Showing posts with label economics. Show all posts

Broadsheet Rhetoric for a Small Country. Jan 2023

The rhetoric on the broadsheet where I live in Singapore ( which is hardly credible IMHO which is in the process of being nationalized in some shape or form) should liken to walking the tight rope in a circus and not take sides and risk getting caught in the cross hair of a proxy war (economically or militarily).

The first two PMs with their astute foreign policies (especially PM Lee Kuan Yew) and ministers have done well in the midst of Vietnam and Korean War. I cannot say the same for the current PM Lee Hsien Loong. He spent our precious diplomatic bullets by making jokes that the air and water quality in Beijing a few years back were grouse. These off the script comments didn’t go un-noticed in Beijing and perhaps the payback came in the Hong Kong custom impounding our armored vehicles enroute from Taiwan to Singapore whilst the ship took a layover in Hong Kong. That escalated quickly from ambassadorial to ministerial level. China has sent a message to Singapore that they were not amused about the joke.

Public Service Commission (PSC) should strongly consider putting more scholars in the likes of Tsinghua University and University of Peking to inject more stronger social network between the future bureaucrats of tomorrow rather than just Oxbridge and ivy leagues in USA.

To date, I only have one friend who did post grad in Tsinghua on his family scholarship. The road ahead is foggy, and we need shrewd PM and foreign ministers. I rarely praise PAP but sidelining Tharman and George Yeo for the role was a really bad decision.

With the rhetoric between China and USA on a somewhat sour note on both military and economics, we should posture ourselves as friends to all and enemies to none.

Peter Lye aka lkypeter
lkypeter@gmail.com Safe Harbor. Please note that information contained in these pages are of a personal nature and does not necessarily reflect that of any companies, organizations or individuals. In addition, some of these opinions are of a forward looking nature. Lastly the facts and opinions contained in these pages might not have been verified for correctness, so please use with caution. Happy Reading. Peter Lye (c) Peter Lye 2023

Not So Moral Satire – Dec 2022

Ethics as the yardstick by which society measure actions.

Morality the self-administered litmus test by which individuals ascribe their actions against their values.

Legality for constitutional, legislative and precedential is the pragmatic yardstick of black and white in society.

Universal values and mores is therefore a punch bowl of these ingredients so black and white does not exists save for the wide spectrum of greyness in which man co-exists

Projected Put Protection Cost/Day(Bubble Size)-BABA - Aug 2022

Been trying to make use of stock options to predict forward stock price besides the infamous calls/puts ratio of my own.

So far in terms of downside risks, I have derived this graph from the Friday closing price of BABA (ADR) and their put options to protect against downside risk in the forward periods by deriving the cost of protection proxied by the call outs in terms of expiry dates, strike price ( averaged ) and the internal rate of return. For example.

For expiry 26 Aug 2022, the averaged cost is US$86.91 and the internal rate of return is 0.3897% whereas furthest out for 21 Jun 2024, it can bottom out to US68.30 and 0.0278%.

Will these prices be reflective of the forward downside price of the stock?

Singapore is not Turkey - Diversifying your Currency Risk - Aug 2018, published Apr 2020

Singapore is not Turkey is a mischievous attention grabbing title with the Turkish Lira moving everywhere with no destination in the horizon. Imprinted against little red dot Singapore lies a good measure of wisdom, foresight and measures ( yes indeed ) we can take to lessen potential future pain suffered by those with interest in Turkey or Turkish Lira.

Like many Singaporean man in the street, personal balance sheet used to be denominated ONLY in Singapore Dollar (SGD) assets and liabilities until recent past where I ventured to park some currency UNHEDGED instruments after much thought. Had a tensed social debate with a secondary school classmate on this topic at his home a few New Year Eve ago. Our spouse thought it was getting out of hand but over the years we have very much learnt to agree to disagree having worked together to produce our school magazine at 16 year old. Why is there a need to diversify my SGD exposure if the intention is to retire here as it would be a natural hedge; SGD-SGD; so goes the conventional wisdom. After USD was delinked from Gold Standard, all currency essentially became Fiat currency. Absolute measure vaporized as most currency became relative to each other. Sovereigns issuing currency controlled their supply by literally printing money. Simplistically balance between demand and supply was chief in determining its price. To inculcate budgeting, the common rhetoric that they are not printing money ought to be yes but government all over cannot escape the enticement of running fiscal deficits. The small number of countries with net positive fiscal budget in the last 11 years of economic rally is proof of this.

