Singapore Beware

It has become increasingly obvious that prices have risen a heck of a lot lately in our Little Red Dot since I last wrote about this topic. (The Little Red Dot Gets More Expensive)

Inflation may not be in the economic numbers but it can surely be felt in our wallets and in the greed to attain the material wants that this island has to offer. To aggravate the situation, the competitiveness on this island is greater than any other place I have been to in my extensive travels around the world, save Hong Kong.

The need to have and not the requirement to have has driven prices up to ridiculous levels not seen in the history of this country. Sure inflation increases as time goes by but this time, the increase is not because of inflation but mainly because people have too much easy money. And much of this easy money is not theirs to spend – its credit.

As previously mentioned in my earlier post, the government has taken measures to curb all sorts of inflationary pressures with their biggest move being the hike on Monetary Policy to discourage excessive spending. Immediately after that move, the banks dropped their lending rate and that brought on a spate of buying which has gone largely unabated since.

Now to make spending more rife, in an unconfirmed report, the banks are rumored to be considering lowering its lending rate one more time. Now, not being one to rumor-monger, I would rather wait for a confirmation on this before I make any comment on it but I cannot imagine the spending spree it would create in the current environment if the banks were to be this irresponsible.

As it is, car prices are already ridiculously high, thanks to a $62,000 COE (for cars above 1,600c.c.). Apparently, the coming tightening of COEs have driven more people to secure their second biggest investment ahead of the New Year rather than deter them. If you have no idea how incredulous $62,000 for a certificate is, then consider this – I bought my Suzuki Grand Vitara almost 3 years ago for only $68,800that’s just $6,800 more than the certificate alone today!! Still, buyers are rushing in and getting a car even at these irrational levels. And it is these buyers who keep sending prices up … not the government, the dealers or the banks. This is what I call an artificial demand – a demand created by Greed and not Need.

Parking spaces are always a good indicator if the economy is up or down. Obviously, spaces are easy to find when the economy is in pain. Today, the wait for a lot especially during “hot” hours or during the weekends can take up to half an hour in a best case scenario … and that is after fighting through traffic to get to the queue for the car park.

One other indicator that the economy is on borrowed time (excuse the pun) is that parking gets easier toward the end of the month. It is still a fight to get a space but at least the traffic seems lighter during the third and fourth week as employees wait for their next paycheck – a sure sign that most of our society is not cash rich enough to maintain their spree at the start of the month after getting their salaries. Even credit card spending decreases in the second half of the month as noticed by some of my students in the banking industry. It’s simple to know the truth – just look at your credit card statement and see how much you spend relative to your payday.

Another telltale sign that this is not the time to buy a car is when a Car Dealer tells you that they can’t afford to carry on their business because business is tough when the exchange rate against the Yen is not favorable. This tells us that no matter how high a price they sell a car, the business is struggling to make ends meet. Thus, they need to sell more cars. Thus, they need to guarantee a bid for a COE, Thus, they are the ones bidding it up. Thus, the price of owning a car goes up and still the higher price is unable to help the dealer be profitable. This gives birth to another problem …

Continental cars have become more attractive as the exchange rate on the Euro is more favorable as opposed to the Japanese cars with a higher rate of exchange, which makes them costlier. Thus, buyers would rather flock to Continentals even if they cost a little more because they think they’re getting a bargain for a European marquee. Japanese, Korean, Malaysian and Chinese cars are not considered good value given the price of Continentals. Again, this is Greed in the name of Face. Common sense prudence flies out the window. Its like buying something you don’t need just because you get two for the price of one rather than buy the one you really require without a discount.

Petrol prices are yet another warning indicator of this inflation. Prices have hiked and still people are not deterred. The last time oil went through the roof the market capitulated spectacularly. In fact, almost every time oil hit scary highs, the market soon tanked thereafter. And as of Friday’s close, crude oil is at a two year high and it is expected to go higher in 2011. This will bring back a a couple familiar phenomenon – people filling up their nice expensive cars with only $10 or $20 worth of fuel as they cut back on their expenses in a painful economy and second hand cars lots with no more space to spare when the economy hits rock bottom.

