Lee Kuan Yew's "Intellectual Class" will Run Singapore Into the Ground

“We are going to have an intellectual class, about maybe three times as big as what you have now and that will give us the dynamism, the powerful engine to carry us forward faster.” 

- Lee Kuan Yew, 28th July, 2010

Just take a look at Singapore's recent history to see what Lee Kuan Yew's "Intellectual Class" has delivered. Led by none other than his own son, PM Lee Hsien Loong, Singapore's "elite intellectuals" have bandied about policies which are slowly eating away at Singapore's social fabric and which are systematically undoing years of hard work and the foundation upon which this country has arisen.

A senseless growth-at-all-costs mentality and narrow minded focus on GDP growth has led to an open-door immigration policy which is testing the limits of this country. Due to the sudden population shock to the system, transportation, healthcare and housing infrastructure is bursting at the seams. Trains are overcrowded and overpacked, and the roads are chock full of cars. Our hospitals are showing capacity strains, with waiting times for hospital beds raising to all time highs, and doctors being overworked and underpaid. Housing price inflation in Singapore is shooting through the roof due to a lack of common sense on the part of of the Government to provide and plan for adequate housing infrastructure to accommodate the influx of foreign migrants. And while the cost of living continues to soar, incomes for most of Singapore society have either stagnated or fallen. Ostensibly, Singaporeans can now never ever retire.

Lee Kuan Yew is Full Of Crap

Lee Kuan Yew is all over the news today, talking about GIC's 25% loss. In particular, he has been defending GIC's investments in the banks. I've written extensively about these investments, but MM Lee's latest attempts and defending GIC are some of the crappiest shit I've seen in a while.

Damn it - I'm just absolutely fed up with Lee's crap. For goodness sake already, just own up and admit that GIC did not have a clue.

MM Lee was quoted today in the Business Times, saying:

'We became cash-rich and when the market fell, we went into UBS and Citi,' he said. 'But we went in too early. That's part of the ride.'

...

'How could we have known this was the extent of the damage? You look at all the big-name banks - they have gone down, misjudged the situation, ruined their careers,' Mr Lee said.

Here's the octogenerian politician, trying to wriggle his way out by claiming that GIC could not have known the extent of the damage. He blames the big-name bankers for ruining their careers, and says its all "part of the ride".

Well, thats a bucketload of bullcrap.

You want to know how you could have "known the extent of the damage", Mr Lee?? I'll Tell You HOW!!!

Singapore's SWFs and the 3 Behemoths of Mass Implosion

What do UBS AG, Merrill Lynch and Citigroup have in common?

A. They're all banks which have received significant cash infusions from Singapore's Sovereign Wealth Funds, GIC and Temasek.

B. They're the 3 largest casualties of the ongoing credit crisis.

Behemoths of Mass Implosion

Meredith Whitney, one of the most prominent Wall Street bank stock analysts, recently put out research notes either downgrading or cutting financial estimates for the three banks:

Merrill, rated “underperform,” faces “headwinds of deleveraging and the next disruptive step of restructuring.” ...

Ms. Whitney says she continues to “be negative in our outlook on Citigroup due simply to the fact that the company has seriously constrained earnings power, in addition to the writedowns seen in 2Q08,” which she estimates will hit $12.2-billion. ...

UBS is rated “underperform” by Oppenheimer because the Swiss bank “faces a difficult task of navigating through its risk exposures from the investment bank and rebuilding its damaged wealth management franchise.”

Whitney's pessimisim is not without good reason. UBS AG, Citigroup and Merrill Lynch, have been the banks with the largest total bank writedowns to date, far and ahead of the rest of their peers:

Citigroup leads the pack, with UBS and Merrill trailing close behind. But the gap between these three banks and the rest is extremely large - HSBC is the next closest with about half of Merrill's damage.

The same three banks lead in another key statistical metric: writedowns/market cap ratio:

This time, Merrill leads the charge. UBS and Citigroup fare better on this ratio, but still are way higher than the rest of the pack.

