Thursday, December 31, 2009

Impact of December holidays

My blog had an average of  2,000 visitors a day in earlier months. It dropped to 1,500 in December. It has now recovered to 2,000. This is the impact of the school holidays in December. 25% of  Singaporeans travel outside of Singapore.

Blind trust - there must be a reason?

Many practices are outmoded after some time, for example, immigration requirements, security checks, audit checks, registration in hotels. Some of these practices were introduced several decades ago and were needed then. But, the world has since changed.

Nobody wants to take the responsibility to review and update these outmoded practices. The burden of these practices usually fall on the shoulders of  the customers or ordinary people who have no choice but to comply with the rules.

Some people will defend these practices as follows: "There must be a reason to continue these practices. It must be serving a purpose". Has it occurred to these people that the most likely reason is that nobody cares. If the long suffering people do not speak up, who really bothers?

Some people said that there is no point in speaking up in Singapore as our views are likely to be ignored. While this is true, and is a sad state of affairs, I encourage people to continue to speak up. One day, the voices will be heard.

Most importantly, we have to avoid giving excuses on behalf of the people who are supposed to review the outmoded practices. If the reasons are still valid, let them come out and explain the reasons on their own. This will encourage accountability.

Tan Kin Lian

Pushing the buck around

An investor, who was misled into investing a large sum of money in land banking plots made a complaint to his  Member of Parliament. He provided documentation to support his complaint. The MP wrote to Monetary Authority of Singapore who referred the investor to the Commercial Affairs Department. He met with an officer of CAD who told him that they have received several similar complaints and were investigating the matter. Nothing was heard from CAD for the past two months.

The investor asked me what to do. He said that one party is pushing the buck to another party and nobody is interested to take charge of this matter. I wondered why the CAD did not wish to contact the complainant and get more facts. The complainants are kept in the dark. This seemed to be a habit in Singapore.

I asked the complainant to take the matter up with his elected MP again. I hope that the MP will follow up on this matter, rather than let sad state of affairs continue.

Tan Kin Lian


From: Wikipedia
Nuisance is a common law tort. It means that which causes offence, annoyance, trouble or injury. A nuisance can be either public (also "common") or private. A public nuisance was defined by English scholar Sir J. F. Stephen as,

"an act not warranted by law, or an omission to discharge a legal duty, which act or omission obstructs or causes inconvenience or damage to the public in the exercise of rights common to all His Majesty's subjects".

"Private nuisance" is the interference with the right of specific people. Nuisance is one of the oldest causes of action known to the common law, with cases framed in nuisance going back almost to the beginning of recorded case law. Nuisance signifies that the "right of quiet enjoyment" is being disrupted to such a degree that a tort is being committed.

Morgan Stanley sued over failed $1.2 billion CDO

Reuters - Wednesday, December 30. By Jonathan Stempel

NEW YORK - Morgan Stanley has been sued by a Virgin Islands pension fund that accused the Wall Street bank of defrauding investors by marketing $1.2 billion of risky mortgage-related notes that it expected to fail.

The lawsuit filed December 24 in Manhattan federal court said Morgan Stanley collaborated with credit rating agencies Moody's Investors Service and Standard & Poor's to obtain "triple-A" ratings for notes marketed in 2007 as part of a collateralized debt obligation known as Libertas.

According to the complaint, the CDO was backed by low-quality assets, including securities issued by subprime lenders New Century Financial Corp, which quickly went bankrupt, and Option One Mortgage Corp, then owned by H&R Block Inc .

The complaint alleged Morgan Stanley knew the CDO's assets were far riskier than the ratings suggested, but was "highly motivated to defraud investors" with pristine ratings because it was simultaneously "shorting" almost all the assets. This was a bet that their value would fall, which they did in 2008. "Morgan Stanley was betting the entire investment it was promoting would fail," according to the complaint, which was made available on Tuesday. "The firm achieved its objective." Alyson Barnes, a Morgan Stanley spokeswoman, declined to comment. S&P spokesman Frank Briamonte had no immediate comment. Moody's did not immediately return a call seeking comment. Moody's, a unit of Moody's Corp , and S&P, a unit of McGraw-Hill Cos , were not named as defendants.

Many banks face lawsuits from investors who say they were misled into investing in securities they believed were safe but which were in fact tied to risky subprime mortgages.

Morgan Stanley is also a defendant in a closely watched case in the same Manhattan court that concerns whether rating agencies deserve free speech protection for their opinions.

The December 24 complaint said Morgan Stanley knew securities in the Libertas CDO were suffering a dramatic rise in delinquencies, but provided a misleading "risk factor" in a prospectus that rising delinquencies "may" hurt values in the $1 trillion residential mortgage-backed securities market. It called this representation "analogous to Captain Smith's telling passengers of the Titanic that some ships have 'recently sunk' in the Atlantic and therefore 'our ship may sink,' without mentioning the facts that his ship struck an iceberg, had a hole in it, and was filling with water."

The lawsuit seeks class-action status, and also seeks compensatory and punitive damages, among other remedies. It was filed by Coughlin Stoia Geller Rudman & Robbins LLP, a law firm specializing in securities class-action lawsuits. Morgan Stanley shares were up 22 cents at $29.51 in afternoon trading on the New York Stock Exchange.

