Monday, 20 January 2014

It’s Not A Bubble Until It’s Officially Denied

S'pore 'not at risk of credit bubble'

SINGAPORE'S central bank has said the country is not in danger of being caught in a credit bubble that puts it or the banking system at any risk of crisis. In a statement underlining the strength of the financial system, the Monetary Authority of Singapore (MAS) said "serious observers and investors" have no doubt over the nation's financial health.

It said three facts stand out: The property market is stabilising; household balance sheets are strong; and the financial system is robust. The statement was in response to media queries that the MAS received on an online Forbes article published on Monday.

In it, Forbes columnist Jesse Colombo said Singapore is headed for an Iceland-style meltdown, as low interest rates have encouraged households and firms to take on more debt and fuelled an unsustainable surge in property prices.

read more

Singapore rules out credit bubble

Singapore rules out credit bubble

Singapore’s central bank has refuted suggestions in a prestigious US magazine that the affluent city-state faces a risky credit bubble linked to high property prices.

A statement issued yesterday by the Monetary Authority of Singapore (MAS) said the property market is stabilising, household balance sheets are strong and the financial system is robust. “Singapore is not facing a credit bubble that puts the country or its banking system at any risk of crisis,” the MAS said in response to an online article in Forbes magazine published this week. “Serious observers and investors are not in doubt about the country’s financial health.”

In the article, Forbes contributor Jesse Colombo warned Singapore was headed for an “Iceland-style meltdown”, referring to the European nation that was brought close to bankruptcy when the financial crisis broke in 2008 and exposed the vast over-expansion of its banking system.

read more

S'pore is not facing a credit bubble: MAS

The Monetary Authority of Singapore (MAS) on Tuesday said Singapore is not facing a credit bubble that puts the country or its banking system at any risk of crisis.

This was in response to media queries after a Forbes article claimed that Singapore is facing a dangerous credit bubble, fuelled by ultra-low interest rates.

The article cited several risks including Singapore's ratio of household debt to GDP, rising property prices and potential crisis in the banking system should non-performing loans increase when interest rates start to normalise.

read more

Singapore headed for meltdown? Forbes article flawed: Experts


Economists in Singapore have said an online Forbes article that argues that the country is headed for a meltdown is alarmist and flawed. -- ST FILE PHOTO: ALPHONSUS CHERN

Economists here have said an online Forbes article that argues Singapore is headed for a meltdown is alarmist and flawed.

They said property prices and debt levels have accelerated in recent years, but this does not mean the country is in a bubble or headed for a crisis.

Singapore's economy is diversified and still growing, unemployment is near zero amid a tight labour market, and loan levels remain low relative to asset values and savings, they added.

read more

Chilly reception to S’pore’s ‘Iceland’ tag



A FORBES article on the state of Singapore’s economy which has gone viral has raised a storm, with economists here offering differing views on its credibility. American economic analyst Jesse Colombo claimed that the Republic is facing a dangerous credit bubble fuelled by low interest rates and heading towards an “Iceland-style meltdown”.

On Tuesday, the Monetary Authority of Singapore categorically refuted this. “Singapore is not facing a credit bubble that puts the country or its banking system at any risk of crisis,” a spokesman said, adding that “serious observers and investors are not in doubt about the country’s financial health”. Among Mr Colombo’s claims: Singapore has a credit bubble, which started soon after interest rates fell below 1 per cent. Outstanding private-sector loans have risen 133 per cent since 2010.

It also has a property bubble, with prices up 60 per cent since 2009. Mortgage loans have grown at 18 per cent each year for the past three years. Seventy per cent of Singapore’s mortgages have floating interest rates.

read more

Bursting the bubble of a S'pore meltdown



When I read the online Forbes article predicting that Singapore was headed for an Iceland-style meltdown, I almost burst out laughing at some of the assumptions made by columnist Jesse Colombo, who is obviously trying very hard to live up to his reputation as a "bubbleologist" ("S'pore 'not at risk of credit bubble'"; Wednesday).

While it is true that we are flush with liquidity, what is not as apparent is that we have not kept still. I am confident our authorities are monitoring the situation and have the fiscal discipline to place excess funds overseas.

