All about what is happening in the global economy...

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All about what is happening in the global economy...

Postby MadScientist » Sat Aug 20, 2011 8:08 pm

This is a decent recap of what is going on... From Bloomberg

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U.S. Stocks Post Biggest Retreat Since 2009 on Economic Concern


Pedestrians pass in front of the New York Stock Exchange

Aug. 20 (Bloomberg) -- U.S. stocks tumbled, sending the Standard & Poor’s 500 Index to its biggest four-week loss since March 2009, as concern the global economy is stalling overshadowed the cheapest valuations in 2 1/2 years.

Hewlett-Packard Co. plunged 27 percent this week, the most since the October 1987 market crash, after a strategy shift undermined confidence in its managers. Technology, industrial and raw-material companies in the S&P 500 dropped at least 6.9 percent, the most among 10 groups. Caterpillar Inc. and Alcoa Inc. retreated more than 8.4 percent after some of the world’s biggest banks -- Morgan Stanley, JPMorgan Chase & Co. and Citigroup Inc. -- slashed economic growth forecasts.

The S&P 500 lost 4.7 percent to 1,123.53. It has sunk 16 percent since July 22 as about $3 trillion was erased from the value of U.S. equities, according to data compiled by Bloomberg. The Dow Jones Industrial Average fell 451.37 points, or 4 percent, to 10,817.65 this week, extending its four-week decline to 1,863.51 points.

“We’re in a little bit of a tug of war,” David Joy, the Boston-based chief market strategist at Ameriprise Financial Inc., said in a telephone interview. His firm oversees $693 billion. “On the one hand, there’s the real concern about what’s going on in Europe, about the pressure on the banking system and weakness in the global economy. On the other, an opposing force seems to be an interest in buying at attractive equity valuations.”

Cheapest Since 2009

The S&P 500 has fallen 18 percent from an almost three-year high on April 29 amid concern about Europe’s government debt crisis and a global economic slowdown. The decline through Aug. 8 drove the index to a valuation of 12.2 times reported earnings, the lowest level since March 2009. Its price-earnings ratio is now 12.3, compared with the average of 16.4 since 1954, according to data compiled by Bloomberg.

This week’s loss included the S&P 500’s 4.5 percent retreat on Aug. 18 amid speculation that European banks lack sufficient capital. Lars Frisell, the chief economist at Sweden’s financial regulator, said it won’t take much for interbank lending to freeze. The market also declined after U.S. jobless claims rose, Philadelphia-area manufacturing shrank by the most since 2009 and hopes for more stimulus from the Federal Reserve receded.

The Morgan Stanley Cyclical Index of companies most-tied to economic growth plunged 10 percent this week, extending its loss since July 22 to 26 percent and falling to the lowest level since Aug. 26, 2010. Morgan Stanley economists cut forecasts for global growth this year and said the U.S. and Europe are “dangerously close to recession.”

JPMorgan, Citigroup

JPMorgan said the U.S. may expand less than previously projected in the next two quarters as consumer sentiment drops and the housing market fails to gain momentum. Citigroup also cut estimates for the U.S.

“We separate the economic picture from the investment picture,” Eric Teal, chief investment officer at First Citizens Bancshares Inc., which manages $4 billion in Raleigh, North Carolina, said in a phone interview. “If the economy is lackluster and stagnant, that does not imply that the stock market has to continue to decline. With valuations where they are, we find the market to be attractive. Companies are generally in good shape, and earnings growth can continue to be quite strong.”

Profit at S&P 500 companies is forecast to rise 17 percent to $99.05 a share in 2011 and 14 percent to $112.81 in 2012, according to average analyst estimates compiled by Bloomberg.

Moving Together

Stocks in the S&P 500 are moving in lockstep with each other by the most since at least 1990, a sign that the market’s biggest retreat in three years may not be over, according to MF Global Holdings Ltd. The average correlation coefficient between the 500 companies and the index was 0.8268 on Aug. 18, using 60 days of data, according to MF Global.

High correlation “is usually the case in a bear market, when investors are liquidating equities as an asset class,” Craig Peskin, co-head of technical analysis at the New York- based firm, wrote in an e-mail on Aug. 18. “In a bull market, when investors are differentiating, we see low or falling correlation.”

