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12/06/2008

Long term investment and potential long term losses

The losses incurred by our investments in foreign banks is now under public scrutiny and attacks. Many people are just very unhappy and are very concerned about the huge losses from public money. They have not related to how these losses could ultimately affect their savings in their CPF or to the overall financial well being of the country. If the losses are realised, and huge, it must come from somewhere. There must be a big hole somewhere waiting to be patched. The only comforting news is that it is long term investment, maybe 10 years, 20 years or 200 years. In the long term, everything will be alright. The stock prices will come back up, the property prices will come back up, and so will be our investments. These are the general expectations of how things will be from past experiences. What if the fundamentals have changed? What if the rot is of a different kind, HIV or a new mutant that is incurable? The problems with the banks we have invested, and in many of these foreign banks are of a different nature. They are not structural or cyclical. They are due to frauds and mismanagement. Many of these institutions are empty shells, being robbed over the years by their management but dressed up as respectable and sound financial institutions. The money they are asking for their rescue is mindblogging. If the trouble of these banks are cyclical or structural, it is only a matter of time before they return to their former health. The question now is that it may not happen at all, or it may take a few generations to rebuild them from scratch. The same analogy can be applied to our stock market. Under normal circumstances the stock prices will rebound and go back to where they were before. But would it be that way? To understand this we must know why the stock prices were high and why they became so low. If they are just structural or due to cyclical economic swings, then there are hopes that they will come back. What if the high and lows were due to different factors, systemic flaws, structural flaws? As examples, what if the listed companies were run by crooks that we have no control over them, or the business models and the accounting numbers were all fictitious? What if the high prices were due to in flow of foreign funds which have dried up? What if the foreign funds that were here were just for short term, to exploit the weaknesses of our system and run when they have made enough or being exposed, or the systemic flaws were patched up? Maybe instead of investing in bankrupt or empty shelled foreign institutions, it is better to plough the money into our own healthy and well regulated companies and stop throwing good money away at organisations that we have no control whatsoever. We need to build a healthy base at home and attract good quality money here, not the other way. In the long term, a rotten apple can never be returned to what it was before. Bad investments in rotten apples are simply bad investments, down the drain. Habis.

5 comments:

Anonymous said...

In these days, where money are lost, there were creative ways to explain them. It was reported GIC had 4% positve return given spread over 20 years. Why not pick 18 or 22 or 23 years. Politician dont like to tell you negative news. There are many averages they can use as long as the figures look good. Plain straightforward talking is too painful eg Temasek lost 10 billions in their recent venture... so they say it LONG TERM INVESTMENT. These sound convincing but painful to the truth. SIN knows the investment is badly timed. Were there a lack of buzz second time around? Sub-prime problems were widely reported as early Jan 08. Why are pay FT high salary when they missed the buzz?.

Temasek's lost of $400 mil in ABC was reported in ST blaming that rogue Australian with his high lifestyles. This is distracting in reporting. The due diligence was not carried out sufficiently?

Imagine the numbers of schools and child-care one can built with $400mil in developing economies with own SIN brand business built that400 millions

Why the need to buy overseas business? Arent our local bunsiness good enough? Local businesses can make foray into developing economy nearer to our shores & create strategic gains. Why the distrust for our own local SIN companies? Many questions remained and time for our YES-man to stand up to stop such waste.

Too much power and too much money controlled in the hands of a small group of individulas is not good news.

Anonymous said...

I agree, there are too many "yes men" in the govt. No one would dare put his or her head out on the block to disagree. Why rock the boat when the going is so good? It is safer to remain silent eevn when you disagree than to voice your diagreement.

When one person makes the decision and no one dares to voice disagreement, then the system, is rotten.

Matilah_Singapura said...

This is so easy to fix. The end of the road is nigh for CPF, and any attempts at "long term" investment.

What the govt should do, as soon as possible is to SEIZE (confiscate) all the private property of the citizens and place it into one central "fund".

The govt must ensure to also confiscate all bank balances, and other financial instruments private citizens might have and impose harsh penalties for those who are "hiding assets". The reason for this is simple: you don't want any kind of "individual freedom" here, because that will cock things up in the central planning.

When the govt finally has all the money and assets in the society, the public is totally dependent on the govt.

The govt can then decide how to re-distribute the property or use the property to construct special centers for disbursement of "goodies" to the public.

When you have a totally controlled society, Singapore will go on for thousands of years and be the envy of the rest of the world.

Anonymous said...

Even Deng Shiao Ping will turn in his coffin ....

redbean said...

this must qualify as the political treatise of matilah, simply brilliant and workable.: )