Crowded MRT Station in Singapore even during Off Peak periods

SMRT isn't running as many train services during off-peak hrs as it should. This was a picture I took of Jurong East MRT when I was on the way home on a friday evening at 7.24pm.



The trains were not arriving fast enough to pick up the passengers arriving at the station and the crowd just kept building.

This is what you get when the government pumps a ton of people into this little island, and the transportation companies try to cut costs by running as few trains as possible.

Looks like we need to do a proper review of our rail infrastructure operators.

Singaporean Businesses Need to Buck Up - Innovate or Die!

Recently reported in the press is the news that SMEs in Singapore are complaining about the restrictions on foreign workers and want the government to loosen the restrictions that limit the hiring of foreign workers. A recent business survey indicates that these SMEs are quoting the same excuses that they have using all along - locals shun labour-intensive jobs, and the turnover rate for foreigners is lower. These business also want to hire foreigners because this reduces business costs, or, in other words, because foreign labour is cheap.

These latest results show that Singaporean businesses are heavily dependent on lowering the cost of factor inputs in order to compete in the market, rather than improving factor productivity. The difference between the two is illustrated as follows.

Company A hires Singaporean worker Mr Chan at $15 an hour to produce 10 widgets per hour. Mr Chan manufactures the widgets using equipment Y, which depreciates at $25 per hour. The cost of production per widget is hence $4 per widget: ($15+$25)/10 = $4. Company A can lower the cost of production by either lowering the cost of the factor inputs (labour or capital equipment), or by improving the productivity of these inputs.

Company A chooses to lower the cost of production by reducing the cost of factor inputs. Company A fires Mr Chan and hires Mr Balakrishnan from India who is willing to work for $5 per hour. However, Mr Balakrishnan was previously a farmer and he has only started to learn how to operate the manufacturing equipment, and so he can only produce 8 widgets per hour. Company A's strategy lowers the cost of production from $4 per widget, to $3.75 per widget: ($5 + $25)/8 = $3.75. However the the productivity of Company A has declined. Its production per worker has fallen to 8 widgets per hour, compared to its previous output of 10 widgets per hour.

Company B chooses a different strategy. Company B starts out with the same equipment as Company A, and employs Mr Wong at the same wage as Mr Chan. Company B also invests in research & development to improve the technology of its manufacturing equipment. Because Company B has been investing in research & development, it has a new piece of equipment. This equipment costs more, and has a depreciation rate of $43 an hour,compared to $25 previously. Company B also trains Mr Wong to use this new piece of equipment. The result of this improved manufacturing process is that Mr Wong is now able to produce 16 widgets per hour, compared to 10 widgets previously. At the same time, because of Mr Wong's improved skillset, Company B increases Mr Wong's salary to $17 per hour.

The net result of this is that Company B's cost of production is now $3.75 per widget = ($17+$43)/16. This is the same as Company A's result. However, unlike Mr Chan, Mr Wong not only keeps his job, but also has received a pay raise. Mr Wong is also able to afford another child because of his higher income, and help improve to Singapore's poor fertility rate. Furthermore, the longer term impact of this strategy is that Company B is able to continue lowering the cost of production, because it can continue to invest in R&D. Company A, however, is unable to bring down its costs further, because it is unable to find workers who are willing to work for much less than $5 per hour. Furthermore, Company B is able to expand its production and hire the experienced Mr Chan, who was previously fired by Company A.

The difference between Company A and B is the difference between night and day. Company A has chosen the strategy of lowering the cost of factor inputs, but this strategy rarely results in sustainable competitive advantage. In most cases, this strategy results in price wars and intense competitive rivalry that ultimately kills profitability when such price wars are not accompanied with increases in productivity.

Company B, however, has a sustainable competitive advantage. Its R&D program will continue to produce better equipment and labour productivity gains, and will allow it to lower its cost of production even further. In contrast, Company A cannot reduce its factor costs much further and will soon be put out of business.

Two fundamentally different strategies, two fundamentally different results.

Singaporean businesses are thinking like company A. Instead of focusing on improving productivity, they have chosen to pursue lower factor input costs. They repeatedly complain that Singaporean workers are too expensive and want to hire cheap foreign labour instead. Eventually, like company A, these businesses will be outcompeted by their more innovative counterparts.