Inter-government agreements are hardy and essential to drive everyday economic decisions. Under pressure, it could be porcelain brittle and break. Turkey is geo-politically sandwiched between East and West and has 2/3 of its important political levers in EU being a member of both NATO ( perhaps not for long in light of her recent

purchases of Russian arms ) and EU common market. Turkish Lira (TRY) is the local currency unlike most EU countries that adopted the common EUR as their local/regional currency. Barring her differential on Iran, no credible rescue was in sight for TRY.

Without belittling our ASEAN 2 billion emergency currency swap agreement, I doubt the utility of such firstly because the amount is perhaps good against very temporal market alimonies but not sustained structural or systemic issues. Hong Kong just burned HKD $2.195 equivalent in reserves today 15th August 2018 buying their currency to support the peg. This is not her first neither will it be her last if the USD/HKD 7.8 peg were to stay. As we speak, India and Indonesia are also dealing with their own currency issues as the Turkish crisis is turning systemic and spreading to other Emerging Market currencies.

Secondly, economies are more global and connected now and local issues can turn systemic regionally or globally faster. If fires were to break out systemically across ASEAN, each man for himself would most probably rule the day. Although ASEAN members have sustained ties and common interest, the firewall separating each sovereign member might prove more polarizing.

Fiat is no Faith. Anyone who claims irrefutably to robust understanding of Forex is most probably a liar or living in their own world. Global forex is huge and complex and I doubt anyone have such mastery as he would be the richest man on earth if so. Boundless talent from economics (not exactly a science to some), mathematics, physics, biology to computer have been working on it with very limited success. How to have faith in something with little understanding though my fellow Christians would argue otherwise. To them, faith is believing in the unseen.

Currency is essentially the cornerstone and keystone architecturally speaking of our everyday living being the starting point and without which the structure will fall. Being a necessary devil having an ostrich mentality isn't helping unless living in an Amish community is your cup of tea. Undeniably, as human progress, our ability to live in isolation decreases and with it the need for money as a medium of exchange. Some archaeologist believe that a healed femur is the green shoots for signs of a civilization and along the same lines, money might be proof of civilization reaching puberty but not her zenith. Healed femur was proposed because it might be proof of mutual care between humans. Money isn't the perfect medium of exchange; in fact it rates poorly in some quarters like equability but it is the best that we have. Even the communist saw a need for it.

Risk where more can be less. Markowitz, the father of modern portfolio theory opined and justly rewarded with a Nobel prize that that non-systemic risk in portfolio can be reduced through diversification. Recent critiques highlighted many limitations with this theory chiefly because the theory was more applicable as a reduction of standard deviation rather than risk. Others relate to short selling and questionable effectiveness for market makers as oppose to takers. The important theme being that diversification does reduce risk in general everything else being equal.

Singapore Government Bonds are denominated in SGD and this can be a double edged sword. Post Mexican debt crisis, central banks and governments began to realize the hazards of issuing their bonds in foreign currencies but many are still cornered to do so. The market for bonds denominated in their local currency might not exists or the interest rate could be too sky rocket high to compensate investors for taking such risks. Singapore government remains a rare majority within emerging market economies that still issues bonds in their own currency. However, if you are holding on to such bonds, there is a very remote but should never be overlooked risk of the government monetizing such bonds by printing money in very desperate times.

Pragmatically, I would do better to have part of my personal balance sheet denominated in other currencies although the plan is to retire here. In the last 3 decades, even major currencies like USD, EUR, GBP, JPY, CNY have all fluctuated by more than 20% in terms of their relative value to each other. Other currencies have seen near total collapse or major devaluation especially in smaller economies and less developed countries like Mexico, Indonesia, Venezuela etc.

Although Singapore is no Turkey, it is still better to diversify your risks as no one can guarantee you that Singapore might not turn Turkey in the future figuratively speaking.

COVID-19/EBOLA/SARS – Economics, Societal and Political Narrowness-April 2020

Amidst the lockdown or to be politically correct mobility circuit breaker due to COVID-19, I dusted something penned on Ebola and SARS in 2014. Recomposing the current COVID-19 global crisis against my old brainwave in 2014, there were striking similarities and differentials on the societal and political fronts. Seems like our

human race is more xenophobic and
short-sighted collectively than many like to believe individually. Collectivism and individualism could be at polar opposite especially on orphaned issues.

