Calling the Singapore Property Bluff

Some recent comments made by MAS Managing Director, Ravi Menon, has stirred certain groups of people that have been watching the Singapore property space. Two examples he gave:

1. Housing loans – A couple with a combined household income of $6,000 was able to obtain a new housing loan of $400,000. Their monthly instalments on this new loan and their existing loan obligations came to more than 90% of their combined monthly income (debt-to-income ratio). The bank’s decision to approve the loan was based solely on the fact that the couple had savings deposit of $90,000. -The bank officers ought to be shot.
2. Car loans – Some applicants were able to borrow close to 100% of the value of the car, with little or no down payment, for what is essentially a depreciating asset.

(Credit: MAS Annual Report 2012 Press Conference)

The extent of these ‘sub-prime’/dodgy lending practices may not yet be known, but it signals to us that there is some serious underlying issues (a.k.a. shit) that might seriously impact the growth of the Singapore economy. -And Singaporeans are already complaining about income inequality with a growing economy. What will happen if shit hits the fan?

Simply use these examples above against a backdrop of a ‘booming’ property sector (bubble) and anyone may see it.

• Coffeeshop in Hougang recenty sold for $23.88 million (Picture inserted below). This coffeeshop is no where near an MRT station, and defies the common logic of growth plan, capital gain, rental yield. There is no way the coffeeshop is able to grow anymore than it already has, and rental yield just doesn’t cut it (assume $5,000/mth for 7-10 stalls doesn’t add up to $23.88million over 20 years). The buyer has to be speculating on the value of the property going up since $1.10 cups of coffee doesn’t make $23 million. And, with the property being in a late-bull cycle right now, this may not be a smart move. Which, leads us to two conclusions: Either the guy had too much spare change in his pocket (then spare some for the Singapore Cancer Society thanksverymuchthanks), or he really has his reasons (beyond economics) for paying that much for the space.

(Credit: TNP photo)

• On the Sunday Times INVEST page 21st July 2013, the Mr X (shall not be named) interviewed was able to share his heartfelt story of how he managed to climb out of bankruptcy and debt. While we feel his pain and salute him for his persistence, it seems that a lesson of risk may be drawn. The article stated clearly that Mr X was declared a bankrupt after his spa business failed in 2005, and had a debt of $1 million that he had to repay. He re-opened his spa business (albeit with a different business model) 6 months later and managed to clear his debt by 2009. Today (2013), he owns 3 properties in Singapore, and 4 (I think) overseas. Sounds great on paper doesn’t it. Looking further into it, he rents out his Simei flat to pay for his home (4 bedroom flat) in Changi. It is not said clearly which is fully owned, but we can infer from the article. In addition, he also lets out a commercial unit in Ubi. Overseas, Mr X has 2 condo units in Iskandar Malaysia (where many Singaporeans are headed since it is touted as the ‘next boom location’), an apartment in KL, and a two-bedroom apartment in Australia. While the exact prices he paid for these, and the locations, are not known, we assume that he purchased it within the last 2-3 years (given that he got out of bankruptcy in 2009). The kicker? He has 3 kids, and mortgage payments for overseas properties do not begin until 2016, and we all know how interest rates are trending in the near term. Income: He draws approximately $12,500/mth from his spa business/spa product manufacturing/free-lance interior designing. In short, just imagine what his debt-to-income ratio would be. -Even with adequate cash deposits now, a negative savings rate is not sustainable and does not provide for any emergencies.
  

There are many reasons for these occurrences:

