Singapore’s economy: Manufacturers struggle as the city-state changes its economic model

Singapore’s economy: Manufacturers struggle as the city-state changes its economic model

CONTRARY to what many imagine about affluent Singapore, the economy is not all about banks and shopping malls. Manufacturing and industry account for about 30% of the country’s GDP, a strikingly high figure for an advanced economy. In Britain and France the figure is about 12% and in America even less. Nor is it all about sophisticated multinationals: three-fifths of Singapore’s economy is made up of small and medium-sized enterprises (SMEs). The government is proud of the mix of big and small, manufacturing and services, which has helped to spread risk during global downturns.

Now the model is under strain. While other South-East Asian countries have posted impressive, even record, rates of growth over the past few years, Singapore has struggled. In 2012 the economy grew by just 1.3%. This year will probably see only a marginal improvement, especially after the economy contracted in the first quarter, by 0.6% compared to the same period last year. The problems have much to do with the waning competitiveness of Singapore’s metal-bashers. Read more of this post

Money to burn: The muddle-headed world of American public-pension accounting

Money to burn: The muddle-headed world of American public-pension accounting

SLOWLY but surely the cost of America’s public-sector pension promises is becoming clear. Last year the best estimate of the shortfall was more than $4 trillion. To deal with its deficit, a giant Californian pension fund, CalPERS, recently announced plans that will increase contributions by employers (in effect, taxpayers) by up to a half, starting in 2015-16.

Shinzo Abe’s government looks likely to disappoint on fiscal consolidation

Japan’s public debt

Don’t mention the debt

Shinzo Abe’s government looks likely to disappoint on fiscal consolidation

TO REVIVE Japan’s economy Shinzo Abe, its prime minister, has loosed three arrows. Temporary fiscal stimulus, monetary easing and structural reform together make up the strategy known as “Abenomics”. But many reckon there needs to be a fourth dart in the quiver: fiscal consolidation over the longer term to tackle the country’s vast public debt, which is expected to approach 240% of GDP next year (see chart).

Mr Abe’s party, the Liberal Democratic Party of Japan (LDP), last year co-operated with its main rival, the Democratic Party of Japan (DPJ), to pass a bill to raise the consumption tax from 5% to 8% in April 2014 and up to 10% in October 2015. For Yoshihiko Noda, the DPJ prime minister at the time, the bill represented the end of a crusade by his party to get Japan back on fiscal track. The extra consumption-tax revenue of {Yen}13.5 trillion ($14 billion) meant that a goal set in 2010 of halving the primary budget deficit (ie, before interest payments) to 3.2% of GDP by 2015 looked achievable. This modest target would not reduce Japan’s debt, but the bill was at least a small step in the right direction. Read more of this post

Regulators fret about the risk of a sudden rise in long-term bond yields

Regulators fret about the risk of a sudden rise in long-term bond yields

May 4th 2013 | Washington, DC |From the print edition

THE Federal Reserve has long acknowledged trade-offs in its efforts to revive growth with ultra-easy monetary policy. Now those trade-offs are getting starker. On April 26th America’s economy was reported to have grown by 2.5% on an annualised rate in the first quarter: stupendous by European standards, but less than expected. On April 29th underlying inflation slipped to just 1.1%. On May 1st the Fed duly said it would keep rates near zero, as it has since 2008, and keep buying $85 billion of government bonds a month, although it may vary the pace depending on the outlook for inflation and jobs.

