Falling out of love with equities

 25 Aug 2012 10:44

By WILLIAM GROSS
Managing Director, Pimco

THE cult of equity is dying. Like a once bright green aspen turning to subtle shades of yellow then red in the Colorado fall, investors' impressions of "stocks for the long run" or any run have mellowed as well.

I "tweeted" last month that the souring attitude might be a generational thing: "Boomers can't take risk. Gen X and Y believe in Facebook but not its stock. Gen Z has no money." True enough, but my tweetering 95-character message still didn't answer the question as to where the love or the aspen-like green went, and why it seemed to disappear so quickly.

Several generations were weaned and in fact grew wealthier believing that pieces of paper representing "shares" of future profits were something more than a conditional IOU that came with risk. Hadn't history confirmed it? Jeremy Siegel's rather ill-timed book affirming the equity cult, published in the late 1990s, allowed for brief cyclical bear markets, but showered scorn on any heretic willing to question the inevitability of a decade-long period of upside stockmarket performance compared to the alternatives.

Now in 2012, however, an investor can periodically compare the return of stocks for the past 10, 20 and 30 years, and find that long-term Treasury bonds have been the higher returning and obviously "safer" investment than a diversified portfolio of equities. In turn it would show that higher risk is usually, but not always, rewarded with excess return.

Got stocks?

Chart 1 displays a rather different storyline, one which overwhelmingly favours stocks over a century's time - truly the long run. This long-term history of inflation-adjusted returns from stocks shows a persistent but recently fading 6.6 per cent real return (known as the Siegel constant) since 1912 that Generations X and Y perhaps should study more closely. Had they been alive in 1912 and lived to the ripe old age of 100, they would have turned what on the graph appears to be a US$1 investment into more than US$500 (inflation adjusted) over the interim. No wonder today's Boomers became Siegel disciples. Letting money do the hard work instead of working hard for the money was an historical inevitability it seemed.

Yet the 6.6 per cent real return belied a commonsensical flaw much like that of a chain letter or yes - a Ponzi scheme. If wealth or real GDP was only being created at an annual rate of 3.5 per cent over the same period of time, then somehow stockholders must be skimming 3 per cent off the top each and every year. If an economy's GDP could only provide 3.5 per cent more goods and services per year, then how could one segment (stockholders) so consistently profit at the expense of the others (lenders, labourers and government)?

The commonsensical "illogic" of such an arrangement when carried forward another century to 2112 seems obvious as well. If stocks continue to appreciate at a 3 per cent higher rate than the economy itself, then stockholders will command not only a disproportionate share of wealth but nearly all of the money in the world!

Owners of "shares" using the rather simple "rule of 72" would double their advantage every 24 years and in another century's time would have 16 times as much as the sceptics who decided to skip class and play hooky from the stock market.

Cult followers, despite this logic, still have the argument of history on their side and it deserves an explanation. Has the past 100-year experience shown in Chart 1 really been comparable to a chain letter which eventually exhausts its momentum due to a lack of willing players?

In part, but not entirely. Common sense would argue that appropriately priced stocks should return more than bonds. Their dividends are variable, their cash flows less certain and therefore an equity risk premium should exist which compensates stockholders for their junior position in the capital structure. Companies typically borrow money at less than their return on equity and therefore compound their return at the expense of lenders. If GDP and wealth grew at 3.5 per cent per year then it seems only reasonable that the bondholder should have gotten a little bit less and the stockholder something more than that.

Long-term historical returns for Treasury bill and government/corporate bondholders validate that logic, and it seems sensible to assume that same relationship for the next 100 years. "Stocks for the really long run" would have been a better Siegel book title.

Yet despite the past 30-year history of stock and bond returns that belie the really long term, it is not the future win/place perfecta order of finish that I quarrel with, but its 6.6 per cent "constant" real return assumption and the huge historical advantage that stocks presumably command.

Chart 2 points out one of the additional reasons why equities have done so well compared to GNP/wealth creation. Economists will confirm that not only the return differentials within capital itself (bonds versus stocks to keep it simple) but the division of GDP between capital, labour and government can significantly advantage one sector versus the other. Chart 2 confirms that real wage gains for labour have been declining as a percentage of GDP since the early 1970s, a 40-year stretch which has yielded the majority of the past century's real return advantage to stocks.

Labour gaveth, capital tooketh away, in part due to the significant shift to globalisation and the utilisation of cheaper emerging market labour. In addition, government has conceded a piece of their GDP share via lower taxes over the same time period. Corporate tax rates are now at 30-year lows as a percentage of GDP and it is therefore not too surprising that those 6.6 per cent historical real returns were 3 per cent higher than actual wealth creation for such a long period.

The legitimate question that market analysts, government forecasters and pension consultants should answer is how that 6.6 per cent real return can possibly be duplicated in the future given today's initial conditions which historically have never been more favourable for corporate profits.

If labour and indeed government must demand some recompense for the four decade's long downward tilting teeter-totter of wealth creation, and if GDP growth itself is slowing significantly due to deleveraging in a New Normal economy, then how can stocks appreciate at 6.6 per cent real? They cannot, absent a productivity miracle that resembles Apple's wizardry.

Got bonds?

My ultimate destination in this Investment Outlook lies a few paragraphs ahead so let me lay its foundation by dissing and dismissing the past 30 years' experience of the bond market as well.

With long Treasuries currently yielding 2.55 per cent, it is even more of a stretch to assume that long-term bonds - and the bond market - will replicate the performance of decades past. The Barclay's US Aggregate Bond Index - a composite of investment grade bonds and mortgages - today yields only 1.8 per cent with an average maturity of six to seven years. Capital gains legitimately emanate from singular starting points of 14½ per cent, as in 1981, not the current level in 2012.

What you see is what you get more often than not in the bond market, so momentum-following investors are bound to be disappointed if they look to the bond market's past 30-year history for future salvation, instead of mere survival at the current level of interest rates.

Together then, a presumed 2 per cent return for bonds and an historically low percentage nominal return for stocks - call it 4 per cent, when combined in a diversified portfolio produce a nominal return of 3 per cent and an expected inflation adjusted return near zero.