In view of these SMEs' mentality, is it surprising at all that Singapore's productivity growth has remained stagnant relative to the US since 1995, as the recent Singapore Competitiveness Report shows? Is it surprising at all that the standard of living for the average working Singaporean has hardly improved in recent years?

No.

Singaporean businesses need to buck up and start innovating. The government also needs to stop feeding this quick-fix mentality with its liberal immigration program.

Quick-fix is ultimately no-fix, and Singaporean businesses must innovate or die.

PAP's Quick-Fix Mentality will Exacerbate Singapore's Economic Challenges

Earlier this decade, PM Lee Hsien Loong & the PAP faced a problem with Singapore's population economics. With the country's fertility rate way below the replacement rate of 2.1, Singaporeans were not making enough babies to replace themselves. The potential burden of this phenomenon was obvious - amongst other issues, the cost of supporting an aging population would have to be borne by a smaller workforce, and the government did not want to have to sustain this liability in the future.

In order to arrest the problems presented by a resident population failing to replace itself, the PAP has resorted to the quick-fix policy of opening the country's shores to foreigners. A massive influx of immigrants and foreigners has resulted in the rapid increase of Singapore's population. Between 2003 and June 2009, the population increased from an estimated 4.2m to 5m, or an increase of 19 per cent in less than a decade.

While this has, in the short-term, drastically expanded the productive work force, the longer-term impact of the PAP's immigration policy has been to exacerbate the already challenging living conditions which have discouraged Singaporeans from having children. Directly attributable to the Government's immigration policy, are two major side-effects which have made it more difficult for Singaporeans to have children.

Firstly, the cost of living for the majority of Singaporeans has risen. In particular, the escalating cost of housing to unaffordable levels is acting as an obvious hurdle towards family formation. A couple which is unable to afford a roof over their heads will obviously find it very difficult to start a family. After all, the most basic thing parents must provide to their children is a roof over their heads. Yet, instead of bringing down the cost of housing, the combination of a spike in housing demand and stagnation in supply has sent property prices to record levels. (ref. 'PAP MP blames young couples who cannot get flats for not “planning ahead”')

Secondly, labour productivity has declined. Singapore's labour productivity levels have been falling for six consecutive quarters starting in the fourth quarter of 2007. The decline has been worsening each quarter, with the first three months of 2009 seeing the largest drop so far at minus 14.7 percent. (ref. "National focus needed on efforts to boost labour productivity", CNA). Singaporeans are working harder and longer and with less to show for it. Naturally, they have less time and money to spend on their children.

The benefits of productivity on family formation are obvious. Workers who accomplish the same amount of work in shorter periods of time will have more time to spend on their family. Similarly, workers who accomplish more work in the same period of time will be able to earn higher incomes and thus be better able to afford a family. Instead of improving productivity, however, the PAP has chosen an immigration policy which has had a direct impact on this key economic statistic. The large influx of foreign workers in recent years means that each worker doesn’t have to work as hard. It also means that positions are constantly being filled by newbies without experience. (ref. 'Declining productivity here a problem')

The combined effect of housing price inflation and the decline in labour productivity has been to make the real cost of bringing up a child even more expensive, and thus further discourage couples from having children. Meanwhile, little attention is being paid to initiatives which can make a genuine impact on the standard of living.

The solution to the housing affordability problem is simple. Either supply more flats or decrease the demand. The lack of proper planning by the PAP on this issue is quite perplexing, but this issue has been dealt with by other writers and I will not repeat their arguments here. (ref. "Immigration and public housing: Should the govt or the people plan ahead?")

The deeper problem is that of labour productivity.

An improvement in labour productivity does not only require the education & upgrading of the workforce, but a fundamental change in mentality of employers from a low-cost of labour mentality to a higher value-added mentality. Meanwhile, it seems that the only solution that the PAP has to throw at the productivity problem is to point the finger at workers for not upgrading themselves.

