Alvin Soong’s Blog

I was reading this Chinese article with the Minister BG George Yeo, dated 16th Nov.

It talks about his advocate on retaining tradtional good values, and historical sites and about the good values in Confucianism.To retain the sites is a good form of reminder to the next generations of the hardship and good value of predecessors who have brought Singapore and China to the present stage with their hardwork and good traditional values.

However at the same time, he said we should not be shackled by only traditional views, but also learn to assimilate it with changes and creativity to move with the society forward. It is not just the culture but also the spirit we should captivate. Then we should improvise with creativity to be more prosperous and be a smarter, more gracious society.

He relish on one of the days when he was at one of the visit to a historical town in China, he witnessed neon lights and bright commercial lightings and said to himself, “How can this be allowed?” Then he remembered that the Chinese had moved forward in the past decades assimilating the western and eastern culture. Singaporeans on the other hand tends to be more tradtional than the Chinese counterparts and we got to learn from them.Looking back, it was just like eons ago, when the Europeans first came to New York and criticised on their American culture, but now America is so prosperous. We Singaporeans got to open up and learn from the Chinese culture too

On the positive side, he noted that Singaporeans are known to be hardy since as a small country we can improve so fast within decades and not lose our identity. This is something that the Chinese counterparts can learn also from us.

On 18th Nov Thinkpoints, I also read on Chinese farmers moving to towns and instead of ownership of lands, have learnt to corporatise their lands to private companies to get annual dividends and shares of the company, in exchange for better technology to get better yield. This is breakthrough of older views where one should own just the land. It is a win-win situation and one that we should learn of balancing good traditional values and creativity.

There are 3 things to note in the recent valuation of stocks given the fact that price is at firesale now:

1) PE ratio
To work out a stock’s PE, take its share price and divide that by the earnings per share (EPS) of the company. PE ratios is useful only if it is positive (It becomes meaningless when companies go into the red and the denominators used to determine these ratios - earnings - turn negative.)

For example, if you look at Singapore Airlines (SIA), as at Nov 11, when it was trading at $11.42 a share, its PE was 7.5 times or 7.5x. But what does this figure tell you? Is SIA’s stock cheap or expensive? To get a better perspective, you can compare SIA’s PE against the market PE. On Nov 11, the benchmark Straits Times Index (STI) was trading at a PE of 8.9x. This essentially means that SIA’s stock was cheaper than the overall market at that point.

2) PB ratio
However if the sub-prime crisis has left many banks and financial institutions in the United States with negative earnings, and thus negative PE levels. We have to use PB ratios to gauge the value of the stocks that you’re considering.

To work out a stock’s PB, take its share price and divide that by the book value of the company. A firm’s book value is the value of its assets as expressed on its balance sheet, and provides an estimate of how much the firm would be worth if it had to be liquidated. A stock’s PB indicates how much the company’s shareholders are paying for its net assets - and as with PEs, the lower the figure, the cheaper the stock. If a stock’s PB is 1x, then the share price is exactly what the company would be worth per share if all its assets had to be stripped off and sold.

PB ratios also work better for certain industries. Take banks for instance. Most of their assets are loans extended to borrowers - a relatively homogenous business model across the industry. PB ratios provide a better measure of what bank stocks are worth because loans are rarely valued above their historical costs.

3) ‘Value trap’
Some stocks and markets could turn out to be a ‘value trap’. This means that they are attractively valued but still prove disappointing at the end of the day.

Various reasons could include: a particular market could be suffering from political uncertainty; a company could be facing depressed earnings without any prospects for a near-term turnaround. Such markets or stocks could stay cheap for a long time.

An example would be a country market with a low PE that had been relying on electronics exports for a long time. If consumer demand for technology turned sluggish and looked likely to remain so over the medium to long term, such a market could take a long time to recover unless the country decided to diversify into other growth sectors.

And I think it takes patience more than guts. You must have faith that equity markets will recover eventually and the patience to wait till they do.

Extracted from Sunday Straits Times 16th Nov 2008

Please note that the amendments to the Employment Act (EA) was passed by Parliament yesterday. These amendments will come into effect on 1st Jan 2009.

