BIS Report

[chaos theory]

BIS warns the worst is far from over
July 1, 2008

A YEAR ago, the Bank for International Settlements startled the financial world by warning that we might soon face challenges last seen during the onset of the Great Depression. This has proved frighteningly accurate.

The venerable body, the ultimate bank of central bankers, said years of loose monetary policy had fuelled a dangerous credit bubble that would entail "much higher costs than is commonly supposed".

In a pointed attack on the US Federal Reserve, it said central banks would not find it easy to "clean up" once property bubbles had burst.

If only we had all listened to the BIS a long time ago. Ensconced in its Swiss lair, it has fired off anathemas for years, struggling to uphold orthodoxy against the follies of modern central banking.

Bill White, the departing chief economist, has now penned his swansong, the BIS's 78th annual report, released yesterday. It is a disconcerting read for those hoping the global crisis is over.

"The current market turmoil is without precedent in the postwar period," it said. "With a significant risk of recession in the US, compounded by sharply rising inflation in many countries, fears are building that the global economy might be at some kind of tipping point.

"These fears are not groundless. The magnitude of the problems yet to be faced could be much greater than many now perceive.

"It is not impossible that the unwinding of the credit bubble could, after a temporary period of higher inflation, culminate in a deflation that might be hard to manage, all the more so given the high debt levels."

Given the constraints under which the BIS must operate, this amounts to a warning that monetary overkill by the Fed, the Bank of England, and above all the European Central Bank, could prove dangerous at this juncture.

European banks have suffered worse losses on US property than American banks. Their net dollar liabilities are $US900 billion ($A931.4 billion), mostly short-term loans that have to be rolled over, a costly business with spreads still near panic levels. Mortgage and consumer credit has "demonstrably worsened".

The BIS cautions the ECB to handle its lending data with great care. "The statistics may understate the contraction in the supply of credit," it said.

The death of securitisation has forced banks to bring portfolios back on to their balance sheets, while companies in need are drawing down pre-arranged credit lines. This is a far cry from a lending recovery.

Warning signs are flashing across Eastern Europe, where short-term foreign debt is 120% of reserves.

China is not immune, although the BIS has dropped last year's comment that growth is "unstable, unbalanced, unco-ordinated and unsustainable".

Global banks — with loans of $US37 trillion in 2007, or 70% of world gross domestic product — are still in the eye of the storm. "Inter-bank money markets have failed to recover," BIS said. "Of greatest concern at the moment is that still tighter credit conditions will be imposed on non-financial borrowers. Do not count on a fiscal rescue. Explicit and implicit debts of governments are already so high as to raise doubts about whether all non-contractual commitments will be fully honoured."

Dr White says the US subprime crisis was the "trigger", not the cause of the disaster. "Should governments feel it necessary to take direct actions to alleviate debt burdens, it is crucial that they understand one thing beforehand," he said. "If asset prices are unrealistically high, they must fall. If savings rates are unrealistically low, they must rise. If debts cannot be serviced, they must be written off. To deny this through the use of gimmicks and palliatives will only make things worse in the end."

Let us all cheer Dr White off the stage.

[Kubes.SG]

CT, good job.  This is a very important article.  Read it very late last night and thought, this needs to be shared, but you beat me to it.

Over the last 18 months I have turned out to be quite a Bear as I have understood much more about the massively distorted and manipulated Singapore Prime Property market and the global over=leveraging that has happened.  I first became aware of the sub-prime "risks" about 2 years ago and realized then that we were headed for big problems, but of course I grossly underestimated the overall scale of the problem.

This article highlights the sheer scale of the global financial problems and challenges.  It has been shocking to see some of the incredibly simplistic thought processes, and gross lack of understanding that has fueled the positive sentiments on this board with local promoters and touts with their blind faith that tiny Singapore is Unique and cannot be touched by pending global melt-downs.   We have not reached the worst of this by any means.

I just hope some people are smart enough to see what is coming and prepare themselves.  I have moved big numbers out of property into cash.  Still have properties in Aust and plenty of stock/options stuck in NYSE but with my totally blue-chip employer which is a long-term play for me.  I am sleeping very well at night.  :-)

So to the others in SG into or considering property investments here, get out fast.

[leverage]

can i beat everyone to it and start calling you two names? or make derogatory remarks your intelligence, sex life, or even ancestry?

anyway, aren't people all numb to these reports already? since the great scare of 06 (when china drop over 9%), the stock market goes thru this phase of sudden gyration in roughly 4 months interval.

none of this affects singapore, just look at clover at bishan sale. there's strong domestic demand, and internationally, we are skimming off the top 10% of wealth, particularly asian wealth.

[zoomfin]

Unfortunately in the event of a financial meltdown, cash does not help either.....apart from hyperinflation rendering it worthless

[SGbanker]

Can someone send a BIS subscription to the banks here ? They have their heads firmly stuck in the sand and are unable to accept the problems they have.