The case is Employees' Retirement System of the Government of the Virgin Islands v. Morgan Stanley & Co et al, U.S. District Court, Southern District of New York, No. 09-10532.

Top priorities for the next decade

My office is at an industrial park. During lunch, I observed the customers at the canteen. They mostly work in the factories and earn a modest income to feed a family. They have children and financial commitments. They work hard and have useful skills.

They probably do not have much time to plan or worry about the future. Their biggest risk is the loss of the job. If their employer's business does not succeed, they will be retrenched and have to look for another job. For many people, it would be difficult to find another job that would replace their modest earnings. There is probably nothing that they can do, but to hope for the best.

The next risk is setting aside sufficient savings for their retirement needs. It is already difficult for them to have adequate savings set aside from their modest earnings, given the high cost of living. But, many of them do save for the future. The danger is that the may be cheated from getting a decent return. The financial institutions have developed many "innovative" products that have high charges, usually non-transparent, and give a poor return for the customers.

Some of these products are risky or are downright scams. But the ordinary workers are not in a position to recognize these unfair products. We should not expect these ordinary workers to be financial experts. It is the job of the regulators and the political leaders who have the responsibility to look after the welfare of the people who elected them.

The top priorities for the next decade is to give the security of a job that pay a modest but fair income to ordinary workers and the means for them to set aside savings that can give them a fair return for the future.

Tan Kin Lian

Investment return, adjusted for inflation

It is important to take account of inflation in looking at investment return. This is explained in this article. You should aim to get a real return of 2%, after deducting inflation, tax and expenses. Many investors get a negative return due to investing in the wrong asset class, e.g. safe investments with guaranteed return, and high expenses.

Wednesday, December 30, 2009

Financial institutions bet against their clients

This article suggests that financial institutions made profits where their clients suffered large losses.

H1N1 - is it a scam?

Read this opinion.

Y2K scam

I decided to do some research to see if other people pointed out the Y2K scam. I found this website. Enjoy reading.

Don't worry. The next decade will bring new scams. Life will continue to be exciting and creative. You can also count on some talented people being able to create scams, which is easier than creating real wealth and happiness,

Approaching a new decade

In two days time, we will enter a new decade. Many people have forgotten what was the big issue at the end of the last decade. It was the so called Y2K bug that never occurred. During the last two years of that decade, management consultants went round to spread the panic that if the Y2K bug was not fixed, computer systems around the world would collapse. This would happen not only to commercial systems but to military systems as well.

Several hundred millions, perhaps more, were paid in consultancy fees to fix the perceived Y2K problem. It frightened top management of big organisations, financial regulators and political leaders. It was a boom time for management and I.T. consultants who had the expertise to fix this imaginary problem. It reminded me of the fairy tale by Hans Christian Anderson told to children, about the emperor's imaginary new clothes.

I was one of very few who dared to argued that nothing would possibly happen and that the Y2K panic was exaggerated. I reasoned with I.T. experts and top accountants, but they argued back more strongly about the potential disasters that could happen. I concluded that they were extremely stupid or dishonest. As they were talented people, I concluded that it must be dishonesty, as they had pocketed large profits from providing the consultancy to fix the problem.

There were hundreds of millions of computers, big or small, around the world that needed to be fixed. Not all of them could be fixed in time and to the specification required by the consultants. It would be reasonable to expect several millions of them, which were not properly fixed, to fail with disastrous consequences. None of the failures occurred. All the computers continued to work fine on the turn of the century.

Companies that spent tens of millions to fix the Y2K problem gave a collective sigh of relief and congratulated their people for averting the disaster. Those who realised that they were conned by the scam of the century were too embarrassed to bring up the issue. This matter was best forgotten, which was what happened quickly.

The following decade brought about its own scams, in the form of the technology bubble, corporate scandals, housing bubble, financial innovation, derivatives, CDOs, CDS and the like. They made super wealth to the "talented" people but the rest of the world that much poorer.

What scams will the next decade bring?

Tan Kin Lian

Affordable HDB flats

The Minister for National Development said that HDB flats can be sold at a lower, more affordable price if the buyer accept that they have to be sold back to the Government at cost. He asked if Singaporeans would prefer to have this system.

I suggest the following approach:
a) Offer both choices to the citizens. Some prefer to pay more and have market values for their HDB flats. Others prefer to pay less and forego the capital gain. It depends on the personal circumstances. The PM once said that we cannot have "one size fits all".
b) The resale price to the HDB should be adjusted for inflation and for the shorter lease.
c) There should be a sufficient margin (say 30% to 40%) between the sale price of the "affordable" flat and the "marketable" flat.

We should also consider the Swiss system, where most people rent their flats. They can invest in property REITS, but they do not need to own their property. The properties can be owned by the REIT. This will give them the flexibilty to move closer to their place of work, following a change of job. They are not tied to their own purchased property.

Tan Kin Lian

Over production

The world is producing more goods than is really needed. The over production has lead to the wasteful use of energy and resources and damage to the environment. Through competition, more people are working harder to produce goods that are not really  needed. We have too much clothes, electronic equipments and gadgets and too little time (due to long working hours) to enjoy them.