From the comparison between Ebola and SARS, my narrative on the biggest similarities and differentials were along the lines of lack of therapeutics or vaccines, orphaned disease status of the poor and infectability in terms of R⁰. Ebola was clearly an orphaned disease of poor Africa. COVID-19 and SARS share most similarities excepting orphaned disease and the spiraling extensive spill-over into the economic, societal and political fronts. There has been reports of overwhelming over-arching philanthropy across economic lines from rich to poor, societal margins from capitalistic to socialistic leanings through various governmental support schemes and lastly on political and diplomatic agendas from cross country aids as well as putting aside rhetoric like the trade war between America and China. Major problems plaguing these as are their shallowness coupled with lack of depth or sincerity and lack of a trust-worthy leadership to carry these through. Philanthropy has been sparse and even for the few, they were more Hollywood than reality.

Echoing current IMF views that a lack of post COVID-19 solution like who would own or pay for the bill of the bailouts cannot be reason enough in this hour as the impact of stasis is un-imaginable chaos that will be harder to see daylight, this line of reasoning carries the hazard where the fittest might leverage to maximize their interest instead of being applied to the needy. This is not an unreasonable worry as 2008/2009 schemes like the troubled asset relief program (TARP) in USA has mainly benefited Wall-Street who were the main culprit leaving much of main street to shoulder the burden although Wall-Street would opined that they re-paid every penny but imputing the risk adjusted interest on these re-payment makes a joke as Wall-Street are supposed to be good at pricing risk. They operate the primary risk market not only for financial risk but a broad spectrum from food to natural resource like wheat, corn to oil and metals. The best legal and law making minds must be deployed to craft caveats to guard against such through either a combination of policies and wide ranging prosecution measures embedded to make such attempts improbable. The process of law making and has mostly tipped in the favor of industries through their lobbying machinery against limited resources of the populace. In addition, history through the ages and across civilizations have taught us that legal frameworks does not ensure that justice is served in all cases as at the perimeters, the powerful do get away normally out of legal technicalities or the voiceless poor given all but cosmetic legal aid defense or not getting the necessary time of day from the public prosecutors who holds some discretionary power. Although this is not the most urgent, its importance cannot be thrown under the bus of urgency.

The current COVID-19 situation is slightly different as the source seems to be a product of mother nature although the verdict is not or will never be out on it as with the likes of SARS, better to focus on the solution for now. Unlike events like WWII, nipping the bud in terms of eradicating the primary agents like the Axis of Evil will not solve the problem. This is entertaining the wildest far fetched imagination that it might be a product of scientific laboratory malfeasance or accident unless the source possess the formulary to the anti-dote in the form of a combination of therapeutics or vaccine.

If the therapeutics and vaccine path is unlikely to yield significant results in the short run even if FDA fast track the time to bedside usage or relaxes the criteria and hasten the approval of non-approved pipelined drugs on compassionate grounds, it is good that the medical community is visiting the re-purposing of existing drugs used for HIV, Cancer, Flu and the 100 year old plasma therapy to fill in the gap. These initiative are important as COVID-19 can do a lot of damage in the minimal 12 to 18 months it takes to get a new drug in. Perhaps, targeted research should be directed in this direction in the short run as what we need is a tool that can drive in the proverbial nail and not necessary the perfect hammer.

Another big hurdle is the accuracy, speed and cost of testing for COVID-19 for more effective epidemiological and public heath measures to work. No test is perfectly accurate but the existing gold standard using certain RT-PCR process has an exceeding low level of accuracy in both type I and II errors as well as a big indefinite band in statistical speak. Head of WHO has gone on record in an earlier press briefing comparing the accuracy of HIV test against COVID-19 test with the former having a confidence level of more than 99% and he did not reveal any percentages in the case of COVID-19 but add that he is less sure. A possibility is the newness of the test and lower population size to arrive at higher degree of confidence. Some health authorities have adopted the 2 to 3 serial consistent testing results to increase the level of confidence. Speed of the test is crucial with a fast spreading disease like COVID-19 and current RT-PCR test takes hours or days to turn around. Some of the processes in RT-PCR involves centrifugal spinning of samples and re-agents repeatedly that cannot be short cut. Cost was a hurdle in some countries as the cost of RT-PCR test can be in the hundreds (USD) and initial USA health insurance coverage presented a cost issue as some patients without requisite insurance coverage and large co-payment might not be able to afford or simply do not see money well spent for the test. This has been largely addressed in most health authorities by having the government bearing the cost of the test. On this note, it surfaces that cost of health care is no longer entirely a private and individual concern can be dependent on the least common denominator in our population and therefore perhaps another case for social medicine.