[Mockery]

CT, good job.  This is a very important article.  Read it very late last night and thought, this needs to be shared, but you beat me to it.

Over the last 18 months I have turned out to be quite a Bear as I have understood much more about the massively distorted and manipulated Singapore Prime Property market and the global over=leveraging that has happened.  I first became aware of the sub-prime "risks" about 2 years ago and realized then that we were headed for big problems, but of course I grossly underestimated the overall scale of the problem.

This article highlights the sheer scale of the global financial problems and challenges.  It has been shocking to see some of the incredibly simplistic thought processes, and gross lack of understanding that has fueled the positive sentiments on this board with local promoters and touts with their blind faith that tiny Singapore is Unique and cannot be touched by pending global melt-downs.   We have not reached the worst of this by any means.

I just hope some people are smart enough to see what is coming and prepare themselves.  I have moved big numbers out of property into cash.  Still have properties in Aust and plenty of stock/options stuck in NYSE but with my totally blue-chip employer which is a long-term play for me.  I am sleeping very well at night.  :-)

So to the others in SG into or considering property investments here, get out fast.

Why are guys so concerned about the state of property market in Singapore when you have no investments here and neither intend to and this is not your homeland. Go and spend the same amount of time figuring out the state of the property market in your homeland where I believe you will eventually retire to after leaving this tiny overpriced country.

Anyway Kubes.SG = Chaos Theory = Fools Rush In (FRI). They are one and the same person.

[leverage]

Unfortunately in the event of a financial meltdown, cash does not help either.....apart from hyperinflation rendering it worthless

does owning a little farm in Australia help? i think it does.

[perhaps]

Why are guys so concerned about the state of property market in Singapore when you have no investments here and neither intend to and this is not your homeland. Go and spend the same amount of time figuring out the state of the property market in your homeland where I believe you will eventually retire to after leaving this tiny overpriced country.

Anyway Kubes.SG = Chaos Theory = Fools Rush In (FRI). They are one and the same person.

perhaps they are concerned for the well-being of their fellow man?
has that ever occured to you?

[FRI FRI]

Why are guys so concerned about the state of property market in Singapore when you have no investments here and neither intend to and this is not your homeland. Go and spend the same amount of time figuring out the state of the property market in your homeland where I believe you will eventually retire to after leaving this tiny overpriced country.

Anyway Kubes.SG = Chaos Theory = Fools Rush In (FRI). They are one and the same person.

perhaps they are concerned for the well-being of their fellow man?
has that ever occured to you?

Singaporeans have only grown from strength to strength despite all the ups and downs in the property cycle . It is not like there has never been a property bear market here before.If Singaporeans get into deep trouble, the expats here like Chaos Theory or Kubes are not going to be spared. In that case they should spend more time thinking about their future instead of Singaporean's

[BIS]

Haha! So you believe after the inflation, there will be a "deflation that is too hard to manage"? Some deflation esp commodities might be a good thing

Quote:
China is not immune, although the BIS has dropped last year's comment that growth is "unstable, unbalanced, unco-ordinated and unsustainable".[/
====
What a joke. Drop and eat their words on China completely within a year. How credible!

BIS warns the worst is far from over
July 1, 2008

A YEAR ago, the Bank for International Settlements startled the financial world by warning that we might soon face challenges last seen during the onset of the Great Depression. This has proved frighteningly accurate.

The venerable body, the ultimate bank of central bankers, said years of loose monetary policy had fuelled a dangerous credit bubble that would entail "much higher costs than is commonly supposed".

In a pointed attack on the US Federal Reserve, it said central banks would not find it easy to "clean up" once property bubbles had burst.

If only we had all listened to the BIS a long time ago. Ensconced in its Swiss lair, it has fired off anathemas for years, struggling to uphold orthodoxy against the follies of modern central banking.

Bill White, the departing chief economist, has now penned his swansong, the BIS's 78th annual report, released yesterday. It is a disconcerting read for those hoping the global crisis is over.

"The current market turmoil is without precedent in the postwar period," it said. "With a significant risk of recession in the US, compounded by sharply rising inflation in many countries, fears are building that the global economy might be at some kind of tipping point.

"These fears are not groundless. The magnitude of the problems yet to be faced could be much greater than many now perceive.

"It is not impossible that the unwinding of the credit bubble could, after a temporary period of higher inflation, culminate in a deflation that might be hard to manage, all the more so given the high debt levels."

Given the constraints under which the BIS must operate, this amounts to a warning that monetary overkill by the Fed, the Bank of England, and above all the European Central Bank, could prove dangerous at this juncture.

European banks have suffered worse losses on US property than American banks. Their net dollar liabilities are $US900 billion ($A931.4 billion), mostly short-term loans that have to be rolled over, a costly business with spreads still near panic levels. Mortgage and consumer credit has "demonstrably worsened".