We work longer hours to keep our job, but in the process cause other people to lose their jobs, because they work in "less efficient" businesses or countries.

Is this called "prosperity and affluence" ?

Tan Kin Lian

Expressing my views

I write in this blog to give my views and observations. Readers are free to give their views, which may differ from my views. In doing so, there is no need for them to criticize or attack my views, especially if they are doing so anonymously or under a fake name. I recognize one troublesome person, by his style of writing, who has a habit of being cynical and negative. I hope that he can create his own blog to write his views, rather than be a nuisance in my blog.

Loan shark menace

A reader wrote to the Straits Times that there is a need to find a solution for people in need of cash, so that they do not have to rely on loan sharks. For these people, the loan sharks are the only source of cash, even though the interest rates are exorbitant, and the loan sharks have to resort to criminal activities to enforce the repayments.

Some people resort to loan sharks due to gambling debts (which can be avoided). Others are forced to borrow money due to unemployment or big medical bills.

I encourage people to have personal savings, so that they have money to draw down during these emergencies. There is a case for the community to provide funds for people who are in need of temporary cash due to factors beyond their control. They are required to pay back the borrowings, but the rate of interest should be kept modest.

Many developed countries have unemployment benefits, which are given to people who lose their jobs. The benefit is paid for a certain period, such as 12 months. Beyond that, they can receive a lower amount of welfare benefits to survive.

My proposal for a community-based borrowing is less generous that the safety net available in the advanced countries. But, it is better than a "loan shark" scheme that is practiced here.

Tan Kin Lian

Need for a minimum wage

Here is a case to illustrate the need for a minimum wage to offset the harmful effects of free market competition.

Bus operators in Malaysia compete fiercely for business. They have to offer lower fares. To survive, they pay low wages to their bus drivers, who have to work long hours to make up for the inadequate pay. Due to insufficient sleep and rest, they are more prone to accidents, which is risky to the passengers.

There is a need for regulation on the minimum wage and maximum hours of work for bus drivers to ensure safety to the public. This principle can be extended to construction and production work. We should have a minimum wage and maximum working hours in most occupations.

Tan Kin Lian

Tuesday, December 29, 2009

Hassle given to travellers

When I visit another country, I am usually asked to complete three detailed forms for immigration, custom and health. They ask a lot of detailed questions. It is quite troublesome to complete these forms.
I suspect that the authorities do not use the information in the forms, but they still ask the visitors to complete them anyway. It cost them nothing. They do not care about the hassle given to the visitor.

The immigration form was necessary in the days before computerisation. It was the only way for them to record who has visited their country. But, after computerisation was introduced, the information of the visitor was already automatically recorded into the computer. But the immigration authority continued to ask the visitor to fill up the form.

Have you wondered why they ask you to enter information on where you are staying? The only purpose is to contact you in an emergency. If this was the purpose, it would be easier to ask the visitor to give the mobile phone number. Anyway, the forms were introduced in the days before mobile phone was available, and has not been changed.

I wonder why all the governments around the world, including Singapore, employ highly paid civil servants, but they do not think, or do not care.

My Indonesian friend passed this remark. A civil servant had said that it is their job to make life more difficult (and not simpler)  for the other people.

Alternative to Travel Insurance

I took two long trips in 2009, to Alaska and to Sichuan. Each trip was for more than a week. I decided not to take travel insurance, and to bear my own risk. My wife wanted to take travel insurance (as she is more risk averse) but finally decided against it.

I already have a large cover under a personal accident insurance. If there is an accident, it will be covered under this annual policy.

The travel policy covers loss of luggage, flight delay and other risks. But the amount of compensation is quite rather small, say $100 or so. It will be quite troublesome to make a claim for such a small sum.  If I fall ill during the holiday, the medical expenses may cost a few hundred dollars. But the chance of making a claim is rather low.

I have taken more than a 100 trips during the past years and have never had the need to make a claim. I do not buy travel insurance for these trips. If the chance of a claim is 1 in 100, it is worth taking the risk. The premium saved on 100 trips would more than cover any future claim.

Tan Kin Lian

A more responsive Government

Read this article.

Monday, December 28, 2009

Bad experience with land banking plot

Dear Mr. Tan,

Some years ago a good friend of mine purchased some UK Land Banking plots. She was so blinded by the opportunity that when I questioned it we fell out for a while. She could not believe that such opportunities could be allowed in Singpaore and advertised on the TV if they were not true. She was not particularly greedy in fact I found her to be a very kind and gentle person.

Like many of us she wanted an opportunity to help her get ahead in life and be secure. The upshot was she has lost a significant portion of her savings to a scheme that has no chance of success.

I felt ashamed that such things could happen in the UK. After investigating and contacting some UK local authorities I was horrified at the way these schemes are run. They are designed to have absolutely no chance of success and to extract as much money as possible from the unfortunate investor.

Unfortunately what i've also discovered is that defamation law makes it very difficult to criticise a scam unless it is almost 100% proved especially in Singapore. It seems the only way to prove a scam without time and huge resources is to wait for the company to fail.
Even then typically the company will restart 2 or 3 times under different names claim mismanagement by a single executive and take more money from their loyal customers.