The stock markets have, in turn responded to the financial carnage the banks have inflicted on themselves: Merrill, Citigroup and UBS are amongst the top 5 % decliners in stock price:

Meanwhile, the 1-year performance of the stocks have indeed been nothing to envy:


The Dubious Wisdom of Lee Kuan Yew

Lee Kuan Yew just a month ago made some comments about GIC's splendid investments in Citigroup and UBS:

"The franchise of the banks, the expertise that they have, under proper leadership, they will be able to recover and rise again ... Will there be another Swiss bank like UBS for wealth management? I doubt it, we doubt it, that is why we invested in it." Citigroup, he added, had "an enormous spread worldwide as a retail bank".

These statements have indeed turned out to be questionable, if not downright wrong. UBS' 'unparalleled' wealth management franchise appears to be undergoing an unparalleled tax evasion investigation:

UBS shares hit by talk of further losses, tax evasion case
Jun 23, 2008

ZURICH (AFP) — Shares in Swiss banking giant UBS plunged on Monday amid talk of further losses and as investors worried that a US tax evasion case around a former employee could widen to the bank itself.

At the close, UBS shares showed a fall of 4.42 percent to 22.06 Swiss francs on the Zurich stock exchange, after a loss of 3.27 percent on Friday. The overall market was down 0.60 percent.

In a note to investors, an analyst at Credit Suisse warned that UBS's wealth management could come under "significant pressure" if the tax evasion investigations broadens to a case directly impacting the bank.

"In a worst case scenario, UBS could lose its banking license which could have adverse effects on the global private banking franchise," she wrote.

On Sunday, Swiss newspaper Sonntag reported that US law enforcement officials had made a formal request to come to Switzerland to investigate a tax evasion case involving UBS.

The move has been sparked by the confession of former UBS banker Bradley Birkenfeld to a Florida court last week that he conspired to help US clients dodge millions of dollars in taxes.

Swiss officials from the justice and finance ministries have already travelled to Washington for talks with their US counterparts amid concern the case could damage the overall reputation of Switzerland's financial industry.

The subprime damage and the suspected tax evasion has had severe consequences for the top leadership of the bank:

UBS AG (UBS) was at the center of a tornado of crushing news Tuesday, as it announced major changes to its board amidst pressure from the U.S. Department of Justice to reveal the names of top clients taking advantage of the bank’s tax breaks.

Four of the No. 1 Swiss bank’s board members - Stephan Haeringer, Rolf Meyer, Peter Spuhler and Lawrence Weinbach - will step down at the bank’s Oct. 2 shareholder meeting.

...

The bank has been the biggest European casualty to the U.S. subprime-mortgage crisis. It has written down more than $38 billion in the last three quarters, and its stock has dropped more than 57% year-to-date.

Continuing that trend, the bank will likely post a second-quarter loss with another markdown of about $4.9 billion, according to Bloomberg News estimates.

UBS said it will immediately submit board-member recommendations to the governance committee and will explore redefining directors’ and management’s responsibilities.

So, not only has UBS taken a severe beating in the subprime mortgage crisis, its wealth management business is undergoing severe pressures as well.

How about Citigroup's "enormous spread worldwide as a retail bank"? Well, it seems that is turning out to be a liability, rather than an asset.

Citigroup plans to sell $400 billion in assets
International Herald Tribune
By Eric Dash; Friday, May 9, 2008

Vikram Pandit is doing some serious spring cleaning at Citigroup.

Since becoming chief executive in December, Pandit has been clearing out the corporate attic of weak businesses and unloading worrisome assets at bargain-basement prices.

In an effort to streamline the sprawling company and placate restive shareholders, Pandit has sold or closed more than 45 branches in eight states. He has also disposed of Citigroup's headquarters building in Tokyo and its investment-banking base in New York and ditched more than $12.5 billion in loans used to finance corporate buyouts. And he has jettisoned the Diners Club credit card franchise, Citi's commercial leasing divisions and a big pension administration unit.