The Siegel constant of 6.6 per cent real appreciation, therefore, is an historical freak, a mutation likely never to be seen again as far as we mortals are concerned.

The simple point, though, whether approached in real or nominal space is that US and global economies will undergo substantial change if they mistakenly expect asset price appreciation to do the heavy lifting over the next few decades.

Private pension funds, government budgets and household savings balances have in many cases been predicated and justified on the basis of 7-8 per cent minimum asset appreciation annually. One of the US's largest state pension funds for instance recently assumed that its diversified portfolio would appreciate at a real rate of 4.75 per cent. Assuming a goodly portion of that is in bonds yielding at 1-2 per cent real, then stocks must do some very heavy lifting at 7-8 per cent after adjusting for inflation. That is unlikely.

If/when that does not happen, then the economy's wheels start spinning like a two-wheel-drive sedan on a sandy beach. Instead of thrusting forward, spending patterns flatline or reverse; instead of thriving, a growing number of households and corporations experience a haircut of wealth and/or default; instead of returning to old norms, economies begin to resemble the lost decades of Japan.

Some of the adjustments are already occurring. Recent elections in San Jose and San Diego, California, have mandated haircuts to pensions for government employees. Wisconsin's failed gubernatorial recall validated the same sentiment. Voided private pensions of auto and auto parts suppliers following Lehman 2008 may be a forerunner as well for private corporations. The commonsensical conclusion is clear: If financial assets no longer work for you at a rate far and above the rate of true wealth creation, then you must work longer for your money, suffer a haircut on your existing holdings and entitlements, or both.

There are still tricks to be played and gimmicks to be employed. For example - the accounting legislation just passed into law by the US Congress and signed by the president allows corporations to discount liabilities at an average yield for the past 25 years! But accounting acts of magic aside, this and other developed countries have for too long made promises they can't keep, especially if asset markets fail to respond as they have historically.

Reflating to prosperity

The primary magic potion that policymakers have always applied in such a predicament is to inflate their way out of the corner. The easiest way to produce 7-8 per cent yields for bonds over the next 30 years is to inflate them as quickly as possible to 7-8 per cent! Woe to the holder of long-term bonds in the process!

Similarly for stocks because they fare poorly as well in inflationary periods. Yet if profits can be reflated to 5-10 per cent annual growth rates, if the US economy can grow nominally at 6-7 per cent as it did in the '70s and '80s, then America's and indeed the global economy's liabilities can be "reflated" away.

The problem with all of that of course is that inflation doesn't create real wealth and it doesn't fairly distribute its pain and benefits to labour/government/or corporate interests. Unfair though it may be, an investor should continue to expect an attempted inflationary solution in almost all developed economies over the next few years and even decades.

Financial repression, QEs of all sorts and sizes, and even negative nominal interest rates now experienced in Switzerland and five other Euroland countries may dominate the timescape. The cult of equity may be dying, but the cult of inflation may only have just begun.

Investing in S'pore stocks

22 August 2012
Geoff Howie

Ask the average Singaporean to name the things he would want to invest in most and, chances are, the answer will be property and stocks, followed by fixed deposits and mutual funds (or unit trusts, as they are more commonly called). Stocks and property are particularly popular investment choices here, for a good reason.

Over the last 10 years, Singapore's economy has grown an average of nearly 6 per cent each year, taking into account inflation. Over the same period of time, the Straits Times Index (STI) has averaged an annualised gain of 6.4 per cent.

Dividend distributions over this 10-year period boosted the average annualised gain of the STI to 9.2 per cent. At the same time, the Urban Redevelopment Authority Property Price Index measure for residential properties has also averaged an annualised gain of 6 per cent. As investors, we look to invest in an asset that will appreciate to a higher price over time.

The asset's historical performance, though it cannot be used to predict future returns, can be a useful guide for investors.

Singapore is a highly developed market economy which has evidenced strong and consistent growth over the last decade and both stocks and property have performed well. There is a particularly good case for investing in stocks, even with associated risks. We can take the following three key facts into consideration:

Low bank interest rates

The days of people keeping their money under the mattress, even figuratively, are long over.
Expansionary monetary policies by central banks across the globe over the last four years have left interest rates and interest rate expectations markedly low, making it no longer worthwhile to leave your money in the bank.

During the '70s and '80s, savings could be left in a fixed deposit and earn interest payments of 15 per cent per annum, Mr David Gerald, the President of Securities Investors Association (Singapore) said in July. But these days, said Mr Gerald, you would be lucky to obtain a fixed deposit rate above 1 per cent.

And, even then, your interest earnings would be wiped out by inflation, which was last reported as 5.3 per cent in June.

In short, the real value of your money will not keep up with inflation if left idle, or invested in low-yield assets such as fixed deposits.

This is a strong reason for investing in higher yielding assets such as stocks.

Flexibility

Stocks are a more flexible investment compared to others, most notably property, and are also relatively easier to buy and sell.

As an example, the STI is made up of 30 stocks. Given that the average price of an STI stock is nearly S$9.50, a minimum investment of 1,000 shares in a blue chip stock at this prevailing price would amount to about S$9,500.

This is a much more affordable asset than property, especially since the transaction costs of stocks are much lower.

But for investors who are diehard supporters of investing in property, they can do so with a small capital outlay by investing in Real Estate Investment Trusts (REITs).

Dividends

Ownership of a stock is essentially part ownership of the company. As a stock owner, you will usually have the right to receive some of the annual income of the company, distributed in the form of dividends.

Stock ownership also comes with non-monetary entitlements. As a stock owner, you will have a management stake in the company.

You will be eligible to vote in company matters as deemed appropriate by the company's board of directors and the guidelines set out by the Monetary Authority of Singapore.

Whether investing in Singapore stocks or other asset classes, investors should bear certain points in mind.

Firstly, we should understand that occasional speculation is not investing. Investing is a skill in its own right. It begins with understanding the risks of buying and holding a stock, or a portfolio product such as a REIT or exchange-traded fund (ETF).

As an investor, it is also important to understand and manage your own tolerance for risk.

If you wish to be a stock investor, it is not necessary to put all your money into stocks. Rather, you should invest only as much money as you feel comfortable risking.

