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« on: 02 January 2009, 23:15:12 pm » |
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Article from Australia this week, providing a very bearish view of the global outlook, and touches on the deal for AU. Does not mention Singapore, but given SG is even more dependent on exports, finance sector, tourism and real estate, plus the fact that per capita, Singaporeans carry the world's highest level of debt (property, cars, credit cards), the story here will be particularily dire. Really hard to see how the wealth that the SG Govt manages will make a difference, it certainly has not helped so far.
I also fear that the shock for Singaporeans will be severe as they have been feed a constant message that SG is #1 in everything, their poiticicans are #1, and that SG has the #1 level of wealth. Complacency, denial and arrogance rules. Just look at Orchard Road.
Prepare for a year that is unlikely to be happy
David Hirst
January 2, 2009
IN DECEMBER 2007, essentially I predicted, on the world front, a collapse of US financial houses due to the continuing collapse in house prices. That, I suggested, would most severely affect Australians in the field of superannuation.
It wasn't rocket science and still isn't. Today those who hold hope for recovery — and most seem to believe that will start with a recovery of stocks — now are left arguing there is so much money waiting in the wings that it must go somewhere and so will go into undervalued stocks.
That assumes two things. One is that stocks actually are undervalued, and the other is that investors are no longer risk-averse. The opposite is true.
First, however, there will be good news. Australian goldminers will reap a rich bounty from the instability ahead. That will be so considerable that the Australian dollar will find support. Likewise, our farmers (while carrying the weight of the fertiliser monopoly, a national scandal) will give the nation a handy boost, for nature has been unusually kind in this time of coming darkness and need. Otherwise the darkness prevails.
Australia is not keenly aware of its dependence on broad trade, free markets, goodwill and international credit. The year 2009 is when the chickens come home to roost.
We are also in the bind of a banking system that is now so dubious that The Independent is suggesting all British banks may be wholly or partly nationalised.
So by year's end, the "economic" shock will have replaced the "toxic shock" of the mortgage-backed securities that were offered by the US back in the dreamtime.
Some more good news. Subprime is behind us. Almost. The bad news? Alt-A mortgages have yet to hit home and US prime is looking wobbly.
Why? Back to square one. Housing.
Look again, if you can, at Case-Schiller's latest figures on US housing. The latest, for November, are ghastly beyond belief. The chart shows values peaking at a medium $US484,000 ($A686,000), early in 2007 to fall by 46.1 per cent to $US258,000. But those figures are based on data collected between July and September, before the broader economy joined housing in "cliff diving". Current figures, which will reflect huge employment and wage losses, are likely to add something like 9 percentage points, making the losses some 55 per cent.
But the downside of the real economy is yet to really hit home. The worst is ahead. For now the US enters a spiral where unemployment chases prices and values downhill. While the figures from Case-Schiller fall towards the average price of housing, which that organisation has calculated since 1889, that does not mean we are near the long-sought bottom.
A severe recession will see values fall below that mean ,which means they may fall much further, taking US financial institutions, not to mention home owners, deep into negative wealth territory, just as the baby boomers look to retirement. Even social security and Medicare are potentially under threat. That prospect is truly unthinkable.
The 2009 stage of the crisis will be the impact of the broader economy hitting the financial economy. What we have seen to date is a financial crisis, which is devastating jobs and the value of almost everything (except gold and silver).
Jump the Atlantic to Britain, where banks will need to raise more capital but where there is none, outside the public purse, because the market is starved of investors.
"Investment bankers are preparing for a second round of capital raising by UK lenders on top of the £65 billion ($A134 billion) already declared," The Independent reports. "Having rebuilt their balance sheets after toxic debt write-downs, the banks face an increasingly dire economic outlook under the worst-case conditions … impairment charges at the domestic banks — Barclays, Royal Bank of Scotland and the combined Lloyds Banking Group could hit £60 billion" in 2009.
This scenario may well apply to much of the world's banking system.
The Japanese might be, or have been, a nation of savers, but they are not the world's best bankers. But who is? Iceland, Ireland?
The real problem takes us back to the US, which will be needing more money, as usual, to fund not just the financial system but Obama's tax cuts for the middle class and the $US1 trillion infrastructure program.
Brad Setser, the best of the US-Sino specialists, at least in the US, suggests America will be hard pressed to get a "red" cent from the Chinese in the coming year for they are now, as predicted in this column weeks ago, confronting negative growth, and the sovereign investment funds are under harsh criticism for extending funds to the US last year.
The US will desperately stave off default on its financial obligations. It will print more and more money, and the spectre of hyperinflation is beginning to edge out the horror of deflation.
As the housing crisis deepens, the weekly newsletter Credit Writedowns, which has called this nightmare with aplomb for some years, predicts the banking systems of the US, Britain and Ireland will suffer "horrific" losses, especially as the once-affluent citizens default on their mortgage obligations. We are all subprime now.
And the fallout in commercial real estate has yet to hit with its full fury.
Add credit card and car loan defaults and we have quite a cocktail to consume as the world's financial institutions carrying those securities face devastation.
Europe will be hammered as the Baltic states and "new Europe" become weights around the throat of "old Europe", which in brotherly kindness lent so heavily to the former Soviet states. Obama will bring some steel to the US administration. Failure and incompetence will not be rewarded as it has been in the past eight years. Watch for the retirement of Supreme Court justices, especially Stevens and Ginsberg, who will be replaced by ultra-liberals. But ugly rumours, including the possible nationalisation of US 401k pension plans, are drifting like gunsmoke across the screen.
The global imbalances spell calamity for Australia. Our political leadership appears to be betting on a return to days gone by, times that may never return. Our prosperity has been so closely linked to international confidence and goodwill, it has become assumed. But all bets are now off. Indeed, if the emerging patterns outlined become set, Australia faces a grim future. The pace of the breakdown has shown policymakers unprepared and therefore the nation exposed.
We, like the rest of the West, have not countenanced the possibility of these events, blinded by affluence and unprepared for the lean years ahead. An urgent national appraisal should immediately begin. What international clout we have should be marshalled in the name of reason. We too must consider the implications of protectionism and a trade war and do all to halt the slide in that direction. But there is little a nation of Australia's scope and influence can do but watch and hope.
For Australia, the perils are acute.
David Hirst is a journalist, documentary maker, financial consultant and investor. His column, Planet Wall Street, is syndicated by News Bites, a Melbourne-based sharemarket and business news publisher.
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