Correlation among S&P 500 stocks exceeded 0.78 twice previously, according to MF Global. After the first time, on Dec. 1, 2008, the S&P 500 declined 17 percent to a 12-year low on March 9, 2009. Correlation peaked again on July 26, 2010, when the benchmark slipped 6.1 percent over the next month, data compiled by MF Global and Bloomberg show.

Buffett Buys

Warren Buffett’s Berkshire Hathaway Inc. accelerated stock purchases on Aug. 8 as the S&P 500 plunged the most since December 2008, the billionaire investor said during an Aug. 15 interview with Charlie Rose on PBS.

“I like buying on sale,” said Buffett, Berkshire’s chief executive officer. “Last Monday, we spent more money in the stock market buying than any day this year.”

History shows the S&P 500 may keep sinking. The index plunged 16 percent between July 25 and Aug. 8. The eight declines of that size over similar amounts of time since 1928 led to additional losses averaging 17 percent, according to data compiled by Bespoke Investment Group LLC, a Harrison, New York- based research company.

Bearish wagers against global stocks at hedge funds have surged to the highest level since July 2009 as the European debt crisis and reports showing an economic slowdown cause the biggest losses in almost three years.

Hedge Fund Survey

An index of hedge fund assets from International Strategy & Investment Group dropped to 45.8 on Aug. 16, showing the most short selling in two years, down from a 2011 high of 54.2 in February. The research firm and broker-dealer surveys 35 hedge funds with about $84 billion under management every week.

“The fear factor is so high after what happened in 2008 that people are overreacting,” Eric Marshall, the director of research at Hodges Capital Management Inc., said in a telephone interview. Hodges has about $700 million in assets. “People are assuming that we are somehow in store for another great recession that would last several years, and I don’t see that.”

Hewlett-Packard tumbled 27 percent to $23.60. Leo Apotheker cut sales forecasts for the third time since becoming chief executive officer in November, citing tepid demand. He’s spinning off the personal computer unit, dropping a five-month- old plan to put the WebOS mobile software on devices and purchasing Autonomy Corp. for $10.3 billion. While aimed at helping add higher-margin products, the shifts are costly and may be time consuming, said Brian Marshall, an analyst at Gleacher & Co.

Losing Confidence

“People just lost confidence in the company,” said Marshall, who is based in San Francisco and has a “buy” rating on the stock. “People are realizing the financial model is in greater disarray than they previously thought.”

Motorola Mobility Holdings Inc. surged 55 percent to $37.86. Google Inc., the biggest maker of smartphone software, agreed to buy it for $12.5 billion, gaining mobile patents and expanding in the hardware business.

Larry Page, the Google co-founder who took over as chief executive officer in April, is pushing the Web company into smartphones to take on Apple Inc.’s iPhone and gain more clout for its Android software in the wireless business.

Google retreated 13 percent, the most since November 2008, to $490.92. Apple fell 5.6 percent, the biggest weekly drop since March, to $356.03.

To contact the reporters on this story: Victoria Taylor in New York at vtaylor6@bloomberg.net ; Inyoung Hwang in New York at ihwang7@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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Re: All about what is happening in the global economy...

Postby MadScientist » Tue Aug 23, 2011 3:54 pm

http://www.bloomberg.com/news/2011-08-22/european-failure-to-solve-region-s-banking-crisis-returns-to-haunt-markets.html


Europe Failure With Bank Crisis Returns to Haunt Markets

By Simon Kennedy and Gavin Finch - Aug 22, 2011


Four years to the month since the global credit crisis began, European lenders remain dependent on central bank aid, plaguing markets and economies worldwide.

Emergency steps such as unlimited loans from the European Central Bank are keeping many banks in Greece, Portugal, Italy and Spain solvent and greasing the lending of others, while low interest rates and debt-buying are containing borrowing costs. Such aid is needed as concerns about slowing economic growth and sovereign debt prompt banks to curb lending, stockpile dollars and hoard cash in safe havens.

“I’m not sleeping at night,” said Charles Wyplosz, director of the Geneva-based International Center for Money and Banking Studies. “We have moved into a new phase of crisis.”