Finally, investors must be aware of not only the good points of a stock or portfolio product, but also its associated risks.

Investment is, ultimately, a financial decision that requires information and preparation like any other.

Geoff Howie is a markets strategist at Singapore Exchange.

Singapore named healthiest country

17 August 2012
Tan Weizhen

SINGAPORE - A report by financial data agency Bloomberg that ranked Singapore as the healthiest country out of 145 nations came as a surprise to some healthcare experts and Members of Parliament, who were expecting other nations such as Japan, Switzerland or the Nordic countries to come out tops.

The report, released by Bloomberg Rankings on Wednesday, used three main indicators for countries with a population of at least one million to tabulate its total health score.

Ten per cent was placed on life expectancy at birth and infant mortality. Another 10 per cent went to survival to 65 years and life expectancy at that age.

The bulk of the weightage - 40 per cent each - went to causes of death by disease and death rates according to three age groups.

Professor Phua Kai Hong, of the Lee Kuan Yew School of Public Policy, and MP Dr Lam Pin Min pointed out that the Japanese, for instance, are ahead in terms of life expectancy, a common benchmark when it comes to measuring the health of a nation.

"It is not unexpected that Singapore will rank high as one of the healthiest nations in the world but being in the pole position did come as a pleasant surprise to me," said Dr Lam, who chairs the Government Parliamentary Committee for Health.

Prof Phua noted that, in the yearly World Health Organization indicators, Singapore is not in top position, although it is among the top.

In determining the rankings, the Bloomberg report used a "health risk penalty" on countries with populations that led unhealthy lifestyles.

These indicators included the percentage of the population that smokes, has high blood pressure and high cholesterol, is infected with HIV or does not exercise. It also included environmental factors such as sanitation and pollution.

Despite the people in Singapore leading better lifestyles than those in other countries, Prof Phua said this is not determinative of the health of the population.

He found the study wanting in that it largely measures deaths, with 80 per cent going to such indicators.

"If you are talking about poor health, death is the ultimate climax, of course. But, in between, are we really creating the conducive environment for good health? Such a method doesn't say if people actually live healthy lives. They can live longer but, perhaps, they are kept alive because of good medical treatment."

Prof Phua felt that a better, although more difficult, way would be to measure disease rates rather than deaths.

Dr Lam was also sceptical about indicators such as smoking, HIV infection and alcohol consumption, and how these findings are obtained.

"Very often, these may be under-reported as such social behaviours can be a taboo in our culture," he said.

Both Dr Lam and MP Fatimah Lateef also said that the study did not take into account mental health, an aspect that most experts deem important in measuring the health of a population - and an area that Singapore could do more in.

While many experts welcomed the ranking, they also drew attention to areas that the Republic could improve on.

Dr Jeremy Lim, Chief Executive of Fortis Colorectal Hospital, named end-of-life care, control of chronic diseases and healthcare affordability as areas to be focused on, while Dr Lateef pointed to preventive and sexual healthcare.

The S factor in K-pop

Singapore girls Tasha and Ferlyn are set to roll with K-pop quartet Skarf - but the journey to fame and stardom has only just begun .

Published on Aug 16, 2012

With hopes and dreams in their hearts and possibly not a little stardust in their eyes, Singapore girls Natasha Low and Ferlyn Wong signed a seven-year contract last year to train to become pop stars in the South Korean music industry.

Little did they know their no-holds-barred training in Seoul would be their equivalent of many young Singapore men's national service stint in the army: They have grown up dramatically over the course of one year, according to their families.

Their dreams of stardom may well come true, now that their music careers were launched officially on Tuesday as half of a pop quartet called Skarf. Low and Wong are the first-ever Singaporeans to be part of a Korean pop band.

K-pop fans around the world will find out in the coming months whether the Singaporean girls and their Korean Skarf mates, Jeong Sol and Lee Joo Young, can make an impact in an increasingly crowded market.

On the same day Skarf made their debut, rookie boyband Vixx released their second single through a showcase held in Hongdae, an area popular with varsity students.

Wong, 20, and Low, 18, will go by the stage names of Ferlyn and Tasha respectively, while Jeong, 21, and Lee, 16, will be known simply as Sol and Jenny.

Skarf are the first K-pop group to be launched by Singapore-based entertainment company Alpha Entertainment Group, which has fully owned subsidiaries in places such as South Korea and Hong Kong.

They made their debut with two launch showcases held at Ilchi Art Hall, an intimate setting for at least 200 people. Situated in Gangnam, a glitzy district in Seoul featured in current hit song Gangnam Style, the venue is frequently used by K-pop groups for showcases. Girl group Sistar and ballad group 2AM have held showcases there this year.

On Tuesday afternoon, Skarf took centre stage at the venue, performing My Love, a slow number with a sweet dance routine, and their lead single, Oh! Dance, a mid-tempo dance ditty with an infectious refrain.

About 80 members of the Korean media, including English-language channel Arirang, attended the first session along with 200-plus guests including the Skarf girls' family members.

The second session was graced by Singapore's Ambassador to the Republic of Korea, Mr Peter Tan, among other VIPs.

Skarf's entry into K-pop does not come cheap. The launch alone costs about $170,000, while their Oh! Dance music video was made for about $150,000. That is not counting the cost of their intensive year-long, morning-to-night training. Nor does it take into account the personal price each Skarf girl paid at the K-pop boot camp.

Before the glitz and the glamour, the quartet had to submit to a tightly controlled regimen that starts with early-morning jogs and revolves around vocal, dance, acting and language lessons.

Any free time Wong and Low, who signed a seven-year contract, had was free only in name. In reality, they continued to hone their craft during these rest periods.

Neither did they have access to their mobile phones. Instead, the four girls shared a laptop meant for doing homework researching about music and firing off brief e-mail messages to family and friends, which they had time to do only every two or three days.

Training and rehearsals are held nearly 24/7 at the Alpha Entertainment office in Gangnam, the de facto Skarf headquarters. The 1,940 sq ft premises house three rooms for lessons and a studio with full- length mirrors that is big enough for six to seven trainees to practise in.