Sunday, December 27, 2009

The Talent Myth

During the past decade, there was a belief that talents are important for the future of a business or a country. Common sense and practical experience were discarded in the "war for talent". Talent was richly rewarded at the expense of the ordinary workers. Here is an interesting story about a well known company that pursued this strategy to an extreme. It brings useful lessons of people who belief in this strategy.

Talent and fat bonuses

For the past decade, there was a prevailing thinking that talented people cerated wealth and should be remunerated handsomely with fat bonuses and share options.

There was no distinction between the type of wealth and how they were created. In many cases, the wealth was created on top of a big asset bubble in properties and shares. The "talents" in the property and financial sector earned huge remuneration and bonuses.

When the asset bubble burst, these are the sectors that had to be bailed out. But, the fat bonuses are kept by the so-called "wealth creators".

The sad fact is that we are now going back into another asset bubble, with the low interest rate and bailout using taxpayer's funds. This will not be sustainable, and the world is likely to face another financial crisis - unless the asset bubbles can be reined in. But, that would be very difficult, given the low interest rate in the world today. In the meantime, the business leaders will continue to take the fat bonuses.

Tan Kin Lian

A good settlement mediated by FIDREC

An investor told me that the FIDREC mediator was able to get the financial institution to buy back 50% of the Lehman mini-bonds at full value (less interest received). He retained the remaining 50% of the investment.

In my view, this settlement is fair and is in accordance with my suggestion that both parties (i.e. the distributor and the investor) should share the loss equally. Actually, the investor suffered a larger loss as the capital sum had been invested for a few years without any return.

Anyway, the investor was glad to receive this settlement and thanked me for advising him to go to FIDREC. I hope that the other financial institutions would make a similar offer to their investors.

Tan Kin Lian

Financial sector is too big and unproductive

Several top economists have commented that the financial sector has grown to be too big. They do not create any value, in terms of actual production of goods and services to improve the quality of life. They are a drain on the productive economy and take away the best brains in recent years. They create bubbles and led to the collapse of the financial system.

I agree with these views. You can watch a video of the speeches given by these top economists in the academic section of Temasek Review.

Saturday, December 26, 2009

Dangers of Big Banks

Read this article.

Paul Volcker on Financial Innovation

Speaking to a group of senior finance executives, as reported in The Wall Street Journal on Monday, Mr. Volcker made his point even more forcefully. There is no benefit to running our financial system in its current fashion, with high risks (for society) and high returns (for top bankers). Most of financial innovation, in his view, is not just worthless to society – it is downright dangerous to our broader economic health.

Temasek review reported on my views about MM Lee's remarks

"Read this article in Temasek Review.  I have posted a comment as follows:

Dear Editor of Temasek Review

You article does fairly report my view and the comments in my blog, but your headline is too strong and inappropriate. It is not in my character to condemn anyone, big or small. I only wish to express my own views. I hope that your readers will not be too distracted by this inappropriate headline.
Tan Kin Lian

Glass Stegall Act

Last week, lawmakers including Senator John McCain proposed reinstating Glass-Steagall, which was struck in 1999 by the Gramm-Leach-Bliley Act.

The repeal led to a rise in conglomerates including Citigroup that were allowed to branch into insurance and proprietary trading.

Paul Volcker, a legendary former chairman of the Federal Reserve Board, was blunt: We need to break up our biggest banks and return to the basic split of activities that existed under the Glass-Steagall Act of 1933

High retail price

Some people are surprised that the retail price (e.g. of my books or torchlights) are so much higher than the wholesale price (e.g for sale to hotels) or for direct purchase from my office.

They are not aware about the high cost of distribution of these products. I have to pay to the distributor nearly 60% of the retail price. They have to give a large portion of this margin to the retail store. The goods are given on consignment. If they are not sold, they are returned to me. I have to bear the cost of production or purchase, delivery charge, GST and also take the risk of the obsolete, unsold products.

Many retailers also find it hard to survive. They have to pay high rental for their stores and wages for their sales employees. They do not get sufficient business and margin to cover their operating costs.

Many small businesses find it difficult to survive in this type of environment. In my case, I am not making any profit due to the high cost of doing business, but doing it partly for fun. (If you want a lower price for my torchlights, come to my office at get it for $5.50 if you buy more than 5 pieces).

My friend saw a rechargeable torchlight, with similar features, on sale at the airport store at $27.50.. So the price of $8 at the retail store is cheap, by comparision.

Advice on making insurance claims

Thee are three types of insurance claims that can cause you a big surprise and out-of-pocket payment. They are:
a) health care
b) personal accident or travel
c) motor repair
d) home repair or reinstatement

Here is a common example. You have been paying premiums for an expensive health insurance policy for many years. You went into hospital thinking that the entire bill is covered. When you submit your claim for reimbursement, you are told of the items that are not covered, the caps, exclusions, deductibles and other items. Your claim can be less than half of the amount that you spent.

Your claim for personal accident or travel is also subject to exclusions, limits and deductibles. A similar situation can occur with a motor repair bill. You are told about the Excess, exclusion or other limits.
The hospital and motor repair bills can occur every few years, so many people have been taken aback by their poor claim experience.

