Reminisce

Was flipping through some of my old stuff, some photos some scribblings. Everything that one does everyday defines the past of our future. As I look back and laugh at the many chapters in this journey that we call life, I stand in awe of the many many inspirational mentors that have crossed my path  as well as the many numerous setbacks that have humbled me. One can achieve anything if he sets his mind to it, even for a nerd like myself to become a pretty boy in half a year is an amazing feat.  And I look forward to one more amazing race which I shall embark on a month of backpacking to vietnam/china/korea!/japan(hopefully). Sidenote: I could be a korean idol haha seriously , perhaps because I’ve been watching alot of k-drama this days. I think the latest craze over korean culture has just about to begin in singapore.

http://www.pmo.gov.sg/News/Transcripts/Prime+Minister/Seoul+keen+on+cultural+centre+in+Singapore.htm.

Are we singaporeans seriously lacking in identity. I remember a chinese folk story of a man who forgot how to walk after trying to imitate the walking gaits of others.

Dependants’ Protection Scheme (DPS) ?

A friend asked me about DPS scheme,  he was sent a form to signup with great eastern. I was surprised that there is another insurance company underwriting the CPF DPS scheme other than NTUC , which is what I have.

I decided to find out more.

http://ask-us.cpf.gov.sg/

Q:      What is Dependants' Protection Scheme (DPS) ?      
 A:     

The Dependants’ Protection Scheme (DPS) is an affordable term insurance scheme that provides insured members and their families with some money to get through the first few years should the insured members become permanently incapacitated or pass away.

Currently, DPS is administered by two insurers, Great Eastern Life and NTUC Income. The scheme is extended to CPF members who are Singapore citizens or Permanent Residents, between age 16 and 60, when they make their first CPF contribution.

DPS is an optional term insurance which covers CPF members for a maximum sum assured of $46,000 up to age 60.  The coverage is worldwide.  The DPS benefit will be paid out if the insured member passes away or becomes permanently incapacitated such that he or she can no longer work.  

Q:      How do I apply to be insured under DPS ?      
 A:     You may do so by submitting your application to Great Eastern Life or NTUC Income directly.

 Q:      If I opt-out of DPS now, can I apply to be covered at a later stage?      
 A:     Yes, you can apply to be insured at a later stage with any of the 2 insurers directly. Your application will be assessed based on your health condition then.

DPS is a death and disability term insurance (worldwide coverage). You are randomly assigned either Great eastern or NTUC , you can write-in to either companies to switch.

In terms of premiums or coverage, both are the same , however there is a subtle difference in terms of the claims process.

http://www.wallstraits.com/community/viewthread.php?tid=2952
I wrote this letter to Straits Times Forum on Saturday. Today, despite NTUC Income, Great Eastern and CPF Board came out with some explanations, they covered some of what I share in this letter, however, they did not cover the potential problems for a person who did not make a nomination if he/she is insured with NTUC Income.

 Here is my letter:

 Recently, Consumer Association of Singapore (Case) caused a big uproar when it pointed out in an article published in Straits Times on 23 March 2006 that people who are covered under Great Eastern Life for the Dependent Protection Scheme (DPS) would need to draw a Will while those covered with NTUC Income need not. 

 While I applaud CASE for highlighting some of the potential problems, as a Certified Financial Planner, I also worry some of the inaccuracies in the information given might actually do more harm than good. Firstly, an insurance company is allowed to pay up to $150,000 in claims to a proper claimnant without a Will. Thus, if your only insurance policy is DPS with Great Eastern Life, you need not unduly worry at all as the sum assured under DPS is less than $50,000 or 1/3 of the said $150,000. If you have not written a Will, under DPS with Great Eastern Life, the rightful beneficiaries goes according to the Intestate Succession Act.

 In actual fact, people who are covered under NTUC Income for DPS have more to worry instead. 

 Because NTUC Income falls under the Cooperative Societies Act and as a policyholder, the only way for you to name a beneficiary for your NTUC Income insurance policies including DPS is to fill up a nomination form. If you have not filled up a nomination form, even if you have written a Will, the distribution of the insurance proceeds of the NTUC Income DPS would not be taken care of by the Will, since NTUC Income falls under the Cooperative Societies Act. 