The key amendments to the EA are :

(I) Revised Coverage of the Employment Act

* Coverage extended to confidential staff (e.g. accounts assistants, HR clerks and secretaries)
* Junior managers and executives earning a basic monthly salary of $2,500 and below against non-payment of salary are protected and have access to MOM Labour Court for salary claims.
* Raise salary ceiling for non-workmen from a basic monthly salary of $1,600 to $2,000 under Part IV EA relating to Rest Days, Conditions of Service.
* Introduce a new Part IV salary ceiling for workmen at a basic monthly salary of $4,500.
* Re-define part-time employees from those who work less than 30 hours a week to those who work less than 35 hours a week.

(II) Employment standards and benefits

* Paid sick leave and paid public holiday extended to apply to all employees covered under EA.
* Reduce qualifying period for paid sick leave from 6 months to 3 months of completed service. Phase in sick leave entitlements between the completion of 3 months and 6 months of service.
* Allow employees to obtain medical certificates (MC) from public medical institutions for the purpose of going on paid sick leave, and not confined to MC issued from employer appointed doctors (if there is one) for paid sick leave.
(III) Penalties for infringements of Employment Act

* Increase amount of maximum penalty fines and composition offences for most offences under the EA.

A table highlighting the key amendments to the EA is attached.

Sources: Employment (Amendment) Bill, www.mom.gov.sg

Click here to download file:
employment_act_amendment2008.pdf

THE economics news may be getting worse. However, it is not expected of another Great Depression. In fact, we probably won’t see the unemployment rate match its post-Depression peak of 10.7 per cent, reached in 1982 according to economist Paul Krugman

Depression economics. like that of the 1930s in which the usual tools of economic policy - above all, the Federal Reserve’s ability to pump up the economy by cutting interest rates have lost their full effects. When depression economics prevails, the usual rules of economic policy no longer apply: Virtue becomes vice, caution is risky and prudence is folly.

In earlier occasions a cut in the federal funds and interest rate is thought to boost back the economy. This may no longer holds truth. With no possibility of further interest rate cuts, there’s nothing to stop the economy’s downward momentum. Rising unemployment will lead to further cuts in consumer spending. Weak consumer spending will lead to cutbacks in business investment plans. And the weakening economy will lead to more job cuts, provoking a further cycle of contraction.

To pull us out of this downward spiral, the federal government will have to provide economic stimulus in the form of higher spending and greater aid to those in distress.

In normal times, it’s good to worry about the budget deficit - and fiscal responsibility is a virtue Americans will need to relearn as soon as this crisis is past. When depression economics prevails, however, this virtue becomes a vice. Franklin D. Roosevelt’s premature attempt to balance the budget in 1937 almost destroyed the New Deal.

Another prejudice is the belief that policy should move cautiously. In normal times, this makes sense: You shouldn’t make big changes in policy until it’s clear they’re needed. Under current conditions, however, caution is risky, because big changes for the worse are already happening, and any delay in acting raises the chance of a deeper economic disaster. The policy response should be as well-crafted as possible, but time is of the essence.

Finally, in normal times modesty and prudence in policy goals are good things. Under current conditions, however, it’s much better to err on the side of doing too much than on the side of doing too little. The risk is overheated economy, leading to inflation - but the Federal Reserve can always head off that threat by raising interest rates. On the other hand, if the stimulus plan is too small there’s nothing the Fed can do to make up for the shortfall.

Indeed, Goldman Sachs predicts that the unemployment rate, currently at 6.5 per cent, will reach 8.5 per cent by the end of next year. The new Obama administration will offer a major stimulus package. The question according to the economist Paul is would the Obama Administration dare to propose something daring.

Summarised from Economics Column in Sat Straits Times 15th Nov

1) The deductible is the portion of a claim that the policyholder has to bear before the insurer pays any benefits. It is usually between $1,500 and $4,500.
For example, if you are under Plan Preferred of NTUC Income’s hospitalisation Enhanced Incomeshield, the deductible is the first $3,000 of a claim.

2) Co-insurance is a fixed percentage of the claim - what is left after the deductible is accounted for - that a policyholder bears. This feature means that policyholders share part of the cost of the bill, usually 10 per cent over and above the deductible.

Say you have a health policy with a $1,500 deductible and a 10 per cent co-insurance. If your claim is $5,000, you must pay the deductible of $1,500 plus 10 per cent of the remaining $3,500, or $350, in co-insurance. So you pay $1,850, while the insurer takes care of the remaining $3,150.

Max Co-insurance limit that one needs to pay is $3000.

You can use only cash to pay the premiums, but main plan can be paid by medisave if there is sufficient amount in the CPF medisave

Summarised from Sunday Straits Times 16th Nov 2008