A similar situation, but less frequently, can occur if you have to make a claim for damage to your property caused by some of the perils,such as fire, flood, theft and other disasters. When you submit your claim, you will be told about the items that cannot be claimed.

Here is my advice. Before you go for medical treatment, before you repair your car or home, before you spend money thinking that they can be claimed - check with the insurance company. Let them tell you about what is covered, and what is not covered. You can then decide on what to do about the treatment or repair.

Do not be shy to ask for an estimate of the treatment or repair bill, and send it to your insurance company for them to check against the insurance cover. The insurance company may be able to assist you to find a doctor or repairer that can do the work within the amount covered by the insurance policy.

Tan Kin Lian

Pop star: Boymongoose

Enjoy the familiar music and humor.

About the father of modern day Singapore

Comment posted in this blog

Well, certainly that old man is not the father of anyone other than LHL and his siblings in that privileged family tree.

The point of my anaolgy, was that that old man can be still considered to be father of modern day singapore in metaphorical sense, therefore he ought to have some feelings for the welfare of its people, just as a father naturally wants to take care of his creation.

To be fair, fifty years ago, in creating the Singapore model, I think he was truly a good man fully consumed in trying to make singapore better, how to form a cohesive society, how to forge a common destiny. I dont think he was as vicious as Alexandra the Great... in his younger days his policy and vision, and government style was targetting at improving the lot of the locals, and worked pretty well ...even if he anihiliated political opponents.

Fifty years on, he has lost his mind totally this Christmas day 2009.

Many sufferings of singaporeans today are due to his bad judgement and self contradictory policies, in these latter days, but the most vicious and deplorable thing is that he turns around and makes a big sweeping statement that the laziness of Singaporeans is one of the root sources of the problem he and his team created unwittingly!!! With unaffordable HDB prices, with no minumum wage guarantees, no welfare, moving-time lines for old age cpf funds withdrawls, no protection for the ordinary citizens (remember Lehman).. where is the incentive to work hard any more? To make a lazy person work hard, you must provide an environment that makes Life meaningful, and an achievable, worthwhile challenge.

Alas, There is none in 2009.

Twenty years ago it was more meaningful to work hard. But now, you work till you die and cannot even claim your CPF, your own money - yet the government has billions of dollars in its coffers to "invest" with and play big and lose big. Not forgetting MM and his cronies get paid four five times of president Barrack Obama and then turns around and blames you for his bad judgements and policies.

How can he compare with China workers! There are pockets of comfort in many smaller cities in china where life is simple and sustainable. So the chinese workers are prepared to work hard in singapore, they have something to look forward to back home when they bring the money earned in Singapre to their loved ones. They have motivation to work.

We the citizens of Singapore, have none, today 2009.

My heart still bleeds as i reread his response to National Geographic, effectively blaming Singaporeans to be lazy, in front of American media. American has no idea what the heck is happening here, so they would believe his "Christmas day message" not understanding the deeper local issues enumerated above.

Maybe Dr Lee Wei Leng should say something. I enjoy reading her Sunday articles in the papers. She is the only person who makes sense in the family. She is the only one who rock that old man out of his madness and senility.


Good and bad regulation

Dear Mr. Tan
How Much Would Better Disclosure Help?
 ...the difference is
between good regulation and bad regulation.
 ...good regulation is
that which enhances knowledge and competition,
both of which make markets function better. ..
 ...bad regulation is
that which restrains competition and stifles innovation. ..
 ...firms must be able to fail
in order for the competition to work..
 ...less government interference
also helps to prevent single firm or industry dominance. ..
  One of the central causes of the financial crisis
was a lack of information...
  There are those who complain about the cost of additional disclosure.
To that, I respond: good.
Complex financial products should be more costly to sell...
 Of course, information and understanding aren't the same thing...

Friday, December 25, 2009

Today in Singapore

Read this blog. It is well written and contains interesting observations about current affairs in Singapore.

Bad snow storms

There is bad snow storms in America, Europe and China. I suspect that this is contributed by climate change.

Need to tax fat bonuses

Here are some views.

Why roulette is better than land banking

Dear Mr. Tan,

Read this article

Land Banking Companies
Why the majority of them are (legal) scams

UK land sold by Land Banking firms have about a 1% chance of receiving planning permission over the next 20+ years.

That means you have a 99%+ chance of owning a piece of land that is almost completely worthless.(the land is typically marked up by 1500% when you buy it and resale on the open market without planning permission is almost impossible)

In roulette you  have a  2.7%  chance of winning  if you put all your money on a single roulette number.
You will also find out immediately  that you have lost all your money and should learn very quickly not to gamble. If you win Roulette  will also give 35 times payout not the two to three times offered by the land banking companies.

If I were to sell a  single roulette number with a 3 to 1 payout  for winning as an amazing investment opportunity I am sure I would be shut down and probably put in Jail.

Can anyone explain why are Land Banking companies not subject to the same scrutiny ?

SCMP: Investors offered 80 pct payout for Lehman products

Many investors in Singapore would wish that they have the same kind of assistance that is offered in Hong Kong.   Read this report.

Repaying bailout funds

During the global financial crisis, many banks were on the verge of collapse. The collapse of one big bank could trigger the collapse of other banks, risking the stability of the entire global financial system. The US Government stepped in to provide billions of taxpayer funds under the TARP (troubled assets relief program) program to stabilize and restore confidence in the system.

