any euro zone country in trouble.

'Things are going from bad to worse in Europe,' strategist Daisuke Uno at Sumitomo Mitsui Banking Corporation said in Tokyo.

Citigroup analyst Giada Giani in a note headlined 'Euro area - recession deepens in February,' said that severe weakness in manufacturing was now spreading to other sectors of the economy.

Other data indicated that 'labour market conditions are deteriorating very fast' thereby undermining prospects for household consumption.

'Tentative signs of a stabilisation in January have been completely reversed in February,' she said.

CMC Markets dealer Matt Buckland said in London: 'Investors are quite simply running out of short-term confidence with equities, especially amongst the banks.' And confidence is the pivotal, but elusive, factor required before the winds of recession will turn back, the president of the European Central Bank Jean-Claude Trichet told the European American Press Club in Paris.

As the storm of recession cuts ever deeper across Europe, now threatening financial stability in eastern and central Europe, leaders from the main European economic powers are to meet in Berlin on Sunday to forge a common position for a summit of the G-20 group of top world economies in London in April.

But differences of emphasis in national responses to the crisis have been evident in the last few months and concerns over protectionist pressures remain an issue, as highlighted by the Czech Republic, currently holding the EU presidency.

'We have to prevent prevent populists from going on with the buy Czech, buy American, buy French campaigns,' Finance Minister Miroslav Kalousek warned.' It is our duty to explain ... that this is the road to hell,' he said. -- AFP

Harvard Narcissists With MBAs Killed Wall Street

Feb. 17 (Bloomberg) -- For two centuries, Wall Street survived wars, depressions, bank panics and terrorist attacks. Now Wall Street as we know it is dead. Gone.

When a healthy and thriving person dies suddenly, a medical examiner may talk to family and friends to see if the deceased had recently changed behavior in some way.

Wall Street did change radically in recent years in one notable way. Twenty or 30 years ago, it was common for the best and the brightest to be doctors or engineers. By the 2000s, they wanted to be investment bankers.

When Wall Street was run by people randomly selected from the population, it was able to survive everything. After the best and brightest took over, it died the first time real-estate prices dropped 20 percent.

Are the two facts related? In other words, did Harvard kill Wall Street?

The suspect certainly had the opportunity. If you walked into any major Wall Street firm a year ago and randomly selected an employee, chances are that person would either be from an Ivy League school like Harvard University, or have an MBA, or both.

The statistics are striking. Back in the 1970s, it was typical for about 5 percent of Harvard graduates to work in the financial sector, according to a recent study by Harvard economists Claudia Goldin and Larry Katz. By the 1990s, that number was 15 percent. It probably climbed since then.

And the proportion of those with MBAs grew as well. Economists Thomas Philippon of New York University and Ariell Reshef of the University of Virginia found that, in 1980, workers in finance earned about the same wages, on average, as workers in other sectors. By 2005, financial-sector workers earned 50 percent more than similar workers in other industries.

Wages and Degrees

Philippon and Reshef went on to explore what caused the surge in wages in the financial sector. They found one of the key reasons was the increasing reliance on highly educated workers with post-graduate degrees.

Their results accord with anecdotal evidence concerning the hiring practice of Wall Street firms. A 2008 report in Fortune said that Goldman Sachs hired about 300 MBAs in 2007 and that, last year, Merrill Lynch and Citigroup were planning to hire 160 and 235 MBAs, respectively.

Is it just a coincidence that so many superstar minds arrived on Wall Street just as it died?

Perhaps not.

Wall Street is gone because its firms did a terrible job assessing the risks of the positions they took. The models these firms used to evaluate risks failed. But having a failed model brings a firm down only if the firm collectively buys into the model.

To do that, the firm must be run by people who have a great deal of faith in their models, and a great deal of faith in themselves. That’s where Ivy Leaguers and MBAs come in.

Master of Mastery

What do you get from an MBA? One recent study found that MBAs acquire an enormous amount of self-confidence during their graduate education. They learn to believe that they are the best and the brightest.

This narcissism has a real career impact. Psychologists at Ohio State University studied the behavior of 153 MBA students, who were put in groups of four and asked to orchestrate a large financial transaction on behalf of an imaginary company. The psychologists observed that the students who had the strongest narcissistic traits were most likely to emerge as leaders.

According to Amy Brunell, the lead author, the results of the study had large implications for real-world settings, because “narcissistic leaders tend to have volatile and risky decision- making performance and can be ineffective and potentially destructive leaders.”

The Bathroom Test

Guys like John Thain (Harvard Business School, 1979) exemplify this behavior when their sense of entitlement is so grand that they can spend a fortune renovating an office while their firm is going down in flames.

The consequences of Wall Street’s reckless brilliance in many ways parallel modern-day engineering disasters. If you travel through Italy, you can’t help but notice the many Roman bridges that still stretch across that nation’s waterways. How is it that the Romans could build bridges that would last thousands of years, while the ones we build today collapse after a few decades?

The answer is simple. Back then, they did not have the fancy computers required to calculate exactly how strong a bridge must be. So an architect made a bridge very, very strong. Today, engineers can calculate exactly how much steel they need to incorporate into a bridge to bear the expected load. The result is, they are free to make them weaker.

Room for Error

Another result is less wiggle room for design error. Hence, modern bridge’s predilection for collapsing.

The same is true of the financial sector. Back when Wall Street was run by individuals without fancy degrees, they had a proper skepticism toward fancy models and managed their risks with a great deal more humility and caution. Only when failed models became canon did catastrophe strike.

Wall Street didn’t die in spite of being run by our best and brightest. It died because of that fact.

(Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. He was an adviser to Republican Senator John McCain of Arizona in the 2008 presidential election. The opinions expressed are his own.)

Dow ends at lowest close in more than 6 years

By Tim Paradis, AP Business Writer
Wall Street slides as Dow industrials finish at lowest level in more than 6 years


NEW YORK (AP) -- An important psychological barrier gave way on Wall Street Thursday as the Dow Jones industrials fell to their lowest level in more than six years.
The Dow broke through a bottom reached in November, pulled down by a steep drop in key financial shares. It was the lowest close for the Dow since Oct. 9, 2002, when the last bear market bottomed out.

The blue chips' latest slide dashed hopes that the doldrums of November would mark the ending point of a long slump in the market, which is now nearly halfway below the peak levels reached in October 2007.

The market's inability to rally signals that investors see no immediate end for the recession, which is already 14 months old and one of the most severe in decades. Investors also haven't been impressed with two major economic initiatives from the Obama administration this week, an economic stimulus package and a mortgage relief plan.

"It is definitely, definitely a blow to psychology," said Quincy Krosby, chief investment strategist at The Hartford, referring to the Dow's finish. "There is more pessimism in the market as to when the economy is going to pick up steam."

The Dow had been teetering close to November bottom since Tuesday, when the index tumbled 300 points on worries about the economy and the stability of banks in Eastern Europe. Stocks had barely finished above the November low on Tuesday and Wednesday.

On Thursday, worries about financial and technology stocks weighed on the market, with steep drop-offs in financial bellwethers like Citigroup and Bank of America leading the way downward. Both stocks tumbled 14 percent and closed below $4, less than the cost of a latte in some coffee shops.

"The Dow represents, to the average investor, the American economy," Krosby said. While professional investors often look at indexes like the Standard & Poor's 500 index, the Dow's slide is an unwelcome milestone. "It's a tenet of the market, selling begets selling. You're going to see the market on guard."

The Dow lost 89.68, or 1.2 percent, to end at 7,465.95.

The blue chips have fallen 9.8 percent in the last eight sessions.

Broader indexes also fell. The Standard & Poor's 500 index ended down 9.48, or 1.2 percent, to 778.94. The index finished above its Nov. 20 close of 752.44, which was its worst finish since April 1997.

The technology-heavy Nasdaq composite index suffered the biggest hit Thursday after Hewlett Packard Co. posted worrisome results after market close on Wednesday. The Nasdaq fell 25.15, or 1.7 percent, to 1,442.82.

The Russell 2000 index of smaller companies fell 6.47, or 1.5 percent, to 416.71.

Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange, where consolidated volume came to 5.64 billion shares compared with 5.65 billion shares traded Wednesday.

Dan Cook, senior market analyst at IG Markets, said the Dow's move lower is unnerving because it forces many investors to reassess their expectations of how far the market could slide.

"It's kind of like if we're walking across a frozen pond. If that ice starts to crack a bit we're going to be very wary," he said.

The news of the day didn't offer much support. Hewlett-Packard gave up nearly 8 percent after the computer and printer company turned in disappointing fourth-quarter sales, hurt by tightening spending at many businesses.

Even the bright spots weren't enough to lift the market. Sprint Nextel Corp., the nation's third-largest wireless carrier, rose 20 percent after its fourth-quarter results came in better than forecast. And Whole Foods Market Inc. jumped 37 percent Thursday after earnings from the natural and organic grocer topped expectations.

Bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite to its price, rose to 2.86 percent from 2.75 percent late Wednesday. The yield on the three-month T-bill, considered one of the safest investments, fell to 0.29 percent from 0.30 percent Wednesday.

The dollar was mixed against other major currencies, while gold prices slipped.

Light, sweet crude rose $2.77 to settle at $40.18 per barrel on the New York Mercantile Exchange.

Economic news released Thursday offered investors little incentive to buy.

The number of workers receiving unemployment benefits hit a record high of nearly 5 million, and new jobless claims are at levels not seen since the early 1980s. A reading on wholesale prices, the Producer Price Index, jumped more than expected in January, the first increase in six months.

The Philadelphia Federal Reserve said conditions in the region's manufacturing sector weakened in February. There was some good news: An index of leading economic indicators logged a surprise increase in January, the second straight monthly gain.

Technology and financial stocks weighed on the market. H-P fell $2.69, or 7.9 percent, to $31.39.

Citigroup fell 40 cents to $2.51, while Bank of America fell 64 cents to $3.93.

Some investors turned to consumer staples stocks after drugstore operator CVC Caremark Corp. posted a better-than-expected 17 percent increase in earnings for the final three months of 2008. CVS rose $1.72, or 6.4 percent, to $28.71.

Sprint rose 54 cents, or 19.9 percent, to $3.25, while Whole Foods rose $3.46, or 37.2 percent, to $12.75.

Overseas, Britain's FTSE 100 rose 0.3 percent, Germany's DAX index rose 0.2 percent, and France's CAC-40 fell 0.1 percent. Japan's Nikkei stock average rose 0.3 percent.

Record high empty cargo ships

By Robin Chan

THE number of empty container ships worldwide has climbed to a record high, according to a new report.
A total of 392 vessels are currently sitting idly in ports, up from 210 at the beginning of last month.

The unused cargo space is equivalent to about 1.1 million standard units (TEU) of empty containers, or 8.8 per cent of the total world capacity.

This figure surpasses the previous high of 5 per cent set in 1986, the year United States Lines went bankrupt.

The report from Lloyd's List in Britain said demand would have to grow at an average of 15 per cent over the next three years 'just to restore equilibrium' by early 2013.

A 10 per cent figure, however, was more realistic, pushing recovery to 2014.

Hobbled by a combination of an oversupply of ships and a dwindling demand for goods, the shipping industry is facing one of its most challenging times.

Shipping lines have responded by sharply cutting capacity to reduce costs and push freight rates back up.

APL, a unit of Neptune Orient Lines (NOL), said yesterday it would raise its rates on the Asia-Europe route by US$250 (S$382) per container from April1. That followed similar moves by other shipping lines,

Mr Detlev Kerber, APL's vice-president for the Asia-Europe trade, said: 'Freight rates in this trade have been falling drastically for more than a year...In many cases, not even variable transportation costs are covered by current freight rates.

Brief commentary on Hang Seng Index

Dear readers,

I will be posting my brief comments on Hang Seng Index on an almost daily basis, where possible.

Im getting interested in the Hong Kong market... hehehehe :P

Hang Seng Index Sustain Above 13,000

Following a plunge in the Wall Street, Asian markets fell as investors began to lose hope that governments can rescue the world’s economies. Hang Seng rose moderately to close at 13,016 and turnover rose to HKD 42.8 billion.

The technical outlook of HSI is negative. The index opened 161 points lower at 12,783.79. After touching the intraday low of 12,712.33 points, the index took a reverse course and gained 70.6 points to close above 13,000. It is currently trading below its major SMA. If the index continues to sustain above 13,000, it may test the 13,560 resistance. Alternatively, it may test the 12,500 support.

When Buy-And-Hold Beats Bad Timing

Paul Katzeff

Are you still trying to figure out if you should have gone to cash six months ago? Nine months ago? Twelve months ago?

Well, stop beating yourself up. Your gut instinct to stay invested may have been the right move all along.

At least that's the verdict of a recent Fidelity Investments study.

The study from Fidelity's Market Analysis, Research & Education unit shows that buy-and-hold investors who stuck to a strategy of dollar cost averaging in the S&P 500 during the 1990-91 and 2000-02 bear markets outperformed three market-timing strategies that are all too often followed.

Using dollar cost averaging, the stay-the-course investor would have 5.6% more money in his portfolio than one who used the least successful of the three timing tactics.

And after 30 years, the stay-the-course investor would have a balance of $617,331. That would be $34,752 more than the least productive of the three timing strategies.

The study was intended to reassure today's investors that bailing out of the market is the wrong move.

The 2000-02 bear market is especially relevant. Like the current downturn, it was an extended bear market that got a lot worse after hitting the 20% threshold that defines a bear market.

"Dollar cost averaging is a way to realize the market's returns over long periods," said Chris Sharpe, co-manager of $70 billion in 28 Fidelity Freedom Funds and an in-house expert on dollar cost averaging. "And it avoids perils of market timing."

The study tracked four hypothetical investors. Each started with $10,000 invested in the S&P 500. Each invested another $500 monthly. "The idea is the same whether you invest in an index fund or individual securities," Sharpe said.

A stay-the-course investor kept investing through each downturn. He invested the same amount each month. As the market fell, each dollar bought more shares.

Failed Strategies

Fidelity nicknamed one of the market timers the "bear-market dodger." After the start of the downturn in March 2000, for instance, he shifted new contributions to cash, beginning in April 2000.

A second market timer, the "bear-market refugee," shifted new contributions once the bear market was official -- hit the 20% down threshold -- to cash starting in March 2001.

The third timer was dubbed the "doomsday capitulator." He shifted new money to cash at the market's low point 14 October 2002.

In the real world, the key danger in market timing -- especially with funds -- is the difficulty in knowing in advance the best time to get out of the market and the best time to get back in.

A late return to the market usually means that an investor misses out on the typically explosive start to a new bull run.

The three timers resumed investing in stocks as of January 2004. In the real market, that was when investors' cash weightings fell back to their long-term averages as investors returned to stocks, Fidelity says. Going forward, each portfolio got the bogey's 10.2% average yearly gains from 1927 to August 2008.

January 2004 was also the point 14 time when Fidelity measured how each strategy had fared.

After plowing in $34,000, the stay-the-course investor's account balance was $33,502. That was bigger than the other three investors' by 0.4%, 5.1% and 5.6%, respectively.

Still, Fidelity says if the account exists for another 30 years, stay-the-course investor's $617,331 balance is $2,671 more than dodger's, $31,380 more than refugee's, and $34,752 more than capitulator's.

In reality, the stay-the-course investor is likely to outperform by even more, Fidelity says. That's because past market timers are likely to do it again in future downturns. Each time, the stay-the-course investor would outperform. His winning margins would compound.

SEC charges Texas financier with 'massive' fraud

By STEPHEN BERNARD

NEW YORK (AP) — Federal regulators on Tuesday charged Texas financier R. Allen Stanford and three of his firms with a "massive" fraud that centered around high-interest-rate certificates of deposit, and raided some of the companies' offices.

In a complaint filed in federal court in Dallas, the Securities and Exchange Commission alleged Stanford orchestrated a fraudulent investment scheme centered on an $8 billion CD program that promised "improbable and unsubstantiated high interest rates."

Stanford's assets, along with those of the three companies, were frozen. Stanford's firms include Antigua-based Stanford International Bank, broker-dealer Stanford Group Co. and investment adviser Stanford Capital Management, which are both based in Houston.

The bank's chief financial officer, James Davis, and Stanford Financial Group's chief investment officer, Laura Pendergest-Holt, were also charged in the complaint.

U.S. District Court Judge Reed O'Connor has appointed a receiver to handle the frozen assets.

The charges come amid an investigation that has lasted more than three months and included the SEC, the Financial Industry Regulatory Authority, the U.S. brokerage industry's self-policing body, and the Florida Office of Financial Regulation. Investigators visited the Florida offices of Stanford Group last month.

Stanford Group did not immediately return calls seeking comment.

Alfredo Perez, a spokesman for the U.S. Marshal's Service in Houston, confirmed that agents raided Stanford's office in Houston Tuesday morning, but he did not have any other immediate comment.

The SEC alleged Stanford and his businesses misrepresented the safety of the deposits, claiming the bank reinvested client funds in liquid financial instruments to help return profits on investments sharply higher than average rates of similar products.

"Stanford and the close circle of family and friends with whom he runs his businesses perpetrated a massive fraud based on false promises, and fabricated historical return data to prey on investors," Linda Chatman Thomsen, director of the SEC's division of enforcement, said in a statement.

The SEC also accuses Stanford of running a second scheme tied to sales of a mutual fund product, which allegedly used false historical performance data to grow the program from less than $10 million in 2004 to more than $1 billion. The alleged fraud helped generate $25 million in fees for Stanford Group in 2007 and 2008, according to the SEC.