1. It may simply be people’s unrealistic expectations that the property sector in Singapore will always go up because ‘land in Singapore is scarce and prices will always be on the rise’. WRONG, Hong Kong and other small countries still see a property cycle. While prices may trend upwards over time (higher highs, higher lows), the property cycle will (usually) always prevail.
2. Gen Y moving onto ‘better things in life’ and bringing along our bad habits of ‘living it up’ and over-expenditure. The ‘real’ rich (not needing 90% LTV borrowing) before us may have indulged in a little extravagance of a Ferrari or a Bentley, but the jump in the number of luxury/super(even hyper) sports cars (i.e. Porsche and up) is pretty ridiculous. Yes, some of it may be attributed to the rise in the number of expats, and Singapore’s growth to accommodate more billionaires and overtake Switzerland as a wealth management/Finance hub, BUT local Gen Y-ers should know better than to use credit to ‘follow in their footsteps’. In short, let us see how many of these luxury cars disappear off the road when a) a local economic hit, or b) Interest rates (GRADUALLY/PROGRESSIVELY) increases. -Those are in caps to emphasize that even if the Fed tapers its bond buying program and raises interest rates (against lower unemployment and sustainable inflation), the global impact (because everything economy mimics the US economy to a certain extent) will be seen gradually. They aren’t going to invoke a 500 basis point increase in one Fed meeting.
3. In every transaction, the value of an asset (e.g. HDB coffeeshop) is determined by both parties of the transaction. In other words, for the coffeeshop to be worth $23.88 million, the buyer has to value it as that (Try selling anything on ebay. Even if you put the item up for $3,000, you aren’t going to get that amount if nobody values it as that). Quoting from Michael Lewis’s book, The Big Short, “for CDS instruments to be short, AIG had to be on the other side going long”.

There is a storm brewing over the Singapore property sector. The bluff is being called out. While the impact may not be economically significant to dent the Singapore growth machine, the impact on the middle class and resulting social impacts may be a cause for worry. This is the Singapore Credit Bubble.

–EquityWatch | Buy SILVER BULLION here at EW Silver (email for a price quote)
Send us your feedback @ equitywatchsingapore@gmail.com

Singapore Property Market

Knight Frank has posted its forecast for the Singapore property market in the near to medium term, expecting a 5% dip in the next 12 months. This comes after the recent government cooling measures, a trend that investors say, have been seen at decreased intervals.

Here is the full report from Knight Frank Regional Analysis, credit Singapore Business Review (sbr.com.sg)

Government intervention in the property markets is not a sudden new phenomenon, but rather a number of policy tools; some which have been used on an ongoing basis, and others when deemed necessary. The importance of a balanced housing market to the health of an economy is such that policy makers, to varying extents, have always found it necessary to intervene by exercising some element of control over market participants, along with two key factors of production; land and finance.

The measures that we have witnessed over the last three years are a result of significant price rises that have brought into focus issues of affordability and the risk of potential asset bubbles. The measures are temporary, and we have seen that as quickly as the cooling measures can be implemented, they can also be removed. This should offer some reassurance to market participants; that if prices begin to correct too alarmingly, many of the measures can be removed, potentially unleashing new segments of demand which would help stabilise the market.

Policy makers however have sent a very strong signal – stable and sustainable growth is what they desire, and while a large element of the huge price increases we have seen across the region have been fuelled by genuine solid fundamentals; economic growth, urbanisation, a move towards nuclear family units – the concern is that historically low interest rates and speculative activity have been fuelling prices beyond this “sustainable” barrier.

The various policies have not targeted first time buyers, but have targeted multiple home owners and speculative (or arbitrage investors) who look to “flip” property. Paradoxically the continued price increases we see in certain markets, actually show strong first time and upgrader buyer demand, a positive sign in terms of the health of the market, with the more unstable speculative segment of demand already being restricted. This is certainly the case in many parts of China.

We believe that the latest measures will however have an impact on volumes and pricing. While every market is different, we believe that prices will soften in Singapore by an average of 5% and Hong Kong by 10% over the next 12 months. In China, there is likely to continue to be price appreciation in Tier 1 cities, while we could see drops in some of the Tier two and three cities. Finally, Malaysia is likely to see a rebound in activity following the upcoming election.

Is there a risk of further intervention? If prices keep rising – quite possibly. The reaction of the latest rounds of cooling measures has yet to be fully absorbed and analysed, with past experience telling us that it takes a few months to draw significant conclusions. Given the severity of the last wave of cooling measures on these markets however, it is quite likely that there may not be any further need.

Additionally, SBR also posts some facts about Singapore property and transport market that is interesting:

1 Singaporeans are experiencing greater pressure in the arenas of housing and transportation, as population density rose 20% from 2001 to 2011. Things are likely to worsen for a little while more before they get better as new capacity comes on stream.