A prolonged period of low rates carries the risk of asset bubbles. In its annual report issued on April 25th America’s new Financial Stability Oversight Council (FSOC), a watchdog that includes the Fed, warned that a “sudden spike in yields and volatilities could trigger a disorderly adjustment, and potentially create outsized risks.” For its part, the IMF noted in its latest “Global Financial Stability Report” that “credit markets…are maturing more quickly than in typical cycles.” Read more of this post

Seth Klarman Cautions “False Sense Of Calm In The US”

Seth Klarman Cautions “False Sense Of Calm In The US”

April 30, 2013

By Tabinda Hussain

Seth Klarman’s Baupost Group was not able to translate the enthusiasm of equity markets into similar returns but the fund did well in Q1, according to Klarman’s latest letter to investors. As is the custom with Baupost, detail of returns and investments are released some time later. Just like last quarter, Baupost continues to benefit from the liquidation of Lehman Brothers Holdings Inc. (OTCMKTS:LEHMQ) debt. This time the fund boosted its cash balance by 2 percent of AUM through Lehman. Baupost is looking forward to more inflows from US and international Lehman debtors throughout the year.

Klarman again talks about overdrive in stocks that has lulled investors into a new comfort zone where theFed’s monetray easing is taken for granted. He takes a jab at Ben Bernanke again in his missive, saying that Bernanke will not take advice from the hedge funds and traders when he decides to take a u-turn onQE, and these investors will not have a sufficient door to exit from as inflation booms. Klarman has been against the trend of jumping on QE bandwagon and reiterates that there is a false sense of calm in the US which is betrayed by the slowdown in almost every other part of the world. He adds that the US public is not, however, duped by promises of growth and wealth from raising debt load, adding taxes and increasing spending cuts. While painting a realistic picture, Klarman convincingly writes, “They know that society’s wealth is not unlimited, and that if the economy is so fragile that the government cannot allow failure, then we are indeed close to collapse.” Read more of this post

Buffett’s Iscar workers anxious; “We’re feeling a real slowdown in the market. For months, there has been only enough work for half a day, and most of the day we drag out the hours.”

Iscar workers anxious

“We’re feeling a real slowdown in the market, and the depreciation of the dollar and euro have not helped.”

2 May 13 17:40, Shay Niv

While the Israeli economy celebrates the deal between the Wertheimer family and Warren Buffett, uncertainty, and even fear, reigns at Iscar Ltd’s plant in the Tefen Industrial Zone in the Galilee. “I heard that Buffett promised that as long as he lived, Iscar would continue to operate in Israel. But with all due respect, and I wish him a long life, how much longer does he have?” a production employee told “Globes”.

Iscar may have broken profit records in 2012, but the Wertheimer family may have sold its remaining stake at the right time: the same source at the company said that, for at least six months, production has been slumping, and that, as a result, management has slashed employees’ overtime and even ended the night and Friday shifts in some departments.

“We’re feeling a real slowdown in the market, and the depreciation of the dollar and euro have not helped us either, as most of our business is exports,” he said. “If during last Passover, we worked all the time, except for the Seder meal, this year, most departments were closed. For months, there has been only enough work for half a day, and most of the day we drag out the hours.” Read more of this post

Flexing antitrust muscle, China is a new merger hurdle; “Companies are thinking about the cost of doing business in China. In some cases, it’s a poison pill you have to swallow”

Insight: Flexing antitrust muscle, China is a new merger hurdle

Thu, May 2 2013

By Michael Martina

BEIJING (Reuters) – China’s new-found clout in regulating global mergers is causing headaches for companies seeking high-stakes deals that need Beijing’s approval. Where corporate lawyers and advisers were once primarily concerned with merger clearance in the United States and Europe, China’s anti-monopoly law – just five years old – has altered the calculus, as Beijing forces often painful delays with an antitrust regime that some see as an industrial policy tool. “It’s to the point where China is one of the key concerns that global companies now have when doing merger clearance deals,” said Peter Wang, an antitrust expert and Shanghai-based partner for law firm Jones Day. Tucked into the hulking Commerce Ministry (MOFCOM) a stone’s throw from Tiananmen Square, a handful of antitrust officials are what stands between multi-billion dollar mergers and access to the world’s second-largest economy. The hiccups in China’s system have the potential to gum up the works – extending firms’ funding needs and creating uncertainty around mergers.