Stanford, 58, is one of the most prominent businessmen in the Caribbean, with investment advisers around the world helping him grow a personal fortune estimated at $2.2 billion by Forbes magazine.

His Stanford International Bank Ltd. said deposits surged from $624 million in 1999 to $8.4 billion in December. The bank is based in the twin-island Caribbean nation of Antigua and Barbuda, which has carved out a niche as a tax haven and offshore base for Internet gambling.

Stanford has deep roots in Texas, where he graduated from Baylor University, and still speaks with a slight twang. But he travels in different circles now — knighted in 2006 by the islands' government, Stanford is known there as "Sir Allen." And last year he shook up the staid world of professional cricket by bankrolling the purse in a $20 million winner-take-all match in Antigua between England and a West Indies select team.

The England and Wales Cricket Board said it has suspended negotiations for a new sponsorship deal amid the allegations.

AP Writer Monica Rhor in Houston contributed to this report.

Allen Stanford

Sir Robert Allen Stanford KCN (born March 24, 1950) is a prominent financier, philanthropist, and sponsor of professional sports. A fifth-generation Texan who resides in St. Croix, US Virgin Islands, he holds dual citizenship, having become a citizen of Antigua and Barbuda ten years ago. Stanford was the first American to be knighted by that Commonwealth nation[2] and was presented with the honour by the then Governor-General of Antigua and Barbuda, Sir James Carlisle.

In early 2009, Stanford became the subject of several fraud investigations, and on February 17, 2009, was charged by the SEC with fraud and multiple violations of U.S. securities laws for alleged "massive ongoing fraud" involving $8 billion in certificates of deposits.[3][4] Despite the raid of three of Stanford's offices in Houston, Memphis, and Tupelo, Mississippi, authorities have not located Stanford.[5]

Business career

Stanford is the chairman of the privately held, wholly owned Stanford Financial Group of Companies. He began his business career in Houston, Texas, making his first fortune in real estate in the early 1980s. In 1983, Stanford received a default court judgment of $31,800 by a landlord for back rent on a failed health club in Waco.[6] Since then he has expanded the insurance and real estate company his grandfather founded in 1932 into a global wealth management firm. Stanford Financial Group’s clients are affluent investors, institutions, and emerging growth companies from 136 countries on six continents. Assets under management or advisement are apparently in excess of US$50 billion.

Sports

Stanford and his companies have established a significant presence in golf, polo, tennis, cricket and sailing, sports which are popular among Stanford’s wealthy clients. Stanford Financial Group is the title sponsor for such sporting events as the Stanford US Open Polo Championship, the Stanford USPA Silver Cup, the Stanford Antigua Sailing Week, the PGA Tour Stanford St. Jude Championship, and the Stanford International Pro-Am. In 2009, the final event of the LPGA season, now known as the ADT Championship, will be renamed the Stanford Financial Tour Championship. Stanford also sponsors professional golfers Vijay Singh, Camilo Villegas and David Toms as well as Morgan Pressel on the LPGA Tour. In tennis, the company is a sponsor of the Sony Ericsson Open. Stanford also sponsors the Champions Series Tennis Tournaments featuring Jim Courier, John McEnroe and Pete Sampras.

Cricket

Stanford created and funded the Stanford 20/20 cricket tournament in the West Indies, for which he built his own ground in Antigua. The first Stanford 20/20 Cricket Tournament was held in July and August 2006. The second tournament took place in January and February 2008 with a global television audience of 300 million.[7] Trinidad and Tobago took first place in this tournament. This team also took home the US280k Super Series prize after defeating Middlesex on 27 October 2008.[8]

In June 2008, Stanford and the England and Wales Cricket Board (ECB) signed a deal for five Twenty20 internationals between England and a West Indies all-star XI with a total prize fund of £12.270m (US $20 million) to be awarded to the team that wins the Championship. It was the largest prize ever offered to a team for a single tournament.[9] This was in jeopardy after a row with Digicel, the sponsors of the West Indies cricket team, who were unhappy about sponsorship of the event. Eventually, the dispute was sorted out and the first Championship was won by Stanford Superstars, who defeated the England team by 10 wickets, humiliating them in the Twenty 20 arena. [10]

On February 17, 2009, when news of the fraud investigation became public, the ECB and WICB withdrew from talks with Stanford on sponsorship.[11][12]

Philanthropy

Stanford was committed to many charitable causes around the world[citation needed], including his main charity, St. Jude Children's Research Hospital located in Memphis, Tennessee.[citation needed]

Legal troubles

Trademark infringement lawsuit

In 2001 Stanford said publicly that his great-great-great grandfather was a relative of Leland Stanford, the founder of Stanford University. Stanford University denied any connection, and in 2008 filed a trademark infringement suit against Stanford claiming the school’s name was being used “in a way that creates public confusion” and is “injurious.”[13]

Fraud allegations

See also: Stanford Financial Group

Reports surfaced in early February 2009 that the Securities and Exchange Commission, the Federal Bureau of Investigation, the Florida Office of Financial Regulation, and the Financial Industry Regulatory Authority, a major U.S. private-sector oversight body, were investigating Stanford's company Stanford Financial Group, [14] questioning the way that Stanford International Bank manages to consistently make higher than market returns to its depositors.[15] A former executive told SEC officials that Stanford presented hypothetical investment results as actual historical data in sales pitches to clients.[16] Stanford claimed his CDs were as safe as, or safer than, U.S. government-insured accounts.[17]

Federal agents raided the offices of Stanford Financial on February 17, 2009,[18] and the Securities and Exchange Commission charged Allen Stanford with "massive ongoing fraud" centred on an eight billion dollar investment scheme.[3][19] Stanford's assets along with those of his companies were frozen and placed into receivership by a U.S. federal judge.[20]

Stanford's whereabouts are currently unknown, and U.S. marshalls assisting the SEC have been unable to serve him with court orders.[21][22] CNBC reported that Stanford tried to flee the country on February 17. He contacted a private jet owner and attempted to pay for a flight to Antigua with a credit card, but was refused because the company would accept only a wire transfer.[23]

As of February 18, Stanford has not been criminally charged and a U.S. Marshall's spokesman said he was not aware of any arrest warrant.[21][22]

Money laundering investigation

The FBI and other agencies have been conducting an ongoing investigation of Stanford since 2008 for possible involvement in money laundering for Mexico's Gulf Cartel.[24]

Tax liens

Public records show Stanford owes hundreds of millions of dollars in federal taxes. There are four federal tax liens from 2007 and 2008 against Stanford totaling more than $212 million.[25]

China banks misuse $1.38b

BEIJING - CHINESE banks and other financial institutions embezzled or misappropriated hundreds of millions of dollars last year, the country's top auditor said on Thursday.

Six billion yuan (S$1.34 billion) was misused in 20 major cases uncovered during investigations of financial institutions in 2008, Mr Liu Jiayi, auditor general of the National Audit Office, told reporters.

About half of the cases involved Industrial and Commercial Bank of China, Bank of China and Construction Bank of China, three of China's biggest state-owned banks that are also listed on the stock market, Mr Liu said.

'The auditing of the three banks and other financial institutions... will facilitate the healthy development of the stock market because it... can boost confidence by providing true, accurate and complete information to the public,' he said.

Most of the funds have been returned, although police are still investigating some of the cases, Mr Liu said.

Problems Chinese banks typically face include bank officials bending the rules for key customers or politically connected borrowers, as well as outright embezzlement.

Corruption and waste are deep-rooted problems in China, with top officials even warning that widespread graft threatens to undermine the Communist Party's grip on power.

In response to concerns over possible misuse of China's four-trillion-yuan economic stimulus package and funds allocated for rebuilding areas hit by last year's earthquake, Mr Liu said auditors will be deployed to make sure officials don't steal or waste money.

'The top priority of this year's economic work is to ensure steady and relavitively fast economic growth,' he told reporters.

China's auditor is required to audit the government's central budget, which includes the transfer of payments to the regions, official investments and use of social security funds.

President Hu Jintao has repeatedly acknowledged that corruption is one of the greatest threats to the legitimacy of the ruling Communist Party.

The government regularly announces major crackdowns on graft in official ranks in an effort to show the population that efforts are being made to extinguish corruption. -- AFP, AP

SEC Uncovers Ponzi Scheme Targeting Deaf Investors

The Securities and Exchange Commission obtained a court order halting an alleged Ponzi scheme by Hawaii-based Billions Coupons and its CEO Marvin R. Cooper that was targeting members of the Deaf community in the U.S. and Japan.

The SEC alleges Billions Coupons and Cooper raised more than $4.4 million from 125 investors since at least September 2007 by holding investment seminars at community centers for investors who were deaf.

The SEC is also alleging that Cooper pocketed at least $1.4 million in investor funds to pay personal expenses as well as purchase a new home.

This is the latest in a series of investor Ponzi schemes uncovered since the mammoth $50 billion investment fraud caused by Bernard Madoff was revealed in December.

US economy to get worse

WASHINGTON - THE Federal Reserve warned on Wednesday that the crippled US economy is even worse than thought and predicted it would deteriorate throughout 2009, with no sign that the housing market will stabilise. The Fed's bleak estimates indicated that unemployment could climb as high as 8.8 per cent this year and that the economy would contract for a full calendar year for the first time since 1991.

The central bank's latest projections came hours after a separate report showed that new home construction and applications for future projects both fell to record lows last month.

Still, some economists saw a silver lining in the otherwise dismal housing report: Scaled-back building should reduce the number of unsold homes and contribute to an eventual housing recovery.

The reports raise the stakes for the plan President Barack Obama announced Wednesday to curb foreclosures and ease the broader US housing slump that sent the economy into recession.

The Fed's latest forecast says the unemployment rate will climb to between 8.5 and 8.8 per cent this year. The old prediction, issued in mid-November, estimated that the jobless rate would rise to between 7.1 and 7.6 per cent.

Many private economists believe the current 7.6 per cent jobless rate - the highest in more than 16 years - will hit at least 9 per cent by early next year even with the US$787 (S$1.2 trillion) billion stimulus package signed into law on Tuesday by Obama.

The Fed also believes the economy will contract this year between 0.5 and 1.3 per cent. The old forecast said the economy could shrink by 0.2 per cent or expand by 1.1 per cent.

The last time the economy registered a contraction for a full year was in 1991, by 0.2 per cent. If the Fed's new predictions prove correct, it would mark the weakest showing since a 1.9 per cent drop in 1982, when the country had suffered through a severe recession.

The grim outlook represents the growing toll of the worst housing, credit and financial crises since the 1930s. All of those negative forces have plunged the nation into a recession, now in its second year.

'Given the strength of the forces currently weighing on the economy,' Fed officials 'generally expected that the recovery would be unusually gradual and prolonged,' according to documents on the Fed's updated economic outlook.

In another sign of the troubled economy, production at the nation's factories, mines and utilities fell 1.8 per cent last month, more than economists expected. That figure, the third monthly drop in a row, was dragged down by a 23 per cent drop in production at auto plants and their suppliers.

Meanwhile, construction of new homes and apartments plummeted 16.8 per cent in January from the previous month, the Commerce Department said, falling to a seasonally adjusted annual rate of 466,000 units, a record low. Analysts expected a pace of 530,000 housing units.

Building permits, a measure of future activity, also sank to a record low pace of 521,000 units in January, a 4.8 per cent drop from the prior month.

'Conditions in the market for new homes have not been this bad since the 1930s, and they continue to worsen,' said Patrick Newport, an economist at IHS Global Insight in Lexington, Mass. He predicted that housing starts would remain depressed for months to come.

Under the Fed's new projections, the economy should grow between 2.5 and 3.3 per cent next year and by as much as 5 per cent in 2011, which would be considered robust.

Traffic continues to plunge

THE freefall in first and business class traffic continues to batter carriers like Singapore Airlines, with no sign of the crisis bottoming out.
So-called premium international traffic fell by 13.3 per cent in December compared with the same month in 2007. Overall, it sank 2.8 per cent for the year, despite a strong first half.

The International Air Transport Association (Iata) is warning of darker days ahead, adding that the situation in Asia is especially worrying.

Premium traffic within the region fell by 25.1 per cent in December, according to new data. Trans-Pacific traffic between Asia and the United States fell by 19.7 per cent during the same period.

Iata said the higher-than-average slowdown in Asia was largely because of the importance of international trade and finance in driving business travel.

'The scale of this decline is consistent with the economic weakness seen in the region at the end of last year,' it said.

Export volumes were down in December by 20 per cent in Singapore and by 35 per cent in Japan.

The overall drop of 13.3 per cent in the premium segment compares with a 5.3 per cent decline for economy class traffic.

With jobs being lost at an increasing rate and consumer confidence falling further 'it seems that the bottom has not yet been reached for air travel and even weaker numbers may become evident in the first few months of this year', said Iata, a body representing 230 carriers worldwide.

The 'extreme weakness of demand combined with an inability to shrink capacity to match' is causing fares and yields to decline, it said.

How to Manage a Sporadic Income

By Dayana Yochim

Those who work as contractors, small-business owners or freelancers aren't watching the employment figures. They're too busy trying to make a living.

When you are your own boss, the role of chief financial officer is critical to your everyday well-being. In the world of the self-employed, it's usually feast or famine. And unfortunately for many, it's a guessing game when it comes to anticipating the next month's income.

If your paycheck is irregular, planning and budgeting are just as important as soliciting work, says debt counseling firm Money Management International. Here are some practical tips on keeping the cash flowing:

Average out your expenditures over a three-month period. If youre not tracking your expenses now, do it for a few months. Don't forget to include the monthly costs of health-care premiums, taxes, and office supplies. Knowing where your money really goes will help head off any end-of-the-month surprises.

Free up your cash flow by regulating your expenses. Many utility companies offer balanced billing options so that horrendous winter heating bill is spread out evenly over the year. (To free up more cash, see how we saved more than $2,000 extra during our Fiscal Fitness challenge.)

Build a safety net for lean months. Start socking money away in a short-term savings account today. Whether it is three or six months of living expenses depends on your situation. If you have dependents, the more savings the better. Even if you can only put a minimum amount in, its better than relying on Mr. Visa when money gets tight.

Though credit lines are tempting, avoid relying on them to make ends meet. If you do have to occasionally charge your expenses, promise to use any future windfall to get you back to debt-free ground.

Married to a regular-wage earner? Go give him or her a smooch and then discuss (civilly, please!) using that income for the essentials, and the irregular paychecks for savings and extravagant gifts. (If money's an issue between you two, see our tips on divorce-proofing your finances.)

Earmark your savings. Knowing where to save and invest money for your current and future self makes it less tempting to blow an unplanned windfall on frivolities.

World may see zero growth

PARIS - THE global economy as a whole could see zero growth this year as it reels from the effects of the financial crisis, the managing director of the International Monetary Fund said on Wednesday.

'The next IMF forecast, in three months time, could well be close to zero,' warned Dominique Strauss-Kahn in an interview to appear in Thursday's edition of the French business daily Les Echos.

The IMF already revised its 2009 growth forecast down to 0.5 per cent, with wealthy countries' economies in recession and expected to shrink by around two percent, and 'the figures we've seen since aren't good,' he added.

Mr Strauss-Kahn said he hoped that 2010 would see a turnaround, but repeated his warning that European banks were still carrying too much bad debt and said more needed to be done to clean up their balance sheets. -- AFP

World may see zero growth

PARIS - THE global economy as a whole could see zero growth this year as it reels from the effects of the financial crisis, the managing director of the International Monetary Fund said on Wednesday.

'The next IMF forecast, in three months time, could well be close to zero,' warned Dominique Strauss-Kahn in an interview to appear in Thursday's edition of the French business daily Les Echos.

The IMF already revised its 2009 growth forecast down to 0.5 per cent, with wealthy countries' economies in recession and expected to shrink by around two percent, and 'the figures we've seen since aren't good,' he added.

Mr Strauss-Kahn said he hoped that 2010 would see a turnaround, but repeated his warning that European banks were still carrying too much bad debt and said more needed to be done to clean up their balance sheets. -- AFP

Why the experts missed the crash

Which forecasters should you trust on the direction of the economy and the markets? Ask Philip Tetlock, who knows the kind of expert worth listening to - and what to listen for.

By Eric Schurenberg, Money Magazine

(Money Magazine) -- You've probably never wanted expert insight more than today - and never trusted it less. After all, the intelligent, articulate, well-paid authorities voicing these opinions are the ones who created the crisis or failed to predict it or lost 30% of your 401(k) in it.

Yet we can't tear ourselves away. The crisis has brought record ratings to CNBC and its parade of talking heads. You're probably still entrusting your portfolio to the experts running mutual funds. Despite everything, we can't shake the belief that elite forecasters know better than the rest of us what the future holds.

The record, unfortunately, proves no such thing. And no one knows that record better than Philip Tetlock, 54, a professor of organizational behavior at the Haas Business School at the University of California-Berkeley. Tetlock is the world's top expert on, well, top experts. Some 25 years ago, he began an experiment to quantify the forecasting skill of political experts.

By the time he finished in 2003, Tetlock had signed up nearly 300 academics, economists, policymakers and journalists and mapped more than 82,000 forecasts against real-world outcomes, analyzing not just what the experts said but how they thought: how quickly they embraced contrary evidence, for example, or reacted when they were wrong. And wrong they usually were, barely beating out a random forecast generator.

But you shouldn't simply write all gurus off. Tetlock's research found that one kind of expert turns out consistently more accurate forecasts than others. Understanding what makes them better can help you make more reliable predictions in your own life. Tetlock explained it all to Money's former managing editor, Eric Schurenberg, in a recent interview.