 NTUC Income would pay the insurance proceeds to your legal representatives, absolving them of any legal liability in payment of the insurance proceeds. However, the issue of who are the rightful beneficiaries is still debatable and can be subject to complicated and protracted legal disputes. 

Furthermore, even if people insured with Great Eastern Life for DPS switch to NTUC Income and make a valid nomination, this does not really solve the problem of not having written a Will. Why? Because for most Singaporeans, DPS is not the only asset they have. A typical Singaporean is also likely to have some separate insurance policies; many Singaporeans also have invested their CPF into CPF Investment Scheme; many Singaporeans were also given New Singapore Shares; many also have savings and deposit accounts with banks; many also have invested in Unit Trust and structured deposits; you might also have other moveable assets such as a car, jewellery etc. 

 Do you know that all the abovementioned assets would go to your estate as well including the DPS insurance proceeds. Thus, if you have not written a Will, in the scheme of all things considered, the DPS insurance proceeds might only be a small part of your total estate that would be distributed according to the Intestate Succession Act.

 Thus, the real problem is many people in Singapore have not written a will because they do not know the importance of doing so and the potential problems of not writing a Will. Many parents with children below age 21 are also not aware that in the event that both of them die leaving behind orphans, the question of who would be the guardians of their orphans would also be left open with serious consequences. Thus, all the problems we mentioned can be solved by writing a Will. The focus of the parties involved, including Central Provident Fund (CPF) Board should be on educating the public and highlighting the importance of writing a Will to ensure your estate is distributed according to your wishes, including deciding on the guardianship for your children while you are alive

Looks like I better go dig up my NTUC forms and make a nomination soon

Wolfram|Alpha

Demographics of Vietnam and Singapore Compared

Finally!Accessible statistics for everyone, the population density and life expectancy of singapore are noted with interest. Both are ranked 4th in the world,  soon-to-be world no. 1

Anyway , adapted from mother Theresa

People are often unreasonable, irrational, and self-centered.
Forgive them anyway.

If you are kind, people may accuse you of selfish, ulterior motives.
Be kind anyway.

If you are successful, you will win some unfaithful friends and some genuine enemies. 
Succeed anyway.

If you are honest and sincere people may deceive you. 
Be honest and sincere anyway.

What you spend years creating, others could destroy overnight. 
Create anyway.

If you find serenity and happiness, some may be jealous.
Be happy anyway.

The good you do today, will often be forgotten.
Do good anyway.

Give the best you have, and it will never be enough. 
Give your best anyway.

In the final analysis, it is between you and God. 
It was never between you and them anyway.

RMI: Financial Globalization causes and consequences

Last lecture of the series. Basically a final summary lecture of the causes and remedies for the global financial crisis.

Impacts on individual Asian countries was discussed, which was very informative. Will shall share them as follows.

• Asian region’s financial institutions have relatively small exposure to toxic assets
• Asia’s major trading partners other than US continue to do well
• Asian economies have large FOREX reserves
• The 1998 financial crisis forced governments in this region to introduce regulation, risk management and checks and balances in financial instruments.
• Domestic trade within region is 50% of total trade
• Asia will weather the storm

SINGAPORE

1. Little change in value of Sing Dollar versus US Dollar
2. GDP may shrink by 1%
3. Tourism down by 6%
4. IRR project viability in focus

JAPAN

1. Japanese banks have relatively small exposure to toxic assets in relation to equity
2. Export earnings to US and Europe hit
3. SONY, PANASONIC, NISSAN and HONDA announce profit warnings
4. Carry Trade in Yen unravels

KOREA

1. Korean banks have relatively small exposure to toxic assets in relation to equity
2. Economy dependent on export to US and Europe
3. There is a liquidity crunch for availability of US$ to service forex deposits and foreign debt
4. KOSPI down by 40%
5. Korean won has depreciated by 50% versus USD-1998 level
6. Real estate prices are down
7. 11 $ bn package announced to stimulate domestic industry
8. 30 $ bn credit swap arranged with US federal reserve

CHINA

1. Chinese banks have relatively small exposure to toxic assets in relation to equity
2. Stock market has been badly affected
3. Export earnings to US and Europe hit and factories closed down
4. Industrial growth will grow at < 10% down from 17%
5. Unemployment will swell along with possible social unrest.
6. Policy changes will be made to boost domestic consumption especially in rural areas.
7. Worldwide demand for raw materials will come down.
8. GDP growth may go down to 8% from 11.9%