2 Commuting congestion generates stress. A sharp increase in population has raised the density of both road and public transport users, leading to greater commuting frustration. In a short span of three years from 2009 to 2012,the average daily passenger journeys on the mass transit rose by more than half a million (an almost 30% increase) and satisfaction in public transportation has steadily fallen to below 90% in 2012. A greater proportion of residents are also spending more time commuting.

3 Increasing transport cost raises costof living. The percentage increase in transportprices was among the highest in the years 2011and 2012, contributing to higher living cost. In the earlier years, monthly household spending ontransport rose by 2.5% from 2002/03 to 2007/08and formed almost 16% of monthly household spending in 2007/08. This increase was largelydriven by private transport cost.

4 Low accessibility among the low income. The average monthly spending on transport among the bottom 20% of households ($195) was 70% below the national mean ($695), suggesting that high transport costs may be a form of social exclusion for the poor, and may limit access to jobs and services.

5 The growth rate of housing prices is outstripping that of monthly incomes. From 2001 to 2011, the resale price index (RPI) increased at 7% per annum, whereas median monthly household income rose at 3.8% per annum.

In the recent five years, the cumulative increase in RPI was double that of median monthly household income.

6 Resale flats are not accessible to the bottom 20% of young home buyers. Based on optimistic savings estimates, a 2010 study found that young income earners below the 20th percentile do not have enough to afford the upfront payments of a resale flat. Those in the 30th percentile are barely able to afford the upfront payments of a 4-room flat.

7 Erosion of long-term housing affordability. Housing is generally considered unaffordable if mortgages make up more than 30% of income. The Housing Development Board (HDB) tracks housing affordability using the debt servicing ratio (DSR) that calculates the ratio of monthly household income to monthly housing instalments.

This is a conservative measure as it is based on a 30-year loan period and presently low interest rate. HDB reports that the DSR rose from 18% in 2007 to 24% in 2011.

The 2010 study mentioned earlier found housing affordability to deteriorate for all income groups at higher interest rates of 5% or 7%. It also found that in the 2010 housing resale market, prices exceeded 30% of life time incomes for the bottom 10%, with the exception of 1-room HDB resale flats that formed close to 30% of life time incomes.

8 Homelessness on the rise. The number of persons and families identified to be in need of shelter more than doubled from 2007 to 2010. Reasons that social workers and the Ministry of Social and Family Development cited include families’ inability to service bank loans on their flats; strained family relationships and loss of jobs.

–EquityWatch | Buy SILVER BULLION here at EW Silver
Send us your feedback @ equitywatchsingapore@gmail.com

Precious Metals Update.

With the recent ‘semi’-deal reached. EW expects Silver prices to pick up, gaining momentum as everything remains uncertain (at least until March). However, we estimate that there will be no reversal of trends as yet. Silver will not hit US$35 any time soon.

Beyond this, Silver also looks to the increased industrial output for added upward pressure on prices. On the technical side, Silver seems to have hit its 5Y support, reversing from the slowdown experienced during the holidays.

 

–EquityWatch | Buy SILVER BULLION here at EW Silver
Send us your feedback @ equitywatchsingapore@gmail.com

New Chinese leadership

As China goes through a once a decade change of power, analysts and world leaders alike are trying to predict the possible global economic effects. China, with a population of 1.3 billion people (and growing), is the world’s second largest economy and the biggest engine of growth since the early 2000’s. Besides holding the world’s largest reserve of foreign exchange, China is also the holder of US debt. As such, a change of its leaders will have a considerable impact on the global economy.