Commodity prices, not just oil alone, have gone up. This will have a profound effect on our consumption next year. Sugar, wheat, corn, cotton, coffee and soya beans have risen to record highs as a result of a poor 2010 crop harvest and the lack of supply has driven commodity futures prices up. This hike will be felt when we feel the shortages catch up on global demand next year. It is bad enough that my bowl of noodles already has less fish-balls than last year even as I pay more for it this year. Record high prices on gold, silver and copper will surely affect the price of electronics and appliances too. In the months to come, watch to see if prices increase amongst new launches of such products.

While all these external factors are worrying producers and manufacturers around the world, our economy is being lulled into a state of complacency. This complacency is evident in the way we borrow and spend today without worrying about tomorrow. It is also in the devil-may-care attitudes toward the soaring and unreasonable prices of the things we buy especially when we really don’t need them.

Complacency is one of the first signs of an overbought market and one of the last signs of an economic bubble. Thereafter, its pain all the way.

And for those following my ongoing saga in the property market … ask any decently honest property agent and they’ll confirm that sellers have relented and are buckling slowly but surely to the lack of demand for resale properties and some new projects. Prices have generally fallen by as much as 3% to 5% since 2 quarters ago. Personally, I have moved up the bidding queue on several properties I saw in the first half of this year. So not only are properties not selling like hot cakes anymore, they are starting to dip. FYI, I did not commit to any of those lower offers – I lowered my bid further. Take it or leave it. I am a buyer and I like buying low – I am not going to spoil this market like a lot of people are doing in the property and car markets by being “Kan-cheong” and “Kiasu”. It’s these buyers who will suffer especially if they are fulfilling a Greed and not a Need and if they are doing so with cheap monies.

So how can you tell if you are one of those people at risk of suffering if and when this bubble bursts?

If you fall into any of the above categories, you may be tempted to send me rebuttal to defend your position. But before you do, please know that it is my wish that we all have success in our dreams and have that dream lifestyle we all desire.

My point is that if you have fallen into one or more of these categories, then maybe you are realizing the dream before it is time to do so. Its called Instant Gratification. And this sort gratification often comes at a price later. Pride always has a price and it is often one we can’t afford. Plus, the people you are looking to impress with your “spending power” are the ones who really don’t matter in your life now or in the future. This is what I call a bad investment.

The difference between PRIDE and PRICE is only one letter’s difference but the consequence is a lifetime of regret.

Please, Singapore … be smart about your money. I know the price of ignorance, pride and complacency and I would hate for anyone to go through what I have been through. If we keep going the way we’re going now, I fear the worst for many a young Singaporean who will be caught up in this material greed trap.

Oh, … one more thing – the guarantee on your bank deposits expires in 20 days.

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Comments

When i drive around Singapore, i have observed that there are alot of condominiums. Some already build and some are in the process of building. Yes, i know that Singapore is trying to attract a lot of foreign talents here, but are we oversupplying? If yes, then we are in trouble. We all know that the law of supply and demand always prevail in any economy. If the housing is oversupply (thanks to people buying them to flip and developers hype), then we are in trouble. That mean that eventually, the housing bubble will burst.

With the cheap dollars printed by the FED in US, the world is carry away from the 2008 recession with lighting speed. Do you realized how fast we get out of this CDO, financial shits in 2008? Why? The world is flood with cheap dollars and that lift the world economy. Could this be a Black Cat down? The world did not allow the economic to see the bottom back in 2008. Around the world, they keep interest rate low, pump in more money to the economy and inject rally in the stock market with the help of the plunge protection team. Will this artificial lift going to last forever?

