Wednesday, November 23, 2016
Singapore port volume is expected to decline again in 2016!
The TEU in 2015 was 30.92m. If we analyse the figures in 2016 as shown above, the expected TEU in 2016 will be around 30.5m. Therefore, the 9% drop in 2015 is not an aberration but is the harbinger of further fall in 2016. Look like China has succeeded in containing Singapore growth.
Singapore port handling capacity volume CAGR!
Singapore port handling capacity volume in TEU:
2011 = 29.94m
2012 = 31.65m
2013 = 32.6m
2014 = 33.87m
2015 = 30.9m
From 2011 (29.94m) to 2015 (30.9m), the CAGR is 0.79%.
29.94*(1+0.79%))^4 = 30.9
Once the CAGR becomes negative, Singapore will be in an extremely precarious position.
Is Singapore resilient enough for the upcoming economic downturn?
Singapore is a heavily entrepôt dependent country till now as it is a small country with no natural resources. Yes, Singapore had been through the vicissitudes of economic cycles and had been resilient throughout all the economic and financial crises. Singapore was able to weather all these harsh tribulations because its port had been increasing the port handling capacity volumes throughout the years. However, Singapore had lost its world’s busiest port to Shanghai and its port volumes fell in 2015 by 9%. I hope that this decline in port volumes in 2015 is just an aberration and not the harbinger of more declines in the future. If the port volumes begin to decline, Singapore will find it hard to recover from any economic crises in the future.
When the port volumes are having positive CAGR annually, it means that businesses are sustainable in the foreseeable future despite any negative economic growth and Singapore can recover from any recession or crisis. Conversely, when the port volumes are having negative CAGR annually, businesses become unsustainable because there will be declining demands for the ancillary services and products pertaining to the entrepôt trades. In a nutshell, when Singapore loses its sea hub, it will also lose its financial hub and Singapore will retrograde into a 2nd or 3rd world country.
Tuesday, November 22, 2016
No more TPP! Japan and ASEAN can stop harping on it now!
http://news.asiaone.com/news/business/trump-says-he-will-move-withdraw-tpp-day-one
We need to move on to RCEP and FTAAP. Please stop harping on TPP anymore!
We need to move on to RCEP and FTAAP. Please stop harping on TPP anymore!
Monday, November 21, 2016
Why would fund manager buy bonds with negative yields?
Government bonds are often labelled as risk-free investments and are favourite financial instruments among fixed income fund managers.
Government bonds are IOUs issued by the government and the government pays interest rates on its IOUs just like bank loans. However, some government bonds are sauntering into negative yields these few months. What does this negative yield mean? It means consumers have to pay interest rates to the government for buying the bonds. In other words, you pay interest rates for lending money to someone instead of collecting interest rates for money lent out. Many people cannot reconcile this negative bond yield with the traditional bank loan concept that is imbued in them.
Thus, why would fund managers be interested in these negative bond yields? Surely, they have the financial literacy to know this is a money losing investment. Well, fund managers know something that ordinary people don't. Fund managers can perform the midas of turning negative yield into positive yield. How is this possible?
Let's suss out the MIDAS!
Fixed income fund managers will sift out arbitrage opportunities in other interest rates related financial derivatives as a trade off to the negative bond yields by doing interest rate swaps in different currencies.
Example of USD-Yen interest rates swap:
A USD fund manager will borrow yen and lend out USD using Libor rates.
Facts:
3-month USD Libor : 0.82%
3-month JPY Libor : -0.02%
USD-Yen interest rate swap spread: 0.64%
3-month JPY Bond yield: -0.24%
When a USD fund manager borrows yen, he will pay JPY Libor (-0.02%) and receive USD Libor (0.82%) for lending out USD with a spread of 0.64%. Since the JPY Libor is a negative rate, the USD fund manager will receive interest of 0.02% instead of paying 0.02% interest.
Therefore, the net effect in carrying out this USD-Yen interest rates swap is 0.82% - (-0.02%) + 0.64% = 1.48%
Then the fund manager will invest in JPY bonds with -0.24 yield with the borrowed yen which means the net effect is 1.48% - 0.24% = 1.24% because he has to pay an interest rate to the government instead. As you can see, the smart USD fund manager has managed to earn 1.24% instead of 0.82% when he invests only in USD Libor.
Since China has the largest USD foreign reserves, it has performed the USD-Yen interest rate swap and bought a lot of negative JPY bond yields these few months.
Government bonds are IOUs issued by the government and the government pays interest rates on its IOUs just like bank loans. However, some government bonds are sauntering into negative yields these few months. What does this negative yield mean? It means consumers have to pay interest rates to the government for buying the bonds. In other words, you pay interest rates for lending money to someone instead of collecting interest rates for money lent out. Many people cannot reconcile this negative bond yield with the traditional bank loan concept that is imbued in them.
Thus, why would fund managers be interested in these negative bond yields? Surely, they have the financial literacy to know this is a money losing investment. Well, fund managers know something that ordinary people don't. Fund managers can perform the midas of turning negative yield into positive yield. How is this possible?
Let's suss out the MIDAS!
Fixed income fund managers will sift out arbitrage opportunities in other interest rates related financial derivatives as a trade off to the negative bond yields by doing interest rate swaps in different currencies.
Example of USD-Yen interest rates swap:
A USD fund manager will borrow yen and lend out USD using Libor rates.
Facts:
3-month USD Libor : 0.82%
3-month JPY Libor : -0.02%
USD-Yen interest rate swap spread: 0.64%
3-month JPY Bond yield: -0.24%
When a USD fund manager borrows yen, he will pay JPY Libor (-0.02%) and receive USD Libor (0.82%) for lending out USD with a spread of 0.64%. Since the JPY Libor is a negative rate, the USD fund manager will receive interest of 0.02% instead of paying 0.02% interest.