The BIS cautions the ECB to handle its lending data with great care. "The statistics may understate the contraction in the supply of credit," it said.

The death of securitisation has forced banks to bring portfolios back on to their balance sheets, while companies in need are drawing down pre-arranged credit lines. This is a far cry from a lending recovery.

Warning signs are flashing across Eastern Europe, where short-term foreign debt is 120% of reserves.

China is not immune, although the BIS has dropped last year's comment that growth is "unstable, unbalanced, unco-ordinated and unsustainable".

Global banks — with loans of $US37 trillion in 2007, or 70% of world gross domestic product — are still in the eye of the storm. "Inter-bank money markets have failed to recover," BIS said. "Of greatest concern at the moment is that still tighter credit conditions will be imposed on non-financial borrowers. Do not count on a fiscal rescue. Explicit and implicit debts of governments are already so high as to raise doubts about whether all non-contractual commitments will be fully honoured."

Dr White says the US subprime crisis was the "trigger", not the cause of the disaster. "Should governments feel it necessary to take direct actions to alleviate debt burdens, it is crucial that they understand one thing beforehand," he said. "If asset prices are unrealistically high, they must fall. If savings rates are unrealistically low, they must rise. If debts cannot be serviced, they must be written off. To deny this through the use of gimmicks and palliatives will only make things worse in the end."

Let us all cheer Dr White off the stage.

[chaos theory]

The venerable body, the ultimate bank of central bankers, said years of loose monetary policy had fuelled a dangerous credit bubble that would entail "much higher costs than is commonly supposed".

In my opinion. Running a  mortgage rate of 4% while CPI runs over 7% ( up from 6.6% in Q1) is by defination, a loose monetary policy.

Lets evaluate this in the context of the BISHAN properties that got "snapped up" at an average of $750 psf. The interest only on a 1200sf condo ($900K) is $3000 pm. Ok for now the "advertised rental asking price" currently covers the interest.

Ok if rates now increase by just 2% to 6%pa. The repayment goes to $4500pm interest only. Now the current advertised rentals are deficeit by $1000 pm month approx.

Now factor in a most likely drop in rental demand driven by a global slow down and freezing of top end expat contracts particularly in Finance. The real price of the BISHAN property should be around $600k.

The most important lesson I learnt in property is to make your capital gain when you buy the property not when you sell. By buying inflated property off the plan is just handing your capital gain/ profit to a developer. Much better strategy to buy the old condo around the corner for 40% less. In 5-10 years time if you want to sell they will be worth the same.

The US Fed will soon start raising rates to combat inflation. MAS will follow suit. The above senario is very likely.

PS I comment on Singapore property because Im a Singapore expat, on an expat message board and the topic interests me. So long as I stay within the posting rules I dont need any other validation or reason. I was actually getting quite bored with it but now somepeople say I shouldnt then I think Ill keep going with it.

Thanks for making it interesting again.

[Mr Market]

The venerable body, the ultimate bank of central bankers, said years of loose monetary policy had fuelled a dangerous credit bubble that would entail "much higher costs than is commonly supposed".

In my opinion. Running a  mortgage rate of 4% while CPI runs over 7% ( up from 6.6% in Q1) is by defination, a loose monetary policy.

Lets evaluate this in the context of the BISHAN properties that got "snapped up" at an average of $750 psf. The interest only on a 1200sf condo ($900K) is $3000 pm. Ok for now the "advertised rental asking price" currently covers the interest.

Ok if rates now increase by just 2% to 6%pa. The repayment goes to $4500pm interest only. Now the current advertised rentals are deficeit by $1000 pm month approx.

Now factor in a most likely drop in rental demand driven by a global slow down and freezing of top end expat contracts particularly in Finance. The real price of the BISHAN property should be around $600k.

The most important lesson I learnt in property is to make your capital gain when you buy the property not when you sell. By buying inflated property off the plan is just handing your capital gain/ profit to a developer. Much better strategy to buy the old condo around the corner for 40% less. In 5-10 years time if you want to sell they will be worth the same.

The US Fed will soon start raising rates to combat inflation. MAS will follow suit. The above senario is very likely.

PS I comment on Singapore property because Im a Singapore expat, on an expat message board and the topic interests me. So long as I stay within the posting rules I dont need any other validation or reason. I was actually getting quite bored with it but now somepeople say I shouldnt then I think Ill keep going with it.

Thanks for making it interesting again.

The mortgage rates for first year is around 3% and up to 3.75% for subsequent years. You can continue barking as much as you want on what the correct price levels should be but unfortunately prices will be determined by Mr Market and not by some silly Mr Chaos Theory aka Mr Kubes.SG aka Mr FRI. Mr Market is having a good laugh at you right now for dreaming that the brand new Bishan condo will be sold to you for $500psf.