Pandit is not done yet. After months of false starts, Citigroup is now trying to sell Primerica Financial, a life insurance and mutual fund company, according to people close to the situation. He is also looking to sell its back-office outsourcing unit in India and its Smith Barney brokerage firm in Australia. Some speculate he also may try to sell 340 bank branches in Germany, possibly to Deutsche Bank.

On Friday, at Pandit's first major presentation to investors and analysts, Citigroup said that it planned to sell about $400 billion in assets in the next two to three years.

As it turns out, Vikram Pandit is trying to get rid of many of Citigroup's assets. Citigroup's worldwide sprawl made it a giant behemoth to big to manage. On top of that, Vikram Pandit has absolutely no experience running a consumer bank. Does Lee Kuan Yew really like such a person managing Citigroup's wide retail sprawl?

Suffering the Consequences

Who is taking the brunt of all this financial damage? Ultimately, it is the shareholders of these banks. And although GIC and Temasek have incorporated some sort of short term guaranteed returns for their investments in the banks, ultimately, these investments will convert into equity and suffer the effects of dilution:

Shareholders take brunt of banks' capital raising
Saturday June 21, 7:26 am ET
By Joe Bel Bruno, AP Business Writer
Banks cutting dividends, diluting shares to raise badly needed capital

NEW YORK (AP) -- America's banks and brokerages are scrambling to raise badly needed cash, but it may be at the expense of shareholders.

Since the subprime mortgage market imploded, financial companies caught in the fallout have been raising capital in two major ways -- cutting dividends and issuing more shares. Both methods erode shareholder value; analysts believe the industry is poised for more.

"The market is now seeing a substantial increase in financial companies issuing common and convertible instruments in an effort to shore up liquidity," said Standard & Poor's senior index analyst Howard Silverblatt. "The additional financing gives them immediate breathing room, with the payback being longer term dilution."

Put plainly, their gain is your pain.

Just this past week, Fifth Third Bancorp Chief Executive Kevin Kabat needed a cash infusion of $2 billion to bail out his struggling regional bank, while KeyCorp CEO Henry Meyer needed $1.5 billion. Both will issue stock to boost their balance sheets.

Banks have raised more than $60 billion this year by selling common and preferred shares.

The issuance of new stock acts to dilute the value of current shareholders because profit gets split among more shares. It's like having the family over for a turkey dinner and at the last minute grandpa invites the neighbors, too. There'll be less for everybody.

The end of the credit crisis is no where in sight, and the banks have yet to see the light at the end of the tunnel. And from how things are going right now, that light seems quite far away.

The writedowns at the banks have resulted in corresponding losses in stock price. And dilution of shareholders returns due to capital raisings only add to these woes. These are real losses that Singapore's SWFs will suffer; the supposed downside protection they built into their investments are but a short-term illusion.

Were these investments a good idea? We will only know for sure in a few years time when we have the benefit of 20/20 hindsight.

But the way things are going, the prospects for these investments simply don't look good at all.

Lee Kuan Yew Wrong Again! This Time, It's Oil.

Two months ago, Lee Kuan Yew, Minister Mentor of Singapore and Chairman of GIC, made the following statements about oil prices, as reported by the Straits Times:

Oil prices 'unlikely to rise further'
March 8, 2008 (Straits Times)

OIL prices are not likely to go higher, Minister Mentor Lee Kuan Yew said yesterday.

As crude oil prices hit US$105 (S$145) per barrel, MM Lee believes it is not likely to creep further up to US$110.

'The oil suppliers are testing the limits. They believe that China and India now form a new long-term base demand. They may be right,' he said.

'I don't think it can go up US$110, US$120, US$150 and the world economy goes on. Inflation will go through the roof.

'Economies of the West will go down, hyper-inflation in many developing countries. So it will go into reverse. There's no projection right to the end.'

Well, shortly after Lee Kuan Yew's pronouncement, Oil prices shot up above $110, and today is trading at above $125.

