The Saga of the Structured Notes - What Next for the Suffering Investors? (Part 1)

According to news reports, 58% of the investors will get some or all of their money back. Any investor who is unhappy with his outcome may seek further recourse through the Financial Industry Disputes Resolution Centre (FIDREC).

Of course, many of those unhappy investors who turn to FIDREC will be the ones to whom the banks had offered no compensation at all.

A little bird has just told me that the banks, in deciding which investors to compensate, seems to have relied heavily on their internal risk classification of the clients.

What does this mean?

Before a bank sells you a product, it is supposed to ascertain your risk profile. The salesperson goes through a questionaire with you, and you answer various questions about your age; your savings; your financial goals; your willingness to take risk etc.

Based on your answers, the salesperson then determines your risk classification. It's common for banks to use a 5-tier system. For example, the customer could be classified as either "Aggressive", "Moderately Aggressive", "Balanced", 'Moderately Conservative" or 'Very Conservative".

Based on your risk classification, the salesperson will recommend suitable products to you. For example, if you are a "Conservative" investor, the salesperson will recommend lower-risk products (which are safer, but also offer lesser chances of a high return). If you are "Aggressive", the salesperson may recommend riskier investments to you.

Back to the Lehman Minibonds and the High Notes. At the time that the customer first made his investment, the bank would have determined his risk classification. And now, it seems that the banks are relying heavily on that risk classification, to decide whether they will compensate that investor or not.

For example, it appears that as a general rule, DBS is not compensating High Notes investors who had been classified as "Moderately Aggressive" or "Aggressive". In other words, DBS is taking the position that the High Notes were a suitable investment for "Moderately Aggressive" or "Aggressive" investors. Therefore these investors do not deserve compensation.

In my next post, I will discuss the problems in this line of reasoning.

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It's Good To Be Optimistic, But It's Bad to be Stupid

I feel that the Straits Times is trying too hard to be optimistic, in the following article. Observe how it violently twists its numbers, to paint a more positive picture:

ST Jan 30, 2009
Expect 2% less pay
Drop due to firms cutting bonuses, but basic wages likely to be on uptrend
By Fiona Chan

TOTAL pay packages are likely to take a hit this year as the rapidly worsening economic crisis exerts a heavier toll on Singaporeans.

A new survey by the Singapore Human Resources Institute (SHRI) has found that employers plan to give out less in bonuses this year, with the lowest payments coming from small firms and United States-based companies.

..... 'It is heartening that companies are cutting costs to save jobs and not cutting jobs to save costs,' said SHRI, which polled 208 companies on their wage, bonus and recruitment plans.

The survey, done in conjunction with RDS Remuneration Data Specialists, found that while virtually all companies have been affected by the worldwide downturn, many 'are hopeful of being able to weather the financial storm'.

Just 7 per cent have retrenched or plan to retrench staff this year - less than the 10 per cent last year. However, only four in 10 companies will be hiring this year, compared with more than six in 10 last year.

Okay, back up and read that sentence again - "Just 7 per cent have retrenched or plan to retrench staff this year - less than the 10 per cent last year."

What does that mean? It means that in the entire year of 2008 (that is, over 12 months), 10 per cent of companies retrenched or had plans to retrench staff. And it also means that in the very first month of 2009 (today being 30 January 2009), 7 per cent of companies have already retrenched or made plans to retrench staff.

That doesn't strike me as particularly "heartening" or "hopeful". What will the next 11 months bring?

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Do We Really Care What Lee Hsien Loong Does With Ho Ching in Bed?

No, we do not. Well, I certainly do not. In fact, I don't even want to think about it. As a citizen of Singapore, I am only interested to know what Lee Hsien Loong does in his capacity as Prime Minister of this country. His sex life is of no relevance to me.

I write this, because it seems to me that in Singapore, many people are still very unhealthily obsessed with other people's sex lives. NMP Thio Li-Ann, campaigning in Parliament last year against gay people, is one such example.

I guess it's just as well for Li-Ann that she lives in Singapore, not elsewhere. If she were living in Iceland, people might view her as being somewhat perverse, for being so concerned and passionate about how other people choose to have sex.

ST Jan 29, 2009
Iceland's new PM is gay

REYKJAVIK - ICELAND'S next leader will be an openly gay former flight attendant who parlayed her experience as a union organiser into a decades-long political career.

Both parties forming Iceland's new coalition government support the appointment of Johanna Sigurdardottir, the island nation's 66-year-old social affairs minister, as Iceland's interim prime minister.