Some issues facing the new Chinese leadership:

• Economic environment. The current economic environment facing incoming president, Xi Jinping, is much harsher than the one facing his predecessor, Hu Jintao. The US economy is has been picking itself up slowly, but now faces the prospect of a fiscal cliff. UK is at risk of entering a triple-dip recession, with the outlook of Europe remains bleak. China itself has been in decline, no longer able to sustain a GDP growth rate above 10 percent. Recent reports on China has Siemens CFO, Joe Kaeser, saying that the decline has ‘bottomed out’, but a pick up in growth is unlikely.
• International disputes with Japan. Call it an island or a rock in the middle of the ocean, Sino-Japanese relations are not expected to improve any time soon.
• Social inequity. Some teenagers are photographed burning money online, while others survive on less than US$1 a day. The disparity might just rip the country apart from the inside out.
• Corruption. The issue had been off the radar for a period of time, but recently surfaced again with the Bo Xilai case. Really makes you wonder what really goes on behind the closed doors in China.
• Other issues (Environmental problems and carbon emissions, rigid education system, Tibet problems etc)

President Xi Jinping and Premier, Li Keqiang, have heaps on their plate. Let’s see how this plays out.

EW’s Man of the hour: Li Keqiang (the next Premier of China, and its top guy to lead the economy)
Though the man’s considered to be very liberal and reform-oriented, no major reforms are to be expected as they are largely hampered by the conservatives majority in the party.

The men in the spotlight:

PM Li Keqiang (Left), and President Xi Jinping (Right)

Credit: http://businesstoday.intoday.in/

-EquityWatch | Buy SILVER BULLION here at EW Silver
equitywatchsingapore@gmail.com

Food for thought.

All in on QE3, pisaller Mr Bernanke.

Credit to: Youtube user, SchiffReport. To view profile: Peter Schiff

 

-EquityWatch | TN Capital #Buy SILVER BULLION here at EW Silver
equitywatchsingapore@gmail.com

Eurozone performance update.

Since we are hearing heaps of news everyday about how bad things are going up in Europe, here is a general picture of GDP performance:

As you can see, there is a clear North-South divide. Will that tear the EU apart? We shall see.

-EquityWatch | TN Capital #Buy SILVER BULLION here at EW Silver
equitywatchsingapore@gmail.com

Newton’s Law in the Market

Isaac Newton famously told a story of how he was inspired by an apple falling from a tree while out drinking tea. He wondered why an apple has to fall perpendicularly to the ground instead of sideways or upwards. This talk of gravitational pull and mass/weight applies to the market as well.

Pull up any historical price data and you’ll see that stocks on the rise will usually be unable to sustain its momentum and eventually be in decline. Here are two examples:

Dow Jones over the last 10 years.

Berkshire Hathaway over the last 5 years.

Some of you may argue that the last few years have been trying for any company, let alone an Index. But one thing is for sure, everything that goes up has to come down, every crest is followed by a trough, and every trough will not stay down forever.

What does matter though, is the overall trend. And right now, the trend doesn’t look great. There are no more ‘safe havens’. There is no more strength in the USD, no more 11% growth rate in the Chinese economy, £1 no longer buys S$3 (or even S$2), and the performance of the Australian economy has been attributed to luck more than skill.

“History shows that whenever companies, no matter how great, get priced at exorbitant earnings multiples, buyers should beware. There is simply no way a large-cap stock is likely ever to support price-earnings multiples in the triple digits.” – Burton G. Malkiel.

“The stock market is not a voting mechanism, but rather a weighing mechanism.” – Benjamin Graham.

Fundamentals, fundamentals, fundamentals! It’s not about the stock’s movement or market opinion. For long term value investment, strong fundamentals are a must.

New macro data from the US may show that the economy is gradually recovering, but QE3 is still inevitable (in our opinion). Inflation figures are still lower than long term targets, and unemployment rate is still pushing 8%. Pay attention for more indication of QE3 when Bernanke makes his speech on 31st August 2012.

Take all these into consideration, and the next time you re-evaluate your portfolio, first look at the macroeconomic trends. A good place to start is: Roubini Global Economics. Nouriel Roubini is a very very renown economist, so do check his profile out too (Roubini Wiki).

-EquityWatch #We sell silver bullion at EW Silver
equitywatchsingapore@gmail.com

George Sorros dumps bank stocks to buy Gold.

George Sorros, the man who infamously ’caused’ (as accused by a certain Former Malaysian PM) the Asian Financial Crisis in ’97. As much as people portray him as the ‘bad guy’, he is widely recognised to be a brilliant investor. In early 2008, he mentioned in his tenth book, that the coming financial crisis would be “the biggest financial crisis in his lifetime”. With that, he came out of retirement to trade for his multi-billion dollar fund, increasing his wealth while so many others lost.