Late on Tuesday night, hours after what must have been an emotionally and physically exhausting launch, they were still working there.

In the midst of filming an interview with broadcasting network MBC on the same night as part of their debut schedule, Wong and Low tell Life! their lives have completely changed.

Low, the leader of Skarf, says: "I used to have a lot of freedom. I would stay at home the whole day to watch TV. Now, my life is very different. I have no time for TV and I don't even know what new shows there are."

What does she miss from her carefree days? "The lifestyle, the food, everything."

Wong misses the people in her life. Before becoming a K-pop recruit, she was a dance instructor at music company Ocean Butterflies and a business studies student at Temasek Polytechnic. She quit her studies for a shot at a pop star's career.

She reminisces: "I really miss campus life. I was also a dance instructor and I miss all my students badly."

Apart from their highly regimented lifestyle, these K-pop starlets are put through training that could break or make aspirants.

Low found herself crying buckets during dance lessons when she had to learn to do the split.

"I cried every day," she says. "I'd say during class, 'Please, please, please, no more.' Before I went to bed, I hoped tomorrow wouldn't come. I'd scream and cry in the studio. The teacher really pushed me to my limits."

And they do not get a break from their "torturer", Ms Carrie Hwang, a director at Alpha Entertainment Korea, who currently lives with them.

Apart from administrative matters, she oversees the trainees' schedule, which includes lessons by industry professionals.

Back in Skarf's living quarters - a three-bedroom apartment a five-minute walk from the office - they have to perform their own chores, such as making breakfast and washing their own clothes.

Ms Hwang, 34, has been in the business of making Korean stars for more than a decade. From 2004 to 2008, she worked at K-pop giant SM Entertainment, whose stable includes Super Junior and Girls' Generation. She also previously handpicked stars such as Victoria from the girl group f(x).

She is not only "nanny" to Skarf but also the brains behind the group's concept.

"There is no doubt that I'm strict," she says, adding that she can immediately spot a star. According to her, she started out in the performing arts when she was 17.

"Here in Korea, it's very tough in the K-pop industry. Every day, you have someone new making their debut, so you have to keep working hard."

Well, the Skarf girls have put in the hours upon gruelling hours of work. It has not killed them - or made them quit - so it must have made them stronger, if the adage holds true.

Low says: "The past year's experience made me a better person. We learnt how to give way to one another. The company controls aspects of our lives only to help us be better people."

Wong chimes in: "We have become stronger."

Ironically, the taste they have had of show business so far has not appeared to turn them into party animals who love the limelight and nightlife.

When Low and Wong returned to Singapore for breaks during the first six months of training, both cooked Korean dishes for their families, such as kimchi jigae, a kind of stew; japchae, a dish which consists of sweet potato noodles; and even their "diet" dish, which is red bean or pumpkin porridge.

Their return trips were, of course, not the only times they could relax.

Ms Hwang says: "If you are placed under such strict conditions every day, it's really hard on your spirit. I will relax every once in a while. For example, I'll give them one day to eat everything and anything that they want. But just for that one day."

She is close to the girls, whom she says sometimes call her "mama". Three weeks ago, she took them to visit a jimjilbang (Korean bathhouse) where they had to shower in the women-only open shower area together.

Amid much laughter from Wong, Low recounts the experience and both mention it was their first visit to such a place. Low says: "Changing in front of everyone was already a shock to me and then you had to shower there? We got the shock of our lives."

Fun aside, Ms Hwang is determined to make Skarf a success. "Now in K-pop, a lot of groups are sexy. We want Skarf to have a more innocent image. These days, K-pop music can sound complicated, which is not comfortable to the ears. So Skarf's music will be more soothing and our target audience is not the youth but people of all ages."

She says the members of Skarf have what it takes because of their hardworking attitude and good natured personalities.

"It's all about the character. These girls are really trying their best and I don't see them changing any time soon. In Korea, some artists change after becoming famous, but I can see these girls will continue to work hard, and this will allow them to work hand-in-hand with the company."

rachaelb@sph.com.sg
================

Impressed to tears
Published on Aug 16, 2012

The parents of new K-pop group Skarf's Singapore members Natasha Low and Ferlyn Wong are pleased they allowed their daughters to chase their dreams of stardom. They have seen how the two girls have changed for the better in the past year.

Low's mother, dance instructor Lucy Wang, 46, tells Life!: "Tasha is completely different now. She didn't throw her things around when she came back to visit in the first six months. Previously, we had to clean up after her, now she understands why I kept nagging at her."

She is also thoroughly impressed with how her daughter has become so focused on breaking into the K-pop industry that she was even chosen to be the leader of Skarf. "She's never been a leader before, she was never serious about anything. From singing lessons, she'd change to keyboard lessons and then learning hip-hop dancing."

Apparently, Low, the younger of two children, told her mother that as a group leader, she had to set a good example at all times for the other members. "So even if she feels tired, she has to smile and act like she is fine," adds Ms Wang, whose ex-husband and former father-in-law are also dancers. Low's paternal grandfather is the famous Sunny Low.

Initially, she did not want her daughter to be in the Korean entertainment industry because of the unsavoury and sleazy stories about Korean show business she had heard. She also asked for a clause about having no plastic surgery to be put in Low's contract after discussing with the family. Wong's contract has the same clause.

Housewife Rosy Ng, 49, is similarly amazed at how mature her daughter, Wong, has become.

"At home, she used to be a princess," says Madam Ng, whose husband is in the airforce.

"That was before her training in Seoul. When she came back twice in the first six months of their training, she cooked for us, all Korean dishes. Usually, I'm quite picky about food but her dishes were great. She cooked rice cakes, beef with Korean sauce, potato noodles and her diet dish - red bean porridge with pumpkin and glutinous rice."

Such a sumptuous spread from a girl who did not even cook instant noodles before going to Seoul.

Tears streamed down Ms Wang's face during Skarf's first launch showcase on Tuesday. Just talking about the debut showcase after the performance caused her eyes to turn red and her voice to quaver with emotion. "When they first appeared, tears kept rolling down my face because I felt like all her hard work has paid off. I'm so amazed that she can not only speak Korean, but also rap in it."