Our economy has been well supported by strong reserves and healthy surpluses in recent years. We have also one of the highest savings ratios in the world.

read more

Singapore hits out at credit bubble ‘meltdown’ article

SINGAPORE’S central bank has refuted suggestions in a prestigious US magazine that the affluent city-state faces a risky credit bubble linked to high property prices.

A statement issued late on Tuesday by the Monetary Authority of Singapore (MAS) said the property market is stabilising, household balance sheets are strong and the financial system is robust.

“Singapore is not facing a credit bubble that puts the country or its banking system at any risk of crisis,” the MAS said in response to an online article in Forbes magazine published this week. “Serious observers and investors are not in doubt about the country’s financial health,” the statement said.

read more

SG meltdown: Forbes not completely flawed



I had read the Forbes article before it created a brouhaha in this town. I didn't want to blog about this but then I think I ought to record how silly it had become especially when set side by side with NYT refusal to publish our ambassador's rebuttal to their commentary on the Little India riot. Both the NYT and our ambassador were partly correct. Therefore there was no reason for the NYT to accede to our government request. Besides the quarrel must be over facts and there are truckloads of it for and against. No point starting a shooting war right unless you can be sure one side have no ammo.

So are we heading for a meltdown? It is not a theoretical impossibility. Had such a collapse being impossible, we would have ignored Jesse Colombo's article. Truth is there is some risk we might suffer a collapse but this is true for every economy in this world too, the difference being a matter of degree. In a relative world East Asian economies are at a relatively higher risk simply because our asset values are very much higher now and to add to the risk, we got there quickly and we are also running out of fuel.

Had our experts agree with Colombo, we would have suffered a collapse already. Therefore Colombo had anticipated our response. To me Colombo was just using us to serve his own career purpose. If he is wrong, few notice. If he is right everyone remembers. Such positive asymmetric risk profile, why not buy the option?

read more

Forbes: Why Singapore's Economy is heading for an Iceland style meltdown



In 2007, Iceland was celebrated for attaining the world’s highest standard of living according to the U.N.’s annual Human Development Index report. In less than a decade, the tiny North Atlantic island had transformed from a traditional fishing and tourism-based economic backwater into a finance and banking powerhouse, rocketing the country’s wealth and living standards to enviable new heights. Sadly, Iceland’s economic boom was an illusion based on a reckless credit and asset bubble that led to a terrifying financial crisis when it popped in 2008.

It has been just five years since the Global Financial Crisis, and the world – in brazen defiance of the lessons of 2008 – is already back to blowing massive bubbles and naively praising the countries that are benefiting from these “fool’s gold” economic booms. The Southeast Asian island nation of Singapore is currently inflating one of the most egregious examples of these post-2009 bubbles, and is displaying parallels to Iceland’s bubble that are causing me to believe that its boom will end in a similar (but not necessarily identical) manner.

Like Iceland in its heyday, Singapore’s economic stability and vitality – on the surface at least – has made it the envy of the world at a time when most Western economies are languishing under feeble growth, and high rates of unemployment and poverty. Singapore’s booming finance and real estate-focused economy has earned it the moniker “The Switzerland of Asia”, and finance professionals from all over the world are flocking to work there to take refuge from the hard-hit financial sectors in their home countries. Singapore’s unemployment rate is a mere 1.8 percent even as the country’s red hot construction sector has been attracting overseas workers, and a growing number of wealthy citizens are hiring domestic helpers from neighboring countries like the Philippines and Indonesia. The ranks of Singapore’s wealthy are growing rapidly thanks to the country’s asset bubbles, which is helping to fuel a luxury consumption boom in everything from high-end apartments to exotic supercars.

read more

MAS vs Forbes Magazine

The rising Singapore property has been targeted by Forbes magazine with Forbes contributor Jesse Colombo warning that Singapore is headed for an "Iceland-style meltdown". In 2008, Iceland was brought close to bankruptcy due to the vast over-expansion of its banking system and he argued that Singapore is heading down a similar road.

With the report coming out, the Monetary Authority of Singapore (MAS) moved quickly. The MAS released a statement stating that Singapore is not facing a credit bubble and that "serious observers and investors are not in doubt about the country’s financial health."