(Image courtesy of theenergycollective)

On top of that, just a few days ago, respected Goldman Sachs Analysts have predicted that oil could spike up towards $150 and even maybe $200!

Goldman Says Oil `Likely' to Reach $150-200 a Barrel
By Nesa Subrahmaniyan

May 6 (Bloomberg) -- Crude oil prices may rise to between $150 and $200 a barrel within two years because of a lack of adequate supply growth, Goldman Sachs Group Inc. analysts led by Arjun N. Murti said in a report.

``The possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months, though predicting the ultimate peak in oil prices as well as the remaining duration of the upcycle remains a major uncertainty,'' the Goldman analysts wrote in the report dated May 5.

Global fuel demand growth is outpacing gains in output. China, the world's fastest growing major economy, has more than doubled oil use since New York crude dropped to this decade's low of $16.70 a barrel on Nov. 19, 2001. That's soaked up most of the world's spare capacity amid supply cuts in Nigeria, Iraq and Venezuela.

Well well, wrong again, Mr. Lee Kuan Yew.

Wrong on energy, and wrong on banking.

Not only are the industry's most respected analysts holding opinions diametrically opposite to you, the world's most respected investors, such as Warren Buffett and Jim Rogers, have also made the opposite investment decisions compared to you.

Seriously, what is Lee Kuan Yew doing as the Chairman of GIC, Singapore's $300 billion investment fund? The man isn't qualified for the post!

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Related:
Lee Kuan Yew vs Warren Buffett: Part 2
Lee Kuan Yew Ain't No Warren Buffett
GIC, UBS & Jim Rogers

Lee Kuan Yew vs. Warren Buffett - Round 2

Some time last week, Lee Kuan Yew made a few comments about GIC's investments in the big banks, and also about Warren Buffett. He said in a Bloomberg interview:

Singapore's GIC May Seek More Bank Assets, Lee Says
By Haslinda Amin and Linus Chua

April 30 (Bloomberg) -- Government of Singapore Investment Corp. may add more bank assets to its $18 billion of investments in UBS AG and Citigroup Inc. as it chases stable returns over periods as long as 30 years, Minister Mentor Lee Kuan Yew said.

The Singapore sovereign wealth fund, which manages more than $100 billion, bought stakes in the two banks as they sought to repair balance sheets after writedowns linked to U.S. subprime mortgages. GIC, as the fund is known, may hold the stakes for two to three decades, said Lee, who's GIC's chairman.

``If there are other banks of the quality of the two that we bought into, with the promise and the capabilities and inherent capabilities to recover, we have got the liquidity to meet it, to make such an investment,'' Lee, 84, said in a Bloomberg Television interview late yesterday. ``We will not rule it out.''

This week, Warren Buffett, the wealthiest man in the world, gets his chance to give his take on the credit crunch and the banking sector:

Buffett says U.S. in recession; banks to face pain
Sun May 4, 2008 7:51pm EDT

OMAHA, Nebraska (Reuters) - Warren Buffett on Sunday said he does not expect financial markets to panic as write-downs and losses for bad debts mount in the financial services industry, but said those losses were not over "by a long shot."

The world's richest person, who runs Berkshire Hathaway Inc, said at a press conference the Federal Reserve brought markets back from a precipice in March in helping broker JPMorgan Chase & Co's purchase of Bear Stearns Cos, which was on the brink of bankruptcy.

"There's going to be more pain, sure," Buffett said. "The action of the Fed, in terms of Bear Stearns, prevented in my opinion the contagion where you're essentially going to have bank runs on the investment banks ... The idea of a financial panic ... has been pretty well taken care of. That was a watershed event."

He added, though: "That doesn't mean the losses are over by a long shot ... We've looked at some of the investment banks, and it's clear some more losses are going to be incurred."

Is Lee Kuan Yew listening?

He showed he clearly didn't listen to Jim Rogers by making comments about GIC possibly buying into more banks. And he most probably isn't listening to Warren Buffett either. Hell, Lee doesn't even really understand Warren Buffett's investment philosophy.