Therefore, the net effect in carrying out this USD-Yen interest rates swap is 0.82% - (-0.02%) + 0.64% = 1.48%
Then the fund manager will invest in JPY bonds with -0.24 yield with the borrowed yen which means the net effect is 1.48% - 0.24% = 1.24% because he has to pay an interest rate to the government instead. As you can see, the smart USD fund manager has managed to earn 1.24% instead of 0.82% when he invests only in USD Libor.
Since China has the largest USD foreign reserves, it has performed the USD-Yen interest rate swap and bought a lot of negative JPY bond yields these few months.
NATO unity is breaking up!
Turkey which is part of NATO is very unhappy about EU and is mooting the idea to create and join a China security bloc. This will definitely create tensions in EU and NATO as Turkey gets closer to Russia and China. Turkey maybe just issuing empty threat to gain more bargaining chips for its political interest.
Saturday, November 19, 2016
Philippines economy is getting better when it gets cozy with China.
http://en.people.cn/n3/2016/1117/c90000-9143257.html
China is helping Philippines in infrastructures development and will be increasing FDI in the country too. Furthermore, China will include Philippines in the new sea lane which will be part of the one-belt-one-road plan.
China is helping Philippines in infrastructures development and will be increasing FDI in the country too. Furthermore, China will include Philippines in the new sea lane which will be part of the one-belt-one-road plan.
High interest rate environment is coming!
The spark of this vicious interest rate cycle is caused by the bond market selloff. Bond price and yield are inversely related to each other because bond pricing formula is based on time value of money concept.
As bond prices decrease, bond yields will increase and vice versa. Bond yields have been low for quite some time and some bond yields are even in negative territory now. Consequently, investors are selling bonds to seek better returns or yields and this bond selloff causes yields to fall. As China is USA largest creditor, China foreign reserves are shrinking because the total value of its USA bonds is declining. Since foreign reserves make up the backbone of the Renminbi (RMB) strength, RMB devaluation is inevitable as investors will sell RMB because its backbone is weakening. Thus, RMB has been declining to recent lows.
China is the de facto manufacturing factory of the world and the devaluation of RMB will cause inflation to escalate as China has to buy raw materials with higher prices for production. In other words, China is going to export inflation to the world. As inflation reaches the economic threshold levels of many countries, they will start to raise interest rates to contain inflation. The rises in interest rates will cause bond yields to spike up and depress the bond prices further.
Upon sensing this, China will continue to sell USA bonds to cut its foreign reserve losses with the ensuing outcome of shrinking foreign reserves and more RMB devaluations . This is the vicious interest rate cycle I am talking about. Therefore, the foreboding of higher interest rates is real and will be coming soon.
Baltic dry index - 1257
Today, Friday, November 18 2016, the Baltic Dry Index climbed by 26 points, reaching 1257 points.
Baltic Dry Index is compiled by the London-based Baltic Exchange and covers prices for transported cargo such as coal, grain and iron ore. The index is based on a daily survey of agents all over the world. Baltic Dry hit a temporary peak on May 20, 2008, when the index hit 11,793. The lowest level ever reached was on Wednesday the 10th of February 2016, when the index dropped to 290 points.
US rig count - 588
HOUSTON (AP) — The number of rigs exploring for oil and natural gas in the U.S. increased by 20 this week to 588.
A year ago, 757 rigs were active. Depressed energy prices have curtailed oil and gas exploration, although the rig count has been rising in recent weeks.
Houston oilfield services company Baker Hughes Inc. said Friday that 471 rigs sought oil and 116 explored for natural gas this week. One was listed as miscellaneous.
Texas gained eight rigs and Louisiana and Oklahoma each gained four.
Ohio gained three, Colorado gained two, while Alabama and Utah each gained one. North Dakota, Pennsylvania and Wyoming each lost one rig. The U.S. rig count peaked at 4,530 in 1981. It bottomed out in May at 404.
Friday, November 18, 2016
It is unlikely that Japan will win the Malaysia HSR contract.
http://www.straitstimes.com/asia/east-asia/abe-makes-strong-pitch-for-spore-kl-high-speed-rail?utm_campaign=Echobox&utm_medium=Social&utm_source=Facebook&xtor=CS1-10#link_time=1479343208
China has proven its HSR technology to the world in its own country which is super stable and fast. Please look at our previous posts on China HSR.
China also won the HSR contract in Indonesia based on its own merits. Furthermore, Malaysia is getting cozy with China and will give China the preferential treatment in this bidding. Let's wait and see.
China has proven its HSR technology to the world in its own country which is super stable and fast. Please look at our previous posts on China HSR.
China also won the HSR contract in Indonesia based on its own merits. Furthermore, Malaysia is getting cozy with China and will give China the preferential treatment in this bidding. Let's wait and see.
Thursday, November 17, 2016
UFO sighting in Indonesia!
Singapore export slumps again!
http://finance.yahoo.com/news/singapores-exports-slump-trump-raise-042929452.html
Sigh! Malaysia economy is growing but Singapore economy is shrinking. Malaysia 2nd Quarter GDP growth was 4.1% in 2016 and looked set to grow at 4.2% for 2016.
http://www.thesundaily.my/news/1969791
Is Malaysia stunning growth peculiar to international growth or Singapore declining growth abnormal?
Sigh! Malaysia economy is growing but Singapore economy is shrinking. Malaysia 2nd Quarter GDP growth was 4.1% in 2016 and looked set to grow at 4.2% for 2016.
http://www.thesundaily.my/news/1969791
Is Malaysia stunning growth peculiar to international growth or Singapore declining growth abnormal?
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