INDIA

1. No information on Indian banks exposure to toxic assets – likely to be minimal.
2. Stock market has been badly affected.
3. Software export earnings to US and Europe hit and layoffs expected.
4. Industrial growth will not change much as it is driven by domestic demand.
5. Flight of investment capital to safe destinations and Rupee depreciating against USD
6. Real estate bubble set to burst.
7. Policy changes will be made to boost domestic consumption especially in rural areas.
8. GDP growth will go down to 7- 7.5% from 8.9% last year

Asian Countries Loan-Deposit Ratio

For Korea is significantly high

Other Notes:

• Bank debt restructuring by resetting loans if the capital lost in the asset side cannot be balanced by injected liquidity (either gov or private)
• With low interest rate, USD might be the next currecy for carry trade. Perhaps like Japan , American will experience the lost decade.
• Comparing India and China’s economy which I’ve blogged about earlier

Merry Christmas

A diamond shines no brighter
than that lovely Christmas star.
It shines in all its brilliance;
Its seen from near or afar.

A symbol of the Christ-child
as He lay upon the hay,
It tells to all the waiting world
a King was born that day.

Give us strength and hope and courage
to do our best by far
And never falter in our faith
as we watch that Christmas star

Fundamental drivers of development

Here is a summarised table of how the world will change within the next 10 years, in particular context of mobile technology.

Technology	Socioeconomic and political	Business and industry	Users, values, attitudes
Processing power will increase exponentially (Moore’s law)	Globalization will increase	Industries mature over time	Values change at the pace of generations
Fiber and memory capacity will increase exponentially	Democratization will increase	Companies strive towards monopoly	Individualism will increase
Capacity in air will increase but slower than in fiber	Aging population (Industrial world)	Attractive markets attract new entrants	Importance of family and friends will increase
Battery capacity will increase very slowly	Shift towards knowledge industry (OECD countries and NICs)	Scale and learning economics (improving price/performance)	Value of free time and experiences will increase
Miniaturization of components will increase	Market economy prevails (but counter movements will continue)	Complexity diseconomics	Need for mobility and communication will increase
Digitalization will increase	Fight against terrorism and crime, in particular cybercrime, will continue	Value chains will increase in complexity (value networks)	Increased technology adoption in everyday life
Standardization will increase	Social differences will increase	Wireless infrastructure cost will fall more slowly than for electronics (Zander’s law)	Different user groups have different values and needs
Internet development dominating	Increasing amount of information and choices	Value of network increases with number of nodes (Metcalfe’s law)	Environmentalism and health concerns will increase
Large and complex systems become increasingly difficult to control centrally	Air bandwidth is affected by political decisions	Value of information and knowledge will increase	Explosion in social group formation in very large networks (Reed’s law)

RMI: Why did subprime mortgages cause a global crisis

Off the top of my head:

The sub-prime crisis really was not the root cause that gave the global financial markets diarrhea, it was the financial engineering ( read obfuscation ) that poisoned the US banks and killed the eldest brother ( lehman ).Sub-prime loans were used as collateral for CDOs which were then rehashed into synthethic CDOs packaged as securities for CLNs and CDS, doubling the risk exponentially.These products were then sold all over the world to banks and investors looking for high yield. What the sub-prime crisis did was to trigger the repricing of the risks for such financial innovations (securitisation of loans) by banks and investors, because the risks were initially underestimated by the credit rating agencies. This process started the de-leveraging and unwinding of various structured products sold by the banks. Causing the banks to liquidate their assets in order to shore up their tier-1 capital requirement to meet the risk level of their holdings. When everyone sells at the same time will make the market tank. At one point , the interbank interest rate shot up because banks didnt trust one another.