Skarf will be featured in an upcoming Channel 8 drama called It Takes Two, as stars who have actor Rayson Tan as their bodyguard.

Singaporean Mireen Ng, 20, who is in Korea to study the language and is a friend of Low and Wong, was among the audience at the launch.

She says: "It was a great performance, I could feel their slight nervousness. I really like their concept, which marries nature and modernity. A lot of my Korean friends really like Singapore, so I hope Skarf will boost Singapore's economy, in a way."

Wong's only sibling, older brother Honsonn, 23, who also attended the launch, was overwhelmed by his sibling's success. The undergrad says: "I don't remember everything they did up there - I'm so full of emotion. I was dazzled by their performance and I'm very proud of her.

"When you look at her, you're seeing this person who's living the dream. It's like, 'Oh man, I grew up with this person for 20 years and she has grown up so fast'."

What makes Skarf a unique K-pop act is the Singaporean connection, he adds. "Two Singaporeans are in a K-pop group - it feels to me like they are the pride of our nation. Finally, Singaporeans feel closer to a K-pop group. It's the Singaporean spirit."

Rachael Boon

S'pore world's richest country by GDP per capita

The report projects that the Republic will continue to dominate the list and retain its top spot even in 2050 with a GDP per capita of US$137,710.

Wed, Aug 15, 2012
AsiaOne

SINGAPORE - A study of the world's economies has shown that Singapore had the highest gross domestic product (GDP) per capita in the world in 2010, and will likely remain at the top spot as far as 2050.

In The Wealth Report 2012, a global study on property and wealth compiled by Knight Frank and Citi Private Bank, Singapore was listed as the world's most affluent with a GDP per capita of US$56,532 (S$70,450) in 2010.
 
Norway and the US came in at second and third with GDP per capita rates of US$51,226 and US$45,511 respectively. The only other Asian country to rank on the top 10 was Hong Kong at a GDP per capita of US$45,301.

The report further projects a flow of wealth toward Asia as more and more global economic activity becomes centred here.

According to projections, Singapore, Hong Kong, Taiwan and South Korea are likely to become the world's richest countries in 2050.

The report also estimates that Singapore will top the list in 2050 with a GDP per capita of US$137,710.

Saudi Arabia is expected to become one of the top 10 countries with a GDP per capita of US$98,311 in 2050.

According to the report, Singapore is currently the fifth most important global city to high-net-worth-individuals (HNWIs), and will maintain this importance in 10 years time.

Currently ranked third most important, Hong Kong is expected to fall behind Singapore to sixth place by 2022.

ljessica@sph.com.sg

Baby boomers embrace vegetarianism

Baby boomers embrace vegetarianism, but such diets have risks as well as benefits

By Marta Zaraska, Published: August 14 2012
The Washington Post

For many baby boomers, former president Bill Clinton among them, vegetarian diets — including vegan ones, which eschew all animal products — have become a way of life. Much of the reason for that, doctors say, is that this demographic group is heading into prime time for health issues and sees vegetarianism as a way to protect their bodies. Yet for boomers these diets can carry some risks that don’t concern those in their 30s or 40s. As we age, our nutritional needs change and are harder to meet.

About 2.5 million Americans over the age of 55 are vegetarian according to a 2012 Harris poll conducted for the Vegetarian Resource Group, and doctors and researchers say interest in such diets is growing. The prominence of some aging vegetarians stokes this trend: In addition to Clinton (age 65), there is Paul McCartney (70), retired tennis player Martina Navratilova (55) and actor Ian McKellen (73). Less famous but nevertheless impressive vegetarians include Fauja Singh, an India-born Briton who at 101 years old runs marathons.

It’s clear from research that forgoing meat can improve health. “Vegetarianism can be used as a way to combat many conditions that plague boomers: heart disease, Type 2 diabetes, obesity. We now know, for example, that such a diet can lower your blood pressure,” says Boston University registered dietitian Joan Salge Blake, citing numerous recent studies.

In an article published in 2005, Susan Berkow, a certified nutrition specialist, and physician Neal Barnard analyzed 11 observational studies and found that vegetarians tend to have lower blood pressure than meat-eaters. The reasons behind this are not well understood. According to the authors (both of whom are affiliated with the Physicians Committee for Responsible Medicine, which promotes a vegetarian diet), probably one of the most important is the generally lower body weight of vegetarians due to the abundance of fiber in their diets, which causes them to feel full faster and helps with insulin control.

Since the risk of death from a stroke in middle age rises significantly as blood pressure rises, it is no surprise that vegetarians tend to face fewer cardiovascular issues than the rest of us. In an article published in April in the Archives of Internal Medicine, Harvard researchers found that the more red meat you usually consume, the more likely you are to succumb to heart disease. Adding three ounces of meat to your daily diet (above what you normally eat) elevates the risk of death from cardiovascular disease by 16 percent. For processed meat (think sausages and bacon), the numbers are even more striking: Increasing consumption by one serving a day — that would be just one more hot dog — elevates the long-term risk of death from cardiovascular disease by 21 percent.

Beyond damaging your heart, researchers tend to agree, eating red meat increases the risk of colorectal and other cancers. Similarly, a 2004 investigation by researchers from the Harvard Medical School found that middle-aged and older women who ate red meat more than five times a week had a 29 percent higher risk of developing Type 2 diabetes than those who indulged in it less than once per week. The Centers for Disease Control and Prevention calculated that in 2010 almost 27 percent of Americans over the age of 65 had diabetes.

Goodbye, Corina the great survivor

Unable to move her body due to a rare disease since birth, she still managed to inspire others

Published on Aug 12, 2012
By Wong Kim Hoh, Senior Writer

I had just reached Hong Kong after a 15-hour flight from New York when I received an SMS telling me Corina Zheng had died that Friday afternoon.

I walked over to a quiet corner of the departure lounge, struggling with jetlag and the shock. From where I sat, I could see the aircraft which would take me home to Singapore. One thought came, lodged itself into my head and refused to leave: Corina - a newsmaker who had become a special friend - had never ever been on a plane, not once in the 50 years she lived.