Some diseases like COVID-19 do not live in a vacuum and pull rail truck loads of collateral damage the length and speed of the Trans-Siberian Railway along with them. Although the collateral damages and its interlinkedness makes it difficult to separate between cause and effect, perhaps centrifuging the maze of collateral damage might spread them out on a spectrum for better visibility and addressable bit size.

Economically, it would generate simultaneous demand and supply shocks resulting in massive un-employment or a newly coined temporary non-employment with wage freeze. Unemployment in USA is north of 10% within weeks of limited lock down measures. Airlines were the first industry to be impacted intensively and extensively at the speed of light. It didn’t help that Boeing, one of the two largest aircraft manufacturers globally was already reeling in a safety crisis resulting in planned shutdown of some facilities after two crashes of her new 737-MAX leaving about 100 newly built 737-MAX aircrafts sitting parked in their facilities un-deliverable as airlines refuse delivery and some even threatening to cancel orders or not exercising purchase options for pipelined orders. Problems of another nature surfaces as shortage for personal protection equipment (PPE) to both protect front line staff especially those in medical and essential services. Key amongst the shortages were for surgical masks, N95 masks, ventilators and disposable protective suits. Complicating this problem further progression or some say regression, the manufacturing process and supply chain has become longer and more complex. Most end products traverse continents with thousand of touchpoints each of which is highly specialized to be optimized. This could be one of the reasons to keep some of these manufacturing facilities and supply chains mothballed instead being liquidated to pieces with lesser hope and longer to re-assemble after the crisis. There is always room for re-organizing and re-purposing resources for shorter term needs but the choices have to be made holistically for the longer run and not solely on economic basis.

The central banks have been quick perhaps too hasty in re-acting to ensure proper functioning of the banking system and liquidity a float. Central banks have chiefly operated in the domain of interest rates, reserve ratios, government bonds and the like even during various quantitative easing undertaken previously. Even wildest dream could not envision central banks dabbling in corporate bonds even venturing onto those rated as junk by the big 3 rating agencies so long as the downgrade to junk happened after the onset of the COVID-19 crisis or can be attributed to the COVID-19 crisis. This might be done on the one market without any restrictive covenants limiting certain top executive compensation, share buy backs, dividend payments and declaration or the likes imposed on companies that took money under TARP. This can present itself as a money making trading opportunity by tail coating behind this novel and more opaque move by the central banks with little or no accountability.

As most currencies are principally issue on a fiat basis with some like HKD based on a peg to USD, a lost in trust in any major currency could fall quickly like domino into a global monetary system collapse. The result might be a return to the ancient practice of barter trade. Barter trade might not necessarily be a bad temporary solution. However, the slide into barter trade will be anything but orderly and might entail societal anarchy if not properly unwound.

Politically, the COVID-19 crisis could polarize countries further. It is a funny phenomenal that as our world become more inter-connected through technological leaps in air, sea and land transportation and tele-communication, countries are turning more xenophobic. This could further fracture crack lines already present in relationship between countries and escalating into trade wars, border disputes and perhaps limited scale local or regional conflict. Such conflicts can leveraged by super powers into a proxy war with an enlarged foot print.

Assuming that humanity crosses this sea of danger to land safely on solid ground, economic frameworks for distribution of wealth, societal norms for power allocation and political boundaries and agendas might have to take a reset. Communism might attempt to green-shoot but its track record is both too poor and tainted. Capitalism will most probably still win the day but the wide ranging GINI might not withstand the weight demanded by social justice and the clarion call for a more egalitarian society.

Finally, humility and transparency should trump over over-confident smug calls by the authorities. We might be in the early days where the known-unknown and the unknown-unknown dominates the scene. This is no time for evidence or fact based decision not that we throw caution to the wind and make decisions recklessly. It does call for novel, adoptive and practical approach in place for bureaucratic norms and precedents. For example, the not wearing masks in public is a poor judgement just because there is no proof that wearing of masks reduces spread of the disease. Why not explain that we might not have enough masks as we do not know how long the crisis might last and and need to prioritize for front line healthcare workers and are working on the supply situation actively either through local manufacturer or overseas sourcing. It was quite clear that masks were hard to come by in retails pharmacies and even at government pharmacies at times. Now that we have photos of our PM and his cabinet wearing mask during their meeting tells the obvious. The lack of public hospital beds has been a problem of many year with the long wait time between transfer from A&E to wards taking hours sometimes up to 12-20 hours is proof of that. We cannot degrade this deficit in healthcare facilities under the bus of more urgent matters any longer without paying a dear price as has been shown in various parts of the world recording needlessly higher mortality due to a lack of hospital beds and ventilators.