In the past week, he has dumped most of his bank stocks, pouring the money mostly into Gold. Indicating that there is going to be a major shift in the market.

Consider these factors:

1. US economic data is being hidden and held back until the elections are over.
2. The Eurozone crisis turns 3 this year. There is so much debt and they will never be able to pay it back.
3. The Chinese economy isn’t as strong as it seems. Mineral use is falling, Industrial output is falling, even caterpillar (supplier of industrial equipment) has reported a fall  in profits. This wouldn’t corroborate with GDP data of course, and we all know why.

Here is the link to his post sale SEC filing: George Sorros_SEC 13F

Would you bet against him?

During this time, make sure that you arm yourself against a coming storm, and buy in when the opportunity arises. We’ll see how the macro-economy looks in 2013. Good luck!

-EquityWatch #We’re selling silver bullion @ EW Silver
@ equitywatchsingapore@gmail.com

Why invest in Silver?

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Bullion is the basic commodity traded in the precious metals market. By adding precious metals in general, and silver in particular, to a portfolio of stocks, bonds and mutual funds, an investor is introducing a tangible or real asset to the asset mix. This increases the degree of diversification and protects the portfolio against fluctuations in value of any one asset type.

Economic Forces
The economic forces that affect the price of precious metals are different from, and often are opposed to the forces which determine the price of most common financial assets. This independent movement of precious metals to other financial assets can reduce overall portfolio volatility and contributes balance.

The Declining Dollar
The purchasing power of the U.S. dollar has steadily declined over time and is expected to continue to do so. Precious metals can often provide a “hedge against inflation” capability. For example, between 1971 and 1981, the U.S. dollar lost more than half its value, while silver prices rose nearly five times. Economies fluctuate between inflation, recession and expansion, precious metals investment help diversify and lower overall risk.

Asset Allocation
Whether you are conservative or aggressive in your investment approach, precious metals can represent an important part of your asset allocation. Some experts suggest that 10-15% of portfolio assets be in precious metals. No matter what level of risk an investor wishes to take, every portfolio needs a secure foundation.

Ease of Ownership
For investors who wish to take possession or direct control of their assets, buying physical bullion has appeal. Owning bullion is easy and convenient, and commissions on buying and selling it are minimal.

Inexpensive Silver
Silver bullion bars are the least expensive way to own silver. They can be converted easily to cash, prices are widely quoted and they are internationally negotiable. Silver bullion coins are relatively inexpensive. Because of their smaller unit size they are affordable and easily converted into cash. As in silver bullion bars, prices are widely quoted and internationally negotiable.

Industrial Demand
Silver, more than other precious metals, has significant demand rooted in sectors as diverse as imaging, electronics, jewelry, coinage, superconductivity and water purification. For this reason, silver is no longer known as just a precious metal, a store of value, a work of art or an industrial metal. It is all of these. Today silver is indispensable, working all around us to improve the quality of our lives.
(Content: http://www.silverpa.com)

Buying silver bullion that is stamped by a company that is reliable and well-known will allow you to re-sell it off easily. By purchasing PAMP Suisse 10oz bullion bars from us, we give you a quality silver bar at one of the lowest prices. It’s like you are only paying for its weight in silver. Click here to visit EW Silver for more information.

-EquityWatch

Invest now!

EW Silver Shop is now OPEN

We hope to give you competitive (cheapest) prices and the chance to own physical silver bullion!

PAMP Suisse 10oz bars now on sale! Please read all terms and conditions.

Simply click on our tab ‘EW Silver Shop’ above, or click here.

Where will You put Your money in 2012-2013?