Central bankers rescued financial firms after the collapse of Lehman Brothers Holdings Inc. in 2008 by providing limitless funding of as long as a year. While they treated the symptom --a lack of ready cash -- politicians, regulators and bankers in Europe have proved unable to cure the root cause: some European lenders are at growing risk of insolvency.

The tremors, the biggest since Lehman’s collapse, were triggered by European governments’ continuing inability to stop the sovereign debt crisis from spreading beyond Greece, Portugal and Ireland to question the Italy and Spain. Renewed signs of economic weakness globally and the downgrading of U.S. debt by Standard & Poor’s rekindled concern about the quality of all government debt.

Bank Stocks Tumble

The signs of distress are widespread and mounting: Banks deposited 105.9 billion euros ($152 billion) with the ECB overnight on Aug. 19, almost three times this year’s average, rather than lending the money to other lenders. The premium European banks pay to borrow in dollars through the swaps market increased yesterday for a fourth straight day.

European bank stocks have sunk 22 percent this month, led by Royal Bank of Scotland Group Plc (RBS) and Societe Generale (GLE) SA. Edinburgh-based RBS, Britain’s biggest government-controlled lender, has tumbled 45 percent, and Paris-based Societe Generale, France’s second-largest bank, dropped 39 percent.

The extra yield investors demand to buy bank bonds instead of benchmark government debt surged to 298 basis points on Aug. 19, or 2.98 percentage points, the highest since July 2009, data compiled by Bank of America Merrill Lynch show. The cost of insuring that debt against default surged to a record yesterday. The Markit iTraxx Financial Index linked to senior debt of 25 European banks and insurers rose to 250 basis points, compared with 149 when Lehman collapsed.

Greek Default Concern

It was the specter of government debt turning toxic that has revived the liquidity crisis policy makers had tried to stop in 2008. As speculation grew that European banks would have to write down their holdings of more governments’ debt after a Greek default, lenders pulled funding to those banks that held the most peripheral debt. It also raised concern European governments would struggle to afford a further bail out of their banks, because both the state and the lenders had failed to reduce their borrowings since the onset of the crisis.

“The debt has been transferred from the banks to the sovereign, but it hasn’t actually been eradicated,” said Gary Greenwood, a banking analyst at Shore Capital in Liverpool. “Until the sovereigns get their balance sheets in order, then these concerns are going to remain.”

Funding markets have seized up as investors speculate that sovereign debt writedowns are inevitable. Banks in the region hold 98.2 billion euros of Greek sovereign debt, 317 billion euros of Italian government debt and about 280 billion euros of Spanish bonds, according to European Banking Authority data.

Euribor-OIS

The difference between the three-month euro interbank offered rate, or Euribor, and the overnight indexed swap rate, a measure of banks’ reluctance to lend to each other, was at 0.67 percentage point on Aug. 22, within 3 basis points of the widest spread since May 2009.

“The central bank is the only clearer left to settle funds between banks,” said Christoph Rieger, head of fixed-income strategy at Commerzbank AG (CBK) in Frankfurt. “There is a mistrust between banks in general, between regions and with dollar providers overall.”

Overseas banks operating in the U.S. may have cut dollar holdings by as much as $300 billion in the past four weeks as European banks faced a squeeze on funding and sought dollars, Jens Nordvig, a managing director of currency research at Nomura Holdings Inc. in New York said Aug. 18. Dollar assets declined by about 38 percent to $550 billion in the period, he said.

‘More Nervous’

“Banks are becoming more nervous about being exposed to other banks as they hoard liquidity and become more suspicious of other banks’ balance sheets,” Guillaume Tiberghien, analyst at Exane BNP Paribas (BNP), wrote in a note to clients on Aug. 19.

By contrast, banks in the U.S. are “flush” with liquidity, loan loss reserves and capital, Goldman Sachs Group Inc. analyst Richard Ramsden wrote in an Aug. 6 report. Large commercial banks combined holdings of cash and securities at large have climbed to 30 percent of managed assets, up from 22 percent at the start of the U.S. financial crisis in October 2007, Ramsden wrote, citing Federal Reserve data.