In fact, except for ambulances, I doubt she had been in many moving vehicles in her life.

You see, Corina could not move. Her limbs were deformed and lifeless; she could not even turn her head. One of seven children, she had Werdnig Hoffman, a rare disease in which the spinal nerve cells and brain cells degenerate, leading to atrophy of skeletal muscles and paralysis.

Five of her siblings, including a twin, succumbed to the same condition. Three died before they turned two, one at six, and another at 22. Corina lived the longest, and died after a week-long struggle with a debilitating chest infection.

Her brother Poh Huat, 53, is a driver. Adopted sister Teow Hoon, 58, is deaf-mute and works as a hotel chambermaid.

I got to know Corina eight years ago. I was actually trying to track down her father, a kindly ice cream seller, for a story. But when I finally got his contact number, I learnt that he was suffering from excessive fluid in his brain and fighting for his life in hospital.

When I called again a few weeks later, he was dead. I decided to pay Corina and her mother, Madam She Hieng Kim, a visit instead. It was a humbling experience.

Corina might have been imprisoned in a lifeless body but her spirit was anything but. She was bubbly, mischievous even. She loved collecting wedding pictures because "everyone always looks beautiful in wedding pictures".

Although she never went to school, she spoke English, Hokkien, Cantonese, Mandarin and a smattering of Malay. She loved to talk, had a rollicking sense of humour, was self-deprecating and never felt sorry for herself.

I once asked her how she spent her days. She replied: "Oh I read, do some financial planning, figure out how much we need for the next month's expenses and ways to scrimp and save."

Corina never let her disability get in the way of life.

Last year, when her sister Teow Hoon had breast cancer, Corina took charge. She informed her sister's employers, helped her apply for medical aid, and even arranged for a social worker to take her for chemotherapy. When her father was alive, she handled his accounts. She even taught her illiterate mother - who selflessly and lovingly tended to her every need - how to type 10 years ago.

Corina told me: "I told her to look at each key on the keyboard and tell me what it reminded her of. She said the letter S reminded her of a snake, C a half moon and ? an inverted fish hook."

Together they worked out a system and her mother would help type the notes Corina loved sending to her friends.

I would get one every couple of months; they were usually filled with her whimsical thoughts. Once, she asked me what a turkey drumstick tasted like and told me her Christmas wish was to gobble one all by herself.

On my birthday, I'd get a special letter, one which came with a red packet and a 4D ticket inside.

Over the years, I became good friends with Corina and her mother. Madam She told me that when Corina was born, her father told her to put the baby in a box and throw it away.

"She was tiny, barely 1.8kg. Her elder twin brother was 3.5kg. She had no hair. Her skin was almost transparent, you could see the organs in her body," she said.

Madam She had to use cotton wool to dribble milk into her baby's mouth for one month before the infant could breastfeed.

I once asked Madam She if she thought Corina was a burden, and if she ever resented her.

"No, what is there to resent? I brought her into this world, I had to love and care for her. She is a special child."

Indeed she was special. She certainly brought out the best in the friends I took to visit her. One got her a StarHub subscription when he learnt that she loved Cantonese serials. He also fulfilled her Christmas wish by sending her a turkey drumstick.

A fashionista friend would occasionally pass along money she had set aside for dresses, saying Corina deserved it more.

I ended up writing about mother and daughter, first about Corina and then the incredible woman who watched her children die one by one, and cared so hard for the one who survived. On both occasions, I received an avalanche of e-mail from readers, all expressing admiration and concern for the pair, many offering help.

It's not hard to fathom why. Corina's will to live, and her love for life were both touching and inspiring. She reminded people not to sweat the small stuff and to count their blessings.

For the last two years, one reader has been sending the family a cheque for $1,000 every month. When he learnt of Corina's death last week, he pledged $5,000 to help with the funeral expenses.

Corina was cremated the day after she died: No fanfare, no wake, no rituals - just a simple ceremony conducted by a church worker.

There were just seven of us - her brother and his wife, and five of her friends - who sent her off. Her adopted sister had stayed home to look after their mother, 79, who is still trying to come to terms with Corina's death.

As the simple white coffin was wheeled off slowly at Mandai Crematorium, my heart ached for my special friend. I wished I had been around when she fell ill; I wished there were more people to send her off and celebrate her life.

And yet, I know Corina would not have complained. She probably would have smiled and said: "It's okay; I am off to a better life."

The first time I met her, she told me she was not afraid of death.

"It's like paying a very long bill. It's not easy to pay, but once it's cleared, all your debts are gone."

You are debt-free now, Corina. Rest in peace.

kimhoh@sph.com.sg

Role model

Corina's will to live, and her love for life were both touching and inspiring. She reminded people not to sweat the small stuff and to count their blessings.

A Mutual Fund Master, Too Worried to Rest

By JEFF SOMMER
Published: August 11, 2012

VANGUARD, the penny-pinching mutual fund company founded by John C. Bogle, has become a colossus. Its index funds — once derided for not even trying to beat the market — are now the industry standard.

Mr. Bogle, 83, has written 11 books and had at least six heart attacks and one heart transplant. Of today’s market conditions, he says, “It’s urgent that people wake up.”

Mr. Bogle, who now runs a research center on Vanguard’s campus, likes having “an independent voice.”

And after at least six heart attacks and one heart transplant, Mr. Bogle has managed to witness this triumph. “It’s all a kind of a miracle,” he says in a booming baritone. “It’s really nice that I’m able to see this happen in my own lifetime.”

With this kind of medical history, any other man of 83 might simply enjoy his success. But not John Bogle. He is still on a mission, as outspoken as ever and nearly as vigorous — thanks, he says, to the heart of a younger man. He’s not done yet.

“It’s urgent that people wake up,” he says. Why? This is the worst time for investors that he has ever seen — and after more than 60 years in the business, that’s saying a lot.

Start with the economy, the ultimate source of long-term stock market returns. “The economy has clouds hovering over it,” Mr. Bogle says. “And the financial system has been damaged. The risk of a black-swan event — of something unlikely but apocalyptic — is small, but it’s real.”

Even so, he says, long-term investors must hold stocks, because risky as the market may be, it is still likely to produce better returns than the alternatives.