Why did so many experts miss the economic crash?

The people intimately involved in packaging [financial derivatives like] CDOs must have had some sense that they were unstable. But their superiors seem to have been lulled into complacency, partly because they were making a lot of money very fast and had no motivation to look closer. So greed played a role.

But hubris may have played a bigger one. Remember Greek tragedy? The gods don't like mortals who get too uppity. In this case the biggest source of hubris was the mathematical models that claimed you could turn iffy loans into investment-grade securities. The models rested on a misplaced faith in the law of large numbers and on wildly miscalculated estimates of the likelihood of a national collapse in real estate. But mathematics has a certain mystique. People get intimidated by it, and no one challenged the models.

Americans were shocked at how wrong the experts were. You weren't. Why not?

My research certainly prepared me for widespread forecasting failures. We found that our experts' predictions barely beat random guesses - the statistical equivalent of a dart-throwing chimp - and proved no better than predictions of reasonably well-read nonexperts. Ironically, the more famous the expert, the less accurate his or her predictions tended to be.

Money has written about human mental quirks that lead ordinary folks to make investing mistakes. Do the same lapses affect experts' judgment?

Of course. Like all of us, experts go wrong when they try to fit simple models to complex situations. ("It's the Great Depression all over again!") They go wrong when they leap to judgment or are too slow to change their minds in the face of contrary evidence.

And like all of us, experts have a hard time with randomness. I once witnessed an experiment that pitted a classroom of Yale undergrads against a lone Norwegian rat in a T-maze. Food was put in the maze in no particular pattern, except that it was designed to end up in the left side of the "T" 60% of the time. Eventually, the rat learned always to turn left and so was rewarded 60% of the time. The students, on the other hand, fell for a variant of the "gambler's fallacy." Picture a roulette player who sees a long sequence of red and puts all his money on black because it's "due." Or more subtly, he looks for complex, alternating patterns - the same kind of mental wild-goose chase that technical stock pickers go on. That's what happened to the Yalies, who kept looking for some pattern that would predict where the food would be every time. They ended up being right just 52% of the time. Outsmarted by a rat.

What makes some forecasters better than others?

The most important factor was not how much education or experience the experts had but how they thought. You know the famous line that [philosopher] Isaiah Berlin borrowed from a Greek poet, "The fox knows many things, but the hedgehog knows one big thing"? The better forecasters were like Berlin's foxes: self-critical, eclectic thinkers who were willing to update their beliefs when faced with contrary evidence, were doubtful of grand schemes and were rather modest about their predictive ability. The less successful forecasters were like hedgehogs: They tended to have one big, beautiful idea that they loved to stretch, sometimes to the breaking point. They tended to be articulate and very persuasive as to why their idea explained everything. The media often love hedgehogs.

How do you know whether a talking head is a fox or a hedgehog?

Count how often they press the brakes on trains of thought. Foxes often qualify their arguments with "however" and "perhaps," while hedgehogs build up momentum with "moreover" and "all the more so." Foxes are not as entertaining as hedgehogs. But enduring a little tedium is worth it if you want realistic odds on possible futures.

So if you were looking for a money manager, you'd want a fox?

If you want good, stable long-term performance, you're better off with the fox. If you're up for a real roller-coaster ride, which might make you fabulously wealthy or leave you broke, go hedgehog.

But it was doomster hedgehogs like money managers Robert Rodriguez and Jeremy Grantham who first saw the crisis coming.

Hedgehogs are sometimes way, way out front. But they can also be way, way off.

Most of the experts who called the downturn are still bearish. Would you expect them to be able to call the rebound too?

No. In our research, the hedgehogs who get out front don't tend to stay out front very long. They often overshoot. For example, among the few who correctly called the fall of the Soviet Union were what I call ethno-nationalist fundamentalists, who believed that multi-ethnic nations were likely to be torn apart. They were spectacularly right with Yugoslavia and the Soviet Union. But they also expected Nigeria, India and Canada to disintegrate. That's how it is with hedgehogs: You get spectacular hits but lots of false alarms.

How can we nonexperts test our own hunches?

Listen to yourself talk to yourself. If you're being swept away with enthusiasm for some particular course of action, take a deep breath and ask: Can I see anything wrong with this? And if you can't, start worrying; you are about to go over a cliff.

Considering how wrong they are, why are the same old talking heads continuing to give advice?

Unless you force experts to be specific, as we did, they can make predictions that are difficult to falsify. You know the cynical clich "Never assign a date and a number to the same prediction." That lets you get away with saying things like "Yes, I did say the Dow will hit 36,000, and it will - just wait. I was merely a little early."

Experts are also very good at explaining errors away by concocting counterfactual history. "If only the world had heeded the warnings of, say, [libertarian-leaning Texas Congressman] Dick Armey about Fannie Mae and Freddie Mac, the financial crisis would have been far less severe." This is a ridiculous line of reasoning. Nobody knows what would have happened in a hypothetical world.

Who are you listening to in this market?

I look for a combination of cognitive flexibility and high IQ. Moody's Economy.com chief economist Mark Zandi is not a bad person to listen to. He was somewhat out in front in anticipating this crisis and has a capacity for seeing different points of view. Larry Summers, head of the National Economic Council, also has the kind of intelligence and cognitive style that makes him a good bet.

Could we live without experts?

No way. We need to believe we live in a predictable, controllable world, so we turn to authoritative-sounding people who promise to satisfy that need. That's why part of the responsibility for experts' poor record falls on us. We seek out experts who promise impossible levels of accuracy, then we do a poor job keeping score.

Accountants expect economy to get worse

The profession cites sales growth, collections and high costs as top concerns for business during this economic downturn

According to the latest CPA Singapore Business Confidence Index, accounting professionals are not confident about the economic outlook. 95 per cent of the respondents rated the current Singapore economic conditions as less favourable now compared to six months ago. 86 per cent of them also expect the economy to worsen. Given that opinion, it is not surprising that 75 per cent of them expect their business situation to worsen in the next six months as expressed in their responses. (Download white paper below)

A high 44 per cent indicated that sales growth is the topmost concern of businesses, according to the survey that was conducted between 2 to 15 January 2009 amongst members of Institute of Certified Public Accountants of Singapore (ICPAS). Accountants are also worried about collections, which is the second top concern of businesses as voted by thirty per cent of those who participated in the survey, suggesting that they are affected by uncollected receivables. The survey also revealed that businesses also grapple with high costs during the economic downturn, which is third in ranking for top business concerns as voted by 28 per cent of the respondents. Attracting talent and staff retention seem to be the least worries of businesses for now.

Accountants’ economic expectations, though gloomy, do not appear to be holding back on investment during this crisis. More than half of the respondents (58 per cent) shared that their companies will be increasing or maintaining their level of investment. A slightly smaller percentage (42 per cent) indicated that they are looking at reducing investment.

Healthcare as well as Information & Communications are two sectors enjoying a brighter outlook, as voted by ninety per cent and seventy per cent of the respondents respectively. Conversely, Manufacturing, Wholesale & Retail Trade, Hotels & Restaurants as well as Financial Services are expected to be the worst hit during this difficult time.

Only a quarter of the respondents expect their workforce to be reduced while seventy per cent of them indicted that they are looking at maintaining their workforce. Some, at least, can expect an increase in head count but this is only a small percentage (six per cent).

Commenting on the results, Dr Ernest Kan, ICPAS Vice-President said, ”Maintaining investment and sustaining the current level of workforce suggest that companies are hanging on and fighting the economic turmoil. Although battered, they remain resilient. This is a positive sign. Coupled with the Government’s well thought-out and calibrated approaches to counter the financial crisis, we are well poised to ride out this storm.”

He was speaking at the inaugural CPA Singapore Powwow on 16 February, where the Index results were announced. The breakfast event brought together industry leaders – Ms Penny Low, Member of Parliament for Pasir Ris-Punggol GRC, Dr Ernest Kan, Vice-President of ICPAS, Mr Aw Soon Beng, Chief Executive Officer of Westcomb Financial Group and Mr Tim Hird, Director of Robert Half International Pte Ltd – who discussed on the Business Confidence, Concerns and Control in Volatile Times.

Will we survive the recession?

By Larry Haverkamp

IF you doubted the seriousness of this recession, doubt no more: A Canadian survey found 12 per cent of couples gave up their lovers in the last six months for financial reasons.

That's serious. Less colourful data looks just as grim. Global growth is at a standstill. Our GDP is expected to shrink this year.

World stock prices plunged 42 per cent last year and are down another 8 per cent so far this year. Property prices, company profits and unemployment are all ka-plooey.

How did we get in this mess?

Recessions follow periods of excess. Just before the Great Depression of the 1930s, people lived it up and bought US shares with no money down.

It was like contra trading but without the need to pay up in three days.

No cash was required as long as prices kept moving higher. It worked beautifully until the market crashed in October 1929.

Then, customers had to pay for their shares. When they couldn't, brokers sold them out and that pushed prices down further. Many investors became bankrupt. Some committed suicide.

Over the next three years, prices dropped a whopping 89 per cent before hitting rock bottom in March 1933.

Now, it is deja vu all over again. This time around, the property market is the culprit.

US banks issued trillions of dollars of 'no-money-down mortgages'. Homeowners were allowed to make minimum interest payments with the rest added back to the principal due, like credit card debt.

When prices fell, US homes became worth less than the mortgage, so many owners simply walked away.

Banks took back the abandoned properties, sold them at a discount and pushed property prices even lower.

At the end of last month, 31 per cent - nearly one in three - of these adjustable rate mortgages were either in default, foreclosed or had been seized by the bank.

US President Barack Obama summed it up when he told Congress before last week's stimulus vote: 'The problems in the US are accelerating instead of getting better.'

Depending on the US

This recession was made in the US and has spread to the rest of the world. Now, the US needs to re-start its economic engine. That will fire up its imports and boost our exports.

How to do it? First, the US will increase government spending to replace the big decline in private spending.

Second, tax cuts will put more cash into consumers' pockets. Last year's tax rebates were US$1,667 ($2,500) per tax-paying family. This year's are lower at US$800 but will include a larger number of families.

Will it be enough? No one knows, but here's a thought: there has never been a depression or recession that did not end.

Think about that while you are worrying.

What S'pore is doing

WE are a small and open economy that depends on imported consumer goods.

As a result, handouts don't help much. The extra money would simply flow out of the country and fail to boost our economy.

What to do? Our focus has been on employment. The new jobs incentive scheme pays a portion of the employer's CPF, thereby encouraging them to hang on to workers during these troubled times.

It is an innovative solution that helps workers AND keeps the stimulus money at home. It is appropriate for an open economy like ours.

Will it be enough?

No one knows but Credit Suisse bank estimates our stimulus spending is about 8per cent of GDP, making it the highest in the world.

Compare that to our eight regional neighbours: Hong Kong, India, Indonesia, South Korea, Malaysia, Philippines, Taiwan and Thailand.

Their spending stimulus averages 2 per cent of GDP, considerably less than what we are pumping into the economy.

This article was first published in The New Paper.

Hang Seng Fell Below 13,000 Support

Asian markets fell as financial fears send banks lower with China snapped its long-running rally. Bank of East Asia, which leads off the results season finished higher despite a worse-than-expected second-half net loss of HKD 746 million and slashed its dividend to HKD 0.02 per share from HKD 1.18 per share, after selling a debt portfolio at a steep loss. The Hang Seng declined more than 3% to close at 12,945.4 yesterday.

The technical outlook of Hang Seng is negative. The index opened gap down and fell below its 20 day SMA. It extended its loss and fell below the 13,000 support at closing. If the index falls below the next support at 12,439, it may head further south. If it is able to sustain above the 12,439, it may continue to range trade between 12,439 to 12,400.

Fed banker warns of deflation

WASHINGTON - WITH the economy spinning deeper into recession, the United States might suffer a dangerous bout of falling prices, or deflation, a Federal Reserve official warned on Tuesday.

'I think we face some risk - at this point only a risk - of sustained deflation,' James Bullard, president of the Federal Reserve Bank of St. Louis, said in a speech to the New York Association for Business Economics.

A government report, released last month, showed that consumer prices tumbled in December, and inflation last year logged its smallest advance since the early 1950s, fanning new fears that the country may face a dangerous bout of deflation.

Falling prices sound like a gift at first - at least to consumers. But a widespread and prolonged decline can wreak more havoc on the economy, dragging down Americans' wages, and clobbering already-stricken home and stock prices. Dropping prices already are hurting businesses' profits, forcing them to slice capital investments and lay off workers.

'Ongoing deflation in the United States might be particularly pernicious,' Bullard said.

To fend off any deflationary threat, the Fed is expected to hold its key interest rate at a record low for the rest of this year.

America's last serious case of deflation was during the Great Depression in the 1930s. Japan was gripped with a period of deflation during the 1990s, and it took a decade for that country to overcome those problems.

'In some ways, our current environment parallels the Japanese experience after 1990,' Bullard said. 'The Japanese banking system encountered difficulties with 'troubled assets' and the intermediation system broke down. That is an experience that neither we, nor the rest of the world's economies, want to repeat.'-- AP

GM to cut 47,000 jobs

DETROIT - GENERAL Motors Corp, presenting a dire outlook for the future, said on Tuesday it may need US$30 billion (S$45 billion) in total government financing to weather the economic downturn and would cut 47,000 jobs worldwide - 26,000 of which will come from outside the United States - and shutter five more US factories in a massive restructuring plan.

The automaker is already surviving on US$13.4 billion in federal loans and said in a plan submitted to the US Treasury Department that it would seek an additional US$16.6 billion if economic conditions worsen, but it could achieve profitability in two years and fully repay its loans by 2017.

The US automaker presented its turnaround plan to the Obama administration as it worked to win concessions from the United Auto Workers union and bondholders to dramatically resize the company.

The UAW said it reached a tentative deal with GM, Chrysler LLC and Ford Motor Co on contract changes but discussions were still under way about how the companies would fund union-run trust funds that will take over the companies' retiree health care obligations starting next year.

GM said it was making progress but had not yet achieved all the concessions from union workers, debt holders, dealers and suppliers that the Bush administration sough in the loan terms provided last December.

President Barack Obama's administration will review the plans from GM and Chrysler LLC but could pull the loans if they don't approve the turnaround plans by March 31. The review could be extended into April, but if the government demands the money back it would force the companies into bankruptcy.

GM predicted it could run out of money before the March deadline and said it is seeking the additional funding under a worst-case-scenario projection, as US sales have plummeted to a 26-year low and auto sales have fallen in other parts of the world.

In December, GM said it might need a total of US$18 billion in government financing but only got a commitment of US$13.4 billion, including US$4 billion that the automaker received on Tuesday.

GM wants to receive an additional US$2 billion in March and US$2.6 billion in April. The company has a US$4.5 billion revolving line of credit that must be refinanced in 2011 but now believes that private funding won't be available, so the automaker is asking the government to lend the money.

If market conditions deteriorate, GM says it may also need an additional US$7.5 billion revolving line of credit to stay afloat, for a total potential request of US$30 billion.

GM said it reviewed the potential costs of a bankruptcy filing, but said it was a poor option. If GM was forced into Chapter 11 reorganisation proceedings, the company said the only credit available would be from the government, and the cost could reach as much as US$100 billion.

GM's plan details extensive cuts. The automaker would reduce its U.S. manpower from 92,000 salaried and hourly workers at the end of 2008 to 72,000 employees by the end of 2012. Worldwide, it envisions slashing 47,000 workers, including 37,000 hourly workers and 10,000 salaried employees.

In its Dec 2 plan to the Bush administration, GM said it would cut the number of plants from 47 in 2008 to 38 by 2012. But the new approach goes further, cutting an additional five plants by 2012 to a total of 33 facilities.

GM's brands would be reduced from eight to four - Chevrolet, Buick, Cadillac and GMC - as the automaker said in December.

The company is considering a sale of the Hummer brand and a decision could be made by the end of March. The Saturn brand could be phased out by the end of 2011. The company is also considering its options for the Pontiac and Saab brands.

GM said all of its major US vehicle launches from 2009 to 2014 would be high-mileage cars and crossovers. -- AP, AFP

Asia's jobless to hit 23m

MANILA - THE number of people out of work in Asia could surge by 23.3 million this year as the global financial crisis continues to batter the region's economies, according to a study released on Wednesday.

The crisis could also force rural-to-urban migration to slow down, with many facing the prospect of returning to low paying agricultural sector as factories and firms slash jobs, the International Labour Organization (ILO) report said.

'A dramatic increase in working poverty of more than 140 million people by 2009 is projected under this scenario, representing regression of the Asia and Pacific region to a working poverty rate of 2004,' the study said.

'These projections are not just numbers, they carry with them a real risk that children may be forced to withdraw from school in order to work and support their families,' it said.

It said the region's robust growth in the past was not matched by 'broad-based gains in real wages,' leading to sharp inequalities in many countries.

'The substantial growth slowdown taking place is likely to lead to stagnant or falling real wages, with the potential for increased incidences of wage related disputes,' the study said.

As Asia moves to spend about 3.9 per cent of its gross domestic product (GDP) on stimulus packages, there is also a need to protect employment and support household purchasing power, it said.

'Stimulus geared toward infrastructure projects provide a direct way to generate employment, while also laying the future foundation of growth,' the paper said.

Governments should also spend on schools, hospitals and healthcare to mitigate the impact of the crisis while also looking at ways to boost worker skills for longer-term productivity.