While skills upgrading is part of the solution, it is only one side of the productivity equation. Just as important is paying attention to improving the working conditions of employees and protecting workers' rights. Employers in Singapore blame Singaporeans for shunning so-called 'menial' or ‘unskilled’ jobs, yet the only solution they seem to have is to throw cheap foreign labour into these jobs such as construction or frontline retail services. The tougher but more rewarding option of professionalising and dignifying such jobs is thrown to the wayside.

Contrary to what some may think, a career in construction can be a meaningful, dignified one. A construction worker who takes pride in his technical work and who has accumulated experience will certainly be much more productive than a cheap foreign import. When given the right tools and proper working conditions, his higher productivity will also justify a much more respectable salary than the pittance that is currently paid in the industry. Yet, keeping wages low and working conditions poor is a surefire way to make the job disrespectable, and for companies to lose their top performers. (ref. “TOC Special Feature: Is Singapore really slum-free?”, TOC)

Similarly, frontline sales staff in retail can make a significant difference to the bottom line if they are well trained, respectably paid, and given good working conditions. Conversely, untrained foreigners who do not even speak the language of business, are obviously unable to add significant value to a retail operation and sometimes even turn away prospective sales. (ref. “Australian tourist complains about PRC workers in Singapore who cannot speak English!”)

In spite of this simple logic, the government's immigration policy continues to foster a low-cost mentality rather than a value-added mentality by allowing local businesses to import cheap labour, which only serves to keep wages depressed and working conditions lousy. To be fair, enterprises are also to blame for perpetuating their low-cost mentality. But if nobody makes an effort, how will things ever improve?

Labour productivity also improves with innovation & entrepreneurship. A significant improvement in manufacturing techniques can allow a factory to dramatically increase its output given the same number of workers. Meanwhile, technological innovations in engineering or computing allow the formations of new enterprises and the creation of value-added jobs. Yet, the government continues to pursue policies which encourage an iron-rice bowl mentality rather than bold enterprise.

In particular, the scholarship system encourages Singapore's brightest students to pursue a safe (bonded) career in government rather than one in the private sector. It systematically sucks out the brightest minds from innovating in the marketplace, into the ranks of the public service. Instead of finding solutions to scientific problems, bringing new products to market or searching for a cure for cancer, Singapore's top young brains are writing policy papers and goodness knows what else, in 'silent resentment and ultimate dissatisfaction' (ref. the late Dr Allan Ooi).

The PAP argues that the government needs top brains in order to run efficiently and effectively. Yet, the stark reality is that entrepreneurs and innovators such as Olivia Lum, Sim Wong Hoo and Ron Sim have individually created many more jobs for Singaporeans than any government scholar or bureaucrat. Is it no wonder, then, that leaders such as S. Dhanabalan and DPM Jayakumar (ref. "Jayakumar wants Singapore top students to study in local varsities") have recently lamented that allowing top students to go overseas is a bad thing? And, while it may appear that the government is unrolling campaigns encouraging entrepreneurship in schools, such campaigns are but lip service when millions of dollars continue to be thrown at scholarships designed to suck youngsters into government ranks.

The recent housing pains and productivity drops are symptomatic of a quick-fix mentality that can ultimately only exacerbate Singapore's population and economic problems, rather than alleviate them. Until fundamental, structural issues in Singapore's economy are tackled head-on, Singapore will continue to see its fertility rate remain low and its productivity (and competitiveness) slide. At the end of the day, the PAP cannot continue to pump more and more immigrants onto this little island. Sooner or later, Singaporeans need to find a way to return their fertility rate to replacement levels, and make the cost of family formation affordable. Singapore will need to find a way to foster genuine innovation and entrepreneurship and to improve worker productivity.

So far, the PAP doesn't seem to be doing very well in coming up with the right solutions.

Irrational Exuberance Reader

Here is a collection of articles intelligently explaining why the market rally is ill-founded and why we are in for a bigger bust some time in the future. All that the Americans have done is put a giant humongous band-aid on their economic wounds without doing anything substantive to solve the underlying problems.

Lessons of Financial Crisis Forgotten in Heady Speculation

In order to rescue the financial markets, the US government has put its credit on the line by bailing out shaky institutions and offering guarantees on deposits and loans. Obama has also revealed that America is likely to increase its debts by $9 trillion in the next ten years. Add this figure to the existing $12 trillion of federal debts, that is more than $20 trillion.

