Insight

Looking forward to 2010, Dexia Asset Management’s official statement is, “Although banks’ balance sheets may not yet be fully cleaned, tensions on the money and credit markets have eased further. Stock markets have bounced back from their depressed levels of the beginning of the year. Regarding the real economy, we are witnessing signs of recovery: for the first time since the beginning of the crisis, the IMF has revised its growth forecasts upwards! The consequences of the crisis will however be felt for quite some time.” (1)

Mainstream economists in general do agree with Dexia Asset Management’s view point that the worst of the financial crisis is over, but the economy is still far from bright!

An immense and imminent task for the world’s Central Banks is – An Exit Strategy for the Titanic Stimulation Package. Once the economy is back on track, they need to withdraw trillions of dollars of monetary support from hobbled banks and debt-laden governments next year to avoid the fears of runaway inflation. However, if they kick away banks’ monetary crutches too early, it might put the hard-earned financial stability to an abrupt end. (2)

Recently, Dubai World’s surprise request to restructure their $26 billion loan puts everybody in alert mode again. Rumors of a debt disaster are swirling around Europe, from Athens to Madrid and all the way to London (3). Consequently, hot money is moving away from Euro to U.S. dollars at the moment.

On the other hand, U.S. is not much better either (4). Within the next 12 months, the U.S. Treasury will have to refinance $2 trillion in short-term debt. And that's not counting any additional deficit spending, which is estimated to be around $1.5 trillion.

U.S. holds gold, oil, and foreign currency in reserve. It has 8,133.5 metric tons of gold (it is the world's largest holder). At current dollar values, it's worth around $300 billion. The U.S. strategic petroleum reserve shows a current total position of 725 million barrels. At current dollar prices, that's roughly $58 billion worth of oil. And according to the IMF, the US has $136 billion in foreign currency reserves. So altogether, U.S. has only around $500 billion of reserves to pay for $3.5 trillion of short-term debt. Technically speaking, the U.S. government is also insolvent!

No wonder a financial guru like Jim Rogers (renowned for his strong view against the Federal Reserve’s stimulation package) has gone as far as predicting that the US Bond market is the next bubble and suggests that people should avoid U.S. Treasury Bills and Bonds (5). However, he believes that China is probably one of the brightest spot in time to come. To walk his talk, Jim Rogers had sold his luxurious apartment in New York and moved his family to Singapore for good because of Singapore’s effective leadership and language advantage.

Singapore’s growth is tipped to hit 5.5 per cent in 2010 after a 2 per cent contraction this year — based on the median expectations of 20 economists, released on December 9th by the Monetary Authority of Singapore (6). The good news is, even if the worst scenario predicted by Jim Rogers does happen, Singapore probably is still one of the best places to be in right now!

There is a season for everything; a time for stock markets to climb; a time for stock markets to correct; a time to work and a time to celebrate. Economists are only mortal and their analysis is at best educated guesses only. Let us stop worrying about what they say and predict as mere worry cannot change the situation. I would rather suggest all of us to take the coming festive season as a special occasion to celebrate and at the same time stimulate the economy within our means!

Merry Christmas!!

Notes:-

(1) Source from https://www.dexia-am.com/NR/rdonlyres/4746AB42-8E01-47D6-825C-94BF6006D169/0/12CPMacroecoUK.pdf

(2) Source from http://www.cnbc.com/id/34442912

(3) Source from http://www.marketwatch.com/story/debt-disaster-fears-rumble-from-athens-to-london-2009-12-16

(4) Source from http://www.dailywealth.com/archive/2009/nov/2009_nov_28.asp

(5) Source from http://www.cnbc.com/id/34376063/site/14081545

(6) Source from http://www.themalaysianinsider.com/index.php/business/46016-private-sector-sees-55pc-growth-for-singapore-2010