'While the crisis represents tremendous challenge to the region, the response measures to the crisis represents a unique opportunity to address economic, social and environmental priorities,' it said. -- AFP

Singapore's GIC losses about 33 bln US dlrs: sources

SINGAPORE, Feb 17, 2009 (AFP) - Government of Singapore Investment Corp, which has helped bail out troubled global financial institutions, suffered an investment loss of about 50 billion Singapore dollars (33 billion US) last year, sources told Dow Jones Newswires on Tuesday.

In late 2007 and early last year GIC injected billions of dollars into Swiss bank UBS as well as US banking giant Citigroup, both of which suffered massive losses from US subprime, or higher-risk, mortgage investments.

Subprime troubles later evolved into the worldwide financial slowdown.

"The loss on the investment portfolio last year is estimated at around 45 billion to 50 billion," one of two people familiar with the GIC situation told Dow Jones.

"But, GIC has no thoughts to sell down any of its major investments. They'll wait until they recover."

UBS this month posted an annual loss of 17 billion US dollars, the largest in Swiss corporate history, and announced 2,000 new job cuts.

A second person said GIC's investment loss last year was "recently estimated to be similar to Temasek's."

The portfolio of Singapore sovereign wealth fund Temasek Holdings, which helped bail out Wall Street icon Merrill Lynch, fell about 31 percent over eight months last year, Senior Minister of State for Finance Lim Hwee Hua told parliament last week.

She said Temasek's portfolio of investments fell to 127 billion dollars at the end of November, down 58 billion from 185 billion dollars on March 31 last year.

Lim said it was not the first time GIC and Temasek had seen major declines in markets, and that GIC had "creditable returns" over the 20-year period to late 2008.

Asked for comment on the Dow Jones report, a GIC spokesman said the firm did not comment on "speculative reports".

GIC, one of the world's largest sovereign wealth funds, in September said its nominal rate of return over the 20 years to March 31 last year was 7.8 percent in US dollar terms.

"Temasek and GIC are long-term investors, and should be evaluated as such," Lim said. "GIC and Temasek have the ability and resources to weather the ups and downs, over multiple economic and market cycles."

Financial system still unsound

PARIS - THE global financial system is still far from sound and the toxic debt blighting bank balance sheets is undermining government recovery efforts, the head of the IMF warned on Tuesday.

'The whole world's financial system is not yet healthy and thus recovery effects are not sufficiently strong,' Dominique Strauss-Kahn, managing director of the International Monetary Fund, told France Inter radio.

'We must finish the job of cleansing bank balance sheets,' he insisted, complaining that some banks and national regulators were not working quickly enough to identify and isolate the bad credit which provoked the collapse.

'I'm worried, because the plans that are being put in place are headed in the right direction but don't go far enough,' he warned, calling for more coordination between governments struggling with national recovery plans.

Some countries have partly or wholly nationalised banks hit by the credit crisis, others have pushed through rapid mergers and some experts have said so-called 'bad banks' must be established to absorb toxic debt.

Many commentators fear, however, that billions of dollars in unpayable loans are still lurking on institutions' books, disguised in a thicket of complex financial instruments and undermining trust in the credit market. -- AFP

Financial crisis deepening: Hu

PORT-LOUIS - THE impact of the economic crisis is deepening and will hit developing nations particularly hard, Chinese President Hu Jintao warned on Monday as he embarked on the final leg of a tour of Africa.

A day after inking deals worth more than US$20 million (S$30 million) in Tanzania, Mr Hu called on rich nations to help African countries cope with the downturn before flying to Mauritius, the last stop on a four-nation trip to the continent.

'The impact of the crisis on economies around the world is still deepening and its grave consequences will be felt more in the days to come,' he said in a speech at a town hall gathering in the Tanzanian capital Dar es Salaam.

'It has put developing countries in a particularly disadvantaged position Many African friends are concerned that in the face of the daunting challenges of the financial crisis, their international developing partners may scale back aid, debt relief and investment in Africa.

'The developed countries should assume their responsibilities and obligations, continue to deliver their aid, debt relief commitments, maintain and increase assistance to developing countries and effectively help them maintain financial stability and economic growth,' he added.

On Sunday, the Chinese president signed deals with his Tanzanian counterpart Jakaya Kikwete totaling US$21.9 million covering agriculture, communications and technical cooperation.

Mr Hu arrived Monday in Mauritius where he is to pen two agreements to finance infrastructure in the Indian Ocean island, home to the biggest Chinese diaspora in Africa, with more than 30,000 nationals of Chinese origin.

He was welcomed by Prime Minister Navinchandra Ramgoolam. On Tuesday he will meet a Mauritian government delegation led by Ramgoolam then visit a Chinese cultural centre before winding up his visit later in the day.

'During the Chinese president's visit, two deals will be signed to finance the enlargment of an airport and other infrastructure,' said Suresh Seeballuck, the cabinet secretary. China has funded several projects on the Indian Ocean island since 1972 when Mauritius switched its diplomatic allegiance from Taipei to Beijing.

'Mauritius is intensifying its efforts so that much of the Chinese investment in Africa goes through Mauritius,' Finance Minister Rama Sithanen said.

Head of Mauritius' chamber of commerce Charles Lee said: 'This visit shows a strong friendship between China and Mauritius, a small country without natural resources.' Mauritius' imports from China were worth more than 300 million dollars by September 2008, while Beijing has also invested in the island's textile and communication sectors. -- AFP

New lessons from the crash

Finally, stocks are cheap. Really. So it may be time to break the rules - just a little - to take advantage of this opportunity.

By Joe Light, Money Magazine staff reporter

(Money Magazine) -- Every major market crash is considered a teachable moment. And the lesson for investors invariably centers on the risk of overreacting to the news, in this case by attempting to flee equities when they're down. Countless studies have shown that this type of market timing will cost you dearly.

Normally the antidote for this behavior is simple: Ignore the noise and stick to an asset-allocation strategy that is suited for your age, goals and tolerance for risk. And then rebalance your portfolio back to the original mix annually.

But this is not what many financial advisers are calling for this time. In fact, they say it may be well worth your while to pay close attention to what's going on in the market today.

That's because this crash has done something no other bear market in decades has managed to accomplish: It has made stocks genuinely cheap. In fact, the price/earnings ratio on the Standard & Poor's 500 has sunk below its historical average of 16 for the first time since 1991, which just so happened to mark the start of one of the greatest bulls ever.
A window of opportunity

All of a sudden, some of the shrewdest market observers, such as Yale's Robert Shiller, Jeremy Grantham of GMO and Rob Arnott of Research Affiliates - who have all been bearish for years - are starting to sense some opportunities. In fact, Grantham predicts that equity returns over the next seven years will be "much above the average of the last 15 years."

Of course, no one is saying you should bet all your chips on a big rebound. And it could take another six months, or far longer, for the equity market to hit bottom.

But one of the enduring lessons of the past quarter-century is that opportunities to buy stocks at truly cheap prices can be fleeting. That's why some investors are talking about finding disciplined ways to boost their stock exposure modestly to reflect this historical development.

Now, some might call this market timing. But yet another lesson the market has taught us is not to put too much trust in labels (remember the notion of safe, dividend-paying financial stocks?). The idea here isn't to ride market momentum for quick gains. It's to rebalance aggressively back into stocks - while others are fleeing - with the clear understanding that it could take years for this to pay off.
Why the price is right

Not all market crashes produce cheap stocks. Think back to the bursting of the technology bubble at the start of this decade. Even though the S&P lost nearly half of its value during that bear, many investors thought equities were still overpriced by the end of the downturn.

Why? A common way to gauge the market is to take current stock prices and divide that by recent earnings to come up with a P/E ratio. Trouble is, in good times, profits can be inflated. And if earnings fall dramatically in bad years, P/Es might temporarily soar. So a more conservative approach, which smooths out anomalies, is to use 10-year average earnings as the E in the P/E (this is a method made famous by Robert Shiller).

Based on this method, the market's P/E ratio fell from nearly 44 in 2000, when the tech bubble peaked, to 22 in 2002, when the bear ended. While that was a steep drop, valuations never came close to touching the historical average of 16.

This time, however, P/E ratios have already pierced that threshold. Today the market's P/E is just 14, down from a peak of nearly 28 in 2007. "This suggests that long-run stock returns from here on will be above average," says Baylor University professor Bill Reichenstein. As the table shows, those who invested when P/Es were 20 or higher saw 10-year annual gains of 1% since 1926. By contrast, investors who bought when P/Es were below 15 - like now - earned more than 10%.

Tom Forester, manager of the Forester Value fund, says that he has been "champing at the bit" to buy cheap stocks. After keeping as much as 20% of his fund's assets in cash a few months ago, the only stock fund manager that made shareholders money last year is now almost fully invested in beaten-down stocks.
Strategies for a cheap market

1. Rebalance - now

If you're uncomfortable with the notion of changing your long-term strategy, just do what you normally would - rebalance your portfolio back to your original mix. But consider rebalancing now rather than waiting until the end of the year.

If you haven't rebalanced since the crash began in late 2007, you might not realize how your allocation has changed. A 60/40 mix of equities and bonds at the start of 2008 is now only 47% in stocks.

But why rebalance now? Who knows where P/E ratios will be by year's end? "There's a lot of cash on the sidelines, and when people begin to get optimistic, there will be a lot of people trying to fit through a very small door," says David Antonelli, a money manager with MFS Investment Management.

2. Go one step further

With valuations this low, risk-tolerant investors with years to make up for potential losses should also think about boosting their equity stakes slightly. Financial planner Ronald Rog says investors might consider increasing their normal stock weighting by about five percentage points if they think stocks are undervalued. So if you're normally 60% in equities, bump that up to 65%.

An easy way to do that is to take any cash that you may have kept on the side-lines - and that you won't need for at least five years - and gradually work that into the market. But remember that by doing so, you're taking on added risks. This is not the time to be diving into the riskiest end of the equity pool by, say, loading up on shaky financial stocks. Instead, simply rebalance into the diversified mix of stocks you previously settled on.

Now, you might be tempted to be even more aggressive - for instance, by boosting your stock allocation by more than 10 percentage points. But if this market has taught us anything, it's that there are no certainties in investing. So you don't want to risk more money than you can truly afford to lose.

Hedge funds set to fall 35%

By Francis Chan
THE global assets of hedge funds could fall by 35 per cent as fund managers dwindle and leveraging strategies becomes harder, according to Swiss bank UBS.

The dire forecast follows a 21 per cent drop in a key guide that tracks fund performance - the Hedge Fund Research Fund of Funds Composite Index.

'We would estimate that hedge fund assets by the end of this quarter will have fallen to about $1.2 trillion: that is a decline of 35 per cent from its peak of 2007,' said managing director of UBS Wealth Management, Timothy Bell on Tuesday.

Hedge fund assets totalled about $1.9 trillion during the boom of 2007 to mid-2008 but they have since tumbled to $1.4 trillion by the end of last year.

Mr Bell said there were signs of a reduction in hedge fund assets but he expects a further decline as investing strategies based on leveraging - or borrowing - will not work in today's tight credit markets.

'There isn't much leverage available and if there is, it will be expensive,' said Mr Bell. 'We're going to see better terms for investors...the balance of power is swinging away from the hedge funds towards investors.'

The causes for the industry's worst year on record are well-known: the collapse of Lehman Brothers, the recall of financing lines from prime brokers, global de-leveraging and a ban on short-selling.

However, this year started well for hedge funds as they outperformed fast-declining stock markets last month.

Mr Bell also expects other fundamental changes to the way the industry operates, starting with the regulatory regime.

'We're inevitably going to see increased regulation and that, of course, is going to be in the financial industry at large,' he said.

'You can't expect if governments are owning substantial positions in banks that they will not increase regulation, and that will have a knock-on effect in all parts of the financial markets including hedge funds.'

The industry contraction can actually benefit hedge fund investors as there is now less capital and better fund managers chasing opportunities, said Mr Bell.

'From an investor point of view, this is actually quite good news,' he added.

'There're opportunities right now with $8 trillion of liquidity pumped into the system by governments, you're seeing systemic risks being reduced and so assets are finding their intrinsic values thus helping the hedge funds.'

B of A, Citigroup "In A Year, Gone!"

Posted By: Jane Wells

Those were the words this week from Don Straszheim of Straszheim Global Advisors. He was speaking at the annual forecast dinner for the CFA Society of San Diego. "Gone?" I asked him in disbelief. "You mean, like no more Bank of America [BAC 5.57 -0.30 (-5.11%) ] Versateller ATM for me?" Well, no, he told me. "Just gone as in no shareholder equity left. I don't see how B of A or Citi [C 3.49 -0.12 (-3.32%) ] can be worth anything."

Straszheim gave an impassioned speech to the crowd of finance professionals. He was joined by Liz Ann Sonders, Schwab's Chief Investment Strategist. I moderated the event, taking notes furiously.

Forecasting is always a perilous endeavor, but here are the highlights of what these two pros see looking ahead, based, in part, on looking back.

Straszheim, a well-known expert on China, says we are in the middle of a "global buyers' strike."

What's more, he says the stimulus plan "makes no sense...it's crazy". Why? It's too big, for one thing. Any stimulus check or tax cut he gets would go into savings, not into spending, "because that's the right thing to do." Instead, Straszheim would prefer a package of $250 billion, with most of that going to "those bleeding the most," that is, the unemployed, etc.

Straszheim really gets worked up over the government's desire to get consumers borrowing to spend again, believing one of the worst things that could happen is cheap credit. "I remember when a credit card was for convenience, not a reason to buy things we can't afford." He'd be happy to see credit card interest rates double. He also predicts more gloom for the retail sector, saying years of easy credit have led to "30 percent too much capacity in the retail system", and a lot of stores won't survive.

Other thoughts from Straszheim:

"I think there's gonna be real brain drain from all those companies that have TARP money to those that don't."

"China is going to be weaker I think than most anyone believes." He predicts only two percent growth in China this year, but believes Chinese companies are still a better play than multinationals, suggesting investors look into the FXI, an ETF filled with 25 state-owned companies.

Finally, Straszheim predicts the financial sector, which has already fallen to only 10 percent of total value of the S&P 500, will fall to three percent by the end of 2009. Still, for the market overall, he says, "Fortunes are made at bottoms not at tops."

SONDERS--"MORE CONSTRUCTIVE NOW"

Liz Ann Sonders, who turned bearish is mid 2006, says that now, "I'm not boldly optimistic but more constructive" about the market. She agrees with Straszheim that the "politicians are wrong" for thinking the solution to fixing our economy is to stimulate lending to consumers--that's what got us in trouble in the first place.

She believes Treasuries are in a bubble, but isn't sure when that'll pop. However, she says the yield curve is signaling a recovery.

And using history as a guide, Sonders pointed to some hopeful signs. For one thing, she says recessions in the post WWII era usually last 13 months, and we are 14 months into this one.

Sonders points to a couple of indicators, one worth noting, the other she says you should ignore. The one worth noting is GDP. Historically, once the GDP hits its lowest point in a recession, a year later the S&P 500 jumps 25 percent. The indicator you should ignore is unemployment. In her opinion it is a massively lagging indicator, peaking, on average, six months AFTER a recession ends and probably a year after the stock market bottoms.

Finally, Sonders says people are starting to invest again. In December, 42 percent of US investments were in cash, 42 percent in stocks, and 16 percent in bonds and bond funds. One month later in January, the breakdown had changed to only 30 percent cash, 48 percent stocks, and 22 percent bonds and bond funds. "The deer in the headlights era has passed."

Let's hope so.

Some quotes from past few years:

"The U.S. housing market appears to be emerging from its recent travails and the worst may well be over", Federal Reserve Chairman Alan Greenspan, Reuters release Oct 9, 2006

"The subprime mess is grave but largely contained" - Federal Reserve Chairman, Ben Bernanke May 17 2007, Speech before the Federal Reserve Bank of Chicago

"This is far and away the strongest global economy I've seen in my business lifetime."- Henry Paulson, US Treasury Secretary, July 12th, 2007

"The market impact of the U.S. subprime mortgage fallout is largely contained and the global economy is as strong as it has been in decades." - Henry Paulson, August 2007

"This is not a rescue" - Goldman Sachs Chief Financial Officer David Viniar after Goldman poured $3 billion into one of its hedge funds, Aug 13, 2007

"I hope you're confident about our economy. I am." President Bush at the Robinson Helicopter Co. in Torrance, Calif, Jan 30, 2008

"Losing a job is painful, and I know Americans are concerned about our economy; so am I. It's clear our economy has slowed, but the good news is, we anticipated this and took decisive action to bolster the economy, by passing a growth package that will put money into the hands of American workers and businesses." - President Bush on news that the economy lost 63,000 payroll jobs in February, March 7, 2008

"The worst is likely to be behind us,"- Henry Paulson, US Treasury Secretary, May 7th, 2008

"We think that 2009 is likely to be better than 2008." - Richard Bernstein, Chief investment strategist at Merrill Lynch, Dec 2008

quotes from the Depression Era:

"We will not have any more crashes in our time." - John Maynard Keynes, 1927

"There will be no interruption of our permanent prosperity." - Myron E. Forbes, President, Pierce Arrow Motor Car Co., January 12, 1928

"There is no cause to worry. The high tide of prosperity will continue." - Andrew W. Mellon, Secretary of the Treasury, September 1929

"Stock prices have reached what looks like a permanently high plateau." - Irving Fisher, Ph.D. in economics, Oct. 17, 1929

"Secretary Lamont and officials of the Commerce Department today denied rumors that a severe depression in business and industrial activity was impending, which had been based on a mistaken interpretation of a review of industrial and credit conditions issued earlier in the day by the Federal Reserve Board." - New York Times, October 14, 1929

"This crash is not going to have much effect on business." - Arthur Reynolds, Chairman of Continental Illinois Bank of Chicago, October 24, 1929

"...despite its severity, we believe that the slump in stock prices will prove an intermediate movement and not the precursor of a business depression..." - Harvard Economic Society (HES), November 2, 1929

"The Government's business is in sound condition." - Andrew W. Mellon, Secretary of the Treasury, December 5, 1929

"President Hoover predicted today that the worst effect of the crash upon unemployment will have been passed during the next sixty days." - Washington Dispatch, March 8, 1930

"The spring of 1930 marks the end of a period of grave concern... American business is steadily coming back to a normal level of prosperity." - Julius Barnes, head of Hoover's National Business Survey Conference, Mar 16, 1930

"While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States - that is, prosperity." - President Hoover, May 1, 1930

"The worst is over without a doubt." - James J. Davis, Secretary of Labor, June 29, 1930

Gentleman, you have come sixty days too late. The depression is over." - Herbert Hoover, responding to a delegation requesting a public works program to help speed the recovery, June 1930

"I see no reason why 1931 should not be an extremely good year." - Alfred P. Sloan, Jr., General Motors Co, November 1930

"All safe deposit boxes in banks or financial institutions have been sealed... and may only be opened in the presence of an agent of the I.R.S." - President F.D. Roosevelt, 1933

'Buy American' approved

WASHINGTON - THE US Congress approved protectionist measures in a US$$789 billion (S$1.19 trillion) stimulus bill on Friday that US trading partners have warned could spark a trade war.

