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.'
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!
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.
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.
The purpose of this post is just to archive a few articles (click for full images) that have been in the press (specifically TODAY), regarding Temasek and the SWF issue.
The first was an editorial (2 Apr 08) by Conrad Raj, Editor-at-large of Today, on the semantics of the SWF. I would like give Conrad a pat on the back for being one of the few journalists in Singapore to have the courage to write a piece confronting Temasek on its behaviour; I have not seen similar content from Straits Times or My paper (which instead comes up with crap like this)
The second is a short response to Conrad's piece by an interested reader (3 Apr 08)
And finally, we have Myrna Thomas' response to the two (4 Apr 08). As usual, Ms Thomas gives Singaporeans the same lines (about being purely commercially oriented) that Temasek has been spewing for a long while.
Interestingly, while all this activity has happened in TODAY, nothing has appeared in the Straits Times regarding this issue. I wonder what has happened to my letter.
Update: Another letter on Temasek, a day after this post was published.
Just one and a half weeks ago (March 22, 2008), it was reported in the news that Temasek Holdings was saying that it was not a sovereign wealth fund.
TEMASEK Holdings said that it is not affected by an agreement by Singapore, Abu Dhabi and the United States on principles to increase the transparency of sovereign wealth funds. 'Temasek is not a sovereign wealth fund,' its spokesman Mark Lee said in a telephone interview yesterday. 'Temasek has to sell assets to raise cash for new investments and doesn't require the government to give approvals.'
And then, today (1 Apr 08), the Ministry of Finance goes on the record saying, hey, actually what Temasek said about themselves is not true, the rules apply to Temasek as well:
THE Ministry of Finance yesterday said that Temasek Holdings should abide by guidelines for sovereign wealth funds (SWFs) that were unveiled just over a week ago.
It said that as Temasek is wholly owned by the Government, the 'policy principles' it helped craft with counterparts from Abu Dhabi and the United States are relevant for the local investment company.
Whooopsy...!! What's going on here???
Now, not only does Temasek invest "purely on commercial principles," it doesn't even clarify its status with our Ministry of Finance before making an official statement to the press!
What do we have here? A Rogue Sovereign Wealth Fund which makes up its own rules ahead of the Government and without its owner's approval??
This issue is not just a matter of definitions, semantics and of whether Temasek is an SWF... indeed these recent events suggest that Temasek is a corporate entity that is able to determine its principles of corporate governance ahead of and without the approval of its sole shareholder, the Ministry of Finance.
This has implications that go far beyond standards of disclosure into the realm of issues such as the investment mandate and decision making process that Temasek uses to decide on its investments.