Recent deals highlight concerns over the long delays in China’s merger reviews and the tough conditions that some experts see as limiting operational control for companies while not being particularly designed to curtail monopoly. Read more of this post

Banks’ taste for ‘zombie’ companies feeds overcapacity

Last updated: May 3, 2013 12:06 am

Banks’ taste for ‘zombie’ companies feeds overcapacity

By Louise Lucas

Banks are slimming down, but they still have a hand in the cookie jar – literally, in the case of Canadian Imperial Bank of Commerce.

CIBC is part owner of Burton’s Biscuits, maker of Jammie Dodgers. Barclays, better known for paying jaw-busting bonuses, owns a slice of Soreen’s fruity malt bread, while JPMorgan Chase houses fish fingers alongside the London Whale.

Critics charge that these incongruous larders explain why Schumpeterian creative destruction has failed to curb overcapacity in Britain’s £75bn-turnover food and drink industry.

By seizing control of companies through debt-for-equity swaps, as Barclays did with Soreen manufacturer McCambridge in 2008, or rolling over loans to companies barely able to service their debts, critics say banks are supporting “zombie companies”. The continued existence of such companies allows retailers to pummel suppliers’ margins, critics charge. Read more of this post

Malaysia: Climate for change; Despite impressive economic growth, there is pressure for change ahead of Sunday’s election

May 2, 2013 6:31 pm

Malaysia: Climate for change

By Jeremy Grant

Despite impressive economic growth, there is pressure for change ahead of Sunday’s election

Suhail Anwar Mohamed gathers a ball of rice and fish in his right hand and puts it in his mouth. The 24-year-old fire safety engineer is having lunch with a friend at a food court in Shah Allam, a town an hour’s drive from Kuala Lumpur, the Malaysian capital. Like many his age, Mr Suhail Anwar is a first-time voter in the country, whose 13.3m eligible voters go to the polls in a general election this Sunday – widely expected to be the closest in Malaysia’s history. The ruling coalition, which has dominated Malaysian politics since independence from Britain in 1957, faces a struggle. For the first time in generations it cannot count on the support of younger voters, such as Mr Suhail Anwar. He plans to vote for the opposition coalition because he is disgusted by what he says is pervasive corruption and an out-of-touch leadership. “I think we need a change in the economy and society,” he says. A Muslim, he especially likes the opposition coalition’s Islamist party, which he thinks will tackle corruption hard.

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Ron Paul & Jim Rogers: “There’s More Chaos To Come”

Ron Paul & Jim Rogers: “There’s More Chaos To Come”

Tyler Durden on 05/02/2013 17:14 -0400

These are clear warnings signs that a rational person simply cannot ignore.

Bottom line, Nations are going bust. And the worse things get, the more desperate their tactics become. This isn’t the first time that the world has been in this position. This time is not different. History shows that there are serious, serious consequences to running unsustainably high debts and deficits. And those consequences have almost invariably involved pillaging people’s wealth, savings, livelihoods and liberties… either directly or indirectly.

What’s happening right now is playing out in textbook fashion. More taxes, more debt, more printing, more confiscation, less freedom. I’m not talking about the end of the world here, I’m talking about difficult times ahead, and the things that go beyond economics. It’s time to face facts and look at how society will change (and has already changed).

Many people will resist the change and instead cling desperately to the old system – the cycle of debt and consumption that provided jobs, stability, and prosperity. These people will have their lives turned upside down because that system is gone forever. And in case it still weren’t obvious, here is three minutes of clarity from Ron Paul and Jim Rogers…“I would expect that there is going to be a lot more chaos still to come.” – Ron Paul; “They won’t take our bank accounts…they will take our retirement accounts.” – Jim Rogers

