Of mice, men… and recession

Of mice, men… and recession

 

Playing it safe may not be the best thing todo during times of economic turmoil

 

THE chief information officer of a large US bank said his boss told him: ‘Please hold off on new software purchases for the next six months.

 

By Larry Haverkamp (Doc Money)

mail@…

 

 

04 March 2008

 

THE chief information officer of a large US bank said his boss told him: ‘Please hold off on new software purchases for the next six months.

 

‘The bank has decided to wait until the US economic outlook is clearer.’

 

Many US firms are taking a ‘wait and see’ approach. Consumers are too.

 

That attitude could trigger a recession. It is called a self-fulfilling prophecy.

 

First, fear leads to caution. It reduces spending. The economy slows. It produces more caution, less spending, more caution, less spending…

 

The next thing you know, you’ve got a recession.

 

On Friday, fear got the upper hand when the US stock market took its second biggest plunge of the year. That is what the Singapore and other Asian markets are looking at today.

 

Could things go from bad to worse? Yes. Here’s how:

 

1) STOCK AND HOME PRICES

 

US and Asian stock markets hit their highs last October.

 

Now, the US market is 20 per cent off its highs. Our Straits Times Index is 30 per cent lower.

 

Home prices have levelled off here, but are dropping fast in the US. During October to December, US home prices fell 9 per cent, the biggest three-month drop in history.

 

When stock and home prices fall, people see their wealth evaporate. They feel poorer and spend less. It accelerates the economic decline.

 

Next stop: Recession.

 

2) CREDIT LOSSES

 

Most stem from US housing defaults, which seem to be never ending.

 

Last week’s shock came from insurer AIG, parent of AIA. It had an incredible $800 billion of debt insurance called ‘credit default swaps’. Of that, it wrote down $15 billion that it doesn’t expect will be repaid.

 

UBS bank estimated on Friday that credit losses will total $840 billion. Of that, it estimates that $615b has not been disclosed yet. It is a huge number.

 

Next stop: Recession.

 

3) LESS BORROWING

 

At the centre of the storm is a new debt type, called CDOs, some of which hold shaky US home loans.

 

High defaults have made CDOs difficult to sell. There have been no new sales since November.

 

That’s a problem since banks used to re-sell their home loans as CDOs. It made US bankers sales agents instead of lenders. They invested no capital and took no risks. Life was good.

 

Now, without CDOs, banks are back to old-fashioned lending that puts their own money at risk. It means fewer mortgages get made and at higher interest rates.

 

Of course, when money isn’t borrowed, it isn’t spent. The economy slows.

 

Next stop: Recession.

 

4) FEAR

 

Fear keeps interest rates high. A remarkable study by stock broker Merrill Lynch showed the interest rate cuts of the US Federal Reserve (central bank) aren’t doing the job.

 

Consider this: The US Fed reduced its key interest rate from 5.25 to 3.0 per cent in the last five months. Such a big drop would normally encourage borrowing and spending.

 

This time, however, home loan rates haven’t budged. They fell from 5.90 per cent in September to 5.88 per cent today. It’s almost no change.

 

The same for car loans: A five-year car loan was 6.91 percent in September. It is now 6.95 per cent, which is slightly higher.

 

Things are a little better for all consumer loans. On average, they fell 0.45 percentage points since September compared with the Fed’s interest rate cuts of 2.25 percentage points.

 

This means only one-fifth of the rate cuts (0.45/2.25) have reached the man on the street. It’s no wonder the US economy has not perked up.

 

Next stop: Recession.

 

Source: The New Paper

RESIDENTS ASK: WHY KILL OUR TREES?

RESIDENTS ASK: WHY KILL OUR TREES?

 

TOWN COUNCIL REPLIES: THEY’RE A DANGER

 

IT takes 15 years for them to grow to a height of 14 storeys but only a day for them to disappear.

 

04 March 2008

 

IT takes 15 years for them to grow to a height of 14 storeys but only a day for them to disappear.

 

That is the lament of some residents of the Elias Road estate after seven of the 27 casuarina trees there were removed from around three blocks in the estate.

 

When Ms Law Kah Yen, a 32-year-old PR consultant, woke up on 23 Feb, she found seven of these ‘gentle giants’ being chopped down and uprooted.

