TR EMERITUS

With European equity markets down over 40% and US markets down over 35% Singaporeans must be wondering what has happened to our reserves. LKY always claimed that Singapore’s success was built on depriving Singaporeans of even the most basic social safety nets enjoyed by citizens of other countries much poorer than Singapore (if measured purely by GDP per capita) through policies of severe austerity, forced saving and state ownership of 90% of the land and up to 50% of the economy. The rationale for these policies, which kept Singaporeans much poorer than they should be, was always that prudent and skilful investment of the resulting staggering surpluses would result in an enormous cushion of reserves. for a “rainy day.” Never mind that the rainy day is always ill-defined and somewhere over the horizon! One of LKY’s key methods of building up the reserves was for Singaporeans’ forced CPF savings (over and above that which Singaporeans were allowed, or in reality forced, to use to pay rent up front on overpriced 99-year leasehold HDB) to be lent to the Government which would then invest it through its own special investment firm, the Government of Singapore Investment Corporation (originally known as GSIC but now shortened to GIC). What at the time was a very low interest rate was paid to CPF savers (currently between 1 and 4%) while any returns above that would accrue to the Government. At the time this seemed like an easy way to generate high returns since GIC had a stable source of cheap very long term money. In order to control this huge pool of money and be able to use it as to buy friends abroad and pay sycophants (a euphemism for prostitutes) at home LKY made himself the first Chairman of GIC. His son has kept his dad’s tight control over the nation’s finances by making himself Chairman of GIC in his turn, but has tightened his grasp on citizens’ money by ensuring his wife controls the other main component of our reserves as CEO of Temasek. While PM Lee says he is not paid anything to be Chairman of GIC, the same is certainly not true of his wife, whose remuneration is so enormous that his Government refuses to tell us what she is paid for fear that it would open Singaporeans’ eyes to the true nature of our totalitarian regime and show we are little different from an Angola or Kazakhstan. LKY’s idea of using leverage to make money must have seemed like a stroke of genius since for most of the last forty years CPF savers were woefully under rewarded. The only problem is that the Government appears to have been very bad at investing the money! As I argued in several articles published in 2012 (see links below) the amount of total assets shown in the Government’s Statement of Assets and Liabilities (SAL) is far too low given any kind of reasonable assumptions about rates of return on the borrowed money. And my calculations assumed that Temasek’s assets were not included in the SAL. If they are included then the returns have been even lower. This is what I said back in 2012: Even on the most conservative assumptions there should be nearly double the level of net assets (and double the level of equity belonging to Singaporeans). There would seem to be only two conclusions: There are substantial hidden assets and the Finance Minister has presented a misleading statement of Singapore’s balance sheet to Parliament and the President. For instance MAS had over $300 billion of foreign exchange assets on its balance sheet which should be in the ALS since MAS is a Schedule 5 company. However the counterpart of MAS’s assets are the liabilities it owes to the government in the form of SGD deposits and in fact its net equity is only about $25 billion. To include both in the ALS would be double-counting. Alternatively Temasek or GIC’s assets might not be in the ALS. Again this would be both a Constitutional breach as well as extremely unlikely as another entity (a stealth fund) would surely show up in regulatory filings somewhere in the world. Returns have been extremely low, maybe even lower than what the government has been paying out to CPF holders which explains why it has been changing the rules on payouts to disadvantage account holders and lengthen the period it can hold onto their money. There is a third scenario which is extreme but without answers and transparency how do we actually know anything?  However even without this extreme scenario we should question why the returns achieved are so at variance with the government’s claimed returns. Before they contemplate raising taxes, the Finance Minister and the PM should come forward and give a proper explanation of the discrepancies in the government’s accounts. They also need to give an accounting of their management of our money and why performance has been so poor.  It is up to you not to let them get away with it. Of course my calls for an explanation fell on deaf ears. As we have seen with the PM’s refusal to tell Parliament what his wife is paid, the Government will not provide any meaningful information, either about the reserves, why the Net Investment Returns Contribution is never actually spent but shuffled from one pocket to another, or about the puzzling disappearance of billions of dollars put into long term funds (a key example being the Productivity Fund under the PM’s direct control) Lee Hsien Loong’s Government was able to ignore my questions while asset markets continued their inexorable upward trajectory This all changed after 29 February when US equity indices hit all-time highs despite what was happening in China, Iran and Italy and the coming global storm. Now that we are facing a greater crisis than 2009 and one from which the recovery is likely