Now I give them credit for moving so fast on the report, but that statement is just the wrong thing to say. This is Forbes we are talking about. They don't come any more respected and prestigious than Forbes. You are just not going to get any traction going against Forbes magazine.

read more

FINDING THE TRUTH BEYOND THE MAS'S SUPERIFICAL ARGUMENTS

Recently, the MAS has made some attempts to rebut Jesse Colombo’s article that Singapore is headed for a housing bubble. I find MAS’s rebuttal points flawed as I will discuss: Strong household balance sheet with weak cash flows?

The MAS claim that household balance sheets are strong with property values being higher than their corresponding debts, and thus a bubble is unlikely. However, this “strength” is artificial and largely fuelled by a failed “asset enhancement” policy, and is therefore misleading. According to Singstat, the average household has a residential asset of $417,000 with a corresponding mortgage of $203,000. While the balance sheet may be strong in this case, past history has shown that this “strength” is of no value in predicting trends.

From 2008 to 2009, balance sheets were also similarly strong because of rising property prices then. However, this did not prevent a situation where home repossessions rose by 18% in a quarter. Moreover, experts note a 6-month lag from repossessions to defaulting on home loans and the current trend is worrying: the increase in pawnshop and credit businesses within the heartlands may also indicate that average Singaporeans are facing financial difficulties of some sort.

Related:
Forbes: Why Singapore's Economy is heading for an Iceland style meltdown
MAS insists that Forbes is wrong about credit bubble
Washington Post: Singapore one of the 17 countries in the world with Housing Bubbles

read more

IT'S NOT A BUBBLE UNTIL IT'S OFFICIALLY DENIED, SINGAPORE EDITION



Forbes recently published an article about Singapore's housing market and how we were heading toward a credit bubble. (See:Forbes: Why Singapore's Economy is heading for an Iceland style meltdown).

Following the publication of this article, the Monetary Authority of Singapore rebutted it saying that we were not heading toward a bubble. Instead they suggested that any "keen observer" of Singapore would know that it was in a healthy position. (See: MAS insists that Forbes is wrong about credit bubble).

It appears that despite MAS clarifications, Forbes still believes that MAS is in denial and Singapore is heading toward a property bubble. Today, they published another article titled "It's Not A Bubble Until It's Officially Denied, Singapore Edition":

read more

FORBES MAGAZINE: MAS DENIAL OF PROPERTY BUBBLE DOES NOT HELP SINGAPOREANS



Jesse Colombo is an economic analyst who specialises in spotting economic bubbles. He is a Forbes.com columnist and recognized by the London Times for predicting the Financial Crisis. He was labelled as one of the "Ten People Who Predicted the Financial Meltdown" in 2008 by the London Times.

(16 Jan, Forbes) – There must be an unwritten rule in the shadowy world of central banking that demands that dangerous, society-threatening economic bubbles must be denied and covered up at all costs. I’ve experienced this phenomenon indirectly when I was warning about the U.S. housing and credit bubble in 2005 at the same time that Ben Bernanke denied its existence (which was a few days before he was nominated as Fed Chairman).

In the past few months, I have experienced central bank bubble denials firsthand when the central banks of Malaysia and the Philippines vehemently denied my warnings about economic bubbles that are inflating in their countries. As of this week, I can now add a third central bank bubble denial to my experience repertoire: the Monetary Authority of Singapore or MAS.

read more

MAS INSISTS THAT FORBES IS WRONG ABOUT CREDIT BUBBLE



After Forbes published an article suggesting that Singapore's household debts have bubbled to a dangerous level due to low interest rates, the Monetary Authority of Singapore has released a statement refuting the claims.

The original article had suggested that Singaporeans are buying overpriced houses and taking on more debts than they can afford. However, the MAS has insisted that "serious observers and investors are not in doubt about the country's financial health."

It explained that Singapore is not in any type of crisis and that the government has already taken many steps to cool the property market and prevent buyers from over leveraging themselves so that they will not be so negatively affected by interest rate rises in future.

read more


It's Not A Bubble Until It's Officially Denied By MAS - Forbes
Forbes.com, 16 Jan 2014
There must be an unwritten rule in the shadowy world of central banking that demands that dangerous, society-threatening economic bubbles must be denied and covered up at all costs.