The taxpayers were shocked that these bailed out banks continue to pay huge bonuses to their top executives. The Government decided to introduce caps on the salaries and bonuses that could be earned by these executives.

Many bailed-out banks have decided to return the TARP money, so that they can continue to be relieved from the caps on these huge bonuses. They are able to get money from their shareholders, as the global financial system has now been restored. They can go back to the "good old days".

How did the banks make huge profits during these "good old days"? They take big gambles. They bet billions of dollars on financial trading and on creating asset bubbles, through housing, mergers and acquisations,  leveraging and financial engineering (also called "innovation").

If they get it right, they make billions of dollars of profit. If they get it wrong, the hold the global financial system to hostage.

The world has to put a stop to these huge gambles. The banks should be banned from these types of gambling. They key role is to do basic banking services, such as collecting money and giving loans to businesses and households. It may be boring, but it is a valuable service that builds real wealth.

As long as the governments condoned and even encouraged such gambling behavior, in the name of creating "financial hubs", the global financial system will continue to be at risk.

Tan Kin Lian

Goldman Sachs and synthethetic CDO

Here is the reply from Goldman Sachs to the New York Times article on synthetic CDO.

Quality of life and occupation

This survey showed that teachers have the best quality of life.

Insuring a home for the right value

Read this report. You need to insure your home for the cost of rebuilding, and not on the current value of the home.

Thursday, December 24, 2009

Are Singaporeans less hard working and hard driving?

Here is an interview given by Mr. Lee Kuan Yew to the National Geographic magazine:

Over time, the MM says, Singaporeans have become "less hard-driving and hard-striving." This is why it is a good thing, the MM says, that the nation has welcomed so many Chinese immigrants (25 percent of the population is now foreign-born). He is aware that many Singaporeans are unhappy with the influx of immigrants, especially those educated newcomers prepared to fight for higher paying jobs. But taking a typically Darwinian stance, the MM describes the country's new subjects as "hungry," with parents who "pushed the children very hard." If native Singaporeans are falling behind because "the spurs are not stuck into the hide," that is their problem.

I find this remark to be quite unfair to Singaporeans. Already, they have to study very hard in schools, such that many children do not have time to play and enjoy their childhood. The male citizens have also to serve National Service. I read that many immigrants are not willing to become Singapoore citizens if they are required to serve National Service.

In spite of these efforts, Mr. Lee said that the Singaporeans have become "less hard-driving and hard-striving".

Confidentiality agreements

We read many inside stories about confidential decisions taken by large corporations which were leaked to the media. These information were leaked out by their employees who were covered by confidentiality agreements. The employees talked to the journalists and asked for their names to be not published.

Many investors in Singapore are required to sign confidentiality agreement by the financial institution and by FIDREC. They dare not even discuss the matter with people that they need to seek advice. I find that these investors  are rather naive about their legal rights and how to respond to such legal matters.

Compare their behavior with the American employees who are willing to give information to the media that were supposed to be covered by confidentiality agreements, on the understanding that their names will not be quoted and that the information cannot be traced to the source.

Did the investment banks benefited at the expense of their clients?

Read this report.

Old and new citizens

A reader wrote to the Straits Times to suggest that "old" citizens and "new" citizens should be treated differently for priority allocation into the choice schools. A new citizen wrote today to state that this would be unfair and is bad for Singapore.

For the past 20 years, I have strongly disliked the practice of our Government leaders and top civil servants in writing complicated rules to differentiate between different classes of people - graduates and non-graduates,  different allocation to benefits according to the type of house that you live in, different eligibility to tax relief according to the birth order of your child or the year of birth, different level of health care subsidy according to the type of house you live in and income, complicated rules to determine eligibility for welfare payments, and so on.

If you are caught on the wrong side of the rule, bad luck to you. And the people who write the rules will know how to be on the right side of these rules. It is unfair, but this is Singapore. We are used to this type of environment.

I wish Singapore to be fairer and simpler. We should make high income earners pay more tax, and after that, apply the same level of benefits to all citizens, regardless of income level or housing type. There is no need for complicated rules.

We should pay an adequate allowance, almost like a full time salary, to our National Servicemen. After that, there is no need to have complicated rules to give them slightly more in entitlement to Government benefits.

Tan Kin Lian

Will Goldman Sachs sue Thomas Adams?

Read this story.

I am surprised that Thomas Adams and the New York Times is bold to write the article in this direct manner. They are protected by a vigorous culture of tranparency and accountability that is available under the American system.

Singapore is far behind in this aspect. It is so easy for for big businesses and powerful people to sue individuals in Singapore and intimidate them into silence. It is unfair and undesirable, but this is the Singapore system. I hope that this situation will be corrected.  

Merry Christmas and Best Wishes for 2010

To the visitors of my blog, all the best for 2010

Tan Kin Lian

Playing with fire

An elderly bank officer told me. He spent a few years as a wealth manager of a bank. He knew the risks of the financial products and were careful in explaining the risks to his clients.

These same products were given to young bank officers to sell to their clients. The young officers did not understand the products but they were bold in recommending them to their clients. They were driven by the commission that comes with the sales and were keen to meet the sales targets.

