Tuesday, 31 March 2020

Covid-19, GFC, SARs – Government packages.

Is it too early to rejoice over S$48B of Resilience Package? On one hand, I am glad that the government is providing help. On the other hand, I am really worried for the long-term future of Singapore. Also worrying for me is the mindset of many Singaporeans who always think that our Government is very rich and can dish out money for us, regardless of what crisis we are going through.

Sars in 2003

SARs started early 2003 and ended Jul-Aug period with 238 cases and 33 deaths in S’pore. Globally, 8,000 plus cases with 11% fatality. The high % of death is likely due to the comparatively less prepared S’pore and also the less medical advanced facility in Asia.

SARs epidemic lasted only a few months, but impact is great for S’pore. It was still very vivid for me as job hunting was extremely difficult. For S’pore economy, initially visitor arrival plunged. Tourism, airlines and hospitality sectors badly hit. Next, Singaporeans are afraid to go out. Retail, F&B, taxi businesses suffered. Stock prices fell and many lost their jobs. My sibling’s business retrenched half of her employees.

During Apr-June quarter, Singapore’s economy contracted 4.2 percent and government announced S$230million relief package on 17 Apr 2003. The health crisis subsided after July, but still many businesses are licking the wounds for the next half a year, although in 2004, the economy quickly rebound.

Global Financial Crisis

The sub-prime crisis already started in late 2007, but Singapore government only pledged S$2.9 billion in November 2008 and a further S$20.5 billion Resilience Package in January 2009. By August 2009, the worst is over and In November, the Ministry of Trade and Industry declared that the recession was effectively over and projected a growth forecast of between three and five percent in 2010.

Why did GFC recover so fast? Back then before the crisis, interest rate is still high. During the crisis, US lowered interest rate and rolled out many rounds of Quantitative Easing (QE) with Obama announcing hundreds of billions of bonds purchases. This followed by European Central Bank creating hundreds of billions of Euros next. With all the easy money at near zero interest rate, the stock market rally and Dow Jones just climbed and climbed for the last 10 years. The easy credit is also one of the reasons leading to the Euro Debt Crisis later where several euro member states such as Greece, Portugal, Ireland, Spain and Cyprus were unable to repay or refinance their government debt or to bail out the over-indebted banks.

Many Stock Gurus born

Apparently after the GFC, it also gave birth to many stock gurus and bloggers in Sg. I was one of them investing post GFC after receiving my first pot of gold in 2010. Few years after, I started blogging and was very active back then. You may want to check my earlier blog articles.

Back then, I read many financial related books and do lots of research and attended lessons and small seminar. Many of the bloggers including myself, learn about fundamental analysis and dissect Annual Report.

We saw our stock portfolio climb and climb. And how many times do you read or hear Warren Buffett (WB) or Benjamin Graham’s philosophy of buying great business with good fundamentals.

Just like that, we claim all the credits of the stock price increase. Many become famous blogger just by posting their growing portfolio. Many appeared in seminar to teach about financial literacy. Some even started their own business to teach about stocks and financial planning. Everything is good because stock market is good.

Most investors will think of themselves as the protégé of Buffett. However, lest we forget that perhaps it is because of all the easy money that Fed and ECB are creating out of nothing, and not our polished investment skills.

Therefore, we should tell ourselves to stop paraphrasing WB “be greedy when others are fearful”. Having read WB biography “Snowball” and written many notes on it, it is clear that WB was born with good luck, aside from his good skills, being in the right era. Frankly before he even truly went through a major crisis, he was already flighty rich. And back in the 50s to 80s, the crisis was normally smaller in scale and proven to recover faster. So PLEASE stop using WB philosophy of investment and apply to today’s world. It’s different.


Covid-19

The announcement of $48B stimulus package is 200 times more than SARs. It is merely one month or so after the outbreak in Singapore compared to GFC where Government truly intervened only after one year. Of course, it may also be carrots for the election votes. Hmmm… but such a big stimulus within so short period drawing S$17B into past reserves is definitely not due to election carrot.

If we only care about our own Ang Pow in this package and that “Ah Gong” has loads of money to help us, we need to think again! The whole world is affected now unlike SARs. Lockdown means very little spending. And the world after GFC which is built on the basis of trillions and trillions of global debts face higher and faster likelihood of collapse in the near future. Interest rates is already so low since GFC, and with debts hanging, and everyone told to stay at home, there will not be sufficient spending, and the economy will spiral down in an incredible speed.

PM said of Grave Situation

Even our PM Warns Nation Is Facing ‘Very Grave Situation’. He also said, “We are under no illusions that this is the end of the story because nobody can tell what lies ahead.”

“If we were sure that the thing could settle within the next six months, I think we can say well, let us wait for six months, let things calm down, then we carry on,” he said. “But nobody can say. I expect that it can easily get worse before it gets better.”

But even after tapping $17 billion in reserves, Lee said it was “quite possible” Singapore may need to draw upon those funds again before the outbreak subsides.

Conclusion

It is not all gloomy though. This is because the world will continue to be “more” worldly going forward. Governments will find ways to float the economy, because no government will want to see a greatly punctured economy under their watch.

More importantly, we need to have a change of mindset. We need to believe that is every Singaporean’s responsibility to be prepared for the future crisis. Not just our government. There will always be crisis. Likewise there will also be good times.  

We must stop thinking that things can only get better and better for Singapore. And during a crisis, we just have to rely on our government stimulus package. Unlike USA or Europe, we do not have a Federal Reserves or ECB to purchase billions or trillions of bonds to create money out of nothing. 

Of course, if you are retiree or single with low expenses, there are lesser to be worry about. But if you are still young or are parents who cares about our children’s future, we should start to have a change mindset and think about our future.  

As a parent, I will not forget to always equip my children on the mindset of being prepared for the crisis. Some may think this is being negative. Friends know me as one of the most positive. There is a difference between being positive who are sufficiently prepared with solid back up plans Vs positive people who are complacent, and unprepared without any back up plans.

Just look at the middle and lower income people in USA!


Related Articies:

Retrench during Oil Crisis! Why?

Crisis and retrenchment – How sentiment change in one year and how I am staying resilient to weather any storms ahead.

Crisis and retrenchment – What if it is me? (Part 2)






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