Read more of this post

Why Natural Gas-Powered Vehicles Are Catching On

Why Natural Gas-Powered Vehicles Are Catching On

By Bradley Olson on May 02, 2013

Facing soaring gasoline prices in 2011 and more than 100 miles of daily driving for his job as a traveling nurse, Daniel Piekarek confronted an uneasy choice: find cheaper gas or start updating his résumé. So, a few years before many of the world’s biggest companies would follow suit, Piekarek crossed his fingers and turned his life over to natural gas. On EBay (EBAY) he bought a used Honda Civic GX, the only commercially available natural gas vehicle in the U.S. at the time. “My costs went from $30 a day to $5 a day,” says Piekarek, who lives in Michigan and pays as low as the equivalent of $1.50 a gallon to fill up. “It’s been a real moneymaker.” Read more of this post

China’s Parents Crave Illegally Imported Baby Formula

China’s Parents Crave Illegally Imported Baby Formula

By Liza Lin and Julie Cruz on May 02, 2013

For Hong Kong customs agents, baby formula is the new heroin. On March 1 a law went into effect limiting the amount of powdered milk travelers can carry out of Hong Kong to two 2-pound cans each. Since then, more people have been arrested for smuggling baby formula than were caught all of last year with heroin and cocaine. As of April 23, border officials say they’d seized nearly 20,000 pounds of powdered milk and arrested 879 people, many of whom were part of a smuggling syndicate. In 2012, 420-plus people were arrested for smuggling illegal drugs through Hong Kong.

Many Chinese parents are desperate to get their hands on foreign-made baby formula after numerous food safety scandals in recent years. In 2008 at least 22 Chinese companies were found to have sold dairy products containing melamine, a toxic chemical that can make diluted milk appear to have a higher protein content. Six babies died as a result. In 2011, China’s largest milk producer, China Mengniu Dairy (2319), said in a statement that moldy cattle feed led to excessive toxin levels in its milk. Last year another large milk producer, Inner Mongolia Yili Industrial Group (600887), recalled formula tainted with mercury. “Chinese consumers are so frightened and so sensitive to safety issues with milk powder that they are willing to pay a higher premium than consumers anywhere else,” says James Roy, a Shanghai-based senior analyst at China Market Research Group. That willingness to pay has led to baby formula shortages in Hong Kong, where food safety standards are higher. The surge in Chinese demand has even hit foreign markets, where baby formula is often cheaper than in China. Over the past year, stores in Germany, the U.K., and New Zealand have put limits on all bulk purchases of formula, such as Danone’s (BN)Aptamil and Mead Johnson Nutrition’s (MJN) Enfamil. Read more of this post

Passed Over for GE CEO, Dave Cote Thrives at Honeywell

Passed Over for GE CEO, Dave Cote Thrives at Honeywell

By Thomas Black on May 02, 2013

In the spring of 1999, General Electric (GE) Chief Executive Officer Jack Welch invited Dave Cote to dinner in his private dining room at GE’s headquarters in Fairfield, Conn. At the time, Cote was a 25-year GE veteran who’d worked his way up from an hourly job on the floor of GE’s aircraft engine plant in Hooksett, N.H. Since 1996, he’d been running GE’s appliances unit and was now one of a half-dozen GE executives competing to succeed Welch as CEO. Welch cut to the chase: Cote would not get the job.

The news wasn’t a surprise. “I could see the handwriting on the wall that it wasn’t going to be me,” Cote says. Not only was GE Appliances missing short-term financial targets, it was also the company’s only unit to see its profit decline in 1998. Meanwhile, Cote’s rivals were thriving. Earnings at GE’s medical systems division, run by Jeff Immelt, grew 25 percent in 1999. Jim McNerney’s aircraft engines unit had doubled its revenue over the previous five years. Under the direction of Robert Nardelli, GE’s power systems division had increased sales of its steam turbines and gas-fired generators by 33 percent since 1994. Although Welch told him he could stay at GE, Cote was gone by that fall, making him the first to bow out of the competition. “I wanted to see what I was capable of,” Cote, now 60, says. Read more of this post

Dr Copper ‘telling us the party’s over…’

Dr Copper, ‘telling us the party’s over…’