The bill, however, left the Obama administration some room to maneuver to appease other countries who say it will benefit US companies unfairly.

The stimulus bill was approved by the House on Friday afternoon and by the Senate later in the evening. It now goes to President Barack Obama who is expected to sign into law quickly.

Major partners, including the European Union and Canada, say the legislation favoring US steel, iron and manufactured goods for government projects could undermine pledges by the leaders of major economies not to resort to perfectionism during the world economic downturn.

Requirements known as 'Buy American' were softened as the bill progressed through Congress and after strong criticism from abroad.

Senate and House negotiators agreed to a version that would require the government not to violate trade agreements when implementing the law.

The bill also allows the Obama administration and state governments to waive requirements to favor US companies if they deem it in the US public interest and if they publish a justification.

The dispute has put Obama in a difficult position. While campaigning last year, he raised questions whether US trade agreements contained sufficient protection for labor and environmental standards. He has warned recently, however, about antagonising trading partners and has made clear that passage of the overall stimulus bill is needed urgently to mend the U.S. economy.

In several television interviews last week, he said the stimulus package should not include protectionist language that could trigger a trade war. But now that it does, he is likely to sign it anyway.

The measures appear, however, to give the administration discretion about how to implement spending decisions, given the requirement of meeting trade obligations.

US labour groups that pushed hard for inclusion of the measure have argued that its main purpose is to ensure that U.S. Treasury dollars are used to the fullest extent to support domestic job creation.

But industry groups see the provision in a different light. One hundred business groups and companies, including major construction, defense and high-tech companies, wrote Senate leaders last week with the dire warning that the provision 'will harm American workers and companies across the entire US economy, undermine US global engagement and result in mirror-image trade restrictions abroad that would put at risk huge amounts of American exports'. -- AP

Why This Recession Seems Worse Than '70s and '80s

If you think this recession is the worst since World War II, chances are you weren't born or working during the downturns of the 1970s and '80s, you're listening to President Obama too much or you're a white-collar worker in financial services.

If all three are true, you may even think we're on the verge of another Great Depression.

At this point, the only thing that may be true is your age and employment status.

"The current situation has nothing in common with the Great Depression," says economist Steve Hanke of the Cato Institute and Johns Hopkins University. "The sooner they [in Washington] stop spinning the bad news story and say nothing, the sooner we'll be more confident."

Hanke is not alone in dismissing what appears to be a potent cocktail of misinformation and doom and gloom, wherein the current recession-now in its 13th month-is already considered worse than the 16-month ones of 1973-1975 and 1980-1982.

"We were pretty scared in '82; things looked horrible for awhile," says Bob Stovall of Wood Asset management and a 55-year veteran of the securities business. "I don't think you can say it's worse than then; its different. You have changed the landscape but you did that in the Midwest when you forced a lot of rust-belt companies to the wall."

"This time it's financial firms going out of business, instead of manufacturing ones, and the jobs are going with them," explains Stovall.

"I do think that's part of it," says Robert Brusca, chief economist at Fact & Opinion Economics, saying that. "They're the ones making the pronouncements. People in the financial sector are getting crushed."

They're not the only ones selling doom and gloom, though.

"I don't remember a president talking down the economy as much as President Obama," says economist Chris Rupkey of Bank of Tokyo-Mitsubishi. "The economy is very psychological. There's a herd instinct."

That herd instinct kicked into overdrive after the sudden collapse of Lehman Brothers, when many say the economy fell off a cliff and a classical cyclical downturn merged with a nasty one-of-kind credit crunch. So yes, economists agree things are bad, but they need to be put into perspective.

Employment

At this point, the current recession is worse than those of the '70s and '80s by only one statistical yardstick, and that's the unusually quick ascent in the jobless rate-from 4.4 percent in March 2007 to 7.6 percent in January 2008.

"People are reacting so adversely to this is because the job market has become so weak," explains Brusca.

But even though the sharp decline in payrolls over the past three months has been stunning, it is not as bad on a percentage basis as one period in 1974-1975, according to David Resler, chief economist at Nomura International. Resler says the economy would have to lose some 767,000 jobs a month over a three-month period from the current employment level to match that miserable performance.

* Slideshow: Top States with the Highest Unemployment
* Slideshow: Worst Jobs in America

During the 1973-1975 and 1980-1982 periods the unemployment rate almost doubled (4.6-9.0 percent, 5.6-10.8 percent, respectively), which means a peak of about 8.6-8.8 percent this time around. In further contrast, during a ten-month stretch in 1983-1983, the jobless rate was above 10-percent.

Nevertheless, that's nothing compared to the Great Depression when the unemployment rate went from 3 percent to almost 25 percent in four years and national income was halved, notes Hanke in a recent column.

Growth

Thought it may be little consolation for the millions of unemployed, GDP is considered by economists to be the best and broadest gauge of a recession.

That may seem also peculiar since the economy actually grew in the first two quarters of this recession, but some of that had to do with the Federal Reserve's early and aggressive interest rate cutting and the federal government's first stimulus plan which quickly put money into people's pockets.

Given that backdrop, GDP contraction thus far has been modest. It's down 1.1 percent vs. 3.1 percent in the 1970s period, says Chris Rupkey.

And though the economy shrunk at a 3.8 percent annualized rate in the fourth quarter of 2008 and is expected to decline another 4.0-6.0 percent in the first quarter of 2009, imagine the reaction today to the 7.8 percent plunge in the second quarter of 1980 or consecutive swoons of 4.9 percent and 6.4 percent in 1981-1982.

"Half of the workforce until now hadn't seen more than 16 months of recession-total," quips Resler. The past two short (eight months) and relatively shallow.

During the 1990-1991 recession, the deepest quarterly GDP decline was 3.0 percent; in the 2000-2001 one it was 1.4 percent.

"GDP hasn't been that weak because the productivity increase is one of the best," says Brusca. "You get a quarter or two that really knocks the level down," he adds, and it looks like we're at that stage now.

This time other fundamental factors are playing a bigger role than the past.

"Consumer spending will be bad," says Resler. "We haven't three consecutive quarterly declines in consumer spending since the 1950s." He's definitely expecting a repeat of that.

It's Still Bad

Comparisons aside, no one is saying the current recession isn't a painful one, and some see very little reason for optimism.

"I can't identify anything than looks good," says Dean Baker, co-director of the Center for Economic Policy And Research, adding that business investment-which appeared to be holding up-posted its sharpest decline in 50 years in the final quarter of 2008.

"I'd be shocked if we have growth this year," says Baker, even though he expects the Obama administration's stimulus plan to have a sizable economic positive impact.

So may the words of the President and his advisors, say economists.

"It's not surprising that politicians exaggerate this," says Resler, who predicts "The tone of the message is going to start changing immediately; now that we have the stimulus in hand, you enhance it by saying positive things."

Tunnel Thinking

For all the comparisons with other recessions, exaggerated or not, the most meaningful one may be its duration. It is also the toughest.

* Economy: Full Coverage

The consensus is this recession will end sometime between the second half of 2009 and the beginning of 2010. The pessimists say wait till next year-period.

David Jones, CEO of DMJ Advisors, is among those who see "hints of stability." By that he means, the rate of decline in areas like retail appear to be slowing.

"We'll see the same thing happening on the housing side in the next couple months," says Jones.

"I'm just waiting for the shift in people's expectations," adds Rupkey.

No money? No marry

Local men, listen up. According to a survey conducted by the Shin Min Daily News, women in Singapore require that their prospective partners earn a minimum of $4,000 to $5,000, before they will consider marrying them.

Local TV artiste and compere Quan Yifeng discussed this issue on a talkshow programme recently. The topic was about "How much should a Singaporean man earn" and how much is enough?


The three female guests invited to speak on the talkshow agreed that a good amount would be between $4,000 to $5,000. A shocked Quan Yifeng quipped: "No wonder Singaporean men can't get wives."

A local netizen posted this topic in an online forum in May. Till today, the topic has raged on, with many forummers posting their comments and opinions. The thread has accumulated more than 200 responses so far.


Regarding the minimum that a man should earn, a reporter from the Chinese daily posed this question to 20 men and women. Most of them said that having a salary that is good enough to sustain your lifestyle would be sufficient. However, most agreed that $4,000 to $5,000 is a "reasonable amount" if one is thinking of setting up a family.


Without that minimum amount, they reason, it would be difficult for a man to support his wife, let alone think about having children and allowing them to grow up in a comfortable environment.


The men say: "I would say the same too"
>> Mr Su Jun Long, 27, an accountant, earns $2,400 per month. He says: "I am not worried about not finding a wife, especially not a materialistic one. Actually, it is not important how much I earn, but more of how much I spend. However, when I am thirty-plus, I would also hope I am able to earn a minimum of $3,000 and above."


>> Mr Zhang Yi Zheng, 26, an auditor, earns $2,100 per month. He says: "$4,000 to $5,000 is a reasonable amount to expect. But at my age, it is normal to earn only $2000 plus. My girlfriend earns about the same amount as I do."


>> Mr Huang, 30, an IT personnel who earns $2,500 per month, says: "Contentment is key. Money is a factor, but it should not be the main consideration. Having a low income would be a problem too, so a salary of $4,000 to $5,000 is not too much to ask."


The women say: "It is just enough to support a family"
>> Ms Shen Yu Tai, 27, a bank officer, says: "Actually, $2,000 is enough. But it is understandable that women would require their husbands to earn $4,000 to $5,000. After all, we all want to be able to live a comfortable life. That amount is required to start a family as well."

>> Ms Pan, 27, a writer, says: "It is not important how much he earns, but he must be good at saving. The salary ranges for industries differ, so there shouldn't be a specific requirement, as long as he earns above $2,500.

>> Ms Tan, 30, a customer service officer, says: "Realistically, an income of $4,000 to $5,000 should be expected. Generally, as long as you have a degree, and have worked for a few years, you should be able to draw that amount."

US$1 for Citi CEO

WASHINGTON: Facing a committee of pitchfork-wielding congressmen, Citigroup's chief executive Vikram Pandit announced he would take a token salary of US$1 (S$1.50) and no bonus until the ailing banking giant returns to profitability.

'I get the new reality and I will make sure Citi gets it as well,' Mr Pandit said on Wednesday as the top executives from eight of America's largest banks, humbled by the financial meltdown, were hauled before Congress for the first time to face the rage of a nation.

'We will hold ourselves accountable for what we do, and that starts with me,' said Mr Pandit, who collected a salary of US$1 million last year.

Citigroup has received US$45 billion in bailout money and lost more than US$20 billion in the last five quarters.

Besides Citibank, the CEOs of Bank of America, Wells Fargo, JPMorgan Chase, Morgan Stanley, Bank of New York Mellon, Goldman Sachs and State Street Corp were grilled by lawmakers from the US House Financial Services Committee about their apparent lack of willingness to lend despite collectively receiving US$165 billion in bailout money.

The CEOs went to Capitol Hill by train and commercial flights (travelling like the masses is now de rigueur for all CEOs whose companies receive federal bailouts) to assure Congress and the American people that they get it - 'it' being public anger over bank officials continuing to draw huge incomes and cushy perks after their companies received taxpayer money but were seemingly unable to lend money.

Lined up in a row at a nationally televised hearing, the eight were pounded with questions from lawmakers demanding to know whether the firms were misusing taxpayer dollars.

By turns apologetic and defensive, the executives tried to reassure the committee that they were using the bailout money to increase lending to consumers and to convince the public that they understood the depth of anger over the crisis.

The seven-hour hearing was not just a public pillorying of the executives, it was also a trial for the government's initial US$700 billion (S$1 trillion) bailout just as the Obama administration tries to win support for its vision of how to stabilise the financial system.

None of the chief executives told the panel they needed more government funds. Seven said they did not expect to request more federal money, with only Mr Pandit saying it would depend on the details of the plan. Several executives said they never wanted even the first instalment of the bailout money.

'For anyone who contends that you do not need the money and that you did not ask for it, please find a way to return that money to the Treasury before you leave town,' said exasperated congressman Paul Kanjorski.

None of the executives took him up on the offer.

BLOOMBERG NEWS, WASHINGTON POST

Layoffs have gathered pace after Chinese New Year

By Amresh Gunasingham

SINGAPORE should brace itself for record highs in the unemployment rate and job losses this year, given current global trends. But the Government, unions and employers are doing all they can to keep the numbers down, and things would be much worse if not for initiatives like the Jobs Credit scheme, Minister in the Prime Minister's Office Lim Swee Say said last night.

Speaking after a People's Association event at the Nanyang Polytechnic last night, Mr Lim said that, because the current downturn is deeper and more severe than during the Asian financial crisis in 1998, he expects retrenchments to be higher than the 30,000 then.

In the first quarter of this year alone, he expects that 3,500 unionised workers will lose their jobs, up from 1,500 in the fourth quarter of last year.

Layoffs have accelerated after the Chinese New Year, said Mr Lim, who is also the secretary-general of the National Trades Union Congress. 'This week alone, we've already seen one sizeable retrenchment of 150 workers within the unionised sector.'

On the unemployment rate, which hit a record of 5.2 per cent in 2003, when Sars hit, Mr Lim said a comparison of both situations shows 'there's no reason why we can hope' the rate will be below that.

But, he said, the Government is putting in its 'very best effort' to mitigate the effects of the downturn, through initiatives like the Jobs Credit scheme and the Skills Programme for Upgrading and Resilience (Spur), a $600 million training plan aimed at helping workers upgrade and retrain.

Mr Lim said encouraging signs are emerging.

'Because of these programmes, we are seeing some of these companies trying to delay retrenchments as far as they can.

'Where retrenchments are unavoidable, they try to keep the number as low as possible,' he said.

He gave the example of one company which downsized its workforce by allowing its foreign workers to finish their contracts, and not renewing them.

'Through a combination of natural attrition and non-renewal of work permits, companies are minimising the need to retrench their local workers,' he said.

On Spur's effects, Mr Lim said there is an increasing number of companies that are sending excess workers for retraining or upgrading, thus lessening the need for layoffs. Even if they are retrenched, workers armed with new skills will be able to land jobs quickly.

Last night, Mr Lim promised that everything possible would be done to help workers.

'Even if our heads are saying that its going to be more than 30,000 retrenchments, and an unemployment rate higher than 5.2 per cent, our hearts say 'die die must try'.'

'With all the policy instruments and programmes in place now, it is a time for action...to work company by company, worker by worker, job by job.'

"Great Recession" seen lasting 3 years, experts say

By Walden Siew

NEW YORK (Reuters) - The current recession will last at least three years and possibly longer absent a revival in credit markets, according to investors who specialize in distressed debt and bankruptcy.

"This is going to be a three- to four-year disaster," said Michael Psaros, managing partner at KPS Capital Partners, at a restructuring conference in New York.

The United States is going through a "Great Recession," which will provide investors in distressed assets with unprecedented opportunities, he said.

"We are going to invest an awful lot of money this year," Psaros said on Thursday. "There is an inexhaustible supply of bad management out there."

KPS Capital, which manages special situations funds and private equity funds with capital exceeding $1.8 billion, largely sat on the sidelines last year. The firm is ramping up its investments this year, he said.

"We're just very excited about this year and next," he said.

Holly Etlin, a managing director at AlixPartners with 30 years of experience in restructuring, said financial distress will last three to five years due to a lack of liquidity in credit markets and lack of debtor-in-possession financing, or DIP loans, used by bankrupt companies to reorganize operations.

"Stuff has got to start moving off the bank balance sheets," Etlin said. "I talk to colleagues and friends who are just sitting on their money. Until banks start clearing off their balance sheets, they aren't going to be in a position to lend."

Etlin reported seeing very little bankruptcy financing and asked the audience of 180 participants if anyone in the room was doing any DIP loans. No one in the room rose their hand.

"That is not viable," Etlin said. "We see continued distress for three to five years."

Among potential investment plays, Etlin said consolidation in the media industry, particularly print media, may provide good investor returns.

Jonathan Pertchik, chief restructuring officer at WCI Communities, also said the ethanol industry as a burgeoning sector may provide some opportunities.