Buffett was speaking at his annual shareholder meeting, and had more to add:

In a question-and-answer session at the shareholder meeting, Buffett said that from a risk perspective, some banks got ``too big to manage.''

Sound familiar? What's the biggest bank in the world? I think it's one of the banks that Lee Kuan Yew's GIC invested in: Citigroup! which according to LKY, has

"an enormous spread worldwide as a retail bank".

Well, now we really know what an "enormous spread" is - it's a liability.

To finish off, be sure that it's not just about words, but it's also about making prudent investment decisions. Warren Buffett, like LKY & GIC, had the chance to pick up a stake in the banks. But Mr Buffett chose differently:

And Mr Buffett said banks need better risk management. He said he recently considered the prospects of a large investment bank, which he did not identify, by reading its 270-page annual report. He said he highlighted 25 pages where he did not understand what he had read.

'I decided not to pick that one,' Mr Buffett added.

Lee Kuan Yew and GIC, however, decided to plonk billions into Citigroup and UBS, now two of the greatest loss making banks since the credit crunch began.

Who do you think made the correct decision? Mr. Buffett or Mr. Lee?

I seriously think there's no debate!

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[Update - A reader has kindly informed:
"LKY is a senior advisor to Citigroup which means that he get millions off from Citigroup from deal, salary and payment every month, every year.
http://www.citigroup.com/citigroup/press/2006/060905c.htm
Please add this important disclosure as it might shred light why LKY is so eager to invest in frailing banks."]

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Related Posts:
Lee Kuan Yew Ain't No Warren Buffett
GIC, UBS & Jim Rogers

Lee Kuan Yew Ain't No Warren Buffett

GIC a few months ago took significant stakes in global banking giants UBS and Citigroup. The share prices of these companies have since taken a tumble due to the impact of the credit crisis, but according to GIC, that's no worry, since GIC has taken these investments with a 'long term view.' In addition to GIC's existing investments in those banks, Lee Kuan Yew, Chairman of GIC and Minister Mentor of Singapore, has gone on the record as saying:

Singapore's GIC may invest in more banks
Reuters, April 30

The Government of Singapore Investment Corp may invest in more banks in Europe and the United States if it gets the chance, adding to its stakes in beleaguered bank UBS and Citigroup, its chairman told Bloomberg TV.

"If there are other banks of the quality of the two that we bought into, with the promise and the capabilities and inherent capabilities to recover, we have got the liquidity to meet it, to make such an investment," Lee, 84, said in a Bloomberg Television interview late yesterday. "We will not rule it out."

"We are buying something that we intend to keep for the next two to three decades and grow with them", he said, adding that GIC was a long-term investor.

After throwing in billions of dollars into credit-crunch battered financial institutions, Lee Kuan Yew is prepared to deploy more capital into this area. Ever confident about GIC's investments, the octogenarian further defended GIC's decisions:

"The franchise of the banks, the expertise that they have, under proper leadership, they will be able to recover and rise again ... Will there be another Swiss bank like UBS for wealth management? I doubt it, we doubt it, that is why we invested in it." Citigroup, he added, had "an enormous spread worldwide as a retail bank".

Interesting rationale. According to Lee Kuan Yew, UBS and Citigroup have "inherent capabilities to recover" from the credit crisis. Well, this is quite a debatable statement.

Just a few months after GIC's investments, recovery of the banking sector is far from sight. Instead, the banks are scrambling to raise more capital to deal with the damage the credit crunch has dealt them:

Citigroup, Merrill Lead Record Week of Bond Offerings
By Bryan Keogh and Gabrielle Coppola

April 25 (Bloomberg) -- Citigroup Inc. and Merrill Lynch & Co. led $45.3 billion of U.S. corporate bond offerings, the busiest week on record, as financial companies sold debt at the highest yields since April 2001.