1. Never-ending Eurozone crisis (No way will they solve their debt problems entirely),
2. Slow recovery of the US economy with poor employment/economic data constantly being released, and a neutral market that’s awaiting the results of the Presidential election in November 2012 (On top of this, Standard Chartered’s money laundering scandals and Knight Capital’s technical glitch adds to America’s news column).
3. Slowdown of the China, the world’s second largest economy. Statements have been issued that the Chinese economy is slowing to a ‘more sustainable pace’ (But we all know what that means). Evidence of this can be found everywhere, from a reduction in raw mineral imports, to a slowdown in the sale of expensive watches (used as a proxy to measure the number of business deals).
4. Talks of currency tightening in Australia, the only stable advanced economy left. Former RBA board member Warwick McKibbin recently called for government intervention to tighten the growing strength of the AUD, attributing it to high demand not real growth (Valid point. Though he suggests printing more money to increase money supply).
5. The economic performance of Singapore and other growing countries like Indonesia (and maybe Sri Lanka, depending on how you look at it) are very much influenced by the world economy.

So, the crucial question is, where will You put Your money? Precious metals or.. Precious metals? Maybe? No?
Have a read:
http://www.bloomberg.com/news/2012-08-13/silver-hoard-near-record-as-hedge-fund-bulls-recoil-commodities.html

(EW Market Report, click here.)

-EquityWatch

What Your Financial Adviser should do for You

A Financial Adviser should:

Have an idea of your present situation.

Your Financial Adviser should have a complete understanding of any current investments, current fixed monthly/yearly income, monthly outflow figures, total monthly inflows, current insurance coverage etc..

With this knowledge, he will then be able to recommend a suitable portfolio that complements your financial position.

Find out your financial objectives and goals.

Do you have any future needs that requires a huge sum of money? How much exactly should you save up and where should that money be put in?

e.g. Family planning (Average monetary cost of a child in Singapore is approximately $350,000)

Risk appetite

An example of individuals having vastly different risk appetites would be people of different ages/stages of life. A retiree usually has a very ‘safe’/conservative portfolio (Fixed income securities take up typically a major portion of investments), whereas a younger investor typically has a larger risk appetite (He is more open to forex, commodities, and other riskier financial products).

Source and Amount of regular income

It is very common to follow the 50-30-20 rule. This means that you limit your monthly Expenditure to 50% of your fixed monthly income, Save 30% in the bank for a rainy day, and Invest the remaining 20%.
(Remember: Information read here is simply an opinion, and is in no way professional advice!)

Depending on an investors preferences/profile, he/she may modify these percentages appropriately.

Educational Qualification/Investment Experience

Being highly educated (even having a Finance related degree) does not necessary mean that an individual knows how to invest in the market. Having a finance degree simply means that the Financial Adviser would not have to explain certain terms to you in as much detail as he would to a layman.

If you want to invest in the market, you have to put in the time and effort, it is your money, if you don’t work to make it grow, who would?
-EquityWatch

Credit: TheSundayTImes INVEST 22/07/12

Barclays & LIBOR

The London Inter-Bank Offered Rate (LIBOR) a.k.a British Bank Association LIBOR (BBA LIBOR)

Barclays LIBOR Scandal Explained (For the Financial Layman)

The LIBOR is the average rate of interest charged on short term borrowings between Banks (i.e. It is a short term interest rate).

Principal parties in Barclays: Marcus Ambrose Paul Agius (Group Chairman), Robert Edward Bob Diamond Jr. (Group CEO), Jerry Del Messier (COO)

Why do Banks have to borrow from other Banks?

• This occurs for various reasons. Banks have capital adequacy requirements (They have to hold a minimum level of liquid assets depending on the regulations set by the relevant authorities) which allow them to manage any withdrawals from customers, meet debt payments, etc. In order to maintain this ratio (Liquid Assets:Total Assets), Banks borrow from other Banks.
• This is a common practice internationally (LIBOR is not the only inter-bank rate out there). Other significant lending rates are the US Federal Funds Rate and the Eurozone Inter-Bank Offer Rate (EURIBOR). The Fed Funds rate is set by the Federal Open Market Committee (Like the engine of the car that is the Federal Reserve, the FOMC sets US Monetary Policy). The EURIBOR is an enlarged ‘Eurozone version’ of the LIBOR.

How is the LIBOR determined?

• Everyday, the Banks provide the hypothetical estimates on how much they would be charged on their borrowings for that day. After this data has been collected, the top 25 percent and bottom 25 percent is removed from the pool, and an average rate is taken from the remaining figures.
• These steps are taken so that no single Bank can manipulate the LIBOR. But Barclays did.