New concepts learnt:

• Securitisation : Turning illiquid assets into marketable assets
  

  Rating	Tranche	Returns	Risk
  AAA “Senior”	6 Million	$10,000	0.167%
  BBB “Mezzanine”	3 Million	$90,000	3%
  DD “Junior”	1 Million	$400,000	40%
  	10 Million	$500,000	5%

• Intermedation VS Dis-intermedation of Banks
• Originate-to-hold model VS Originate-to-distribute
• De-coupling of asian economy does not work, even thou sg export to US is only 30%, indirect exposure to US thru the China market which buys machines from singapore to manufacture goods for US consumption. US slows , everyone in the world slows because US is the largest consumer in the world as well the the biggest debtor. Living on borrowed money
• Low interest rate environment due to trade surplus of US trading partners who accumulate foreign exchange which are then used to buy US bonds.
• Moving riskier assets to SPV utilised by banks to lower capital requirement. Banks loaned money to SPV to take this high risk assets off the balance sheet. Capital requirements for commercial loans are lower compared to the former.

Lessons learnt from crisis

• Sub-prime mortgage lenders
  • Poor underwriting and fraudulent practices “liar’s loans”
  • Worsened by “originate-to-distribute” model
• Investment Bankers /  Structurers
  • Compensation schemes encouraged disproportionate risk-taking
  • shortcoming in risk management eg poor assessment oand management of
    1. market/ funding liquidity
    2. reputational risks associated with off-balance sheet vehicles (conduits & SIVs)
    3. tail risks
• Credit Rating Agencies (CRA)
  • Poor evaluation of complex instruments such as mortgage backed securities and CDO
  • inadequate assessment and modeling of dependence structure reflected by sudden sharp rating downgrades
  • conflict of interest. to provide advisory service in structuring a security issue and to rate the security issue. Serve investors or investment bankers
• Investors
  • lured by higher yields and not pushing hard for greater disclosure
  • limited understanding of complex instruments
  • over-reliance on CRA ratings

2 types of impact on Asia : Financial and trade
Reits might be the next to go belly up due to borrowing limit tagged to their portfolio. With higher scrutiny, REITS might find it difficult to refinance their loans.

Dont Quit

Don’t Quit

When things go wrong, as they sometimes will,
When the road you’re trudging seems all up hill,
When the funds are low and the debts are high,
And you want to smile, but you have to sigh,
When care is pressing you down a bit,
Rest if you must; but don’t you quit.

Life is queer with its twists and turns,
As everyone of us sometimes learns,
And many a failure turns about
When he might have won had he stuck it out;
Don’t give up, though the pace seems slow;
You might succeed with another blow.

Often the goal is nearer than
It seems to a faint and faltering man,
Often the struggler has given up
When he might have captured the victor’s cup.
And learnt too late, when the night slipped down,
How close he was to the golden crown.

Success is failure turned inside out;
The silver tint of clouds of doubt;
And you never can tell how close you are,
It may be near when it seems so far;
So stick to the fight when you’re hardest hit;
It’s when things seem worst that you mustn’t quit.

- Unknown

RMI: Risk and Return for Different Asset Classes

Three Major Asset Classes introduced namely,

1. Primary Assets (Stuff that generate direct cashflow from trading) : Equities(common&preferred stock),bonds and currencies
2. Derived Assets : Derivatives, market indices, mutual funds, hedge funds, ETFs, REITs,Options,Swaps
3. Physical Assets ( most illiquid ) : Real Estate, housings,land buildings, precious metals, energies, commodities

Risk and Returns for US wealth indices for different asset classes : 1926-99

Asset Types	Return	Risk
Small Stocks	13.3%	20.1%
Large Stocks	12.6%	17.6%
LT Gov Bonds	5.5%	9.3%
T-Bills	3.8%	3.2%

Source : Francis and Ibbotson (2002)

Risk is due to fluctuations in the returns over different time periods
2 measures of riskiness include
- Variance
- Standard deviation

Risks can be reduced by diversification over multiple asset class.
Thus the magic question is what constitutes an optimal asset allocation that diversifies risk.

Homework to do on my own : lookup 1. Sharpe Ratio 2. Markowitz theory

Key takeaways from the lecture

• Past studies have shown Historical volatility = implied volatility, thus in order to measure forward risks, one can study the options market rather than relying on historic information. Depending of the current volatility. I think the VIX index applies this theory.
• Study the asset location of mutual funds or composite indices to benchmark performance for portfolio diversification
• Short term US T-bills are assumed to be risk-free , but in reality is associated with interest rate risk.