 

The Pasir Ris-Punggol Town Council had decided to have the trees removed because of safety concerns.

 

Ms Law said: ‘We were really upset when we saw what was being done.

 

‘The trees had added a lot of character and comfort to the neighbourhood.

 

ADMIRATION

 

‘Visiting family members as well as overseas friends admire the trees.’

 

Another resident, Madam Chang Kim Yin, a 40-year-old housewife, said in Mandarin: ‘I feel the trees made the HDB estate classier.’

 

A 52-year-old building consultant, who gave his name only as Mr Teo, said the trees provided shade, especially for the houses on the lower levels, from the afternoon sun.

 

But it was a job that had to be done, said the town council.

 

In an official response, the Pasir Ris- Punggol Town Council said it sympathised with the residents.

 

However, ‘it is essential for us to proceed with the removal (of the trees) in view of public safety’.

 

During routine horticultural maintenance, hairline cracks had been found on the trunks of the trees.

 

These cracks indicate the possibility of the trees developing internal decay, which cannot be easily detected.

 

The trees were located close to pedestrian crossings and footpaths.

 

The town council said: ‘We have previously received calls from concerned residents who have witnessed snapping branches and requested a complete removal of such trees.’

 

HARD TO MAINTAIN

 

Yet another worry of the town council is the ability of the trees to grow to 40m in height, making maintenance and inspection difficult.

 

Mr Lim Choon Hoe, who is in his 40s and has been living in the area for eight years, recalled: ‘A few years back, one of the trees near the covered linkway collapsed.

 

‘I am quite worried as they may cause danger to the residents, especially to young children who often play around the area.’

 

He added: ‘I support the town council as they are experts and are taking preventive measures.’

 

But Ms Law is still unhappy.

 

She said: ‘I am hoping that they’ll be able to work around it and not just take the easy way out.

 

‘I have grown emotionally attached to these trees, having seen them grow from five-storey young trees to their current 14-storey height.

 

‘They are a big part of our home.’

 

The town council said the removed casuarina trees will be replaced with 3-to 4m-tall trees ‘so as to provide an instant visual impact to complement the current landscaping’.

 

The remaining casuarina trees do not have to be removed immediately, though they will continue to be checked.

 

Source: The New Paper

Green developers get $20m fund

Green developers get $20m fund

 

Fund will cushion cost of integrating solar panels into new Green Mark buildings

 

Tuesday • March 4, 2008

 

Cheow Xin Yi

cheowxinyi@…

 

DEVELOPERS of new and green buildings can now tap into a $20 million fund set up by the Government — a decision that is certain to sit well all-round as oil prices continue to surge.

 

The fund will partly offset the cost of integrating solar panels into new buildings “which attain a certain level of Green Mark standard”, Mr S Iswaran (picture), the Minister of State for Trade and Industry (MTI) told Parliament yesterday.

 

Under a 2005 scheme, buildings that meet environment sustainability standards will be Green-Mark-certified by the Building and Construction Authority of Singapore.

 

“This (Solar Capability Scheme) is a grant-based incentive, to spur more innovative approaches and capability development, in the architecture, design and system integration of solar panels as part of green buildings,” he said, adding that more details would be released soon by the Economic Development Board.

 

It is part of the Republic’s drive to encourage the adoption of renewable energy amidst concerns of high-energy costs fuelled by spiralling oil prices.

 

While the Government will encourage the use of solar energy through incentives and lowering grid connection fees, Mr Iswaran stressed that it will, however, stop at subsidising the cost of renewable energy through feed-in tariffs (Fit).

 

Fit is a form of energy subsidy where renewable energy companies are guaranteed contracts for energy produced at higher prices as compared to those from traditional sources.

 

The issue cropped up recently when Today ran a story on how the business community had urged MTI to consider Fit to promote the energy sector. MTI had argued against it, citing distortion to market and a possible increase in electricity prices.

 

Responding to a query from Nominated Member of Parliament Eunice Olsen as to how much more it would cost consumers with the adoption of Fit, Mr Iswaran said compared to a pool price of 22 cents per kilowatt, solar energy produced under Fit would be as high as “two to three times the cost, perhaps a little lower because oil prices have gone up now”.