to take much longer, Singaporeans should no longer be complacent about the state or management of our reserves. Click to enlarge In particular the recent large falls in equity and many Government and corporate bond markets expose the dangers of employing leverage using Singaporeans’ CPF savings. If we look at the most recent SAL showing the Government’s balance sheet at 31 March 2019 total assets were some $1,174 billion. Tha balance in the Government Securities Fund at the same date was $609 billion. If listed equity markets have fallen by 35% since the last balance sheet date then this component of the balance sheet will only be worth $280 billion instead of $430 billion. It is not unreasonable to think that unlisted equities (particularly in tech companies like Airbnb or Uber) may have fallen by 60% or more. However let us assume that their valuation has fallen by 50% since the last SAL date. In that case the value of unlisted securities may have fallen to $155 billion. Assuming that the value of Government Stocks remains unchanged (perhaps a big if given rising yields in many government bond markets and that the cash component remains unchanged and is not pledged elsewhere or trapped in other ministries, statutory boards or government-linked companies, then the total value of assets available to cover the bonds the Government has issued to CPF in exchange for your savings might be as low as $800 billion. It is possible the situation could be even worse. If, for example, many of the holdings of Government stocks and other securities are through external managers and they have taken on leverage, as Bridgewater (the world’s largest hedge fund and a partner of GIC, revealed recently while disclosing large losses in supposedly safe areas of their portfolio, then the cover remaining may be even less. It might only take another two down days of 20% for the Government’s assets to be less than it owes to Singaporeans! Singaporeans should rightly be very concerned, not just about their jobs but about their savings which they have foolishly allowed the Government to control for decades now. If there is not enough money to repay CPF holders then the Government can borrow or print money (though they are barred under the Constitution from borrowing from MAS), leading to a depreciating dollar or burdening future generations or they can raise taxes, as Lee Hsien Loong has already said he will. It is not hard to see that GST could be raised to 20% while the top rate of income tax is kept low, supposedly to attract “foreign talent”. The Government has so far kept silent on the damage to the reserves from recent market falls and whether our CPF is now at risk. This goes against the most basic principles of transparency and accountability but will continue as long as Singaporeans continue to blindly trust them. In the coming election PAP might for the first time since my father won Anson in 1981 get a clean sweep of all the seats in Parliament because of the coronavirus pandemic. I would ask that before Singaporeans think of voting blindly for the PAP and Lee Hsien Loong yet again they write or try to see their MPs and ask them to ask questions in Parliament about what has happened. At rallies keep asking those questions and do not stop until you get answers Otherwise you only have yourself to blame. https://kenjeyaretnam.com/2012/09/07/where-have-our-reserves-gone/ https://kenjeyaretnam.com/2012/09/23/sherlock-holmes-and-the-case-of-the-missing-reserves/ https://kenjeyaretnam.com/2012/09/17/an-open-letter-to-toc-in-response-to-their-removal-of-my-article-where-have-the-reserves-gone/ https://kenjeyaretnam.com/2012/09/17/a-short-note-on-where-have-our-reserves-gone/   Kenneth Jeyaretnam * The author blogs at https://kenjeyaretnam.com/.        Read More →

The Multi-ministry Task Force is playing a chess game - more for politics and economics than public health. The ST headline (25-3-20): “Sweeping new measures to check virus spread” sounds more a political statement to bolster the crumbling image of the Task Force than to fight the virus to safeguard people’s health. And there is no better time to glorify the work of the politicians in the Task Force than now when the total number of infections in Singapore has reached an all time high of 558 - to show actions in crisis. Singapore has been seeing double-digit jump in infection cases daily over the last week or so. The Task Force simply failed to keep the infections down despite exploring various new measures. Instead of closing casinos, Universal Studio and shopping malls, they close bars, clubs, cinemas and even atrium sales events. Instead of closing schools, kindergartens, polytechnics and universities, they close tuition centres and enrichment classes to reduce intermingling of students from different schools (but aren’t all students in all schools are similarly screened daily before entering their schools?) Instead of banning all social events and gatherings for 2-3 weeks, gatherings outside of work and school are to be limited to 10 persons. (In a train compartment, there are easily 10 or more commuters in the morning hours, yet nothing was done to minimize risk of infections.) How can such limited measures be described as “sweeping new measures?” Just compare these limited measures of the Task Force with some bold and decisive measures adopted by other countries: -UK shut down the Metro, closed schools and universities and suspended the A-Level exam; - Japan PM announced the closure of all schools; -PM India announces 21-day lockdown of India from 24 Mar; -Thailand shut down all schools, universities, shopping malls and restaurants; and - PM Malaysia announced a lockdown with restricted