My conclusion is that it is not sustainable. Let’s see…

Yew Heng
http://www.EmbraceInternetWealth.com

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Quote : “So how can you tell if you are one of those people at risk of suffering if and when this bubble bursts? ”

Either it’s a bubble and will burst, or it’s demand side sustainable price increases due to a massive population increase in the past 15 years. So “if and when” doesn’t apply. Either you’re writing about a bubble which will eventually burst or you’re not.

Nice article. Many thanks for the time and effort.

The Singapore government refers to Singapore as the Switzerland of the East. Well, Geneva isn’t cheap. A high income economy means high prices, for everything. I see the current price increases, and 6% inflation, as part of a long-term, slow, yearly, grind upwards towards the high income objective. And Singaporean with low incomes, or over extended – collateral damage.

Nice article

Scott, I think you missed the point – this post is not about a bubble or the economy per se – its about spending habits.The message is not to be part of that collateral damage you mentioned.

The economy will do what it will do – our spending habits will dictate if we survive the consequences, suffer it or profit from it. Ours is not to predict the future but to always be aware of the inherent dangers that stem from poor financial habits.

Thanks for you contribution. It sure beats having to delete spammers.

A good article for everyone to be prudent in saving, rather than spending high COE to own a car and chasing high private property if you havent own any flat.. Another point to highlight is that one ought to be discipline in saving your salary most say 10% 20%, it all really depend on lifestyle but ultimately it depend how much one set your goals at what figure you want so that one can retire young. Dunno tell me you want to work till age 62 or even 67 without any $$ except your cpf.. Given another crisis, one is cash rich and is ready to buy cheap stocks or even invest in property at bottom price.. One must plan far ahead to make our money grow at better interest rate to beat inflation, achieve financial independence early.. Financial literacy to grow our $$ should be teach in school early to educate the youngster so that one would be wise in term of investing their money into different portfolio when one grow up. This financial education is also important to everyone especially adult to bring more awareness of using their monet wisely.

Hi Conrad;

Your last night Christmas gathering was great! I am one of the fellows that feels next year’s economy should go sideways. Even with your Elliot Wave, my personal take that it would go for a correction before reversing again. I feel that unemployment rate had been dropping, slowly but surely. Flipping through the newsapaper, seeing how Singaporeans are spending big for this year, somehow, it rang an alarm in my mind. (http://www.todayonline.com/Hotnews/EDC101218-0000159/Return-of-the-big-spender). I quote “the lavish ebullience is being witnessed at many entertainment outlets here. If a recent New York Times article is anything to go by, it mirrors the trend of indulgence among Wall Street’s and Hong Kong’s corporate elite.” Singapore is seeing inflationary pressure, with such indulgence, I am indeed fearful when everyone is greedy.
Correct me if I’m wrong. We have 2 major financial crisis in the last decade. 2001 is the the Asian Finaincial Crisis, can history repeats itself in 2011? Is another one in the making?
I came across an interesting article, (http://www.marketwatch.com/story/insiders-are-headed-for-the-exits-2010-12-15), the first few sentence already got my attention. The rate of insiders selling their company shares is 7 times more than buying shares. It’s not seen since February 2007. Insiders are quietly exiting the market, selling their own share despite reports rising employment didn’t click. It just didnt feel right when people start to spend big right after crisis not seen since the great depression. I turned cautious, and that’s my most cheerful view.

Hi Conrad,

I’m a middle income 20-30 Singaporean who’s considering to buy my first private property instead of a HDB. My main intention is to rent it out while i continue to stay at my parents’ house. Is it a wise choice or HDB is still the way to go?

Regards

You buy that private prop and you kiss the HDB away. You buy that HDB and you can’t rent it out … Catch 22.

But in time, you can keep that HDB and rent it out and still buy a private prop while keeping that HDB. But you can’t buy an HDB if you already own a private prop.

HDBs don’t depreciate as much in a downturn as private properties.

Tough choice … The question is what are your long term priorities?

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