'Now we need a strong government that works with the people,' Ms Sigurdardottir told reporters on Wednesday, adding that a new administration will likely be installed Saturday.

Ms Sigurdardottir will lead until new elections are held, likely in May. But analysts say she's unlikely to remain in office - chiefly because her centre-left Social Democratic Alliance isn't expected to rank among the major parties after the election. In opinion polls, it trails the Left-Green movement, a junior partner in the new coalition.

Iceland's previous conservative-led government failed Monday after the country's banks collapsed last fall under the weight of huge debts amassed during years of rapid economic growth. The country's currency has since plummeted, while inflation and unemployment are soaring.

Former Prime Minister Geir Haarde won't lead his Independence Party into the new elections because he needs treatment for throat cancer.

While Mr Haarde endured angry protests for months and had his limousine pelted with eggs, polling company Capacent Gallup said Ms Sigurdardottir was Iceland's most popular politician in November, with an approval rating of 73 percent.

She was the only minister to see her rating improve on the previous year's score, Capacent Gallup said on Wednesday. The poll of 2,000 people had a margin of error of plus or minus 3 per cent.

'It's a question of trust, people believe that she actually cares about people,' said Olafur Hardarson, a political scientist at the University of Iceland.

Ms Sigurdardottir is seen by many as a salve to the bubbling tensions in Iceland. Thousands have joined anti-government protests recently. Last week, police used tear gas for the first time in about 50 years to disperse crowds.

'She is a senior parliamentarian, she is respected and loved by all of Iceland,' said Environment Minister Thorunn Sveinbjarnardottir, a fellow Alliance party member.

The new leader is known for allocating generous amounts of public funding to help the disabled, the elderly and organisations tackling domestic violence.

But conservative critics say Ms Sigurdardottir's leftist leanings and lack of business experience won't help her fix the economy.

'Johanna is a very good woman - but she likes public spending, she is a tax raiser,' Mr Haarde said.

Iceland has negotiated about US$10 billion (S$15 billion) in bailout loans from the International Monetary Fund and individual countries. The loans are currently being held as foreign currency reserves.

Banks that were nationalised last year are once again open and trading - but Iceland still owes millions of dollars to foreign depositors.

After acting as a labour organiser when she worked as a flight attendant for Loftleidir Airlines - now Icelandair - in the 1960s and 1970s, Ms Sigurdardottir was elected to Iceland's parliament in 1978. She served as social affairs minister from 1987-1994 and from 2007.

'If there's anyone who can restore trust in the political system it's her,' said Eyvindur Karlsson, a 27-year-old translator from Reykjavik. 'People respect her because she's never been afraid of standing up to her own party. They see her as someone who isn't tainted by the economic crisis.'

In 1995, Ms Sigurdardottir quit the party and formed her own, which won four parliamentary seats in a national election. Several years later, she rejoined her old party when it merged with three other centre-left groups.

While a woman has served in the largely symbolic role of president, Ms Sigurdardottir will be Iceland's first female prime minister.

She lives with journalist Jonina Leosdottir, who became her civil partner in 2002, and has two sons from a previous marriage.

Ms Sigurdardottir is best known for her reaction to a failed bid to lead her party in 1994. 'My time will come,' she predicted in her concession speech. -- AP

Despite the title of the article "Iceland's New PM is Gay", only two sentences in the entire article actually say anything concerning Ms Sigurdardottir being gay. It goes to show how very little a person's sexual orientation has got to do with anything other than her own private life.

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The Association of Bloggers - My Prediction is a Quick Death

Some time ago (I can't remember exactly when), I received an email inviting me to be a committee member of some soon-to-be-formed national association for bloggers in Singapore. The email was quite long, and set out in detail what the aims of the organisation were supposed to be, etc etc.

If my memory serves me correctly, I never replied to the email at all. I did not mean to be rude. It's just that I constantly receive a variety of emails in my "Mr Wang Says So" email account, and some of these emails are interesting, and some are not so interesting, and some just elicit a general "Huh?" response in me.

This particular email drew a "Huh?" response from me. I did not know what to say, and therefore never replied to it.

Now I see that the association has indeed been formed - (here it is) - and they have gotten themselves formally constituted (I assume, as a registered society under the Societies Act) and gotten some publicity in the mass media.

Oh yes, and the Association of Bloggers seem to have attracted a general "Huh?" response from the blogosphere as well. Or perhaps that is an understatement. Sample responses are here, here, here, here and here.