Sales compare with $31.2 billion last week and an average this year of $18 billion, according to data compiled by Bloomberg. Citigroup, the biggest U.S. bank by assets, sold $6 billion of hybrid bonds in the company's largest public debt offering, while New York-based securities firm Merrill Lynch raised $9.55 billion by issuing debt and preferred securities.

Bond offerings soared as investors grew more optimistic financial companies can recover from $309 billion of writedowns and credit losses tied to the collapse of the subprime-mortgage market. Banks and securities firms sold 85 percent of investment- grade debt this week, Bloomberg data show. High-yield bond issuance swelled to the most since November.

An inherent ability to recover from the crisis? Not without a lot of additional capital - extra capital which is going to dilute your existing stakes.

The debt issuance is not the end of the story. Citigroup is issuing equity as well:

Citigroup Sells $3 Billion of Stock to Boost Capital
By Bradley Keoun

April 29 (Bloomberg) -- Citigroup Inc., the U.S. bank hit with writedowns on subprime mortgages and bonds, is selling $3 billion of stock two weeks after reporting its second straight quarterly loss.

The shares are being sold in a public offering, New York- based Citigroup said today in a statement. Citigroup already has raised more than $30 billion of capital since December. A weakening U.S. economy and rising consumer delinquencies forced Chief Executive Officer Vikram Pandit to rescind assurances earlier this year that the bank didn't need to raise more funds.

"This was extremely disappointing," William Fitzpatrick, an equity analyst at Optique Capital Management in Racine, Wisconsin, said in a Bloomberg Television interview. "We were hoping they wouldn't have to go the equity markets like this."

Citigroup's issuance of equity financing is implicit acknowledgement that it won't be able to deal with the upcoming problems in the credit markets without substantial help. Add to that a weakening US economy and a looming recession, the clouds on the horizon are only getting darker.

Morgan Stanley realised this in its latest research report on the banking sector, painting a very bleak picture of the road ahead. This is in stark contrast to investors (including GIC) who have been calling an end to the banks' credit woes:

Morgan Stanley sees big bank woes just beginning
Monday April 28, By Joseph A. Giannone

NEW YORK (Reuters) - Morgan Stanley analysts on Monday told clients to "sell the rally" in financial stocks, slashing forecasts for big bank earnings and warning that the current credit crunch is only just beginning.

In aggregate, Morgan Stanley reduced its estimates for 2008 large bank earnings by $17 billion, or 26 percent, and reduced 2009 forecasts by $13 billion, or 15 percent. The analysts expect higher loan losses and expenses, offset by higher net interest income, though profits could fall further still if the Federal Reserve stops lowering interest rates.

"More capital hikes and dividend cuts (are) coming as our credit deteriorates and forward earnings decline," analysts led by Betsy Graseck wrote in a report. "We think we are only in the third inning of the credit cycle and expect this credit cycle will be worse than (the slump in) 1990-91."

Just for the record, a baseball game usually has nine(9) innings. Morgan Stanley's declaration that we are only in the third inning of the credit cycle, simply says we're not even a third of the way through the game. A Seeking Alpha contributor has also observed:

The credit markets have improved, in terms of increased liquidity, with the Fed opening up the discount window for investment banks. However, the real economy, which has had only a minimal impact on the financial markets thus far, is deteriorating rapidly. Home prices are continuing to decline, costs of living are continuing to increase (look at the price of oil and food for examples), and the job market is reeling. The real economy will come back around and hit the financial institutions far harder than the freeze in the credit markets did. The Fed put out one fire, but threw gasoline on the other - through massive inflation - and we have not even begun to witness the effects this will have on our economy.

Well, well, it appears Lee Kuan Yew doesn't seem so wise any more. Certainly not as wise as Warren Buffett, whose Berkshire Hathaway has stayed away from picking up stakes in these big banks. And its just as well that we clearly see the difference here, as GIC and Temasek have been repeatedly using slogans to "invest for the long term," to parade themselves as value investors of the Buffett kind.

