atans1

TRE readers are illiterate in economics and finance

In Economy, Financial competency, Property on 19/12/2013 at 4:51 am

Or at least many are. Let me explain.

TRE posted this piece of mine on Reits.

It provoked a long rant* from someone called Armchair Anarchist. His or her basic grumble against the govt was that interest rates should have been raised a few back to curb various ills including rising property prices. It received huge positive ratings. And there are no dissenting views, not one.

Last yr around this time, I met an old friend at a function. He was an ISD detainee (short while and it seems ’cause dad was Barisan partisan)) and a strike leader. He later got a MA in Econs and was in admin service (taz meritocracy at work in S’pore, TRE readers, at least 30 yrs ago) before becoming a wheeler-dealer.He was, and is a proud S’porean. No S’pore hater he.

We were discussing what Tharman would do in 2013 to control inflation and property prices given that he couldn’t use interest rates, and the policy of strengthening the currency slowly was not working to control inflation or property prices.

We knew that raising interest rates would only make things worse. Given that everyone (except TRE, TOC and TRS readers) think that S’pore is a safe haven, raising interest rates will result in more foreign money pouring in to take advantage of the better yield here. The currency will be pushed up and exports and services will become uncompetitive. Prices of  most properties (and other assets) will rise. FTs will be willing to accept lower wages, ’cause S$ worth a lot more in their home currencies.

The result: a recession, unemployment among locals, deflation and rising asset prices (except possibly for HDB flats and low end condos: S’porean PMEs default ’cause they lose jobs to FTs). He and I and others with access to credit would make a killing buy low-end condos and renting them out to FT PMEs.

Is this what TRE readers want for Christmas and Chinese New Year?

Are they that deft?

—-

*Armchair Anarchist:

S-REITs payouts lean towards the high side of the global REIT market (e.g. average dividend yield of around 6+% compared to less than 5% in Japan and Germany, 6% UK). If dividends are cut by 20-25%, the yield is still relatively attractive given the dearth of high yielding instruments in Singapore.

But I do find MAS’s warning rather strange. If they are indeed worried about such things as REITs and the health of the Singapore financial sector in face of a potential rise in interest rates, the MAS ought to have engineered such a rise in rates at least 2 years ago and taken the froth out of REITS, the property market and reduced the risk in Singaprean banks’s balance sheets. Why issue warning now that the Fed may begin to taper when the MAS ought to have acted long ago? The easy financing for real estate speculation and the rise in inflation are not new. These had been with us for a few years now and are clear warning signs that interest rates are too low and liquidity too plentiful in Singapore. Look at bank deposit rates and CPF ordinary account rates: we suffered from negative real interest rates when adjusted for the underlying inflation rate (CPI is too crude, PCE deflator is a better indicator). When real rates are negative, the ordinary savers suffered as the value of their savings are inflated away. But it is great for speculators and big companies because it provides a very cheap source of debt financing.

Seems to me, the MAS is probably basking in the reflected glory of superior GDP growth while sleeping on the job in terms of forecasting the real threat to the economy. Another bunch of over-paid, incompetent elites?

Rating: +25 (from 25 votes)

Armchair Anarchist:

I like expand a little bit more on MAS caution regarding rise in interest rates.

My view is MAS left it rather late in the day to caution and to act if necessary. Certain sectors will be hit, not least real estate which had several adrenalin shots that propel values ever higher. But, for our savings and long term investments, it is no bad thing if interest rates are going up. It is my conviction that not just exercising political repression, the govt also exercise financial repression. I said before our AAA-rating is absolutely great for GLCs and big companies but a total disaster for ordinary citizens who have to save and invest for retirement and the rainy day. The Govt incessant extraction of revenues from all sorts of economic activity (tax, COE, surcharges etc)result in persistent budget surplus because in their anti-welfare extremism, the govt do not spend much on social, health and infrastructure programmes. Therefore, our bond yields are artificially low because the govt do not really need to borrow. The govt actually pretend that our CPF rates are pegged to market but in effect the govt control the levers of the bond markets giving themselves a low financing rate. The effect is that we received bugger-all out of bank deposits, CPF and bonds. Singapore company dividends are lousy because whatever crap they pay is still higher than CPF and bond yields.

So let interest rates go up. At least it reverse the equation slightly in favour of the man in the street rather than have the Govt, the GLCs and the big companies indulged themselves in winner-takes-all.

Rating: +20 (from 20 votes)
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  1. it’s partisan politics; including yahoo (sg) website editors; all the time and all the way.

  2. I disagree with both set of views. MAS uses the SGD as its monetary policy tool and not interest rates. Singapore’s interest rates are set by the commercial banks and these will go up or down based primarily on the banks’ needs for funding.

    Therefore the most likely scenario for Singapore rates to go up is that funds are leaving Singapore (or more correctly SGD) to, say, the US. This can happen if portfolio flows out (e.g. from tapering) are large enough to cause a liquidity drain in SGD or more likely when the Fed eventually raises interest rates.

    In that instance, even if SGD interest rates increase, it is unlikely that property prices will continue rising.

    In fact, my view is probably more aligned to the MAS economists’ views.

    • Might I suggest that you read what I wrote, rather than what you think I wrote. Nothing I wrote about my friend’s and my views on interest rates contradicts what you said.

  3. The economy is doing reasonably well the past couple of years. If you do not raise interest rates when the economy is doing well, when then should you raise interest rate?

    The other thing is that MAS can always fix a floor lending interest rate for property loans (like what is done for CPF). That way, interest rates for deposits would not be affected. This would then discourage the inflow of funds to park here or for property investment. Lower demand for property will result in lower prices (assuming supply is unchanged).

  4. […] TOC: Re-think the notion of Meritocracy in Singapore – Thoughts of a Cynical Investor: TRE readers are illiterate in economics and finance – Five Stars and a Moon: Jobism: Looking down on other […]

  5. /// He was an ISD detainee (short while and it seems ’cause dad was Barisan partisan)) and a strike leader. He later got a MA in Econs and was in admin service (taz meritocracy at work in S’pore, TRE readers, at least 30 yrs ago) before becoming a wheeler-dealer.He was, and is a proud S’porean. No S’pore hater he. ///

    You just described my good friend. Ex-stock broker by any chance?

    /// Are they that deft? ///

    No, they are daft.

  6. Some humility please! Doesn’t mean that if you think your view is absolutely right, that gives you the right to brand all TRE people as illiterate in finance & economics. The future outcome is still unfulfilled, yet you defend MAS stance as essentially correct in keeping interest rate low (zero interest rate policy). The eventual outcome is between a hard to a soft landing. My view is that MAS deliberately kept interest rates low for far too long. It will cause a hard landing! My view doesn’t mean that I’m illiterate. This comes from the Austrian Economic School of thought. They believe in the free movement of interest rates in creating market equilibrium.

    • Pls read what I said and comment accordingly. Don’t comment on what you think I said. For starters, I never ever said that I support MAS’s Stance. My point is that if it in last few yrs, MAS raised an interest rates it would result in even more money coming in, forcing up asset prices etc. So read carefully before talking cock. You sure you know waz Austrian school is all about? If you can’t understand what I said, I doubt you even know yr alphabet.

      • You’re an arrogant prick! Your piece supports the MAS stance clearly. I can understand your English but it seems your confrontational stance precludes any form of constructive arguments. You prefer to insult personally instead of engaging like a gentleman having an intellectual debate. Your loss!

      • Make up yr mind. Are you Social Cemmentator or Jonno? Or bi-polar? Pls move on from my blog.

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