(Editing by Tom Hals)

Crisis spoils Singapore celebrations

By John Burton in Singapore

When an apparently deranged man in Singapore set fire to his parliamentary representative at a community event recently, a local website polled its readers to ask which of them deserved more sympathy. By a four-to-one margin, the readers voted for the assailant.

The episode appears to reflect an undercurrent of public discontent with the People’s Action party (PAP) government, which celebrates its 50th anniversary in power this year, as Singapore confronts its worst postwar recession, with the economy expected to contract by up to 5 per cent.

The PAP government has long been one of Asia’s most secure. Singapore’s dominant one-party system has set an example for countries such as China, Russia and the Gulf states. Their leaders “are picking up points here and there” about how Singapore can “keep its ruling party in place and run a tight ship, honest and effective”, says Lee Kuan Yew, the city state’s founding father.

But the economic crisis is putting Singapore’s political system to its severest test since independence in 1965. “Officials appear scared about the public reaction. I’ve never seen them so concerned before,” said a Singapore-based regional political analyst.

The economic downturn threatens to expose some of Singapore’s vulnerabilities, including a wide gap between rich and poor and a heavy dependence on foreign investment for growth.

The recession also comes at a challenging time, when the city state must find new manufacturing industries to replace the declining electronics sector and as it embarks on an ambitious plan to become the Monaco of Asia, with private banking and gambling as growth sectors.

The PAP has stayed in power because of an implicit social bargain that it would deliver prosperity in return for restrictions on political freedoms. It has justified its strong rule by saying that liberal democracy could prove divisive in a multi-ethnic society such as Singapore, with its ethnic Chinese, Malay and Indian populations.

Lee Hsien Loong, the prime minister and son of Lee Kuan Yew, recently praised one-party rule for promoting administrative efficiency and good policymaking, compared with malfunctioning” Asian democracies such as Taiwan, with a troubled economy, polarised politics and widespread corruption.

“I don’t think you want that kind of political system in Singapore,” he told the annual PAP congress.

Terence Chong, of the Institute of Southeast Asian Studies in Singapore, says: “Political order and economic stability may go hand in hand, but there is increasing awareness, even within the PAP, that that may no longer work.”

He points to a feeling that the PAP is “out of touch with the general suffering”.

In November, Singapore said it would cut the 2009 salaries of senior government officials by up to 19 per cent in response to the slowing economy.

The government also said recently that it would tighten already strict rules on public assemblies to prevent acts of civil disobedience. But civil activism is growing, and the government is coming under increased scrutiny and criticism on the internet.

“The government hasn’t helped matters by losing billions of dollars by investing in Citigroup and Merrill Lynch,” says a foreign businessman, referring to the $24bn (€18.6bn, £16.7bn) invested by Singapore’s sovereign funds in western financial groups. “The crisis is proving to be a reality check for the authorities.”

Officials are hoping to address public concerns with the recent announcement of a S$20.5bn ($13.6bn, €10.6bn, £9.5bn) stimulus package.

Manu Bhaskaran, of Centennial Group, an economic consultancy, also argues that support for the government remains strong in comparison with neighbouring Malaysia and Thailand, “where there is corruption and mismanagement”.

He adds: “The population doesn’t want to rock the boat in an economic storm and it will support the government, which has a strong record of economic progress and political stability.”

But an element of uncertainty remains about the depth of public support. A third of Singaporeans normally vote against the PAP, despite the weakness of opposition parties. The government must call an election by November 2011. It may decide to call a snap election this year if it fears that the economy will not recover in the next two years, when public discontent might be stronger.

While the PAP is expected to return to power, its nightmare result would be to lose one or more of the five or six-member group representation constituencies (GRCs) that dominate the parliamentary system. Voters cast a single ballot for a party slate of candidates. The opposition, which now has only two seats in the 84-member chamber, would gain its biggest representation in more than 40 years.

“The loss of a GRC would be a psychological blow to the PAP and might encourage more Singaporeans to join the opposition,” says the local political analyst.

S'pore home prices likely to fall further

By Joyce Teo


PROPERTY investment firm IP Global has said Singapore's residential market is not worth a look until at least six months from now.

The Hong Kong-based company, which helps property investors buy in emerging and recovering markets, expects prices in Singapore to fall further and recommends waiting until these return to pre-rally levels.

Until then, it says, the market will remain unattractive to foreign investors.

Strong demand sent property prices surging through the roof in 2007. Intense speculation then created a lot of froth, resulting in a mini-crash, said IP Global managing director Tim Murphy.

The fall in Singapore's residential property market, hence, started a year before the onset of the recession. 'I don't think anything the Government will do will revive the market now,' said Mr Murphy.

Private home prices will only flatten out by the third or fourth quarter, he said.

Property players have been hoping the Government will do something to stimulate demand, such as deferring payment of the stamp duty.

Mr Murphy's advice to investors: 'Look at yields, look at supply, look at cost of funds and spend five times longer than you normally do finding something to buy. There will be lots of deals in the next six to 12 months,' he said.

If he were to enter the Singapore market later, his interest would not be in luxury homes - where prices have fallen furthest and are expected to continue falling faster than in the other sectors - but in reasonably-priced homes in prime districts.

IP Global, which also invests in commercial properties, believes that the short-term office oversupply in Singapore is worrying. Office rents plunged by nearly 20 per cent in the fourth quarter of last year, while supply continues to grow.

On the upside, Mr Murphy believes that the property market has a number of factors working in its favour, such as strong population growth and its strategic position as a commercial hub in the region.

S'pore is no tax haven

SINGAPORE is not a tax haven even as the Government cuts the corporate tax rate to 17 per cent this year.

The Republic has low but not no tax; strong rule of law; companies with substantive business activities, and it is now considering adopting an internationally-recognised standard for the exchange of tax information, said Senior Minister of State for Finance and Transport Lim Hwee Hua in Parliament on Tuesday.

She was responding to a question from MP Inderjit Singh (Ang Mo Kio GRC) that lowering the corporate tax rate would increase the perception of Singapore as a tax haven.

'President Obama has in fact recently announced that he will take drastic measures against countries that fall in his tax haven list. This may put Singapore in a precarious position vis-a-vis the US,' Mr Singh said.

There is no one definition of a tax haven, but the US Government Accountability Office identified in report last year some comon characteristics including having no or nominal taxes; ineffective information exchange with foreign tax authorities; and a lack of legal transparency.

Mrs Lim said on Tuesday during the debate on the Finance Ministry's budget: 'Singapore is certainly not a tax haven.'

While Singapore's corporate tax rate at 17 per cent is competitive, it is by no means among the lowest in the world, she explained, citing examples of lower tax regimes in Romania at 16 per cent, Ireland at 12.5 per cent, and Bulgaria at 10 per cent. Hong Kong has a corporate tax rate of 16.5 per cent.

Mrs Lim also explained that Singapore is substantial manufacturing and services economy, where companies have 'real operations' compared to mailbox companies, which as the name implies, are shells of parent firms with no substantial business activity, set up to avoid taxation.

Unlike tax havens, Singapore also has a reputation for strong rule of law and a network of 60 tax agreements with other economies, the minister added.

And Singapore is now looking at adopting the Organisation of Economic Cooperation and Development (OECD) standard for transparency and effective exhange of tax information, which was supported by a United Nations committee of tax experts last October.

'We will be engaging the OECD and the industry to study this OECD standard with a view to endorsing it,' said Mrs Lim.

Temasek portfolio falls 31%

SINGAPORE'S state-owned investment companies have not been spared the fallout from the global market downturn.

The net portfolio value of Temasek Holdings fell 31 per cent between March 31 and Nov 30 last year, from $185 billion to $127 billion, Senior Minister of State for Finance Lim Hwee Hua revealed in Parliament on Tuesday.

The Government of Singapore Investment Corporation (GIC) also posted a decline in the value of its investments, but Mrs Lim did not reveal the numbers.

She said, however, that both Temasek and GIC have not done as badly as other market indices.

Temasek's 31 per cent drop in portfolio value was less than the 44 per cent plunge in the MSCI Singapore Index and the 45 per cent decline in the MSCI Asia ex-Japan Index in the same period, Mrs Lim said.

As for GIC, its investments have 'fallen by much less than the decline in global equity markets indices of 42 per cent for 2008'.

Mrs Lim also reiterated that the two companies are long-term investors, and should be evaluated as such.

'This is not the first major decline in markets that they have seen, and will certainly not be their last,' she said.

Despite the booms and busts over the years, Temasek has achieved annualised returns of about 13 per cent over the 20 years to late 2008.

GIC's 20-year average return was 5.8 per cent as at March last year. While this figure will fall for March this year, it 'will not be sharply down', Mrs Lim said.

'GIC and Temasek have the ability and resources to weather the ups and downs, over multiple economic and market cycles,' she added.

'They do not have to sell in panic in a market downturn and are in fact in an advantageous position to invest in good quality assets at prices that are attractive from a long-term perspective during a downturn.

'The Government is confident that they will continue to deliver good long-term returns within the risk limits set.'

RBS to axe 2,000 jobs

LONDON - ROYAL Bank of Scotland, which is majority-owned by the British government, is about to announce plans to cut 2,000 jobs after forecasting a record annual loss for 2008, BBC television reported on Tuesday.

A company spokesman contacted by AFP refused to comment on the report.

Royal Bank of Scotland (RBS) was bailed out by the government earlier this year after running into trouble raising funds from shareholders because of the credit crunch and is now 68-per cent owned by the state.

The report of job cuts came as the bank's former chief executive, Mr Fred Goodwin, apologised on Tuesday to lawmakers for failing to foresee the financial turmoil that led to RBS being rescued.

The bank says it expects a 2008 annual loss of up to 28 billion pounds (S$61.8 billion) - a record in British corporate history - due to the crisis and a costly takeover of Dutch lender ABN Amro in 2007. -- AFP

IMF Says Advanced Economies Already in Depression

By Angus Whitley and Shamim Adam

Feb. 7 (Bloomberg) -- Advanced economies are already in a "depression" and the financial crisis may deepen unless the banking system is fixed, International Monetary Fund Managing Director Dominique Strauss-Kahn said.

“The worst cannot be ruled out,” Strauss-Kahn said in Kuala Lumpur, where he was attending a gathering of central bankers from Southeast Asia. “There’s a lot of downside risk.”

Ten days ago, the IMF cut its world-growth estimate for this year to 0.5 percent, the weakest pace since World War II. Stimulus packages alone won’t succeed in dragging the global economy out of recession unless confidence is restored in the banking system, Strauss-Kahn said today.

“All this will work if, and only if, the different countries are likely to do what they have to do in terms of restructuring the banking sector,” he said. “And today it’s not done.”

The U.S. economy has lost 3.57 million jobs since a recession started in December 2007, its biggest employment slump of any economic contraction in the postwar period as companies from Macy’s Inc. to Caterpillar Inc. cut costs. The U.K. economy will shrink this year by the most since 1946, the IMF forecasts.

“There is hope that the fiscal and monetary stimulus measures being implemented around the world can help turn things around,” said David Cohen, Singapore-based director of Asian economic forecasting at Action Economics. “But there is still the risk it can be short-circuited by further financial turmoil.”

$780 Billion Package

The U.S. Senate is due to vote early next week on an economic stimulus package totaling at least $780 billion that President Barack Obama said is needed to prevent the economy from sinking into a deeper recession. Asian nations from China to Singapore and India have pledged more than $685 billion on their own spending programs.

The Obama administration is considering subjecting banks to a new test to determine whether they require fresh capital injections as part of a rescue plan to be unveiled by Treasury Secretary Timothy Geithner next week, people familiar with the matter said.

Governments should be ready for “full-fledged” intervention, acting quickly to sell or wind-up insolvent lenders, Strauss-Kahn said. While the European Central Bank, which left interest rates unchanged this week, may have more room to cut borrowing costs, such a policy may not be as important as restructuring the region’s banks, he said.

Borrowing Costs

“We’re probably not very far from the point where the question of interest rates is not the most important question,” Strauss-Kahn said. “Providing direct liquidity to the market, restructuring the banking sector, may have more influence on demand than interest rates.”

In Asia, “there’s still room for bigger stimulus packages,” the IMF official said. Malaysia, for example, may introduce a second stimulus package larger than November’s 7 billion-ringgit ($1.9 billion) plan, he said.

Developing Asia will probably expand 5.5 percent this year, the slowest pace since 1998, the IMF said in last month’s update of its World Economic Outlook report. The region may expand 6.9 percent next year, the fund forecasts.

Asian nations will need a recovery in the global economy before the region can exit a slowdown, the IMF said this month. Strauss-Kahn said today the fund’s forecast for a recovery to start in 2010 is “very uncertain.”

Demand for Loans

Demand for IMF loans is rising in nations suffering from weaker export sales, banking industry turmoil and deteriorating investor confidence. The organization has so far agreed to lend $47.9 billion to countries affected by the crisis, including Belarus, Hungary, Iceland, Latvia, Pakistan, Ukraine and Serbia.

Strauss-Kahn said he agreed with Poland that the eastern European nation isn’t in need of assistance from the fund now, but may require financial aid in the future.

The fund may collaborate with some countries to restore confidence, without necessarily providing immediate loans, the official said.

“Some need for precautionary arrangements may appear,” he said, without naming specific countries.

Critics of the fund say it’s failed to keep up with the pace of change as the worldwide recession deepens.

The IMF and similar institutions are “incapable” of coping with the global financial crisis, because their resources can’t keep up with demand, former World Bank President Paul Wolfowitz said on Feb. 4.

Russian Prime Minister Vladimir Putin has criticized the World Bank, IMF and World Trade Organization as anachronistic organizations that give no voice to emerging economies.

The IMF and the World Bank were set up at the 1944 Bretton Woods conference. The IMF was designed to prevent crises in the international monetary system and to provide financing to distressed countries.

Move over, subprime

From The Economist print edition

Decay is spreading to the upper floors of America’s mortgage market

THE days when subprime mortgages were what kept bankers awake at night are long gone—though thanks only to the barrage of explosions in other corners of finance. In terms of toxicity, however, subprime has had no equal. Until now, perhaps. Even as credit markets, particularly corporate-debt markets, show some signs of improvement, mortgage loans to supposedly better-heeled Americans are souring at a gut-wrenching rate.

Of particular concern are “Alt-A” mortgages, offered to borrowers sandwiched between subprime and prime. This market was trumpeted as a means of extending home ownership to those, such as the self-employed, with a reasonable credit standing but unsteady income. Its practitioners specialised in loans with scant documentation and exotica such as negative-amortisation mortgages, which allow borrowers to pay less than the accrued interest, with the difference added to the loan balance.

That Alt-A has troubles comes as no surprise. Last summer, for instance, it helped to bring down IndyMac, a Californian bank. But the speed with which loans have soured in recent months, and the reaction of rating agencies, have been startling. Delinquencies rocketed in the final months of 2008. They even rose sharply for loans made in 2005, before underwriting turned really sloppy.

The rating agencies are rushing to catch up with this grim reality. Moody’s, which last summer had issued a sanguine outlook for Alt-A, recently quadrupled its loss projections on bonds backed by such loans. A steady flow of downgrades has turned into a flood in recent weeks, with thousands of Alt-A tranches taking the plunge. The falls have been unusually steep: of the $59 billion of AAA-rated securities that Moody’s cut between January 29th and February 2nd, an astonishing 91% went straight to junk, according to Laurie Goodman of Amherst Securities. In ratings terms, Alt-A is doing worse than subprime.

Moody’s calls this “unprecedented”. That is putting it mildly. It now expects losses for 2006-07 Alt-A securitisations to top 20%, compared with an historical average of well under 1%. In an ugly echo of the fiasco over collateralised-debt obligations, holders lower down the structure can expect total write-offs, while the vast majority of senior holders will not be spared substantial losses.

The sums involved are depressingly large. In the worst case, losses on the $600 billion of securitised Alt-A debt outstanding—roughly the same as the stock of subprime securities—could reach $150 billion, reckons David Watts of CreditSights, a research firm. Analysts at Goldman Sachs put possible write-downs on the $1.3 trillion of total Alt-A debt—including both securitised and unsecuritised loans—at $600 billion, almost as much as expected subprime losses. Add in option ARMs, a particularly virulent type of adjustable-rate loan, many of which are essentially the same as Alt-A, and the potential hit climbs towards $1 trillion.

Part of the problem is that much of the Alt-A lending came at the tail-end of the credit boom in late 2006 and early 2007. By then, subprime was already getting a bad name. So Wall Street hit on a ruse: it took borrowers who in normal times would have been subprime and dressed them up as “mid-prime”. Many of these loans were doomed from the start. According to the Bank for International Settlements, a staggering 40% of American mortgages originated in the first quarter of 2007 were interest-only or negative-amortisation loans.

In theory, interest-rate declines over the past year should offset the “payment shock” felt by borrowers whose loans reset from low teaser rates to higher ones. But house prices have fallen so steeply that perhaps half of all Alt-A borrowers are in negative equity; for many, walking away may seem the best option. Moreover, option-ARM borrowers who had not expected to start repaying principal until 2015 or later may now have to do so as early as this year, because they are hitting triggers that recast the loan early. Government efforts to stem foreclosures should help these unfortunates, though they may do little for owners of mortgage-backed bonds, who could face higher losses as a result of “cramdowns”, in which bankruptcy courts order a reduction in the principal owed.

Alt-Aaaaaargh
The pain will be felt across the financial industry. Insurance firms, which gobbled up large but unknown quantities of highly rated Alt-A paper, will now be forced sellers since they are not permitted to hold securities rated below investment grade.