[To FRI]

The venerable body, the ultimate bank of central bankers, said years of loose monetary policy had fuelled a dangerous credit bubble that would entail "much higher costs than is commonly supposed".

In my opinion. Running a  mortgage rate of 4% while CPI runs over 7% ( up from 6.6% in Q1) is by defination, a loose monetary policy.

Lets evaluate this in the context of the BISHAN properties that got "snapped up" at an average of $750 psf. The interest only on a 1200sf condo ($900K) is $3000 pm. Ok for now the "advertised rental asking price" currently covers the interest.

Ok if rates now increase by just 2% to 6%pa. The repayment goes to $4500pm interest only. Now the current advertised rentals are deficeit by $1000 pm month approx.

Now factor in a most likely drop in rental demand driven by a global slow down and freezing of top end expat contracts particularly in Finance. The real price of the BISHAN property should be around $600k.

The most important lesson I learnt in property is to make your capital gain when you buy the property not when you sell. By buying inflated property off the plan is just handing your capital gain/ profit to a developer. Much better strategy to buy the old condo around the corner for 40% less. In 5-10 years time if you want to sell they will be worth the same.

The US Fed will soon start raising rates to combat inflation. MAS will follow suit. The above senario is very likely.

PS I comment on Singapore property because Im a Singapore expat, on an expat message board and the topic interests me. So long as I stay within the posting rules I dont need any other validation or reason. I was actually getting quite bored with it but now somepeople say I shouldnt then I think Ill keep going with it.

Thanks for making it interesting again.

Based on your assumption of a 900k loan for a 1200psf priced at 750psf, banks are willing to give 100% loans. Can you tell me which bank does that. Most of the buyers are much  richer and will take a  smaller loan than what you are assuming. Stop misleading people with your flawed assumptions. It may help you to build your dreams but keep your silly analysis to yourself.

[Out of time]

CT, good job.  This is a very important article.  Read it very late last night and thought, this needs to be shared, but you beat me to it.

Over the last 18 months I have turned out to be quite a Bear as I have understood much more about the massively distorted and manipulated Singapore Prime Property market and the global over=leveraging that has happened.  I first became aware of the sub-prime "risks" about 2 years ago and realized then that we were headed for big problems, but of course I grossly underestimated the overall scale of the problem.

This article highlights the sheer scale of the global financial problems and challenges.  It has been shocking to see some of the incredibly simplistic thought processes, and gross lack of understanding that has fueled the positive sentiments on this board with local promoters and touts with their blind faith that tiny Singapore is Unique and cannot be touched by pending global melt-downs.   We have not reached the worst of this by any means.

I just hope some people are smart enough to see what is coming and prepare themselves.  I have moved big numbers out of property into cash.  Still have properties in Aust and plenty of stock/options stuck in NYSE but with my totally blue-chip employer which is a long-term play for me.  I am sleeping very well at night.  :-)

So to the others in SG into or considering property investments here, get out fast.

Look like Kube is running out of time.

Surprise surprise... it went up again in the 2nd quarter.

The Urban Redevelopment Authority (URA) released today the flash estimate of the price index of private residential property for 2nd Quarter 2008.

Based on the estimated price index of private residential property, prices rose from 177.2 points in the 1st Quarter 2007 to 177.9 points in the 2nd Quarter 2008. This represents an increase of 0.4%, compared with the 3.7% increase in the previous quarter (see Annex A).

I recall your 20% down prediction by mid next year was done last year??

So for it to down 20% from Dec07 should it be, 20.0%+3.7%+0.4% = 24.1%?

[Unambigious]

Singapore's private residential property-price inflation slowed again in the second quarter, the Urban Redevelopment Authority said Tuesday.

Prices rose 0.4% from the first quarter after rising 3.7% in the previous three months, according to the authority's flash estimate.

This was the third consecutive quarter in which price inflation has slowed. Most analysts are projecting a drop in prices for 2008. Last year, the index rose 31.2%, mostly supported by the high-end property segment.

"For the quarter, I was expecting a price increase of about 2%, so it came much lower than the estimate," said Nicholas Mak, head of research at Knight Frank.

"I am still expecting price growth for the whole year, but much will depend on the market sentiment."

According to Mak, the mass market could support the growth, since high-end property prices have likely peaked.

The flash estimate is based on data for the first 10 weeks of the quarter. The price index for the full quarter will be issued later this month.

According to the URA, prices of non-landed private residential properties increased by 0.2% on quarter in the core central region in the second quarter, slower than a 3.8% increase in the previous three months.

Prices of properties in the rest of the central region increased by 0.7% in the quarter, compared with a 3.3% increase in the previous period. Outside the central region, prices increased by 1.3%, slower than a 3.8% rise previously.

-By Patricia Kowsmann, Dow Jones Newswires