General Household Inflation Hits +5.2% for Yr 2011

Singapore General Household Inflation Hits +5.2% for Year 2011.

This is when interest rate remains low. Saving at local banks interest rate is at 0.05%. In other words, money is loosing its value at 5.15% annually if it is to be placed in a bank.

A good explanation of the relationship between interest rate and inflation is shown in the link shown below.

Dividend in local equity pays between 2 to 6% annually, This is insufficient to cover inflation, given the risk involved in equity purchased.

This will encourage people to seek other alternate form of investment, eg property. With the interest rate going so low, money is chasing or being converted to other asssets.

Recent launch of property in Punggol Waterfront is seeing a 99 leasehold with average selling price of $1200psf, this means that a 800 sqft apartment (smaller than a 4 room HDB flat) will be selling at S$960,000. Assuming a couple has a household income of $10,000 per month and assuming that they have a total of $200,000 in CPF. They will need to borrow $760,000 if no cash outlay is used. Over 25 years loan, the couple will need to pay $30,400/year without interest or a monthly of $2535 in mortage. With interest, it will likely to be $3000/month. The couple take home pay will be around $8000/month less $3000/month on mortage, disposable income is $5000. This is on the assumption that the couple makes $10,000 per month. The couple will need to service the loan for the next 25 years, and hopefully there is no retrenchment along the way.

To make the property appreciate, the said unit at Punggol Waterfront will need to sell for say $1500 psf. The current psf of HDB flats in Punggol vincinity is only about $455 to $470 psf. This means that there is a lot of opportunity for HDB flats in Punggol to rise further. However, HDB will continue to build more flats especially in Sengkang and Punggol. Upside is limited unless there is another wave of foreigners becoming citizens.

The lower income segment of the population will continue to feel the heat in the inflation, especially for basic necessity such as food, utilities and transport.

http://plonkee.com/2007/11/27/how-do-interest-rates-affect-inflation

George Soros & His Predictions

Back in January 2006, in an interview with the Singapore Institute of International Affairs, Mr George Soros predicted the coming of financial recession due to housing bubble happening in the US. Back then Mr Soros believed that the housing bubble was about to burst and a fall in the value of US Families Homes would be a reality.

Evidence of the interview is showin in the links below:-
http://webarchive1.richdad.com/Forum/forum.aspx?g=posts&t=196697
http://www.cfo.com/blogs/index.cfm/l_detail/5380259

Back in January 2006, the Dow Jones was around mid 10,000 points. Of course, it subsequently went for a bull run reaching 14,000 before crashing into abyss.

In January 2012, Mr Soros again made his prediction in his interview at Azim Premji University in Bangalore. He predicted that the global economy would face a 'potential meltdown' as a result of Euro zone crisis. Link as below:-

http://indiatoday.intoday.in/story/george-soros-predicts-economic-meltdown-worse-than-2008/1/168104.html

There may be time lag between his predictions and the occurence of the event. Would you believe him?

Standard and Poor's Rating and Credit Rating

Before the collapse of Lehman's Brother, S&P's gave Lehman's Brother a rating of at least an 'A'. This was a relative good rating. Subsequently as each and everyone know Lehman's Brother failed and led to a financial meltdown. Did S&P's successfully give an indication of the dire situation of Lehman's?

In the current situation, S&P's had been like a frightened bird (惊弓之鸟). For the past few months, they have been downgrading credit rating of major western soverign entities, including US and Europe nations. The latest being on 13 Jan 12 downgrade of France and other nations' credit rating.

Instead of doing job when they are supposed to (as in Lehman), these credit rating agencies seem to be pressing the panic button currently, causing widespread fear and worries to the global financial markets(落井下石). It may turn out that through these negative market sendiments, it may cause the event to occur.

The question to ask is whether credit ratings are necessary, if so, how accurate they are and most importantly are they contributing to the world's financial well-being.

More Than A Decade of Negligible Growth

Dow Jones on week of 10 January 2000 = 11,722.98
Dow Jones on week of 27 December 2011 = 12,217.56
Difference = 494.58 over 12 years or 4.22% over 12 years
0.35% growth in a year. Miserable and investors were taken for a ride considering the inflation annually.