 

He added that it was not an “optimal strategy because what we are effectively doing is encouraging solar”.

 

“The question is why solar when it can be bio-energy, bio-diesel and so on … why not subsidise others as well?” he asked.

 

Asked by Ms Olsen if MTI‘s insistence against Fit for renewable energy is a reflection of its low priority for developing the industry, especially when tax credits are granted for expensive commodities like green cars, Mr Iswaran explained that the promotion of solar energy, or any other industry, can be done through other means.

 

Citing research and test-bedding initiatives such as the recently launched Solar Energy Research Institute of Singapore and the $170 million allocated to the Research, Innovation and Enterprise Council for Solar Research and Development that aim to develop alternative energy technologies, Mr Iswaran said such approaches “give better returns in the long run”.

 

“The right strategy is to help the industry get into a position of competitiveness vis-à-vis existing supplies of energy, but to subsidise it is to distort the market in terms of production and consumption decisions and we don’t think that’s the right thing to do,” he said.

 

Amid the ongoing debate, Singaporeans were hit again by the impact of higher oil prices — which hovered around US$102 per barrel yesterday — as Caltex raised its price for petrol and diesel by 4 cents a litre.

 

Source: TodayOnline

JTC will still provide affordable industrial space: Hng Kiang

JTC will still provide affordable industrial space: Hng Kiang

 

THE JTC Corp is not deviating from its role to provide affordable factory space, said Minister for Trade and Industry Lim Hng Kiang yesterday in response to a question on whether JTC is shifting its focus with its recent plans to divest its industrial properties into a real estate investment trust (Reit).

 

This concern was triggered by the recent appointment of Mapletree Investments Pte Ltd (Mapletree) to establish and manage a proposed Reit which will acquire some $1.4-1.6 billion worth of JTC’s high-rise ready-built properties.

 

Member of Parliament Inderjit Singh raised the concern that this move will further raise the costs of industrial space here. He questioned the role of JTC, saying the earlier spinning off of Ascendas Reit has led to an increase in prices for industrial space. A-Reit, Singapore‘s second Reit, was set up by JTC unit Ascendas five years ago and has since expanded by acquiring industrial buildings.

 

‘If we allow market forces to determine our industrial land prices, then businesses engaged in certain strategic sectors may no longer be able to compete with companies in competing economies which may not be at our stage of development and may offer companies more attractive land costs,’ Mr Singh said. He gave the example of China, where industrial land is more attractively priced.

 

In response, Mr Lim said: ‘JTC’s role remains the same. You must look at JTC’s role in two key areas – land and prepared industrial estates like flatted factories.’

 

For the flatted factories space, JTC is a small player in the market with a market share of around 20 per cent and hence takes its pricing cue from the market.

 

‘It is this sector that we are divesting because we believe that industrial space in Singapore is a fairly competitive market,’ Mr Lim added. ‘So JTC need not stay in this area. JTC will concentrate on land.’

 

While the pricing of JTC’s industrial factory space is determined by the market, the pricing for land is benchmarked against competitive locations.

 

Mr Lim said the JTC is very careful ‘to make sure that we do not price ourselves out of the market.’

 

Source: Business Times

Far East’s Leong Horn Kee calling it a day after 15 yrs

Far East‘s Leong Horn Kee calling it a day after 15 yrs

 

PROPERTY giant Far East Organization announced yesterday that executive director Leong Horn Kee would be leaving the company on June 30 after more than 15 years of service.

 

Mr Leong, who served as Member of Parliament for 32 years until he retired in 2006, said that he was venturing out to work on his own ‘projects’.

 

‘I’m 56 years old now and I’ve had a good run in government service, GLCs, the financial sector and the private sector. It’s time to move on and I have some private business ventures in mind. Far East is in great shape and will continue to do well.’

 

A Colombo Plan scholar, Mr Leong started out in the Administrative Service at the Ministry of Trade in 1977. In 1984, he joined NatSteel, where he remained until 1989. Following that, he joined investment banking group NM Rothschild & Sons (S) Ltd for four years before moving on to Far East.