MediShield Zero Dollar Buffet Syndrome Part I:TheProblem– Peter LYE, February 2017

The outcome of the zero-dollar rider plans offered in a big way in November 2015 together with MediShield Life after its first anniversary should surprise no one except perhaps the government and insurance companies. Excuse me for the dry humor.

Patients on such plans wanted and expected a cost no object solution to their medical problem as they felt deserving having paid higher premiums for it.

Specialist doctors (not all) tested the beach heads on how far they can bill for their services for such patients since their insurance are paying.

Insurance companies devised plans to guard their beach heads whilst moderating behavior of customers resorting to “reasonable and customary” clauses in some cases.

Government explored soft intervention whilst busily exploring regulatory and legal options behind the scene to keep health care affordable, progressive qualitatively and waiting periods reasonable.

Supply of specialist is fixed in the short term due to limited the long post grad training periods and limited mentoring slots. For some sub-specialties, the total number in private practice is just slightly north of single digit.

Demand for specialist healthcare is also fixed in the short run though it can change with demographics. Save for aesthetics medicine and certain plastic surgery, normal people are not likely to create new demand for specialist healthcare.

One of the primary reason why specialist doctors can adjust their charges northward with less resistance is the mis-match between the consumer and payer in the short run which are faceless insurance companies with their leverage further weaken by the zero dollar clause. Consumers are cognizant that their behavior is against their interest in the longer run as premiums would rise if such trend continues unabated. The lack of direct impact of their behavior on their premiums is further marred by decaying group think as higher premiums is not a direct result of their own behavior per se but that of the group as a whole.

Perhaps the department of statistics in conjunction with ministry of health and inland revenue authority of Singapore could push the longitudinal per capita of specialists in private healthcare which hopefully will not take zillions man-hours and eons to complete in this day and age of computing capabilities.

Do tune in for my second instalment which will address the options and pros and cons which will be a difficult and treacherous topic.

Airline Pricing and Singapore Public Healthcare Pricing andSubsidyRationing

28^th September 2016 Peter LYE

In “Secrets and agents”, the Economist narrated how airlines are leveraging the theory of information asymmetry grand fathered by George Akerlof who finally won a Nobel Prize in economics in 2001 after agonizing for nearly four decades after he wrote “The Market for Lemons” which was rejected by three leading journals. He might more easily be identified as the husband of Janet Yellen chairman, Federal Reserve Board although he is definitely a man in his own right. Some wonder the major topic of their pillow talk when these two bed fellows dissertated on lemons and unemployment?

Air-conditioning has been effectively used as a primary pricing differentiator as Mr. Lee Kuan Yew himself admittedly responded that air conditioning was the greatest invention of this century in a 2001 RTHK interview. In temperate climates and beyond, air-conditioning is a must as winter chill can kill. In the tropics, air-conditioning can be a difficult luxury to forgo especially for sick patients with Singapore being nick named an air-conditioned city. Why deprive our sick when it is all and sundry at most public locations including public offices when the incremental cost can be marginal in buildings that are already equipped to be centrally air-conditioned?

Before posthumous arrows gets directed at him, recognition must be accorded to his practical wisdom in leveraging on airline pricing model that rest partly on Akerlof Information Asymmetry although doubts abound that the two are or can be placed in the same room as no references were made to these academic and commercial exploits in his governmental policy.

Public healthcare pricing and subsidy rationing pre 1970s was primarily a non-issue because the middle class was not a sizable addressable market and public healthcare was the backbone of the healthcare system and private healthcare the preserve of the local rich and the well-heeled medical tourist from neighbouring countries. Even at public healthcare, the A class wards were lightly used and C class wards were the norm. The major differentiator between the classes were creature comforts like air-conditioning, private rooms instead of open wards, quality of food not in terms of nutrition but taste and presentation as most hospital meals are dietician directed.