But Lee Kuan Yew doesn't really understand Warren Buffett. He also said in the interview with Bloomberg:

'[Buffett] has a different view. He has to give returns to his investors year by year. We don't have to. We have to think in terms of the next 10, 20, 30 years. We are buying into something which we intend to keep for the next two, three decades and grow with them.'

But I think anybody who knows Warren Buffett knows that Buffett's favourite investment horizon is forever, and that the investment legend has repeatedly stressed that Berkshire's focus is not on the quarter-to-quarter or year-to-year earnings. In all his writings to shareholders, one can clearly discern that Buffett has his eye on the long term future. Furthermore, Buffett's track record of consistently outperforming the market spans a good 50 years... Thus, for Lee to say the Buffett is narrowly focused on the year-to-year performance of his company, is to demonstrate a gross and fundamental misunderstanding of Buffett's investment philosophy - and thus it was ridiculous for Lee Kuan Yew to claim that GIC has significantly different obligations to its shareholders compared to Berkshire.

Finally, let's not forget Jim Rogers' warning to Singapore's Sovereign Wealth Funds earlier this year:

"It grieves me to see what Singapore is doing. They are going to lose money," he added, referring to investments by Government of Singapore Investment Corp and Temasek in Citigroup, Switzerland's UBS and Merrill Lynch.

I think that just about sums up what is going to happen.

MM Lee on the CPF

In today's Straits Times, MM Lee Kuan Yew was quoted as saying the following:

MM warns of 'dark side' despite economic boom

'We never invested the CPF money in shares or bonds. We always invested the CPF money in Singapore Government bonds where the Singapore Government guarantees a fixed return and you're always going to get it,' said Mr Lee, who is the GIC chairman.

'In other words, you will never lose. And if anybody thinks he can do better, he's welcome to take his money and go to a fund manager and try and do better.

Allow me to take issue with these statements on several counts.

MM Lee is claiming that the best possible return for one's retirement savings is a 3.5% risk-free return. i.e. he is saying that it is unwise for people to invest their monies in assets other than SGS bonds, and that equities, real estate and other investments are bad.

Well, I think that for anybody who has any basic understanding of investments, the absurdity of this claim is clear. In fact, I can just fly southeast to Australia and I can open a bank account and get 5.5% return risk free on Aussie dollar deposits. Plus, the Aussie dollar is appreciating against the Singapore dollar so I would get the benefit of the currency appreciation. On top of that, I get to withdraw the money when I need it, in case of emergency. Furthermore, I dare say that the Aussie economy is more resilient than the Singapore economy.

The 3.5% return on my CPF gives me none of these benefits.

In any case, even if people want to invest in risky assets for the benefit of greater return, I do not see why this is a worse alternative to leaving your money in fixed-return securities. In fact, it is widely regarded that a long term investment in the stock indexes is far superior to bonds. Just ask Jeremy Siegel, or Burton Malkiel, or any other expert on investment economics. It is disappointing to hear MM Lee, chairman of GIC, make such ill-informed statements.

Finally, yes, I think I can do better than SGS bonds. And yes, I would like to take my CPF monies and manage it myself. However, MM Lee, his son, and his cabinet have made the CPF compulsory by law. Yet he dares to say,

And if anybody thinks he can do better, he's welcome to take his money and go to a fund manager and try and do better.

MM Lee challenges us to find a more competent fund manager without allowing us the option to withdraw our CPF monies. That's like shackling a person's hands and challenging him to a boxing match. Not only is this statement hypocritical, it is cowardly and tantamount to hitting below the belt.

Well, well, MM Lee, if you really think you are so good at managing people's retirement savings, then I challenge you and your cabinet to make the CPF optional and allow Singaporeans the choice of withdrawing their CPF monies for their own management. If you are really as good as you claim, then people will naturally choose the government to manage their savings over alternative fund managers.

And if you're not willing to liberalise the CPF, I suggest you make less of such bold statements.
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Update: See "The Mathematics of Pension Fund Returns" by Lucky Tan for more on this issue.