The Federal Reserve, which provided as much as $1.2 trillion of loans to banks in December 2008, wound down most of its emergency programs by early 2010. One of the few exceptions was the central-bank liquidity swap lines that provide dollars to the ECB and other central banks so they can in turn auction off the dollars to banks in their own jurisdictions.

Trichet, Bernanke

Banks’ woes are again thrusting central bankers to the fore as ECB President Jean-Claude Trichet joins Fed Chairman Ben S. Bernanke and their counterparts from around the world in traveling this week to Jackson Hole, Wyoming for the Kansas City Fed’s annual policy symposium.

After increasing its benchmark rate twice this year to counter inflation, the ECB this month provided relief for banks by buying Italian and Spanish bonds for the first time, lending unlimited funds for six months, and providing one unnamed bank with dollars to satisfy the first such request since February. In doing so, it’s maintaining a role it began in August 2007 when it injected cash into markets after they began to freeze.

Coming to the rescue isn’t easy for the ECB. Its balance sheet is now 73 percent bigger than in August 2007 and its latest bond-buying opened it to accusations that by rescuing profligate nations it’s breaking a rule of the euro’s founding treaty and undermining its credibility. Policy makers are also divided over the best course of action, with Bundesbank President Jens Weidmann among those opposing the bond program.

Economic Threat

The central bank is acting in part because governments have yet to ratify a plan to extend the scope of a 440-billion euro rescue facility to allow it to buy bonds and inject capital into banks. Markets tumbled last week on concern policy makers aren’t acting fast enough.

The funding difficulties of banks was one reason cited by Morgan Stanley economists Aug. 17 for cutting their forecast for euro-area economic growth this year to 0.5 percent next year, less than half the 1.2 percent previously anticipated. They now expect the ECB to reverse this year’s rate increases, returning its benchmark to 1 percent by the end of next year.

The economic threat is greater in Europe because consumers and companies are more reliant on banks for funding than their U.S. counterparts, said Tobias Blattner, a former ECB economist now at Daiwa Capital Markets Europe in London. He says the ECB should eventually try to hand over fire-fighting duties either to governments, who would then inject capital into financial firms, or national central banks, who could provide short-term loans to lenders.

Longer-term solutions may involve the restructuring the debt of cash-strapped nations in a way that doesn’t roil bank balance sheets, potentially in lockstep with a European version of the U.S.’s Troubled Asset Relief Program.

Lena Komileva, Group-of-10 strategy head at Brown Brothers Harriman & Co. in London, said the central bank may have no option but to extend the backstop role it is playing for periphery banks to lenders elsewhere. Refusal to do so would risk a European bank default by the end of the year, she said.

“Markets are back in uncharted territory,” said Komileva. “The crisis is a whole new story now.”

To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net

To contact the editors responsible for this story: Edward Evans at eevans3@bloomberg.net Craig Stirling at cstirling1@bloomberg.net
.
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.

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Re: All about what is happening in the global economy...

Postby krazy » Wed Aug 24, 2011 10:20 am

Hey hey! :)

fancy seeing you here. :)

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Re: All about what is happening in the global economy...

Postby MadScientist » Wed Aug 24, 2011 11:13 am

krazy wrote:Hey hey! :)

fancy seeing you here. :)


Oei bro!

Hehe...

We need to catch up... After this roundis sorted. :imcool:

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Re: All about what is happening in the global economy...

Postby MadScientist » Wed Aug 24, 2011 11:26 am

From Bloomberg...

Why Asian markets are not following a 3% move in the US markets yesterday...

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Japan Debt Rating Cut to Aa3 by Moody’s on Growth Outlook


Japanese Prime Minister Naoto Kan

Aug. 24 (Bloomberg) -- Japan’s debt rating was lowered by Moody’s Investors Service, which cited “weak” prospects for economic growth that will make it difficult for the government to rein in the world’s largest public debt burden.

Moody’s cut the grade one step to Aa3, with a stable outlook, it said in a statement today. Rebuilding costs from the March 11 earthquake and tsunami, along with continuing efforts to contain the Fukushima nuclear crisis, may make it hard for officials to meet their borrowing target this year, it said.

The first Japan downgrade by Moody’s since 2002 reflects deteriorating credit quality across developed nations from Italy to the U.S., which lost its AAA status at Standard & Poor’s this month. While the move adds to the challenges of the next Japanese prime minister, scheduled to be picked next week, the impact on bond yields may be limited by what Moody’s described as domestic investors’ preference for government debt.