Why are these young people allowed to play with fire? We need a better way of regulating the sale of financial products. Surely, risky and complex products cannot be allowed to be sold by inexperienced people?

Imagine someone who takes a 3 week course in medicine who is then allowed to prescribe drugs!

Churning the CPF savings

There is a report about financial advisers advising low income families to wthdraw their CPF savings for investment in unit trusts. The financial advisers earn up to 3% on the front end charges and give a rebate to the CPF member. By churning these investments many times, the CPF member is able to withdraw a fairly significant  amount of savings. The problem is - for every $1 that is withdrawn, the CPF member is likely to lose $3 (my guess) of savings.

The CPF tries to bar the errant financial advisers from being involved in the future. This is similar to telling a thief that if he is caught, he will be barred from stealing in the future. I hope that our Government will make this type of activity into a crime that can send the culprits to jail.

We have a law on Financial Advice, which is administered by the Monetary Authority of Singapore. Surely, this law requires the licensed advisers to operate ethically and avoid dishonest transactions, such as illegal withdrawals of CPF savings? If this is the case, the MAS should investigate and take action under this law. We cannot have people who are licenced to abuse their privileges.

Tan Kin Lian

Wednesday, December 23, 2009

Rechargeable torchlight and shape quiz

You can get them from the following shop in Sim Lim Tower:

Torchlight: $8, Shape Quiz: $2

Skylimit Int Enterprise Ptd Ltd
10 Jalan Besar
#B1-21 Sim Lim Tower
Singapore 208787
Telephone: 62929155 / 62935766

Vera and Nadya

My grand daughter Vera is now 3 years old. Her sister, Nadya, is 1 year old. They had a birthday party recently. Visit this blog.

Here is a video of their visit to my home.

Helping the poor

We need a better way to help the poor in Singapore, rather than the bureaucratic, "many helping hands" approach.

Ask about the charges

I am the trustee for a trust fund set up to provide income for a non-profit organisation. The trustees held a meeting with the investment adviser to discuss the investment policy of the fund. The investment adviser made some recommendations on the asset allocation of the trust fund, and in particular, how to invest the cash portion that has grown to a significant proportion.

After discussion, the trustees accepted the recommendation. I finally asked the investment adviser, "how much do you earn as commission through executing the transactions that you have recommended?"

The client service manager was taken aback by this unexpected question, but she quickly recovered and replied, "It is in accordance with what has been told and approved by the trustees previously and that is ....% for shares and ....% for bonds".

Lesson: Never be shy to ask this important question. Do not assume that you know. Even if knew, it s good to get the facts reconfirmed.

Tan Kin Lian

Get full facts about the financial product

You should get full facts about the financial product before you invest in it. If there are any points that are unclear, you should ask the product seller. If you still do not understand the product, do not invest in it.

Always ask for the relevant facts to be put in writing. Do not take the verbal representations given by the seller. The seller may mislead you and later claimed that you had misunderstood the representations.

Always refer to the printed materials. If any important point is not covered in the printed materials, or is not explained in a transparent manner, you should be suspicious about the financial product. Most importantly, you should ask about the charges and commission earned by the product seller.

In the past, you could trust financial products to be transparent and fair as they were properly regulated. The standard of regulation and consumer protection has deteriorated in recent years, so you have to be careful and to do your own due diligence. 

If you are not clear about the financial product, DO NOT INVEST IN IT. Do not ask somebody else (e.g. TKL) to explain the product to you. 

Tan Kin Lian

Tuesday, December 22, 2009

The Fed's regulatory errors

What were the mistakes made by the Fed in regulating the banks? Are there lessons for other central banks?

Observations about Hong Kong

Here are some observations about Hong Kong and lessons for Singapore.

Stress at FIDREC hearngs

Dear Mr Tan,

Thanks for your kind assistance and I managed to get back some compensation from the FI finally.

Nevertheless, for most of the victims like myself who had gone thru the hearings, we have to transfer our "Bonds" to the FIs and not entitled to anymore residual value. I questioned the fairness of this system, as the residual value may end up be higher than the compensation ? (so far I know all compensations are below 50%) We are not given any other options. If we do not accept the award, we have to engaged our own lawyer to fight with the giants. Many want to end this nightmare after more than a year and are forced to accept this "compensation".

Unlike HK, FIs will still refund the victims and not gain anything if the residual values are higher than the 60%-70% that had already been compensated.

In addition, I understand many cases are still pending at Fidrec, due to disputes between the IFAs & FIs. The MAS/ Fidrec has yet to settle whom should be liable for this saga, and the victims have to decide by themselves whom they want to go against .... again, is this FAIR ? If one choose to go against 2 parties, they were told to pay 2 times and have to go through 2 hearings (that means 2 times the stress!) Furthermore, Minibonds have to wait till the residual values are confirmed before able to proceed hearings with IFAs and FIs. Currently, only those bought directly with the Banks are allowed to proceed with the hearings. (Not sure why ?)

Recently, Fidrec has tried to conduct mediation with some IFAs, these are all wasting of time, as results is "we are only introducers". Yet, many are forced to attend, else, may not be able to proceed with the hearings.