I’ve experienced this phenomenon indirectly when I was warning about the U.S. housing and credit bubble in 2005 at the same time that Fed chairman Ben Bernanke denied its existence.

In the past few months, I have experienced central bank bubble denials firsthand when the central banks of Malaysia and the Philippines vehemently denied my warnings about economic bubbles that are inflating in their countries. As of this week, I can now add a third central bank bubble denial to my experience repertoire: the Monetary Authority of Singapore or MAS. Full story

related: Forbes: It’s Not A Bubble Until It’s Officially Denied, Singapore Edition

read more


Why Singapore Has A Dangerous Credit Bubble



Like many countries that have experienced economy-wide bubbles and busts – including the U.S. from 2003 to 2007 – Singapore currently has a ballooning credit bubble that is helping to drive economic growth and create an illusion of prosperity. Ultra-low interest rates are the primary reason why credit bubbles inflate in the first place, and Singapore’s bubble is no exception to this pattern.

An idiosyncrasy of Singapore’s interest rate policy makes their low interest rate-fueled credit bubble particularly acute: Singapore’s benchmark interest rate, known as the Singapore interbank offered rate or SIBOR, is tied to the U.S. Fed Funds Rate for the purpose of minimizing large swings in the U.S. dollar-Singapore dollar exchange rate.

Unfortunately, there are extremely dangerous side-effects of Singapore’s interest rate policy ever since the U.S. Federal Reserve has pursued its zero interest rate policy, or ZIRP, after the financial crisis in 2008. Near zero interest rates, which are intended to boost depressed economies like the U.S.’, are much too low for fast-growing economies like Singapore’s (I have shown how ZIRP is even creating another bubble in the U.S.). The SIBOR is used as a benchmark for pricing numerous types of loans in Singapore, from mortgages to commercial loans, so its ultra low level since 2008 has been fueling explosive rates of credit growth.

read more

James Ashton: Learn the East’s lessons — or risk falling behind


Changing skyline: Singapore is a quarter bigger than it was at independence five decades ago (Picture: EPA)

There are numerous vantage points from which to marvel at the changing Singapore skyline. From the Altitude Bar on top of One Raffles Place the view across to the cranes that stand over the city state’s sprawling port is getting crowded with office blocks.

On the other side of the water, the Marina Bay Sands complex — an indulgent wicket-shaped hotel, casino and shopping mecca complete with sky-high infinity pool — looks back over a finance district that has sprung up in barely a decade.

In the week that the Chancellor, George Osborne, lectured the bloated European Union on competitiveness, a visit to Singapore is a stark reminder of how the other half lives.

read more

WASHINGTON POST: SINGAPORE ONE OF THE 17 COUNTRIES IN THE WORLD WITH HOUSING BUBBLES


The Washington post article

Economist Nouriel Roubini is warning that 11 countries are showing indications of potential housing bubbles – an alarming prospect for the global economy, which is still recovering from the aftereffects of burst housing bubbles in the United States and elsewhere. He identifies another six countries in which major urban areas may have housing bubbles.

Those 17 countries with possible housing bubbles are mapped above in red. The lighter-red countries have housing bubbles in major urban areas only. You'll notice that this map includes very rich countries such as Switzerland and Norway along with enormous rising economies such as India and Indonesia. Perhaps most alarming, if least surprising, Roubini joins the rising chorus of economists warning that China's housing market is dangerously over-inflated. (He identifies mainland China as well as Hong Kong.)

Here's the list of countries identified as having possible housing bubbles, from West to East: Canada, France, Switzerland, Germany, Norway, Sweden, Finland, Israel, China (mainland plus Hong Kong), Singapore, Australia and New Zealand.

read more

Migrant labour pains for Singapore

DESPITE improved government efforts, Singapore and its people are still paying a heavy price for having too many migrant workers.

Even as it sped up the building of more flats and shortened applicant queues, two other problems related to overcrowding have popped up.

They had been around for some time but resurfaced with a bang in the first few days of 2014.

read more