“I hope this serves as a warning to the soon-to-be new administration,” said Noriaki Matsuoka, an economist at Daiwa Asset Management Co. in Tokyo. “It’s imperative to begin to raise the sales tax.”

Finance Minister Yoshihiko Noda said that investors in Japanese government bonds continue to trust the administration. He plans to brief reporters at 11:30 a.m. in Tokyo on measures to combat gains in the yen, according to a government official.

Yen’s Record

Strength in the yen, which reached a post World War II record in New York on Aug. 19, is hampering an economic recovery from the disaster that left 20,000 people dead or missing. Officials have intervened in currency markets as recently as Aug. 4. The yen fell 0.2 percent to 76.78 per dollar as of 10:34 a.m., ahead of Noda’s briefing.

Moody’s is in final discussions on whether to downgrade Japan’s biggest lenders, a person with direct knowledge of the matter said. Banking units of Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. are among those being examined, said the person, who asked not to be identified before a decision.

Today’s rating move brings Japan to the same level as China, showing the diverging paths of Asia’s two biggest economies. China replaced Japan as the world’s No. 2 last year and Moody’s has a positive outlook on its ranking.

Borrowing Costs

Moody’s put Japan on review in May, calling on the government to step up efforts to narrow the budget gap. S&P lowered the nation’s grade to AA-, equivalent to the current Moody’s grade, in January, and has the nation under review for a further cut. Fitch Ratings has Japan at AA- with a negative outlook.

Even with the deterioration in its ratings, Japan has enjoyed what Moody’s today called the world’s lowest nominal borrowing costs. Yields on Japan’s benchmark 10-year bonds rose for a third day, to 1.03 percent as of 9:47 a.m. in Tokyo at Japan Bond Trading Co., still down from 1.11 percent at the end of last year.

Japan’s “funding cost advantage will be sustained by considerable institutional and structural strengths, which will prevail even with large budget deficits in 2011 and 2012,” Moody’s said today. Japan relies on foreigners to buy less than 10 percent of its debt, and Moody’s noted that its net international investments total about 50 percent of gross domestic product, the highest such ratio in the world.

Stocks Fall

The Nikkei 225 Stock Average fell 0.2 percent as of 10:48 a.m. local time after earlier rising as much as 1.1 percent. The lack of market ructions contrasts with the S&P downgrade of the U.S., which was blasted by the Obama administration for being influenced by faulty accounting.

S&P’s Aug. 5 decision roiled global markets and boosted demand for Treasuries, sending the yield on the 10-year note, the benchmark for home mortgages and car loans, to a record low 1.97 percent. The New York-based company, which was blamed in an April Senate report for helping fuel the credit crisis, was criticized by the world’s most successful investor, Warren Buffett, who said the U.S. should be “quadruple-A.”

Moody’s said today’s decision was “prompted by large budget deficits and the build-up in Japanese government debt since the 2009 global recession.”

Japan’s public debt is projected to reach 219 percent of gross domestic product next year even before accounting for borrowing to fund reconstruction after the March 11 earthquake, according to the Organization for Economic Cooperation and Development.

Debt Mountain

The government has amassed a debt of 943.8 trillion yen, according to the Finance Ministry, after two decades of fiscal spending to energize an economy hobbled by the collapse of an asset bubble in 1990 and lingering deflation that’s sapped private demand. The yen’s advance to a post World War II high this year also threatens exports, a main driver of the nation’s economic growth.

Prime Minister Naoto Kan’s efforts to reduce Japan’s debt have been stymied by opposition within his party to tax increases. Kan has also said he would step down once a second extra budget and bills for renewable energy and deficit-bond funding are passed, reducing his authority.

The International Monetary Fund said on July 19 that Japan needed to push forward with new tax measures and limit bond issuance to pare its debt. It recommended raising the sales tax to 7 percent or 8 percent in 2012 from 5 percent, then gradually increasing it to 15 percent over several years.

‘Financial Volatility’

“Insufficient fiscal adjustment could lead to a spike in JGB yields which, even if the effects were contained, could trigger financial volatility and prove highly disruptive,” according to the IMF, referring to Japanese government bonds.

