Monday, March 28, 2011

The Next Financial Crisis in 2015? Or nearer?

I really do not like doomsayers, particularly famous Dr. Doom Nouriel Roubini, who is always pessimist at a given time and when he is right about his predictions(!) like a broken watch showing the time correct twice a day, he is famed as "the economist who has predicted the last recession". There is also a now infamous Roubini's Sentiment Index[1] which predicts the future of market by looking at his popularity in Google search (when people are more pessimist he is popular, and when people are bullish they simply forget him). Anyway Roubini is a professor who makes money with selling subscriptions to his web page, not really risking billions every day to make a living by investment. So it is a different story when a fund manager talks. For example, take it more seriously when cofounder and president of nearly $7 Billion Greenlight Capital, David Einhorn, who is famous to predict Lehman Brother's fall or Baupost’s Seth Klarman predicts financial crisis:

"I think what we did in the last crisis in resolving it was rather than go to the root of the crisis, tally up the damage, allot  the losses, clean up, fix things, and move on, I feel like a lot of what we did was sort of sweep things under the rug and put short-term bandage fixes on things.  And I think we managed to transfer a lot of the problems sort of from the private sector to the public sector. The problem is that it’s such a large problem that eventually, I’m concerned that will eventually threaten the public sector as well.

 …what we decided to do was sort of paper over the problems. We bailed out a lot of institutions.  We bailed out a lot of people that had positioned themselves incorrectly — ostensibly incorrectly in the crisis, whether it was individuals, whether it was institutions, whether it’s investors and so forth.."[2]

"Most of us learned about the Great Depression from our parents or grandparents who developed a “Depressionmentality,” by which for decades people shunned leverage, embraced thrift, and thought twice before quitting their secure jobs to join risky ventures. By bailing out the economy rather than allowing the pain of the economic and market collapses to be felt, the government has endowed our generation with a “really-bad-couple-of-weeks-mentality”: no lasting lessons are learned; the government endlessly intervenes in the economy, and, ironically, the first thing to strongly rebound from the 2008 collapse isn’t jobs or economic activity but speculation."[3]

Economists fear that China sits on a bubble now which would painfully burst.
Lately Oliver Wyman group jumped into the debate by releasing an interesting report named "The Financial Crisis of 2015: An Avoidable History"[4]. There they explain a possible bubble creation scenario, which matches the real-time process of early 2011 perfectly. They describe the solutions implemented globally to cope with the financial crises of 2008 were largely to save the day rather than resulting in long term positive effects and effectively rises on the hope that China with a huge demand for commodities will drive the entire world out of recession to a new boom. This is unfortunately more wishful thinking than careful analysis as transferring private debt over the shoulder's of tax payers and then printing money to kick start the western economies leads to the natural result: inflation. But in this well connected world, the inflation creating policies by western countries do not create inflation at home; they create inflation in the emerging markets such as China and South  East Asia. And inflation is reducing Chinese demand for commodities which was hoped to revive global economy. Add the huge public debt of western countries to the equation and you will see the picture of the near future as a new Financial Crisis.

Cullen Roche from Orsus Investments does not agree with the worst case scenario of the report, a USA bankruptcy, but still acknowledges that the global markets are heading to crisis[5]:

"... The flaws in the Euro, China's misguided economic policy and endless financialization of US are the three primary factors contributing to what is unavoidable future calamity. It is clear that none of these countries are interested in any sort of near term pain that would be required to fix these structural imbalances so it is not a stretch assume that we will continue the boom/bust cycle that has become a trademark of the last 25 years of global economic growth".[5]

[1] - Make Money with Roubini Sentiment Indicator
[2] - David Einhorn Predicting Another Crisis Like the Great Recession 
[3] - Baupost’s Seth Klarman Expects Another Great Recession
[4] - The Financial Crisis of 2015
[5] - Singapore Business Review, March 2011

This blog article is to provide general information only and should not be treated as an invitation to buy or sell any property or as sales material.  Users of this report should consider this report as a one of the many factors in making their investment decision. Users should make reference to other sources of information and specific investment advice to obtain a more objective view of the property market. Asia Singapore shall not be responsible for losses suffered.


  1. Fewer PR application approvals under scheme

    The number of permanent residence (PR) applications approved under the Professionals, Technical Personnel and Skilled Workers Scheme (PTS) more than halved in 2010.

    In a written response to a parliamentary question by Hougang MP Yaw Shin Leong, Deputy Prime Minister Teo Chee Hean said 11,161 PR applications under the scheme were granted in 2010, down from 27,042 in 2009 - a drop of 58.7 per cent.

    Mr Teo also gave a breakdown of the profile of those who obtained permanent residence under the PTS scheme between 2005 and 2010.

    Eighty-five per cent of these PRs were granted permanent residency five years after their first long-term pass, which include employment pass, long-term visit pass, student pass, work pass and dependant's pass, was issued. Mr Teo said 83 per cent of those who were granted permanent residency under the PTS scheme have diplomas or degrees or higher.

    Fifty-six per cent of them are aged 30 and below, while 43 per cent earn more than S$4,000 a month.

  2. Hi VK,

    Are the years 2010/2009 correct above? Because it was previously announced that 59,460 PRs approved in 2009 and 29,265 PRs approved in 2010. I think the news try to say 2011/2010 but they wrote wrong there!

  3. Ok, I got my mistake. The numbers above are PRs under Professionals, Technical Personnel and Skilled Workers Scheme (PTS). The difference must be PRs by other means (i.e. spouse).