Banks have already sold a sizeable chunk of their Alt-A holdings to hedge funds and other asset-management firms, often at large discounts. UBS’s exposure has fallen from $26.6 billion to just $2.3 billion, for instance. But other European banks were not so zealous. ING, a Dutch bank, still has €27.7 billion ($35.1 billion) of Alt-A debt. American banks are sitting on perhaps $800 billion of the stuff.

As the market prices of mortgage securities have fallen, banks have had to mark down their holdings, taking “unrealised” losses that erode their capital position. Multi-notch downgrades could put further downward pressure on prices. They hit capital in another way, too, because junk-rated debt carries a punitive risk weighting; banks must set aside five times as much capital as they have to for top-notch securities. Rating cuts also affect income statements, by pushing banks to acknowledge that losses which they had classified as temporary are now permanent.

The weakest may now need to raise fresh equity. If they are lucky, banks will be able to palm some of the risk on to governments via asset guarantees or “bad banks” that assume their noxious assets. The Dutch government has agreed to bear the risk on much of ING’s Alt-A holdings, and Citigroup’s $11.4 billion exposure to Alt-A bonds falls under a guarantee that formed part of its November bail-out. It will receive further help from the industry-wide bank-rescue package that the Obama administration is preparing.

What the taxpayer will get in return is far from clear. Officials are still wrestling with how to value beaten-up mortgages. Assessing the worth of Alt-A loans can be especially tricky because they are maddeningly heterogeneous, thanks to a broad assortment of payment options. Less rigorous banks carry some holdings at around 60 cents on the dollar. Morgan Stanley’s are marked at half that. Its shares have rebounded recently, partly on hopes that it will be able to write up these securities once the government unveils its bail-out.

The biggest single Alt-A casualties are America’s bungling mortgage agencies, Fannie Mae and Freddie Mac. They waded into the market in 2006-07, snaffling up business in red-hot states such as California and Arizona, comforted by down-payments of 20%. When house prices there fell by more than that, they were left holding the first loss, since borrowers who put in that much equity do not have to take out mortgage insurance.

Rotten as Alt-A loans are, worse may be to come. As unemployment in America heads towards 8%, even strongly underwritten loans will go bad. Bankers are growing increasingly anxious about the $1.1 trillion of prime mortgage loans and securities, much of which they held on to themselves, assuming it to be bombproof. This sits on their books at “much more optimistic” values than lower-grade mortgages, says one. Some 70% of prime securities will eventually have their ratings cut, according to a “downgrade-o-meter” produced by JPMorgan Chase. As Guy Cecala of Inside Mortgage Finance, a newsletter, puts it: “The mortgage storm’s first wave was subprime. Now we are being buffeted by Alt-A. But a bigger wave is on the horizon, and it cuts across all loan types.”

Dr. Doom & Black Swan: You Ain’t Seen Nothin’ Yet

By: Brooke Sopelsa, Writer/Producer

Nouriel Roubini and Nassim Taleb are widely credited with predicting the current financial crisis, and both told CNBC they see more rough waters ahead.

Even if we play our cards right, said Roubini, chairman of RGEMonitor.com, it will take at least 12 months to get out of this recession.

“If you don’t do everything right, and I think there’s a large probability that’s going to happen, then we may end up in a multi-year stagnation or near depression like the one that Japan had,” he added.

Roubini said there is still a 20 percent downside risk to U.S. global equities, and he advises investors to stay in cash until there is a real bottom.

“Officially the write-downs have been about $1 trillion; I see another $2.6 (trillion) coming up,” he said. “…Losses are mounting and this severe recession is going to get only bigger.”

Nassim Taleb, advisor to Universal Investments and author of The Black Swan, is not as bearish as Roubini but also sees more trouble ahead.

“If I follow my logic to the end, what I thought would happen was anything fragile…would break, namely the banks and people who have a lot of debt and private equity," he said. "This is just happening. It’s not finished yet; it hasn’t probably started."

Crisis worst in 100 years

LONDON - THE economic crisis is the worst seen in more than a century, surpassing even the Great Depression, a British minister said in comments reported on Monday.
Children's secretary Ed Balls told supporters in the northern English city of Sheffield that the financial turmoil would define British politics for the 'next year, the next five years, the next 10 and even the next 15 years,' according to the Yorkshire Post, a local newspaper.

'These are seismic events that are going to change the political landscape,' Balls was quoted as saying by the Post, adding that he feared a resurgence of far-right politics in response to the downturn.

'I think that this is a financial crisis more extreme and more serious than that of the 1930s and we all remember how the politics of that era were shaped by the economy,' Mr Balls was quoted as saying.

Britain's ruling Labour Party said Mr Balls had been speaking at the regional party conference held in Sheffield over the weekend. It said no copy of Me Balls' speech was available because the minister had been speaking from notes, but did not dispute the account carried on the Yorkshire Post's website on Monday.

British officials have offered contradictory assessments of how long the recession is expected to last in Britain: Business Minister Baroness Shriti Vadera was widely criticized for claiming to have seen the 'green shoots' of recovery in a television interview in early January. Housing minister Margaret Beckett also raised eyebrows with talk of a possible rebound in property prices.

Mr Balls' assessment seemed far more grim - and his words carry more weight because of his background in financial journalism, his previous roles as economic adviser to the British treasury, and his close relationship with Prime Minister Gordon Brown.

Opposition lawmaker Vince Cable said the government was sending out mixed messages.

'Instead of giving clear and consistent leadership, government ministers are oscillating between complacent optimism and this doom-laden picture of Armageddon. Surely the truth lies between the two?' Mr Cable said. -- AFP

BALTIC DRY INDEX is shooting up

THE BALTIC DRY Index is shooting up, which spells good news for stocks of bulk shipping companies everywhere, including Cosco and STX Pan Ocean in Singapore.

Even shipbuilding stocks in Singapore have risen in the past week - not a surprise as an improvement in shipping business casts a positive though indirect outlook on their business.

The index, a measure of shipping costs for commodities, has jumped 112% since the start of the year as demand for iron ore, particularly from China, rose.

The rise had been forecasted by BNP Paribas in a report two months ago: “We expect the BDI to rise in 2009 from its dismal level to one that is closer to the marginal operating cost of a vessel.

"We do not believe that global trade can stay muted for so long and a return to sustainable levels is more likely. We think a figure around 2,000 is more likely. This could possibly come in late
1H09.”

Of late, Chinese steel makers have been replenishing iron-ore stockpiles that by mid-January were 22 percent lower than the record high set in September.

Demand has shot up as China has pledged to spend Rmb 4 trillion mostly on infrastructure projects to stimulate the economy.

The main iron ore routes to China, from Brazil and Western Australia, are at the highest since October.

The Baltic Dry Index tracks transport costs on international trade routes ended at 1,642 points on Friday (Feb 6), which is 1,089 points higher since the amazing low of 553 points on Dec 5.

The number of available capesize ships that typically haul iron ore, a steel making raw material, has fallen to almost zero, Oslo-based shipbroker Fearnley Fonds ASA said last week.

Big banks hit by the Madoff mess

Wells Fargo and Banco Santander have come clean on their exposure to the alleged fraud. But that doesn't mean the headaches are over for other banks.

Last Updated: February 5, 2009: 9:18 AM ET

NEW YORK (CNNMoney.com) -- As the Bernard Madoff scandal continues to play out, it is becoming increasingly clear how devastating the alleged fraud has been for the banking industry.

It has already been well documented just how much damage the supposed Ponzi scheme has had on individual investors, charities and hedge funds. Now, more and more banks are coming clean about their exposure to the $50 billion fraud.

Last week, Wells Fargo (WFC, Fortune 500) said it took a nearly $300 million charge during the fourth quarter against loans held by customers who had invested with Madoff. And The New York Times reported that JPMorgan Chase (JPM, Fortune 500) is now facing scrutiny from European investors who lost money on notes issued by the bank that were linked to the performance of Madoff-related funds.

Fearing a backlash among its clients, Banco Santander (STD), one of the hardest hit financial institutions by the Madoff scandal, even offered a settlement to its private-banking customers last month after investing $3 billion worth of those clients' funds with Madoff through its Optimal Investment Services unit.

Some investors, however, have argued that the offer from the Spanish banking giant isn't enough, and are now pursuing legal action against the company. Last week, a class action lawsuit was filed against the bank in the United States District Court for the Southern District of Florida.

Deep-pocketed institutions, including banks such as Santander and audit firms, are quickly coming under the microscope as investors scramble to recover any remaining assets.

It may be one thing if an investor asked his bank to invest in Madoff. But banks that pushed clients to invest with Madoff or aggressively marketed funds that fed into Madoff's operation could be a bit more vulnerable to legal action, notes Tish McDonald, a partner at the law firm King & Spalding, whose practice focuses on litigation involving financial institutions.

"The language of the various customer agreements is going to be important since those agreements define what the bank agreed to do and what the customer agreed to do," said McDonald. "It is arguably unfair to hold a bank liable for doing what the customer directed the bank to do."

But even those companies that simply served as a depository institution for Madoff's operations could face legal challenges for failing to recognize that one of their account holders may be involved in some inappropriate business transactions.

Banks have been under greater pressure in recent years to do a better job of spotting any suspicious financial activity.

Still, that may be hard to prove, warned Robb Evans, whose firm, Robb Evans & Associates, has served as a receiver in dozens of Ponzi schemes. Most banks, he noted, have done a pretty good job keeping up with regulatory requirements.

"You can't expect banks to invade the privacy rights of every depositor," he said. "Banks should be in good shape provided they had compliance programs all along."

More revelations to come?

After the Madoff scandal first broke in December, most financial institutions that were affected were quick to disclose their exposure to the alleged Ponzi scheme.

The Royal Bank of Scotland (RBS) and French-bank BNP Paribas have each said they believe their individual exposure to Madoff's firm through trading and collateralized lending was in the neighborhood of $500 million each.

For others, the figure has been sharply higher. London-based HSBC (HBC) has estimated its exposure is close to $1 billion.

But some domestic institutions have remained relatively mum about the scandal, including Morgan Stanley (MS, Fortune 500) and Citigroup (C, Fortune 500).

Last month, it was reported that both New York banks had nearly $2 billion in client funds invested in Union Bancaire Privee, a fund which has invested with Madoff. A person close to the matter told CNN that Citigroup and its Smith Barney brokerage unit had no direct exposure to Madoff, but that three of their fund of funds had between 5% and 7% exposure.

And following the release of a list of the thousands of victims in the alleged fraud late Wednesday, more big Madoff bombshells seem unlikely, notes Gerard Cassidy, managing director of bank equity research at RBC Capital Markets.

If other banks had exposure to Madoff, chances are they probably already confessed to it during their most recent quarterly reporting period, he said.

However, Cassidy notes that it is possible more banks could charge off loans that were made to Madoff clients who lost much of their net worth and cannot keep up with their existing loan obligations, as was the case with Wells Fargo. But, he warned, it could be a quarter or two before such charges come to light.

Still, there are those who argue that the fallout from Madoff may not be all bad for banking industry.

Spooked by the scandal and broader selloff across financial markets, investors may be more willing nowadays to settle for a much lower rate of return in exchange for the safety offered by a simple bank savings account.

"Suddenly, putting money in a staid old savings accounts looks rational," said Seth Taube, a partner at the law firm Baker Botts and a former branch chief of enforcement at the Northeast regional office at the Securities and Exchange Commission.

That could be encouraging news for banks, which are desperately fighting for deposits in order to maintain their liquidity.

"The banks should give Madoff a medal," he added. "He made banks safe for smart people again."

First Published: February 5, 2009: 3:47 AM ET

Singapore finmin says economic woes deepening

SINGAPORE, Feb 5 - Singapore's finance minister said on Thursday the economic downturn was worsening and the government may have to tap its multi-billion dollar pool of reserves for another fiscal stimulus package next year.

Singapore was the first country in Asia to fall into recession last year and Finance Minister Tharman Shanmugaratnam reiterated a forecast made before the country's January stimulus package that the economy could shrink up to 5 percent this year.

"We are seeing continued momentum in the decline week by week," Tharman told parliament at a budget debate.

Singapore, a tiny city-state of 4.6 million, last month took the unprecedented step of drawing on its reserves to help finance a S$20.5 billion stimulus package as its economy shrunk for the third straight quarter. [ID:nSP404398].

Tharman said the stimulus package was sufficient. It will result in a budget deficit of about 6 percent of gross domestic product for 2009/2010 before investment income and the top-up from reserves.

"There is a possibility the government may have to go back to the president and the CPA in a year's time to seek a further draw," Shanmugaratnam said, referring to the Council of Presidential Advisers. Singapore's president, whose role is otherwise largely ceremonial, is the formal guardian of the reserves.

A senior politician said on Sunday the government would dip into the reserves only in times of crisis and to pay for welfare.

"As a general principle, the government must continue to fund such programmes out of revenues raised in the current term of government, not past reserves," former Prime Minister Goh Chok Tong said

Singapore's two sovereign funds, Temasek [TEM.UL] and the Government of Singapore Investment Corp, or GIC, together manage an estimated $400 billion in assets. (Reporting by Kevin Lim; Writing by Nopporn Wong-Anan; Editing by Jan Dahinten)

Accept 'new realities' of the investment game

By R SIVANITHY
Published February 5, 2009

ANALYSTS have had to face a fair amount of criticism over the past year for having been completely blindsided by the collapse of the US economy. At the beginning of 2008, for example, when the sub-prime crisis was into its fourth month, every single investment house projected the Straits Times Index (STI) to end the year above 3,100 - with one foreign broker even setting an astonishing 4,800 target.

As it turned out, the index finished at 1,761, resulting in margins of prediction error so embarrassingly wide that they have probably served as a deterrent to would-be forecasters this year since, to the best of our knowledge, no house has ventured an end-2009 STI target yet.

In defence of brokers, they were not alone - central bankers, politicians, regulators, supposedly independent research houses, fund managers and many 'expert' commentators were also to blame for failing to foresee the imminent devastation.

Lessons to learn

What lessons might be gleaned from the 2008 fiasco that could aid investors this year and help preserve their capital?

First, relook that central tenet on which many investment recommendations and decisions are based: that markets are efficient.

This supposed pillar of finance is founded on the belief that the brainpower of thousands of analysts, investors, dealers and fund managers is sufficient to ensure that, at any one time, prices are a true reflection of economic reality.

They are not - for the simple reason that a large majority of associated personnel are biased and not objective.

(There is also systematic bias or artificial support introduced by persistent hopes of government bailouts as well as insider leakages, but we'll leave that aside for now.)

Although the industry and regulators will not admit it, research is heavily influenced by corporate finance deals and the 'Chinese walls' or ethical barriers that are supposed to ensure impartiality are often as thin as the paper on which the final reports are written. It is this bias - and also the complacency wrought from upward momentum - that led most analysts to underestimate risks throughout 2007 and 2008 while overestimating possible returns.

Investors should thus operate from the standpoint that markets are in reality hugely inefficient and view any claims that after, say, a year of a bear market, 'all the bad news must be in the price' with a generous dollop of scepticism.

This then helps demolish a second pillar of finance - namely, that in a properly functioning capital market, returns are commensurate with risk. They are not, the reason being that the investment community has a vested interest in concealing or underplaying real risks through obfuscation, legalities and convoluted disclosures while always overplaying the money that can be made in order to entice the entry of more investors.

Hapless buyers of various structured notes such as High Notes and Minibonds would have discovered the truth in this observation to their detriment over the past six months but it's a lesson all others should also bear in mind. As seasoned fund manager Marc Faber put it in a recent interview, 'nobody is an investor anymore, everyone should be a trader and their own central banker'.

(You could easily rephrase that to read 'shorten your time horizon to as little as possible and look to always sell into strength'.)

A third area that deserves attention is the belief that the US government can fix things through sheer volume of money printed or liquidity injections or whatever euphemism happens to be fashionable at the time to describe rescue packages.

Preserve capital

It is this thinking - born no doubt from the Alan Greenspan school of economics that contributed significantly to the problem to begin with - that has kept Wall Street afloat despite there being no sign that the billions spent so far (close to US$1 trillion) are having any effect, even as the entire US banking and auto industries threaten to sink without a trace.

The upshot of all this is that market participants should today expect, and be content with, mainly low returns within a high-risk, high-volatility environment in which disclosure will in all likelihood be poor and is likely to remain so for the foreseeable future.

Claims that the worst is over should be dismissed because markets are as biased and inefficient as ever, and it would be a mistake to pin hopes of survival on continued bailouts from the US. Because of this, capital preservation should be the number one priority of every market player.

Buffett's metric says it's time to buy

According to investing guru Warren Buffett, U.S. stocks are a logical investment when their total market value equals 70% to 80% of Gross National Product.

By Carol J. Loomis and Doris Burke

(Fortune Magazine) -- Is it time to buy U.S. stocks?

According to both this 85-year chart and famed investor Warren Buffett, it just might be. The point of the chart is that there should be a rational relationship between the total market value of U.S. stocks and the output of the U.S. economy - its GNP.

Fortune first ran a version of this chart in late 2001 (see "Warren Buffett on the stock market"). Stocks had by that time retreated sharply from the manic levels of the Internet bubble. But they were still very high, with stock values at 133% of GNP. That level certainly did not suggest to Buffett that it was time to buy stocks.

But he visualized a moment when purchases might make sense, saying, "If the percentage relationship falls to the 70% to 80% area, buying stocks is likely to work very well for you."