Paul Murphy

| May 02 16:19 | 9 comments | Share

With the S&P 500 making a fresh run higher at pixel time, it would be rude not to share the latest thoughts of Albert Edwards, Socgen’s Ice Age bear. Rather than gawping stocks, he reckons we should be mindful of the red metal… Edwards’ central argument is that just as both the US and Europe are slipping towards outright deflation, investors have convinced themselves they just have to participate in the liquidity fueled frenzy offered by unlimited QE. But the copper price is saying something different — and it offers a solid reminder that liquidity itself can disappear very quickly indeed, as it did when Edwards’ last drew our attention to ‘Dr Copper’ (and Wile E. Coyote) back in January, 2007… Read more of this post

SEC Zeroing In on ‘Prime’ Funds; Money Funds Viewed as Most Vulnerable to Flight by Anxious Investors Would Face Tighter Rules

Updated May 2, 2013, 7:01 p.m. ET

SEC Zeroing In on ‘Prime’ Funds

Money Funds Viewed as Most Vulnerable to Flight by Anxious Investors Would Face Tighter Rules

By ANDREW ACKERMAN

WASHINGTON—U.S. securities regulators, under pressure to address risks posed by the $2.6 trillion money-market-mutual fund industry, are considering a scaled-back approach that would tighten rules for about half of the sector that is seen as most vulnerable to investor runs, according to people familiar with staff discussions. Read more of this post

Malaysia Risks Post-Election Protests as Group Cites Vote Buying

Malaysia Risks Post-Election Protests as Group Cites Vote Buying

Malaysia faces the risk of public protests over the accuracy of results from the May 5 national election after an opposition-backed group cited evidence of vote buying and bias by the official ballot oversight agency.

The Coalition for Clean and Fair Elections, known as Bersih, has captured vote-buying on video and received complaints ranging from improper electoral rolls to government abuse of state-run media, according to co-chairwoman Ambiga Sreenevasan. The group, whose protests in recent years have drawn thousands of people onto Kuala Lumpur’s streets, has yet to decide on organizing demonstrations, she said this week.

A contested result between Prime Minister Najib Razak’s ruling coalition and Anwar Ibrahim’s opposition alliance threatens to spark protests in a country that has never seen a transfer of power since independence from Britain in 1957. A tight finish would be the worst outcome for Malaysian stocks because it would lead to policy paralysis and may end Najib’s tenure, Bank of America Merrill Lynch analysts said this week.

“Anything over a 15-to-20 seat victory margin will lead to suspicion — the race is that close,” said Bridget Welsh, associate professor of political science at Singapore Management University, who has edited two books on Malaysian politics. “You’re going to see people on the streets” if election observers produce solid evidence of fraud, she said. Read more of this post

Goldman Sachs CEO Blankfein warned that the interest- rate environment has parallels to 1994, when a sudden and sharp increase in rates caught many investors off-guard

Blankfein Sees Parallels to 1994 Interest-Rate Increases

Goldman Sachs Group Inc. Chief Executive Officer Lloyd C. Blankfein warned that the interest- rate environment has parallels to 1994, when a sudden and sharp increase in rates caught many investors off-guard. “I worry now — I look out of the corner of my eye to the ‘94 period,’’ Blankfein, 58, said today at a conference in Washington sponsored by the Investment Company Institute. He recalled how investors got used to low interest rates and were shocked by losses when borrowing costs rose.

The Federal Reserve increased its benchmark rate 3 percentage points from February 1994 to February 1995, from a then record-low 3 percent to 6 percent. The yield on the 30-year U.S. Treasury bond surged above 8 percent in late 1994 from below 6 percent 12 months earlier. The rate increase and corresponding collapse in bond prices and stock markets caused losses for Wall Street trading desks and investors. Goldman Sachs, which at the time was a private partnership, suffered a drop in its capital and raised $250 million by selling a stake in the firm to a Hawaiian trust. Partners exited the firm, including then-Chairman Stephen Friedman, who now serves on the company’s board. The rate increase was something ‘‘you’d think in hindsight should have been expected,” Blankfein said, although it “really was stunning.”

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