movement order from 18 to 31 Mar. A good example to look at is South Korea with a population of 50m. With the sudden and sharp increases of new cases which almost drowned the country, the health authorities managed the epidemic with courage and transparency. It has now 9137 cases and 126 deaths. Total deaths/1m pop is 2. How did the country overcome the massive virus threat? This is how the S Koreans won the battle: 1. Intervene fast, before it’s a crisis; 2. Test early, often and safely; 3. Contact tracing, isolation and surveillance; 4. Enlist the public’s help. (ST 24-3-20 “Coronavirus: How South flattened the curve.”) It’s success was recognized by WHO as a model for emulation. Yet, the country remains modest; “South Korean officials caution that their successes are tentative.” Compare this to Singapore’s posture with no end to citing WHO’s compliments and the “gold standard” the country has achieved. Singapore is far from overcoming the Covid19 crisis that South Korea went through successfully. South Korea’s extensive testing of the population shows it has no fear even the numbers of infections are high. It’s all about public health and safety of the people, no politics. Sure they are concerned about the negative impact on their economy but public health remains the top priority. Thailand’s Minister for Public Health Anutin Charnvirakul, in an interview with CNA on 19 Mar, said that the work of fighting the Coronavirus was done by a big team of doctors who worked in the ministry for a long time and they put up the plans and the politicians only gave approval and provided the necessary support and resources. In Singapore, the two co-chairman and all members in the Task Force are political appointees. We must therefore expect a high degree of politics in the decision-making process. A high and rapidly rising numbers of infections, though a public health issue, could be viewed quite differently by the Minister of Health and his co-chairman. This probably, could be the reason for the Task Force spending much time to grapple with many issues, unable to decide quickly which measures to take and finally chose those with the least resistance. Obviously, there are political considerations beyond public health to consider if politicians are decision-makers in a public health crisis. How can the closing of tuition centres and enrichment classes have the same capacity to help Singapore contain the local spread among the student population? So, these new measures are far from “sweeping.” With today’s spike of 73 new cases of which 18 cases are linked to PCF Sparkletots Centre, can we still believe the Task Force is keeping the Covid19 epidemic under control? And the PAP government is still thinking of holding the GE soon to seek a new mandate to see Singapore through. Do they really deserve such a mandate? Take care, be safe.   Kok Ming Cheang        Read More →

I posted a forecast - the global stock market will recover on 9 April 2020. It attracted a lot of interest. Several readers asked me to explain my forecast. Here is my explanation. I replied that my forecast was based on my crystal ball. I have an old crystal ball, which is older than me, maybe more than 100 years old. Being old, it is not very accurate, and not very clear. So, the forecast could be off by a few weeks or a month or two. That was made in jest. Anyway, you should not be too rigid about the 9 April date. Here are the real reasons for my optimism: a) I expect that Saudi Arabia and Russia will come to an agreement to limit the production of oil and to support the price. That decision will cause the price of oil to shoot up and the stock market will follow. b) In a few weeks time,  the countries that imposed a total lockdown will announce that they have succeeded in controlling the spread of the virus. This is likely to be the case because (in my opinion) the corona virus was already quite widespread already and could not get much worse. The news should cause the population to feel relieved and the stock market to be positive. c) There will probably be some news of success of some newly developed vaccines in combating the virus. This will give the reason to be optimistic. I expect at least two of these three events to happen to cause optimistic in the global stock market and for a recovery. I have only one reservation. Maybe, it will take a bit longer than 9 April for the recovery to take place. In that case, I will blame my old crystal ball for the lack of clarity. Some people think that I wanted to boost up the stock market because I am heavily invested in it. This is partly true. I believe that the meltdown is overblown and overdone. Indeed, I have uninvested cash that I had been investing during the past two weeks, when the market kept falling. I will continue to invest my remaining cash to buy the shares at the ridiculous low levels. If I am wrong, I can afford to wait for the eventual recovery. I expect it to happen sooner, but if it takes a longer time, it will be all right. I am investing cash that had been kept uninvested for several years. This is the right time. Even if the stock market remained low, I have no need to sell the shares to realize the cash. Most of the shares that I bought have low price earning ratios, good dividend yield and have a discount on their asset values. I have to add a few words of caution: a) Do not borrow money to buy shares now. It is too speculative risky. b) If you have uninvested cash, you can follow me and invest them c) If you have already invested and are worried about the paper losses, stop worrying. The current low prices do not reflect the real value of the shares. Just ignore them. Tan Kin Lian      Read More →