Lee Kuan Yew's Comment on the Marginalisation of Chinese - Looking Back

I exchanged an email with a Malaysian friend over LKY's comments and the events that have panned out since then. Here are his insights.

I think its undeniable that Malaysian minorities suffer a form of negative discrimination ( a kind of reverse affirmative action) when compared with the majority. And factually, it would be quite hard to counter-argue what LKY said about Chinese minorities being politically defanged as in Indonesia and Malaysia. So far at least from the mainstream media - most seem to denounce the comments as inciteful and dangerous, Most Malaysian Chinese however secretly seem to be in profound agreement with LKY - namely most are disappointed that Badawi seems to have extended the priviledges in the NEP without any signs of a change in policy. LKYs comments came right after several incidents that made the Malaysian Chinese community feel vulnerable esp. after the PM's son-in-law and head of UMNO youth made comments about MCA (the Chinese party in Barisan national) as well as a concerted effort by some UMNO youth members to get rid of a Chinese politican in Penang on charges of not doing enough for the Malay population there. I doubt most Chinese would disagree with LKY about the marginalisation of Chinese.

Personally, I think the marginalisation proceeds from a policy of appeasement by the Chinese community given that they have given up most of their political presence in order to safeguard their economic interest especially after the race riots in May 69. However currently they too are finding their economic positions being under attck due to corruption, biased quotas on licenses and being muscled out on govt contracts. No doubt the Chinese community (the wealthy ones at least) mantains its economic position through buying off politicians in order to obtain contracts and cheap loans but for most of the rank and file - their economic superiority is decreasing. I see very little that can be done currently however - but a current of discontent has always been present.

I think the political reactions are quite predictable - a delayed grudging apology on LKY's side, Badawi acting as the moderate good guy while more fringe elements of UMNO making loud noises about Singapore's treatment of its own Malay minority. Nothing suprising there - the newspapers make all the right noises mixing nationalist puff-talk while ignoring the biased accounts from their own sides. Politically nothing much has changed except the continuous illustration of the fact that regionally we remain below the standards of political civility and that we cannot transcend playing the race card and prefer to enflame its attendant suspicions. Though LKY started the whole incident, discrimination was and continues to be a problem in Malaysia - the roots are complex including the fact that Chinese politicans and businessmen (sometimes they are interchangeable as those that fuel continued corruption.) It disturbs me that because we unable to transcend such dialogue - we may be fated to realise its consequences in increased and more dangerous regional tensions.

As usual the Singaproean press was completely muted over the apologies demanded by the Malaysians and the Indonesians. I just think that even though LKY might be speaking the truth it was probably an unnecessary comment that adds to strained relations, esp. considering that its coming from an 82 year old man who should be finding better things to do during his retirement than to inconvenience his son's government by inflaming sentiments around the region.

Lee Kuan Yew and the Malaysians

Lee Kuan Yew has been widely reported today as having apologised, after inciting an incendiary reaction from the Malaysians after his comment that the Malaysian Chinese are 'systematically marginalised.' But after this whole brouhaha, what really is the state of affairs?

For Singaporeans, Lee Kuan Yew's comment has really been an embarrassment. The elder statesman has done no favours to the country's international relations with his provocative statements about inter-racial relations in the neighbouring countries. And even though there are inequalities, LKY should know better than to make such sensitive remarks, especially when his government seems paranoid about racial harmony in his own backyard.

As for the Malaysians, LKY's comment has probably incited feelings about racial quotas and positive discrimination in favour of the native Malays, and should fuel discussion amongst the Chinese community. It also highlights to the Chinese the kind of environment they live in and how perhaps Singapore might be a nice place in Southeast Asia to be.

Even though LKY is apologised, both sides have lost out, Singapore because of the ill feelings the comment has engendered, and Malaysia because of the racial tensions the comment has stirred. Indeed, the comment was 'uncalled for,' and LKY should seriously think about his words before rattling off such comments mindlessly. In his twilight years, it would be better to finish the race on a positive note, rather than be remembered for such clumsy commentary.