I'm predicting a fairly quick death for the Association of Bloggers. Not being mean (and anyway I might be wrong). It's just my prediction. I simply don't see any compelling reason for the existence of this association; I don't see how it would be relevant or useful to me personally as a blogger; and I don't see how this Association of Bloggers is going to be relevant or useful to bloggers, more generally speaking.

So I predict a quick natural death for the AOB. It will just fade away and be forgotten.

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300,000 Job Losses is a Scary Thought

I've mentioned a couple of times that I've been house-hunting. In the past two days, one of the property agents that I had met has been repeatedly calling me. Why? Because the developer has cut prices (again), for one of the residential projects that I'm interested in. However, I told the agent that I'm not buying .... yet.

The residential property market has been sinking, and I think it will sink some more. The patient house-hunter will be rewarded. I had previously written about the implications of the DPS, the effect of which should really start to show in a big way, around June 2009. In addition, today the media also has other news to suggest that the property market is in for a huge dive:

Grim forecast of 300,000 job losses
Most expected to beforeigners hired in past 5 years
Wednesday, January 21, 2009
Ansley Ng, TODAY

IN what an expert called a “doomsday prediction”, two economists say Singapore may lose 300,000 jobs by next year, of which two-thirds would belong to foreigners.

As the Republic grapples with what is likely to be its worst recession, “recent surveys all point to many more firms planning to fire than hire, a finding backed by anecdotal reports of job cuts by leading firms in their sectors,” said economists Cem Karacadag and Kun Lung Wu of Credit Suisse Group in a report that has raised many eyebrows with its alarming forecast.

Credit Suisse had similarly drew attention last May when it issued a deeply bearish outlook for the Singapore property sector and while there was some initial scepticism, subsequent data have largely borne out the accuracy of its call.

But analysts Today spoke to — though agreeing that a higher-than-before number of jobs will be lost this year on the back of the increasingly grim economic outlook — felt that the Credit Suisse jobs report was too pessimistic. Barclays Capital economist Leong Wai Ho said: “I think we have already seen the nature of the severity, I don’t think we will get much worse than that.”

Mr Leong predicted retrenchments to reach around 35,000, with the unemployment rate to peak at the second-quarter of this year at just over 5 per cent.

The Credit Suisse report gave a sectoral breakdown of its headline 300,000 number: About 160,000 positions will be shed in the services industry; 100,000 in manufacturing; and another 40,000 in the construction industry. “As harsh as our assumptions may seem, they only imply that the economy gives up all of the jobs it created in 2008 and a portion of the new jobs in 2007,” the Credit Suisse economists wrote.

Two out of three of the jobs lost would be held by foreigners and permanent residents. With the exodus of these foreigners, Singapore’s population will shrink 3.3 per cent to 4.68 million next year from 4.84 million now, said Credit Suisse.

Real estate experts say the property market — which has already been hit by the fallout of the global financial crisis — will be further buffeted by the repatriation of expatriates as companies downsize.

“The first market to be affected would be your residential and your prime residential market, because an immense source of leasing activity comes from foreigners,” said Mr Donald Han, managing director of property consulting firm Cushman and Wakefield ....

I kinda foresaw this coming. Three months ago, I wrote on this blog:

According to my crystal ball, residential rentals must fall sharply this year. A host of new, big residential projects (all of which were launched in the recent bubbly years), will get completed soon. What happens next? The market will be flooded. At the same time, due to the economic slowdown, many expats might predictably pack their bags and go home. This would lead to a further collapse in residential rentals.

The stock market has also crashed very badly. Many Singaporeans would have lost serious money. Bonuses will shrink. Thus many potential property buyers would be eliminated. Furthermore, a real recession is very likely to be on the way (the technical one is already here). Some people will lose their jobs. And among them, the highly-leveraged home-buyers of the past few years will be blown apart.

Of course, none of the above was particularly difficult to foresee, even three months ago. What's staggering about the Today report is the size of the figure - 300,000 jobs - predicted by Credit Suisse.

How quickly the residential property market will collapse will actually depend on the proportions of expats in Singapore who are on an Employment Pass, and on a Special Employment Pass. What's the difference?

Both passes enable the expat to reside legally in Singapore. However, an Employment Pass is tied to a specific employer. If the expat loses his job, the EP becomes invalid and the expat has to leave Singapore more or less immediately (7 days, to be precise). His family has to leave with him too.

A Personalised Employer Pass affords more flexibility. The PEP is not tied to a specific employer. If the expat loses his job, he can stay for up to another six months in Singapore to look for another job.