What Barclays did (According to reports concluding investigations into Emails, Telephone conversations, etc)

• By increasing (decreasing) its ‘hypothetical’ contribution to LIBOR calculation Barclays may end up in the top (bottom) percentile, effectively changing the LIBOR (For e.g., with four figures, 1,2,3,4, 1 and 4 is removed, and the average is 2.5. However, when 1 changes to 5, 2 and 5 are now removed, and the new average is 3.5)
• In reality, these may be insignificant, a mere change of basis points (bps), where 1 bp is a hundredth of a percentage point (0.01%)
• However, when you take the entire banking system into consideration, and include millions and billions of dollar into the math, the effect is substantially amplified.

The result:

• Because so many organizations/people/funds rely on the LIBOR, Barclay’s actions could have affected many people. Besides being used solely for inter-Bank lending, the LIBOR is also used as a guide for Banks setting interest rates on certain mortgages, loans, and even credit card debt.
• Traders within Barclays would have made profits on LIBOR fixed loans while possibly hurting others within Barclays. But externally, other banks would have made huge losses attributed to borrowing activity.

Remember, Barclays could not have done all this alone, if some other bank had done the same in the opposite direction (i.e. A low rate fixing instead of a high one), the effects of both would ‘cancel each other out’.

To conclude, Finance is largely a zero-sum game. Where there is a winner, someone (somewhere) always loses.

 

-EquityWatch

Australia: Dutch Disease?

The Australian Economy

The Good:

• Regarded as a ‘safe haven’ in the current financial chaos. High growth rates (Relative to other advanced economies), Strong AU$ currency (Not always a good thing, especially for exports), Stable government (Relatively, if you count out the fact that it was a ‘backstabbing’ coalition, and Sound monetary/financial system (We’ll give them that).
• Highest per capita GDP in the world (Nominal amount of US$65,000) [2011 figures/ranking]

The Bad:

• Currently a prime example of a ‘Two Speed Economy’.
  • Booming Mining industry while the other sectors (e.g. Manufacturing) are in decline.
• Australia should be wary of ‘Dutch Disease’  (http://en.wikipedia.org/wiki/Dutch_disease).
  • Many economists have constantly highlighted this possibility.
  • Not to worry. The world (and Australians) give Australia’s mining industry too much credit. Mining in Australia only makes up approximately 10 percent of the country’s GDP. In terms of contribution to employment, a meager 2 percent (Mining is very capital intensive, and requires little labor input. Machines and programs do the work now).
• High Aussie Dollar = Increased cost of exports
  • With a long running Current Account deficit.. Not a good idea.

Yes, take advantage of your natural minerals, but treat it as a short term bonus, not a sustainable long term source of economic growth. Use the wealth generated to train the future of the Australian economy.

-EquityWatch

Top Investors of Our Time.

Warren Buffett (a.k.a. Oracle of Omaha/Sage of Omaha)

• Recognised as the top investor of our time.
• Focuses on Value Investing and predicting future growth of a company by calculating its Intrinsic Value.
• “Noah did not build the Ark when it was raining”: Take calculated risks, and plan beforehand.
• Likes to invest in companies with a high ROE and low amounts of debt.
• Popularized the ‘Buy and Hold’ Strategy, where investors buy a stock and hold it for years.

Peter Lynch

• “Second best investor of our time”
• Managed the Fidelity Magellan Fund from 1977 to 1990, during which time the fund’s assets grew from $20 million to $14 billion.
• Lynch has been described as a ‘chameleon’, adapting his investment style to suit the conditions of the time.
• At an investment conference in New York in 2005, Peter Lynch shared eight fundamental principles he consistently applied:
  1. Know what you own.
  2. It’s futile to predict the economy and interest rates.
  3. You have plenty of time to identify and recognize exceptional companies.
  4. Avoid long shots.
  5. Good management is very important – buy good businesses.
  6. Be flexible and humble, and learn from mistakes.
  7. Before you make a purchase, you should be able to explain why you’re buying.
  8. There’s always something to worry about.

   

  -EquityWatch