“Wise investors won’t try to outsmart the market,” he says. “They’ll buy index funds for the long term, and they’ll diversify.

“But diversify into what? They need alternatives, bonds, for the most part. What’s so frightening right now is that the alternatives to equities are so poor.”

In the financial crises of the last several years, he says, investors have flocked to seemingly safe government bonds, driving up prices and driving down yields. The Federal Reserve and other central banks have been pushing down interest rates, too.

But low yields today predict low returns later, he says, and “the outlook for bonds over the next decade is really terrible.”

Dark as this outlook may be, he says, people need to “stay the course” if they are to have hope of buying homes or putting children through college or retiring in comfort.

He is still preaching the gospel of long-term, low-cost investing. “My ideas are very simple,” he says: “In investing, you get what you don’t pay for. Costs matter. So intelligent investors will use low-cost index funds to build a diversified portfolio of stocks and bonds, and they will stay the course. And they won’t be foolish enough to think that they can consistently outsmart the market.”

Still, because the market and the economy are deeply troubled, it’s time for action on many fronts, he says: “We’ve really got no choice. We’ve got to fix this system. All of us, as individuals, need to do it.”

That’s the message of his latest and 11th book, “The Clash of the Cultures: Investment vs. Speculation” (Wiley & Sons, $29.95). It offers a scathing critique of the financial services industry and updated guidance for investors. “A culture of short-term speculation has run rampant,” he writes, “superseding the culture of long-term investment that was dominant earlier in the post-World War II era.”

Too much money is aimed at short-term speculation — the seeking of quick profit with little concern for the future. The financial system has been wounded by a flood of so-called innovations that merely promote hyper-rapid trading, market timing and shortsighted corporate maneuvering. Individual investors are being shortchanged, he writes.

Corporate money is flooding into political campaigns. The American retirement system faces a train wreck. America’s fundamental values are threatened. Mr. Bogle remains a dyed-in-the-wool capitalist but says the system has “gotten out of balance,” threatening our entire society. “You can always count on Americans to do the right thing — after they’ve tried everything else,” he says, quoting Winston Churchill. Now, he says, it’s time to try something else.

He advocates taxes to discourage short-term speculation. He wants limits on leverage, transparency for financial derivatives, stricter punishments for financial crimes and, perhaps most urgently, a unified fiduciary standard for all money managers: “A fiduciary standard means, basically, put the interests of the client first. No excuses. Period.”

Those clients — the ordinary people to whom he has always appealed — need to protect themselves from peril, he says: “In an ideal world, Adam Smith-like, individuals would recognize what they need to do in their own self-interest, and they will make changes happen and look after themselves.”

MR. BOGLE sometimes disagrees with current Vanguard management, but he remains proud of the company he created. Index funds are ever more popular, and Vanguard is gushing money, torrents of it. Thanks largely to its various index funds, Vanguard, which is based near Valley Forge, Pa., pulled in a net $87.7 billion in cash this year through June, excluding money market funds. That’s nearly 40 percent of the cash flow of the entire mutual fund industry.

Burton Malkiel, the Princeton economist and author of “A Random Walk Down Wall Street,” says: “Index funds are so popular now that it’s easy to forget how courageous and tenacious Jack Bogle was in starting them. They were called Bogle’s Folly because all they did was replicate the returns of the market. But, of course, that’s a great deal. In the academic world many people saw the wisdom of this — but Jack is the guy who actually made it happen.”

Mr. Bogle also tried to ensure that Vanguard funds would always be cheap to buy and hold. While Vanguard is his baby, he has never had an ownership stake in it aside from the shares he holds in its mutual funds. Vanguard fund shareholders own the place collectively because he planned it that way.

“Strategy follows structure,” he says, explaining that with no parent company or private owners to siphon profits, Vanguard can keep costs lower than anyone else. That was always his goal. “The only way anyone can really compete with us on costs is to adopt a mutual ownership structure,” he says. “I’ve been waiting all these years for someone to do it, but no one has.”

One reason is surely that there’s no profit in it. Despite Vanguard’s size and success, Mr. Bogle is no billionaire. For comparison, Forbes lists the personal wealth of Edward C. Johnson 3rd, the chairman of Fidelity, as $5.8 billion. By contrast, Mr. Bogle says his own wealth is in the “low double-digit millions.” Most of it is in Vanguard and Wellington mutual funds in which he invested via payroll deduction during his long career.

During his peak earning years at Vanguard, he regularly gave half his salary to charities, including two alma maters — the Blair Academy, a prep school in Blairstown, N.J., and Princeton University. He was a scholarship student at both, holding down part-time jobs to help pay his way. At Princeton, in a senior thesis, he sketched the rough outlines of the cost-cutting, shareholder-serving company that would become Vanguard.

Mr. Bogle continues to make donations to several causes. “My only regret about money is that I don’t have more to give away,” he says.

WHILE he has no operational role at Vanguard, he hasn’t entirely left it. He works on its campus, heading the Bogle Financial Markets Research Center, a small research institute that provides him with a bully pulpit, which he tries to use in the energetic mode of his hero, Theodore Roosevelt. “There aren’t many of us Roosevelt Republicans left,” he said.

Mr. Bogle may be a Republican, but he voted for Bill Clinton and Barack Obama, and plans to vote for Mr. Obama again. He says government regulation of the financial industry is insufficient, and he endorses the Volcker Rule, named for his friend, Paul A. Volcker, the former Fed chairman, who says regulated banks shouldn’t be making risky bets with their own money.

Mr. Volcker, in turn, embraces Mr. Bogle’s critique of the financial services industry. At a public forum held in Manhattan last winter to celebrate Mr. Bogle’s legacy, Mr. Volcker said that the only unequivocally good financial innovation out of Wall Street in the last 25 years was the bank A.T.M. (If he went back 40 years, Mr. Volcker said, he would include Mr. Bogle’s invention of the index fund.) And Mr. Volcker said that a unified fiduciary standard “is an excellent solution.”

The research institute is financed by Vanguard but is independent, allowing Mr. Bogle to write books and make fiery speeches that sometimes differ from Vanguard policies.