With an ageing population over the horizon, rapid development of medical technology and cost as well as the populace expectation on healthcare, the government most probably predicted that the existing healthcare infrastructure would have to undergo rapid modernization and expansion and the framework to fund it is also not tenable and demanded a fundamental structural change.

The Central Provident Fund (CPF) as the national retirement fund liberalised the use of its fund for healthcare needs through the creation of a separate Medisave Account in 1984 as one of the baby steps. The tables were turned quickly with a sudden frenzied feeding demand for A and B class wards and an emptying out of C class wards. Such was the situation with the waiting list for A and B class wards that resulted in an unprecedented non-medical transfer of patients between wards. Many felt that CPF funds are so tightly locked up and why not use it when you can initially.

Between 1984 and now, healthcare financing has been a regular topic of public discourse and subsequent legislative changes to re-calibrate with the changing spectrum of demography in terms of age profile as well as citizens, permanent residents and foreign talents as the latter two begin to expand more rapidly. Of these measures, three defining progressive landmarks are worthy of mention.

First, the introduction of nation-wide voluntary opt-out basic medical insurance name MediShield in 1990, means testing of healthcare subsidy to lower B2 and C class wards to ration subsidy to the more economically needy and lastly, the almost seamless and unnatural quiet implementation of compulsory universal basic health insurance on 1^st November 2015.

The 1990 voluntary opt out MediShield most probably had limited subscription and success that demanded the last measure in 1st November 2015. This rebirth has many laudable features such as being universal, it is available to all regardless of their medical state as well as a government cum private insurer initiative to address the issue of duplicity of insurance coverage for those with existing insurance coverage with private insurer to a dove-tailed and more cost efficient Integrated MediShield Life Plan. Such knows no other precedent in other countries to learn from and demanded threading on untested waters and it is a deserving of accolades.

A similar initiative in USA known commonly as Obama Care which has been debated to death in public forums as well as the senate and congress, supported and jeopardized by many camps and worthy of a congress vs the president by majority and veto respectively. Perhaps the ability to side-line to a later phase most of the duplicity for employer provided healthcare insurance is the reason for the success as a large quantum of healthcare is employer provided in USA.

As for the means testing to ration health care subsidy to the more economically needy, it could have been a knee jerk reaction to ministerial observation from some quarters that some seemingly wealthy patients are having their expensive heart procedures done at C class ward to save cost. Means testing is a robust sociological tool for government subsidy rationing but wonder whether it is worthwhile as it is not common enough to sight a billionaire like Ingvar Kamprad of Ikea who proudly proclaims that he travels on commercial airline economy class. We certainly do not see airlines reacting to it. On the reverse, such mean testing can land the sandwich class into medically induced bankruptcy or close to it.

Wisdom of Va$ue under Fiat Currency - March 2015

"We want to believe things (money) have intrinsic value, .... the US dollar is backed by “nothing”, ... any currency system is backed by “nothing”"...Fortune Magazine

No single instrument can claim to be a safe haven including USD and gold but collectively, a safer haven is within reach.

Nixon’s presidency was punctuated by many significant events like his visit to China as well as the famous Watergate scandal. His most deep and long lasting decision to abandon convertibility of USD into gold has escaped many history textbooks for posterity. Perhaps tinsel town should consider a movie on this theme.

After Nixon abandoned convertibility of USD into gold in 1971, the gold standard figuratively speaking for measuring value lost its lustre. By 1973 all hope of restoring the Bretton Woods System was lost plunging the currency world into a sea of chaotic free floating fiat currencies which we have today.

Reverence for USD and her government took an unprecedented and irrecoverable hit followed that decision. Her position as the untouchable global leader remains but has diluted to undisputable and within gun sight of other global power wannabes. This puts the fragile peace since Second World War into jeopardy. In addition, most wars have its roots in economics and break out when the political process to band aid the economic wound fails and goes gangrene.

Against such a backdrop, measuring value in investment which was axiomatic in the past based on commodity and representative currency has turned into the equivalent of 50 shades of the grey. The economics 101 of money invented some 3000 years back in China is to facilitate trade and a referential store and measure of wealth for future consumption.

Reference losing its reverence is akin to salt losing its saltiness.

As a medium of exchange, it has served us well without which, cumbersome barter trade becomes the only other means of trade. Trade is necessary evil as we do not make all we need and there is no necessity nor advantageous to do so. Fiat money has created or exacerbated international trade involving different currencies as well as inflation/deflation as its intrinsic value floats about.

