The economy

[nosy]

There have been many interesting discussions on this board. However, there are hardly any discussions on the world economy.

What are your thoughts on the current economic situation in Singapore? Is it going to improve? Why or why not? What about elsewhere in the world?

What are your views on this recession? Japan? the US economy? Nasdaq, the Dow? Asia?

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[want_to_believe]

i personally think the recession is not " that bad" . Talked to alot of friends and customers around the world about this . In fact , most of them had very good years , even record turnovers . This  bad economy thing is also used as en excuse from alot of companyes to bring down there operational cost ( means , fire people or having paycuts) .

[kes]

Recessions are part of the business cycle.  After years of unprecedented growth, the business cycle needs to re-adjust itself.  The dotcom boom in the US was highly inflated.  Stock prices were worth more than what the companies were on paper.  The dotcom boom rode on hype.

It is only natural for the business cycle to re-adjust itself into something more 'realistic.'

[Joseph27]

Personally I havent felt the recession - I'm busier than ever and am sitting here nursing the onset of a migraine because I cant take a day off - so busy

As for Singapore - they are still insulated because there is a lot of money in bank however the situation in this country is more concerning in the long run. With the opening of China and India Singapore loses alot of its potency.  The major docks run at a loss - the airline runs at a loss - a great deal of government enterprise is not as sharp as it should be.  This situation has to be addressed or the country will run into a serious predicament in about 10 years.  

[Bruno]

Excuse me, Singapore Airlines is perhaps the most successful national airline in the world, with profit increases in each of the last four years.

I wouldn't count Singapore out yet. True, China's becoming more competitive, but the government here is steadily climbing the value-added ladder. It's done a good job of attracting the world's biggest drug companies, a smart move considering these companies are recession proof and have ever higher margins. It's also freeing up some of its GIC money and deepening the bond market as it seeks to attract more money managers.

They're still ahead of the game.

[kes]

I actually suggested the following to someone in the EDB about how ASEAN and Singapore should compete with China.

It is obvious that China will become the factory of the world and therefore, countries in ASEAN must compete with that. ASEAN is made up of 10 countries, each diverse and with its own specialization.  I suggested that ASEAN negotiate as a bloc the same way the EU and NAFTA does, in order to compete.  However, it is obvious that ASEAN is not ready to do so, given the different levels of readiness in government and infrastructure wise.  How can have Mynamar and Cambodia where there is no real rule of law and random violence.

I think this is one problem not only Singapore faces, but ASEAN on the whole as more MNCs are moving towards North Asia.

[kes]

I would also like to add that no commercial industry is recession-proof even the pharmaceutical industry.  The phamraceutical industry, at least in the US, is heavily depended on  government funding and very seldom private funding, unless you are Bill Gates.

I would have thought that the entertainment industry in the US would be recession-proof since people would spend more time at home watching tv than going out.  Not true since tv is heavily depended on advertising.

[Bruno]

Kes,

The drug industry does not rely on the government for funding. They rely on the markets. Pfizer, Glaxo and Astrazeneca for are among the biggest companies in the world in terms of sales. And drug stocks are considered safe haven stocks during a downturn because a consumer might not buy a car, but he'll always buy his ulcer medicine.

This is why it's great that new companies like Novartis, Europe's third-biggest drug company, are setting up shop here. When the downturn hits, they won't lay off people like the chip companies.

[kes]

Thanks.

But then why are the biotech stocks down?

[Bruno]

Biotechs have no or little sales, and almost certainly don't have any profit to report. They rose in the last couple years much like tech stocks did -- investors were betting that they'd eventually introduce amazing new products. And they will, eventually. Knowledge of our genetic makeup and the proteins that do the work is leading to interesting ideas for drugs and ways to diagnose disease. The new cancer drug Gleevec, for example, attacks a genetic defect that tells cells to divide.

But in the current market climate investors want safe and steady profits. So biotechs have suffered, while the more established drug companies have done really well.

[nualum]

One thing that strikes me as odd is the way the Singaporean government has been constantly sounding the alarm about threats to the economy. While this may be preferable to filling the public up with self-serving disinformation, it does seem to be excessive insofar as it encourages a great deal of caution and anxiety on the part of the public.

[Joseph27]

Bruno - I disagree in regards to Singapore Airlines – it is not in the shape we are led to believe – indeed its auditing techniques make it appear quite profitable but the bottom line is that it’s not in fantastic shape.  Don’t get my wrong I don’t want Singapore to go bad – in fact I am here trying to make a go of things for my company – but the future isn’t necessarily a rosy one. China and India both present huge potential and competition to Singapore.

I would see one of Singapore’s greatest disadvantages as being its people’s inability to think outside the circle. This is something even the government now recognises.   I realise this is a generalisation but look at the Asian region now – what does Singapore present to a potential investor?  The country has been a major success in Industrialising however the grandparents and older generation have done all the work and now it is up to this and the next generation to drive Singapore forward – but where is the hunger to leap.

[Bruno]

Sorry to hear that, Phil. Glaxo's been cutting costs since the merger. I wonder if that's the reason.

As for SingAir, it has a debt to equity ratio of 7%. For British Airways, as an example, the ratio is 223%.

SingAir reported a S$1.5 billion profit last year. British Airways made 114 million pounds. SingAir's shares have doubled since September. British Airways are unchanged.

British Airways is a troubled airline, SingAir isn't. If they were, they wouldn't be among the biggest buyers of the new and very expensive Airbuses.

[makanaka]

Bruno, Kes. Bruno wrote "The drug industry does not rely on the government for funding. They rely on the markets."

Can't say I see it that way. Here is what I think one can gather from reading the available info.

Stock market returns of the drug companies are exorbitant. They are supported by a  system of intellectual property rights questioned by many in the developing world.

They're also supported by favourable domestic regulations and mass health provisions - these might be funded publicly or through insurance.

Result is that healthcare costs go up all over the world, making it increasingly unaffordable for many working people.

The pharma industry also attempts, in every market it lives in, to bypass regulatory pricing. Part of the reason is the difficulty in producing the next blockbuster drug (like the tech industry's "killer app"), the deadline of patents expiry and tighening healthcare provisions.

I understand that insurance companies in the US and healthcare systems in Germany and the Netherlands now have lists of drugs they simply will not pay for.

In UK, from what one reads about the NHS, doctors will be issued a total purchasing budget to cover the cost of prescription drugs, acute hospital and community care.

Which means that healthcare treatment is being driven by cost, not clinical judgement.

And that's in developed countries. Last year, in an Oxfam report, it was said that in order to maintain and increase their huge profits, drug MNCs are placing vital medicines beyond the reach of a large and growing percentage of the world's population.

I think you need to look at those bottom lines more closely, and understand the real costs they represent.

[Bruno]

People don't understand patents. It takes about ten years for a company to bring a promising drug candidate to the market. During that time, it must undergo preclinical trials and three phases of clinical studies, each of which gets bigger and more complex, often involving thousands of people by the last phase. Fewer than 2 in 5 drugs will reach the market. Once it is approved by the regulators, which can take another couple of years, the company must finance a sales force and advertising campaign to bring it to the attention of doctors. The cost runs into the tens of millions. It is not unreasonable, after all this effort, that other companies are prevented from simply copying the drug and selling it at a cheaper price. If this were to occur, no company would bother doing any more research.

It may seem distasteful for profit to be made on life-saving drugs. But the profit motive has given us those drugs in the first place. Countries with the toughest intellectual property rights introduce the most innovative products.