Well, that's where stocks were in late January, when the ratio was 75%. Nothing about that reversion to sanity surprises Buffett, who told Fortune that the shift in the ratio reminds him of investor Ben Graham's statement about the stock market: "In the short run it's a voting machine, but in the long run it's a weighing machine."

Not just liking the chart's message in theory, Buffett also put himself on record in an Oct. 17 New York Times op-ed piece, saying that he was personally buying U.S. stocks after a long period of owning nothing (outside of Berkshire Hathaway (BRKB) stock) but U.S. government bonds.

He said that if prices kept falling, he expected to soon have 100% of his net worth in U.S. equities. Prices did keep falling - the Dow Jones industrials have dropped by about 10% since Oct. 17 - so presumably Buffett kept buying. Alas for all curious investors, he isn't saying what he bought.

Gold forecast to hit US$1,000

SINGAPORE - INVESTMENT bank Goldman Sachs has raised its forecast for the price of gold to US$1,000 (S$1,500) an ounce in the next three months from its previous forecast of $700 due to rising investor demand for safe haven assets.
Gold was trading at US$902.70 an ounce by 0106 GMT (9.06am Singapore time) on Thursday, down US$2.15 from New York's notional close, but was within sight of a near four-month high of US$930.40 an ounce hit last Friday. Gold struck record at US$1,030.80 last March.

'The gold price rally has been driven by surging demand for gold in all forms: physical gold, exchange-traded funds (ETFs), and futures contracts as investors seek 'a safe store of value' amid the financial distress and inflation risks,' Goldman Sachs said in a report.

'It is also important to emphasise that the recent strong demand for gold has not beenirrational but rather pretty much in line with the probabilities of financial and sovereign default.' It also noted a strong relationship between the price of gold in US dollars and the exchange rate of the dollar against other currencies has begun to break down, adding that strong investment buying would offset a decline in jewellery demand.

The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust , said it held arecord of 859.49 tonnes of gold as of Feb 4, up 6.12 tonnes from Feb 2.

'Such strong demandfor investment reasons is likely more than offsetting the declines in gold demand for jewellery use,' said Goldman Sachs.

'In fact, this recent surge in gold ETF demand would more than offset a 20 per cent decline in the fourth quarter global jewellery demand for gold,' it said.

The investment bank also raised its forecast for the price of gold to US$950 an ounce in the next six months from an initial estimate of US$785. Its 12-month gold forecast was pegged at US$825 an ounce, up from US$795 previously. -- REUTERS

View from the top: how to survive 2009

In the first of his regular “View from the top” series, our new columnist shares his insights on how to survive the year ahead in finance. The author is a senior banker based in Singapore, with three decades in commercial and investment banking at major international firms.

The full effects of the current global financial crisis will take their toll on the banking and financial industry this year in Asia. It's now time to take appropriate steps to ensure your survival for at least the next 12 to 24 months.

The safest sectors

There is still a need for bank staff who specialise in risk management, risk control and internal audit. However, if banks continue not to book new risk instruments, loans etc, they will not need so many transactional-type credit or risk analysts. Banks have no qualms about laying off these people first and rehiring them later when they are back in the business of making loans. Risk jobs are therefore not totally secure, but they are at least still safer than other support functions.

In my own bank, loan-workout specialists are all overstretched and I know that other banks are still recruiting in this area. To enhance your survival chances and to pick up new skills along the way, it may be wise for relationship managers or sales executives, if possible, to request transfers to these departments. Accounting and credit skills are of course a pre-requisite.

If you are employed in the marketing of investment products, or in corporate or treasury sales, you will probably find it extremely difficult to do well in 2009.

Get close to customers and back to basics

Employers want to maintain their customer base for when the economic recovery arrives. To survive as a banker today, you will need to be very close to your customers and be recognised as the key customer-contact link to your bank.

After the current crisis is over, the financial world will be going back to quite basic banking: taking simple deposits, making straight forward loans, and providing trade and transactional banking services and foreign exchange hedging to core customers. Gone are the pin-striped investment bankers who structure complex deals and sell the risk to gullible investors and less sophisticated banks. Gone are the bankers who are remunerated in the millions by packaging and selling risky instruments. These chaps have all made their money and are now happily retired in their beach homes. They may return one day when the world has forgotten that they created this mess.

Investment banker 2.0

The new investment banker will probably be a humbler financial/investment advisor with an MBA from a top school, who has good market contacts and is skilled at finding potential merger candidates. He/she will probably be working for a global wholesale bank that is also able to provide credit to back up its advisory capability. To survive as an i-banker in 2009 and beyond, you should seek employment with one of these rare surviving global wholesale banks (e.g. BOA/Merrill Lynch, J.P. Morgan, Standard Chartered etc). I doubt these firms are hiring right now, but they will be amongst the first to do so when the carnage is over.

Keep your head down

In the meanwhile, if you are just a normal commercial banker or front-line support employee, try to maintain a very low profile, especially if you can't meet your targets this year. Don't stand out as being difficult, a non team-player, or too expensive. Be careful not to be blamed or associated with any credit or trading losses. In these lean times, no losses will be tolerated and your bosses will be on the lookout for easy scrapegoats.

Remenber that your boss will be as insecure as you are and insecure people usually discard their moral principles to ensure self survival. It’s best not to trust anyone with sensitive information which could be used against you. Also graciously accept any pay or bonus cuts. You need to put your head down and show that you are a loyal hardworking, obedient and self-sacrificing employee.

Want to learn about life at the other end of the finance ladder? Look out for our forthcoming “View from the bottom” column, written by a young banker who has recently been laid off and is struggling to find work.

China shows recovery signs

SHANGHAI - CHINA'S manufacturing activity showed signs of recovering in January, data indicated on Wednesday, in a rare piece of optimistic news for the world's third-largest economy.

Some economists said the data could signal that China's manufacturers had overcome the worst of the economic crisis, with companies exhausting their old stock and placing new orders.

'Manufacturing in China is still contracting, but the bottom is now in sight,' said Sherman Chan, an analyst with Moody's Economy.com.

The government's purchasing managers' index, or PMI, rose to 45.3 per cent in January, up from 41.2 per cent in December and a record low of 38.8 per cent in November, the official Xinhua news agency reported. A reading above 50 means the manufacturing economy is expanding, while a reading below 50 indicates an overall decline.

'The accelerated rise of manufacturing PMI undoubtedly points to a recovery in China,' Merrill Lynch said in a research note.

However, Citigroup economist Ken Peng cautioned that talk of a recovery could be premature. 'Being 'less bad' is not the same as 'recovery',' he said.

Indeed, January's figure was the sixth consecutive month that the PMI was below 50 per cent. And a similar survey by CLSA Asia-Pacific Markets, a leading independent brokerage, released on Monday gave less optimistic results.

The CLSA China Purchasing Managers Index, stood at 42.2 in January, up only slightly from 41.2 in December.

China's manufacturing sector accounts for more than 40 per cent of the nation's economy. -- AFP

Timeshare complaints rise

THE timeshare pigeons have come home to roost, five or so years since complaints about the industry's hard-sell tactics soared.

Now, a new batch of grouses is hatching, this time by consumers who are still waiting for promised payouts or finding it difficult to claw back their investments - not only in timeshares, but other purchases from gold to beauty packages.

Complaints lodged with the Consumers Association of Singapore (Case) against cashback schemes have shot up dramatically in the last six years, from two cases in 2003, to 62 last year. So far this year, there are already five.

Most of them have to do with timeshare companies, which have topped Case's list of consumer complaints for the last decade.

US salary cap on executives

WASHINGTON - THE US government will set a salary cap of US$500,000 (S$751,709) for top executives at companies receiving federal economic bailout funds, an administration official said on Wednesday.

President Barack Obama and Treasury Secretary Timothy Geithner were expected to make the announcement on Wednesday at the White House, the official said privately.

She said the measure would apply to executives at companies receiving exceptional funds', but did not offer further details on its implementation.

On Tuesday, Mr Obama previewed the announcement in a series of television interviews, playing into public anger at elevated finance industry salaries at a time of deep economic crisis.

'One of the things that we're going to do tomorrow is talk about the need to control executive compensation for companies that are taking money from the federal government,' he said in an interview with NBC.

"If the taxpayers are helping you, then you've got certain responsibilities to not be living high on the hog." -- AFP

India may axe 1.5m jobs

NEW DELHI - INDIA could lose up to 1.5 million jobs in the export sector in the six months to March, the commerce secretary said in an interview broadcast on Tuesday.

With major markets for Indian goods such as the United States and Europe struggling, many importing companies have scaled back their orders.

'If these projections continue... it's quite likely that you can expect another five lakh (500,000) losses before March 31,' Mr G.K. Pillai told the NDTV news channel after announcing that one million jobs had gone since August.

Exports for January were down more than 20 per cent, continuing a trend of negative growth that began in October when exports tumbled for the first time in three years.

India could still export US$175 billion (S$264.8 billion) worth of goods in the present fiscal year, down from the previous government estimate of US$200 billion, Mr Pillai told NDTV.

The Federation of Indian Export Organisations has said the job losses could be far worse, predicting the global economic slowdown would see at least 10 million Indians in the export sector become unemployed by March.

Mr Pillai warned that some exporters, especially in the worst-hit textile and jewellery industries, would not survive.

'Some element of closures will take place. By the end of this year there will be a tremendous consolidation,' he said.

India has unveiled a range of incentives for businesses in two economic stimulus packages since December but has so far rejected a large-scale bailout of any sector as has happened in the United States. -- AFP

Up to 3 million Madoff victims

MADRID - According to a Spanish law firm that has filed a US lawsuit there are up to three million 'direct and indirect' victims worldwide of the alleged fraud by US broker Bernard Madoff.

The law firm is representing some of the victims of Madoff's alleged fraud.

"Our calculations are that at least three million people were affected by the Madoff affair, three million people who could be directly or indirectly affected by the case," said Javier Cremades, the president of law firm Cremades & Calvo-Sotelo at a news conference.

The estimate is based on information collected from 30 law firms from around the world that are representing the victims of the alleged US$50 billion pyramid scheme, he said.

- AFP

Asian spending not helping

DAVOS (Switzerland) - CHINESE and Indian consumers appear to be going on a spending binge bucking the global trend, but they cannot make up for the billions not being spent by shell-shocked American shoppers, experts said.

India's Trade Minister Kamal Nath projected that the domestic consumption in his country is expected to grow by 'around seven percent' this year.

Growth through 'domestic consumption has to be the only way', Nath said on the sidelines of the World Economic Forum in Davos, explaining that exporters are being held back by falling demand elsewhere.

Chinese Premier Wen Jiabao said among early signs of recovery by the Chinese economy is a 20 percent rise in domestic consumption at the start of the Chinese Lunar New Year, compared to the same period last year.

'The signs are small ones but they give me hope,' he said.

Bank of China vice-president Zhu Min forecast that Chinese domestic consumption will grow at about 20 percent in 2009, the same pace as last year.

On the other hand, he noted that US consumer spending is set to plunge 10 per cent, or one trillion dollars, due to the financial crisis, as consumers are hit by falling home values and a credit drought.

Americans normally spend about 10 trillion dollars domestically a year, or about 70 per cent of the US gross domestic product, estimated Zhu.

In comparison, Chinese spend just 1.5 trillion dollars worth on goods and service, about 38 per cent of GDP.

Export-driven economies such as China, Japan and Germany have been particularly hurt by the sharp fall in American consumption.

If US consumers spend one trillion dollars less annually, even a boost in Chinese and Indian domestic consumption is unlikely to make up the gap.

However, experts said the 'pain' is necessary.

Prof Ken Rosen, a professor at the University of California-Berkeley, slammed the American model of excessive borrowing to drive spending and thereby growth.

'The Japanese, German and Swiss model is a better model. The US model is wrong ... If the whole world went with the US model, the planet would not exist,' he said.

Consumers in Japan, Germany and Switzerland set aside substantial savings unlike their American counterparts.

Prof Rosen said that rebalancing the US economy would be 'very painful' but that it 'is the right thing to do.' India's Nath said: 'The US certainly must temper its consumption patterns'.

'From the environment point of view, it's good,' he said.

Mr Hiromichi Toya, a senior advisor to All Nippon Airways and a former vice-foreign minister, said that 'some structural change' would be a good thing.

Mr Toya said Japan, like China, needs to boost domestic spending and that rebalancing by Americans and Asians is necessary.

However, Mr Zhu at Bank of China warned that getting China's population to make a substantial change to their spending habits would take time.

'China is trying to increase consumption but don't overly count on China to increase consumption to save the world,' he said. -- AFP

No answer to recession

DAVOS (Switzerland) - MIRED in indecision and uncertainty, the world's foremost gathering of the best and brightest in government and business failed to come up with any new plan to stem, much less reverse, the global financial meltdown.

The five-day World Economic Forum in this Swiss alpine resort wrapped up Sunday in the same atmosphere of doom and gloom that it began, with a realization that the depth of the crisis is still unknown and the solution remains elusive.

'Everybody's lost in Davos,' said Kishore Mahbubani, dean of the Lee Kuan Yew School of Public Policy in Singapore.

'No one seems to have a clear understanding of how big this crisis is and what we need to do to get out of it.' he told AP.

'My own view is that you really need to do a fundamental reexamination of the whole global system to see what went wrong, and nobody here is yet ready to ask these kinds of fundamental questions in Davos.'

There was widespread agreement that there's plenty left to do, starting at the April meeting of leaders of the 20 largest economies in London.

'Now the hard work begins,' the forum's founder, Klaus Schwab, said, calling for a redesign of the global systems of banking, financial regulation and corporate governance.

Cautioning that the G20 wouldn't be able to solve all the issues, Schwab announced that in a few weeks the forum would start a 'Global Redesign Initiative' which he said was supported by almost every world leader who attended this year's forum, from China's Premier Wen Jiabao to UN Secretary-General Ban Ki-moon.

Previous celebrity guests such as Angelina Jolie, Sharon Stone and Bono were not invited to this year's forum and the spotlight fell instead, on world leaders like Wen, Russian Prime Minister Vladimir Putin, British Prime Minister Gordon Brown, German Chancellor Angela Merkel and the few bankers who showed up.

The most talked-about world leader - President Barack Obama - didn't come to Davos, but many here had advice on what he should do on issues ranging from the financial crisis to promoting Mideast peace and dealing with Pakistan, Afghanistan and Iraq.

Tensions over the recent war in Gaza flared, with Turkish Prime Minister Recep Tayyip Erdogan stalking off the stage after a moderator insisted on cutting off his attempt to respond to Israeli President Shimon Peres' impassioned defense of Israel's air and ground attack.

Business and government leaders blamed the United States for starting the financial crisis that is turning into a global recession.

'Davos just sort of encapsulates the broader global debate,' said Stephen Roach, chairman of investment bank Morgan Stanley in Asia and one of the few to warn last year of the global ramifications of the US sub-prime mortgage problem.

'We're now moving into the ugliest phase of every crisis, the blame game. Wall Street made mistakes. Regulators made mistakes. Rating agencies made mistakes. Central banks made mistakes. Politicians made mistakes - we all did it,' he told The Associated Press.

'So let's be careful that we don't let this blame game get out of hand.'

Last year at Davos, there was a widespread belief that the major emerging economic powers - China, India, Russia and Brazil - could survive a slowdown or recession in the United States because of their growth potential. But that has proved to be wrong, many said.

John Chipman, head of the International Institute for Strategic Studies in London, told the AP that no session in Davos examined 'the links between the global economic downturn and financial difficulties, and the prospects for geopolitical conflict and conflict resolution.'

'Intuitively, one would think that with the current economic situation, there would be countries whose social stability would be a threat unless they were able to maintain growth levels,' he said, citing China as one example.

China's Mr Wen forecast 8 per cent economic growth this year, and India's trade minister, Kamal Nath, forecast a 7 to 7.5 per cent growth rate, but some economic experts here were skeptical that either would be reached.

Nobel Peace Prize winner Muhammad Yunus, founder of the Grameen Bank in Bangladesh and the father of microcredit, saw a silver lining in the financial crisis.

'It's not just disappointment and frustrations,' he told AP.

'This is the greatest moment we have because things need to be changed, it's as simple as that. We don't want to go back to the same normalcy that we're coming from. We will create a new normalcy which will stay and keep on moving and change the world.' -- AP

How to Make Your Family Miserable

Supposedly, you love your family. You don't want to cause them any undue agony. But if you neglect to take care of a few important paperwork issues, then your loved ones could suffer unnecessarily.

Here are six surefire ways to bestow misery upon your kith and kin:

* Execute a durable power of attorney naming your daughter to speak for you if you become incapacitated, but forget to make her signatory on the safe-deposit box where you store the document.

* Take out a long-term disability insurance policy but neglect to tell your spouse. Then go into a coma for six months so that Snookums has to take out a second mortgage to pay the bills. (Sorry, honey, my bad!)

* Play a good joke on the poor soul who will complete your final tax form upon your demise: Leave your important papers under mountains of less important papers scattered all over the house.

* Get divorced and forget to change the beneficiary on your life insurance policy. That way, your first husband -- the lunatic who ran off with the Krishnas -- gets the entire lump-sum death benefit, while your second husband and family of 50 years get zilch.

* Forget to tell your wife about that great new financial planner you're working with -- the one who mysteriously boards a flight for the Cayman Islands the day you join that great tax-free haven in the sky.

* Repeatedly leave the toilet seat up and just two squares of tissue on the roll.

Protecting your family's future is a great way to say, "I love you" (though the Norwegian "Jeg elsker de" is also a crowd pleaser).