At the moment, for example, he supports a crucial part of a Securities and Exchange Commission proposal to tighten rules on money market funds. “Investors shouldn’t be misled into believing these funds are as safe as a bank account,” he says. “They’re not.”

In 2008, one fund, Reserve Primary, “broke the buck,” falling below the $1-a-share asset value that money market funds have traditionally maintained. That set off a panic and the government intervened. To prevent future crises, Mary L. Schapiro, the S.E.C. chairwoman, would require funds to let their net asset values float — so that $1 invested in a fund might be worth 99 cents.

Vanguard sides with other big firms like Charles Schwab and Fidelity in trying to block the proposal, which is set for a vote on Aug. 29. Allowing shares to float would “require significant, and expensive, changes” and would put off investors, many of whom would shift assets from firms like Vanguard into banks, Vanguard said in a filing.

Mr. Bogle sides with Ms. Schapiro and differs with Vanguard on that point. “A lot of things that are disruptive have to be done anyway, and this is one of them,” he says. “Mary Schapiro has a lot of courage in trying to do it.”

MR. BOGLE moved to the institute after leaving the company’s board in 1999 amid a conflict with John J. Brennan, his handpicked successor and second in command. Mr. Brennan, who has said little about the issue in public and declined to comment for this article, has since been succeeded by F. William McNabb III.

Mr. Bogle’s health was precarious in the 1990s. By 1996, when he relinquished his role as C.E.O. to Mr. Brennan, he had already had at least six heart attacks and was mortally ill, according to two people then at Vanguard. “At that point Jack Bogle couldn’t walk slowly across a room without getting out of breath,” one of those officials said. “Jack’s heart was failing. Either he’d get a transplant or basically have to say goodbye to the world.”

The transplant in early 1996 was spectacularly successful. “Physically, Jack was born again,” the official said. “That was wonderful. But it made things very complicated at Vanguard.”

Mr. Bogle had hired Mr. Brennan in 1982, and they worked together amicably for more than a decade. “The two Jacks are very different types,” said one Vanguard veteran, speaking on condition of anonymity because the issue is still sensitive within the company. “Jack Brennan is Mr. Inside, an operations man who doesn’t particularly like talking to journalists, and Jack Bogle is Mr. Outside, the ultimate marketer.” For a long while, it seemed to be a good match.

But things changed after Mr. Bogle returned with a new heart and renewed vigor. Now with the title of “senior chairman,” Mr. Bogle found that he disagreed with some of Mr. Brennan’s decisions, and said so openly. He criticized Mr. Brennan’s interest in starting narrowly focused sector equity funds. Mr. Bogle also worried that Vanguard was beginning to emphasize the sale of funds through investment advisers, these people said. Direct sales to investors had been a principal low-cost innovation in the company’s early days.

In 1999, as tensions rose, Mr. Bogle was asked to leave the board at the mandatory age of 70. “I thought there would be an exception for the company’s founder,” he says. The dispute became public, and the board offered to let Mr. Bogle extend his term. But he moved to the new research institute, which has been his base ever since.

Several Vanguard insiders say that after this, Mr. Brennan habitually walked past his former boss, rather than say hello. Journalists witnessed such scenes. Today, Mr. Bogle says he is puzzled by Mr. Brennan’s behavior.

Soon, contrary to Mr. Bogle’s advice, Vanguard began selling exchange-traded funds, or E.T.F.’s — index funds that may be bought or sold throughout the trading day. For years, Mr. Bogle had opposed this move, saying E.T.F.’s enable frequent trading, which generally hurts individual investors. He compared the innovation to “giving an arsonist a match.”

Now Mr. Bogle says that some E.T.F.’s, like those that mimic core Vanguard index funds, are fine if used carefully by buy-and-hold investors or by institutional investors for specific purposes. But he warns that they are dangerous for investors because many E.T.F.’s track relatively obscure sections of the market and all of them encourage the propensity to trade rapidly — “to speculate, rather than invest.”

In a telephone interview, Mr. McNabb, Vanguard’s current chief executive and chairman, wouldn’t comment on the Brennan-Bogle relationship. He praised both men, saying, for example, that Mr. Brennan’s introduction of E.T.F.’s expanded Vanguard’s influence and, therefore, Mr. Bogle’s legacy.
“We revere Jack Bogle here,” Mr. McNabb said. “Everybody can quote his sayings. He laid out a vision for the company and set up an ownership structure unlike anything the industry had ever seen.”
Mr. McNabb added: “We live and breathe the fact that we’re client-owned, that we’re built for the long-term, and that we serve only one constituency, our clients, who are also our owners. That’s all Jack Bogle.”

For his part, Mr. Bogle says the company embodies his ideas. Current executives are making “hard decisions and doing a good job and doing it very sincerely.” But, he adds, “I think it’s good that I have an independent voice.”

ON the Vanguard campus, on a lawn near the cafeteria, stands a 7-foot-high bronze statue of Mr. Bogle.

He is sheepish about it. “I’m not sure we should’ve done it, but there it is,” he says. “It’s a good likeness, isn’t it?”

Indeed, it is. Thomas J. Warren, the sculptor who created it in 1996, said the Vanguard board commissioned the statue when Mr. Bogle was ill, and that he became stronger as work proceeded.
“Mr. Bogle was very humble about it,” Mr. Warren says. “I went out to his house to ‘live cast’ his face one day, and I was late. He was dressed for a board meeting, but he was very gracious and got down on the kitchen floor, and we made the mold.” Mr. Bogle asked him not to prettify his image. “Mr. Bogle has arthritis, but he told me to go ahead and show him the way he really is, so the fingers on the statue are gnarled.”

One day earlier this year in the company cafeteria — the “galley,” as it’s called at the nautically themed Vanguard — Mr. Bogle ordered a grilled cheese sandwich and chatted with an endless stream of young well-wishers. On the walls were murals embellished with quotations from his speeches:
“Like a rock.”
“Even one person can make a difference.”
“Press on regardless.”
“We lead.”

“Success must not be bought but earned.” And, of course, there is another, which may be his favorite. “Stay the course,” Mr. Bogle says.