The IMF also said that outstanding government bonds could exceed total financial assets owned by households in five to 10 years barring policy changes, suggesting the government may need to rely more on foreign investors to fund its deficits.

The government has pledged to raise the sales tax to 10 percent by the middle of the decade, a rate that would still be below the IMF’s recommendations. The additional revenue is intended to pay for social welfare for the aging population.

Japan’s government plans total spending of 19 trillion yen over five years to rebuild after the magnitude-9 temblor and tsunami that devastated the northeast coast of Japan and triggered the worst nuclear crisis since Chernobyl.

To contact the reporter on this story: Lily Nonomiya in Tokyo at lnonomiya@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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Re: All about what is happening in the global economy...

Postby MadScientist » Mon Aug 29, 2011 1:54 pm

Alejandro wrote:Borrow Borrow Borrow! this is the social behavior which has ruined our nation and now we are standing at verge of worst financial crisis in history of our country and there are no guarantees that we will survive during this crisis and come out as united nation again.


Are you speaking as an American or a Singaporean?

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Re: All about what is happening in the global economy...

Postby jeestan » Mon Aug 29, 2011 11:29 pm

Hi MadScientist,
Thank you for your informative write ups. Any prediction of how this crisis will affect home prices in Singapore? So you are saying that the crisis in USA may not affect Singapore?

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Re: All about what is happening in the global economy...

Postby verykiasu2010 » Tue Aug 30, 2011 2:15 am

in the 1980s, Prof David Solomon said US economy is going through a second childhood, as in many young nations / immature economy (childhood) have to borrow and depend on creditor nations without becoming insolvent as a nation.

Once, long time ago US was a creditor nation as a grown up adult, able to help other countries financially....but now US is technically insolvent ... truly going through second childhood as an economy with delayed development and stunted growth
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Re: All about what is happening in the global economy...

Postby UncleLim » Tue Aug 30, 2011 1:56 pm

MadScientist wrote:
Alejandro wrote:Borrow Borrow Borrow! this is the social behavior which has ruined our nation and now we are standing at verge of worst financial crisis in history of our country and there are no guarantees that we will survive during this crisis and come out as united nation again.


Are you speaking as an American or a Singaporean?


My guess is he is is not local. :wink:

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Re: All about what is happening in the global economy...

Postby MadScientist » Tue Aug 30, 2011 8:20 pm

jeestan wrote:Hi MadScientist,
Thank you for your informative write ups. Any prediction of how this crisis will affect home prices in Singapore? So you are saying that the crisis in USA may not affect Singapore?


Hi jeestan,

You are most welcomed.

My previous expectations were surprisingly reversed...
In 2008, I knew that the SG property market would drop, and drop hard it did. However, it rebounded like a spring compressed.
Admittedly, it really took me by surprise... And I learnt a lot from that.

IMHO, what happened to encourage the rebound were:
1. A safe haven store of value for many SGporeans (after being burnt in all other investment tools)
2. A strong inflow of foreign funds into SG seeking haven status and perhaps the not so openly discussed questionable sources.
3. The extremely low interest rates available which allowed leverage to be taken at a very low cost.

Now, having stated all that above, I must state also that these are what I learnt through reading and conversing from all available sources, of which some may not be verified nor concrete in evidence, but it is my personal belief that it is a factor in the modeling of a massive rebound. I may be incorrect, but this is just a hypothesis and is only proven in retrospect.

Now, for the effect on SG...

Given what I understand of the new normal, a few things must happen for the SG property to be adversely affected:
1. SG interest rates must rise, and rise strongly.
We currently follow the US interest rate (unlike Australia) and Bernenke said recently that the low interest rates will persist till mid 2013.
It might take a huge inflationary bout to bring this about.
2. The funds inflow into SG (by legal or sub-legal conduits) must stop or be very limited.
Not going to commenton this very much for obvious reasons...
3. A major economic crisis must occur... Looking for a sovereign default or something to that extent, such as a contagion.
This August rout is unlikely to be it IMHO, but it may have a "cooling" effect.
4. Property supply must rise more than in previous years.
This is in the pipeline.

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