 

He was managing director of its Orchard Parade Holdings Ltd from 1993 to 2000, and managing director and CEO of Yeo Hiap Seng from mid-1999 to 2002. In recent years, he handled many of the group’s investment ventures and oversaw its internal audit operations.

 

‘He has been instrumental in completing our Novena Medical Centre agreement with Tan Tock Seng Hospital, and has assisted several departments in resolving various problems encountered with external agencies,’ Far East said in a statement yesterday.

 

Mr Leong, who has four children, is Singapore‘s Non-Resident Ambassador to Mexico. He became a member of the Securities Industry Council in January.

 

Source: Business Times

Growth may slow, but outlook still healthy

Growth may slow, but outlook still healthy

 

By Alvin Foo

 

DESPITE tough global conditions, the economic outlook for Singapore is for ‘slower but still healthy growth’ this year, said Trade and Industry Minister Lim Hng Kiang yesterday.

 

Mr Lim told Parliament that Singapore is in a strong position to cope, thanks to its restructuring and reform efforts since 2001 as well as its healthy investment pipeline and strong market positions in strategic clusters.

 

‘The MTI‘s (Ministry of Trade and Industry) forecast for the Singapore economy for 2008 is 4 to 6 per cent – 6 per cent if the US slowdown is short and shallow, and 4 per cent if the US goes into a deeper and longer recession,’ said the minister.

 

Last month, US recession fears led the Government to trim its growth forecast from an earlier estimate of 4.5 to 6.5 per cent to between 4 and 6 per cent.

 

The economy grew 7.7per cent last year.

 

Mr Lim said the Government’s approach is to grow the economy strategically, not tactically.

 

This involves developing strategic clusters that Singapore is competitive in and tapping opportunities that arise, within and across these clusters.

 

‘Through this approach, we are also better able to address the resource needs and cost pressures within each cluster,’ he added.

 

Last Monday, Mr Inderjit Singh (Ang Mo Kio GRC) told Parliament that the Government’s strategy of growing the economy as fast as possible in good years was partly to blame for rapidly rising costs.

 

Mr Singh termed it the ‘grow-at-all-costs’ policy, which he suggested had led to an overheated economy.

 

Mr Lim said yesterday: ‘Our strong position today did not come about by accident… I think MrInderjit Singh exaggerates for impact.

 

‘I am sure he is not advocating that we plan to just grow at a comfortable rate and forgo opportunities if they do not fit our plan.’

 

The minister said that the Government is building ‘a top-quality economy’, one that is ‘well-diversified across sectors and across markets, with a strong external wing that allows us to seize new opportunities overseas, and… powered by R&D, enterprise and entrepreneurship’.

 

He highlighted key strategic clusters, including chemicals, electronics, transport engineering, precision engineering and biomedical sciences.

 

On chemicals, he said that Singapore needs to anchor a critical mass of refining and cracking capabilities to stay a top petrochemical hub.

 

Mr Lim said the aerospace industry is one of the fastest-growing sectors here, surging 10 per cent to hit a record $6.9billion in output last year.

 

In the biomedical sciences cluster, he noted that Singapore is facing stiff competition from places such as Boston in the United States, Ireland and Puerto Rico, so it needs to keep investing in infrastructure and to train talent.

 

Besides developing clusters, the Government’s strategy also involves growing Singapore‘s economic space.

 

This can be done via deepening its presence in current markets, seeking new ones and helping local firms internationalise.

 

Mr Lim said: ‘We should not stop growing or take a grow-slow approach when the going gets tough…

 

‘Besides remaining competitive, we should also look to set the pace, break new ground, and set fresh benchmarks.’

 

For more from Parliament, click for our free video news.

 

Source: Straits Times

Are we at the mercy of banks over admin fees?

Are we at the mercy of banks over admin fees?

 

RECENTLY, when I tried to reduce the term of my home loan with DBS Finance, I was told that there is an adminstration fee of $200.

 

The officer who attended to me said that the fee was imposed in June last year.

 

I highlighted to him the fact that this was not in my contract or was it in any way communicated to me.

 

His reply was that the bank has the right to impose such fees when deemed necessary and that there is no necessity to inform the customer so.

 

I wonder if this is standard practice.

 

Tay Tang Choon

 

Source: Straits Times