It is also by far the best store of value as it is non-perishable, portable, and holds an intrinsic value and so we believe until we unearth the dust beneath the carpet about fiat money. Pascal-Emmanuel Gorby most eloquently described the state of intrinsic value of money in an article "All Money is Fiat Money" in August 2013 of Fortune magazine as follows. "We want to believe things (money) have intrinsic value, .... the US dollar is backed by “nothing”, ... any currency system is backed by “nothing”".

Currency is revenue generating unlike gold which has a high intrinsic value but no such abilities save for capital gain/loss which in itself a product of demand and supply differential. Interestingly, since time memorable, gold has been universally recognized as valuable in its own right with little productive use except for limited application in some industries and this account for a small portion of the total demand for gold.

The strong demand for gold might reflect the diminished confidence in fiat currency as gold almost always appreciates as a flight to safe haven whenever there are significant disturbances in the political and economic spheres.

For the man in the street, it is important to consider spreading your risk to protect yourself from the systemic risk in fiat currency.

Consider parking part of your wealth in other currencies and hold enough of your local currency sufficient for a time horizon for transactional purpose. Avoid currencies that are pegged to each other like HKD and USD for example.

Exposed your wealth to certain countries and industries that you see an upside after due diligence. Funds could be a good alternative as some markets are not easily accessible or you might not have the scale to do so.

Invest in hard asset that you might need in the mid to long term to hedge against the currency risk like buying a house in a locale that your plan to retire in.

No single instruement can claim to be a safe haven including USD and gold but collectively, a safer haven is within reach.

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The Great Singapore CPF (pension) Discussion.

Source: CPF.GOV.SG

Dr. TOH Chin Chye as a pioneer batch of PAP ministers spoke in parliament in 1984 that "The fundamental principle is this. The CPF is really a fixed deposit or a loan to the government, which can be withdrawn at a fixed date when the contributor is 55 years old." It ought to generate more questions about his reason for this passionate statement on CPF and went to far as to say "It is as simple as this, that the CPF has lost its credibility, the management of it. This is fundamental."

I am happy to say that current government still recognizes the gravity of this fundamental as 55 years old withdrawal lamp post is still there but might not shine as brilliantly as in the past.

For the fortunate few that can meet both the special and medisave minimum sums ( which will be S$155,000 and S$40,500 for special and medisave account respectively as 1st July2014 ), it is not that bad as they can still withdraw remaining amount above the minimum sums. They can collect the minimum sum when they hit 65 years old not as a lump sum but as a monthly annuity. Previous rule allows full withdrawal.

For others who do not meet these minimum sum requirements, the government has made a good gesture in allowing withdrawal up to S$5,000 or whatever is in your CPF if your balance is less than S$5,000.

On the reverse, the government has also liberalized the usage of CPF for home purchases ( both public and private ), various types of investment, education and healthcare. From a funding standpoint, I disagree with Dr. Toh's analogy of equating CPF to a fixed deposit. With such liberalizations, CPF have a more challenging and less predictable cash flow that on all reasonable counts must lead to a lower rate of return.

The government might want to consider shifting the annuity payout age to 55 to coincide with the magical number as oppose to the current 65. My guess for the 55 and 65 reference points are these. Firstly, population is aging rapidly compounded by sharp fall in birth rate. Secondly, life expectancy has also increased with better healthcare.

Shaving 10 years off an annuity will result in lower monthly payout but it will cover more members. The current average life expectancy of 80.2 and 84.6 for men and women respectively is an AVERAGE and does not show its distribution. Some might not live to 65 to enjoy the payout. Perhaps DOS should release this information.

If we put these two counter weights on a balance, it might not be so bleak. However, I do take issue with the almost unilateral bull dozing manner in it's implementation and the failure to explain the rationale and facts more succinctly.

In retrospect, CPF might have served its purpose as a retirement fund if kept purely as such without allowance to fund housing, healthcare and education. We are too deep into it making. Even if CPF wants to change course, grandfathering will be difficult and complex even if the heart is willing but the soul is weak.

Peter Lye aka lkypeter

lkypeter@gmail.com

Safe Harbor. Please note that information contained in these pages are of a personal nature and does not necessarily reflect that of any companies, organizations or individuals. In addition, some of these opinions are of a forward looking nature. Lastly the facts and opinions contained in these pages might not have been verified for correctness, so please use with caution. Happy Reading. Peter Lye

28th September 2016 Peter LYE

28^th September 2016 Peter LYE