Assuming an interest rate of 5%, that is about $1 trillion which has to be allocated in the budget to pay creditors yearly. Where is Uncle Sam going to get the bulk of this money except to turn to its printing press? And we are not even thinking about other liabilities in its social security and health care.

Is there a point where the party stops and nothing works anymore? Very likely yes. The Federal Reserve cannot cause the market to rise indefinitely by printing money at will. Its status as the global reserve currency is at stake after abusing it for so long.

It is a matter of time before we experience another major recession because the key lessons from this financial crisis were forgotten easily and people are back to their greedy speculative ways. But the next time round, the Federal Reserve may find its hands tied, with very few options available.

The Next Financial Crisis

During this crisis, Bernanke--while saving the financial system in the short term--has done nothing to break this long-term pattern; worse, he exacerbated it. As a result, unless real reform happens soon, we face the prospect of another bubble-bust-bailout cycle that will be even more dangerous than the one we’ve just been through.

Irwin Kellner: Irrational exuberance takes an encore

Based on the fundamentals, neither stocks nor oil should be trading at today's lofty prices, nor should gold, for that matter. Yet people are chasing their prices up, so anxious are they to buy.

In the case of the dollar, it has fallen so much that it is now undervalued, in terms of purchasing power parity, yet investors continue to sell.

Underlying this behavior is what I would call twisted logic.

When it comes to the world of investments, rising prices cause people to buy while falling prices beget selling. This is exactly the opposite of what they do out there in the real world of goods and services.

Here, most of us look for bargains -- we tend to buy more when prices are low. When prices go up, we step back and buy less or none at all.

For their own sakes, it is too bad that investors do not carry their real-world attitudes to the world of stocks, bonds and commodities. If they did, we would experience fewer, if any, bubbles no matter how much liquidity fills the financial system.

MarketWatch Pundit Calls a Meltdown

I hope you get it by now. I am not a market bull. And neither is Paul Farrell. Bernanke won't turn off the liquidity tap. Meanwhile Geithner, Paulson & friends continue to prop up the crap financial institutions like Citigroup, Bank of America, AIG, Fannie Mae and Freddie. America is super obese because of its addiction to leverage and debt, and speculators are punting up the stock market when the economy is hardly showing a recovery.

Good luck to all of you currently in the stock market. I hope, for your sake, that I am wrong.

Wall Street's 2012 meltdown sweepstakes

It's coming in 2012: Another, bigger meltdown of Wall Street's "too-greedy-to-fail" banks. No, this is not another fanatical warning about that Dec. 21, 2012 end-of-days prediction based on the Mayan calendar, though you may well ask "Who will survive?"

Here is what's happening: History is repeating itself. Wall Street's soul-sickness is setting up a new meltdown. Dead ahead. Be prepared.

...

Unfortunately America's collective brain was addicted to the adrenaline rush of gambling in a risky bull. The euphoria is intoxicating. We were caught up in a game of musical chairs, squeezing out every last dollar of return, blind to the catastrophe ahead until caught by surprise. Unfortunately, Wall Street lacked a moral compass and stole trillions from American taxpayers. Today, the only lesson Wall Street has learned is "greed is good." Now the beginning of the end has become a moral tragedy that is setting the stage for an implosion of Wall Street, capitalism and our economy circa 2012.

Everyone's still listening, still in a trance

Yes, another meltdown is coming; it's inevitable. This time, I've decided to do more periodic updates -- a watch list of alerts, warnings and predictions. Just like the updates done for over a decade, except this time we're more aware that few in power will listen, not Wall Street, not Washington, not Corporate America. But you must.

Yet Another Top Analyst Calls a Bubble

Nouriel Roubini and SocGen are bearish on the stock markets. Now, another top analyst, Meredith Whitney, famous for her right call on the collapse of Citigroup and other banks, now says that the market rally is not backed by fundamentals.

Bank analyst Whitney bearish on U.S. market
Mon Nov 16, 2009 3:47pm EST

NEW YORK, Nov 16 (Reuters) - Bank analyst Meredith Whitney said on Monday she does not believe the U.S. equities rally is based on fundamentals, and she is as bearish as she has been this year in the stock market.