PEP was introduced only in January 2007. It was one of those "we embrace foreign talent" schemes. Most expats who had come to Singapore prior to January 2007 are probably on the EP, not the PEP, unless they had had the foresight to effect a conversion of their EP to a PEP earlier on (I'm assuming that there's some procedure to do this).

Of course this is precisely the kind of precautionary step that most human beings don't bother to take, when times are still good. An EP is as good as a PEP, when job security is not in doubt. But now, when times are bad and unemployment is rearing its ugly head, the government will not be so free and easy with EP-to-PEP conversions.

As for myself, I am being prudent by deferring my property purchase. After all, I work in a bank, not exactly the safest place to be, nowadays. I have fairly substantial back-up funds, but still ....

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A Song & Dance About CCAs

CCAs in the school system can be viewed in many different ways. Here are three examples:

1. CCAs are unimportant and a waste of time. They need not be taken seriously. The student should focus on studying.

2. Every student needs a break from studying sometimes. CCAs are a great way to relax, have fun and do something other than homework.

3. Students need to strive to excel in both studies as well as CCAs. Therefore CCAs add even more pressure to a system that's already too stressful.

All three views have validity. How valid they are, for any individual student, really depends on his own opinions, beliefs and personal circumstances. There is no right or wrong. However, there are more-optimal and less-optimal possible paths (again, for each individual student). Some relevant factors to consider would be (1) how well or badly the student is already coping with his studies, (2) how interested he is in his CCAs, and (3) what he expects to learn or gain from the time and effort spent on his CCAs.

Personally, as a student I had participated very actively in CCAs and had enjoyed myself enormously. In fact, all my happiest memories of school days are associated with my CCAs and my CCA friends. I also feel that from my CCAs, I had gained certain skills and attributes which continue to serve me well today. (In contrast, I regard a significant amount of my classroom knowledge as practically useless to me today).

In its ideal form, the school CCA system can be seen as providing the infrastructure to help students explore and pursue their individual interests. If you like sports, the system provides you with the facilities, the the coaches, the opportunity to compete, and so on. If you like art or music or something else, the system similarly provides with the necessary resources.

If the school provides all these resources, and you don't make use of them, then that is your own loss. It is a loss that you may rationally choose to suffer - for example, you judge that you are better off spending the time studying your textbooks. It's still your loss, anyway.

I recently blogged about my son's school offering various optional courses to the students. My son himself is at the age when he's tentatively interested in almost everything, but hasn't got any strong specific preference. After some discussion with Daddy and Mum, he chose Speech & Drama. So we signed him up for that.

I think that Speech & Drama could help him to be more self-confident (with things like standing in front of an audience, or even expressing a view in class). He'll probably have a lot of fun with the drama activities and make some new friends. I think it's reasonable to expect that his speaking skills should also improve.

Taken far enough, this Speech and Drama course will lead to some sort of international examination / certification in speech and drama, from Trinity Guildhall in London. I am not sure whether my son will go that far, or whether that would be a good thing. It is quite possible that he may lose interest halfway, or become interested in something else (or perhaps the time will come when he is better off spending the time studying).

I wouldn't know, at this stage. I don't think it matters. My son can just jump in first, and get his feet wet. And have fun. We'll figure out the rest later.

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The Most Exciting Piece of Non-News In Yesterday's Newspapers

A brilliant deduction! A stunning insight! Could Singaporeans have possibly figured this out, all by themselves?

Of course not. Let us give thanks for the wonderful leadership of our great wise leaders.

Not forgetting the powerful journalistic standards of the nation's leading newspapers, for delivering such big news to us.

ST Jan 16, 2009
Likely Mas Selamat has fled

ALMOST a year after he escaped from custody, where is terror fugitive Mas Selamat Kastari?

Home Affairs Minister Wong Kan Seng narrowed it to either of two scenarios: one, he is in Singapore and hidden by sympathisers unknown to the authorities, or, two, he has fled the country.

Asked which was the more likely, Mr Wong told The Straits Times: 'It's very hard to say. Both scenarios are plausible. Maybe the second one is more plausible.'

Seriously, if you go to your neighbourhood chicken-rice seller and ask, "Uncle, where do you think Mas Selamat is today?", what do you think his reply would be?

Probably something like this: "Aiyoh, how I know!? You ask me, I ask who? But he's been missing for so long, I think surely by now he run away from Singapore alreadi laaaah!".

In other words, the neighbourhood chicken-rice seller's reply would essentially be the same as Wong Kan Seng. We should be proud! This shows that Singapore's neighbourhood chicken-rice sellers are of ministerial calibre!

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