In an interview with CNBC television, Whitney said there is "no way" the banking sector is well capitalized and it is time to reduce weighting in large-cap banks.

Whitney also said she sees a double-dip U.S. recession.

The main U.S. stock indexes pared some of their gains during the interview.

Whitney wrote a particularly pessimistic, but accurate, report on Citigroup, on Oct. 31, 2007, which got her attention from many Wall Street analysts and the news media. She has since followed this report with similar reports and predictions, which have tended to leave the companies involved with lower stock prices as the market has taken her opinion seriously. One of her claims is that goodwill is built-in to a lot of companies' share prices, and that as the market moves into dark times, this goodwill will dissipate.

In 2007, Whitney was listed as the second best stock picker in the capital markets industry on Forbes.com's list of "The Best Analysts: Stock Pickers", as well as being named "one of NY Post's 50 Most Powerful Women in NYC.

Whitney's extremely bearish view on banks landed her on the cover of the August 18, 2008 issue of Fortune Magazine. Even before the problems in September that befell Merrill Lynch and Lehman Brothers, she is quoted as saying, "It feels like I'm at the epicenter of the biggest financial crisis in history, however even a broken clock is right twice a day" In October 2008 Whitney, was ranked as one of Fortune 500’s “50 Most Powerful Women in Business.” In 2008 she won CNBC's "Power Player of the Year" over Jamie Dimon, Ben Bernanke, and Hank Paulson.

SocGen & Nouriel Roubini: Markets to Tank Very Soon

SocGen's Albert Edwards and economist Nouriel Roubini are sounding a warning that the recent rallies in asset markets are being driven by a liquidity bubble that is going to burst spectacularly, perhaps as soon as next year.

Reuters reports as follows:

SocGen's top analyst sees market lows next year
Mon Nov 9, 2009 11:54pm EST

HONG KONG (Reuters) - Albert Edwards, a top analyst with French bank Societe Generale, expects global markets to hit a new low in 2010, adding that he would not be surprised if the global economy enters another recession next year.

Edwards, one of the leading equities bears and a long-term critic of the policies of Western central banks, is skeptical of popular opinion that extreme policy response will safeguard the West against a repeat of Japan's lost decade of the 1990's.

Edwards said he expected that at some point China would go into recession, calling people's excessive faith in growth stories a "sick joke."

Japan would run into difficulty funding itself next year as demand for Japanese government bonds waned and bond yields rose further, he said.

The significance of higher Japanese government bond yields was that it would cause some Japanese investors, who have been investing overseas in search of higher returns, to bring that money back home, he said.

Meanwhile, Nouriel Roubini, in this essay, warns of the effects of the 'mother of all carry trades'

"the combined effect of the Fed policy of a zero Fed funds rate, quantitative easing and massive purchase of long-term debt instruments is seemingly making the world safe – for now – for the mother of all carry trades and mother of all highly leveraged global asset bubbles.

...

But one day this bubble will burst, leading to the biggest co-ordinated asset bust ever: if factors lead the dollar to reverse and suddenly appreciate – as was seen in previous reversals, such as the yen-funded carry trade – the leveraged carry trade will have to be suddenly closed as investors cover their dollar shorts. A stampede will occur as closing long leveraged risky asset positions across all asset classes funded by dollar shorts triggers a co-ordinated collapse of all those risky assets – equities, commodities, emerging market asset classes and credit instruments."

Personally, i don't know exactly what is going to happen, but I certainly agree with these two analysts that the recent market rallies certainly seem to be fueled by exceptionally loose credit rather that proper market fundamentals. The US and European economies are still in the dumps, propped up only by record levels of government spending and record levels of liquidity as supplied by the central banks. Instead of taking the hard medicine of properly restructuring the economy, all we see is continued support of 'too-big-to-fail' sick giants and more and more borrowing.

Sooner or later a liquidity bubble is going to form (it probably already has) and sooner or later this bubble is going to burst... how big and how hard the burst and subsequent crash is going to be, I don't really know. But if SocGen and Roubini are right, then it looks like it's going to be a loooong way down from here.