I wonder why we victims have to shoulder all these stress ? We are just laymen and do not know what are the hidden "agreements" between these business partners. After more than a year, MAS/ Fidrec has to be firmed with the directions and make clear whom should we go after, rather than leave everything to the victims.

I really feel sad for the whole financial system here in Singapore .............. how to become a Financial Hub with this kind of unfair system in place ?

Many Pinnacle Notes are going bust soon ... would advice other victims to be strong, since no one able to help us.


Avoid ETF with steep fees

Some ETF have steep fees and should be avoided. Read this article. When investing in ETF, make sure that the annual fees is less than 0.5%. The STI ETF has annual fee of 0.3% only.

Need for savings and liquidity

It is important for each person to have savings and liquidity. I have suggested that each person should set aside 50% of current earnings (inclusive of CPF) for housing and the future. As CPF takes about 35% (including employer's contribution), the personal savings should be 15%. Younger people living with their parents can save a larger proportion (say upt o 30%) if they do not have to repay any study loan or contribute towards their family expenses.

It is also important for the savings to be liquid. They can be kept in a bank account to earn interest of 1% or less.  This allows the savings to be withdraw without any penalty, to meet expected cash needs, such as medical bills, down payments or temporary unemployment.

For longer term investments, the savings should be invested in financial products that have low front end charges. For example, they can be invested in stocks and bonds traded on the Singapore Exchange, where the transaction cost is 0.3% of the invested sum. They can also be invested in a diversified exchange traded fund, where the annual fee is also 0.3%. As these products typically earn a yield of 4% to 6%, the upfront charge can be recovered within one year.

You should avoid investing in financial products, including life insurance products, where the front-end charge can take away up to two years of your savings. As you need liquidity, you cannot afford to incur such a large penalty. As you have the choice of SGX products with a front end charge of only 0.3%, why pay up to 200%?

If you need life insurance cover, buy a term insurance and pay the cost of insurance. It is small. Do not worry about getting this money back. Treat it as an expense.

Make sure that your savings earn an attractive rate of return. Invest in products that have a low transaction charge (say 0.3%) and a low annual fee (say 0.3% per annum) to enjoy professional management and diversification. Make sure that you have liquidity and do not have to pay a high penalty when you need to withdraw your savings for the unexpected expenses.

Tan Kin Lian

Monday, December 21, 2009

Shape Quiz at $2

The Shape Quiz is now available for $2. It comprises of 100 shapes in a printed sheet and comes with 4 plastic pieces. Available from (Internet shop). It is a good gift for children for the new year. You can order it to be sent to you by post.

Climbing stairs as an exercise

When I was in Sichuan the tour guide made this observation. When he was in Singapore, he was surprised that people queue up for the lift, even though they only need to travel a few floors. In Chengdu, most buildings are up to 5 stories only, and people are used to walking the stairs.

I agree with this observation. I have now decided to walk up the six floors to my office in Ang Mo Kio, instead of taking the lift. This will give me the chance to exercise a few times a day.

Time to scrap the White Pages

The telephone directory is now unnecessary. It is time to scrap this directory and save the trees. Read this report.

Coping with unemployment

Many developed countries have unemployment benefits. Even America, which believes in individual responsibilty and the free market, have unemployment benefits. The leaders in these countries know that the unemployment benefits can be abused, but they still provide these benefits as, in their judgement, the good outweighs the abuses.

In the free, competitive market, people compete for jobs. Some win and other lose. The losers gets unemployed. They have families to feed. In a weak economy, it is not easy to find an alternative job that can pay an adequate wage for their needs. Should they have to borrow and pay a high interest charge? Do the family have to grow hungry? Some have to resort to crime to get some money. Is this a good outcome?

What about people who are lazy and will enjoy the unemployment benefit, without working? These countries have found many ways to overcome this problem. Some countries, fix a limit on the duration of the unemployment benefits. In America, this is usually 12 months, although it has been extended due to the extremely weak economy. In other countries, the unemployed worker is required to attend job training and interviews, and to accept reasonable offers. They can only get the unemployment benefits, when jobs are not available.

These measures are not perfect, but they work reasonably well. If this was not the case, they would have been stopped.

What about countries, such as Singapore, that do not provide unemployment benefits? It is important to have personal savings that can be drawn down to meet emergencies, such as unemployment. Most young people are able to get jobs. They should set aside personal savings of 15% to 30% when they are young. These savings should be invested in financial products that can be withdrawn easily, without paying a high penalty. They include stocks and bonds traded on an Exchange.

Tan Kin Lian

Investing in properties

Many people made huge gains by investing in properties in the past. This was achieved at a time when property prices were relatively low, compared to today. At today's prices, it will be difficult to expect further appreciation along the scale as was achieved in the past.

The trend of interest rate is also going against property investments. During the past twenty years, there was a decline in interest rate globally. This decline contributed to appreciation in property prices. For example, if interest rate dropped from 6% to 3%, the prices of properties will double.

Interest rate is very low now. At the short end, it is near zero. For longer terms, it is around 3%.  In the future, it is likely to increase. This will result in a drop in property prices. It could drop by 50%, if the long term interest rate were to double from today's level.

Interest rate is expected to remain low, due to deflation, but may increase from the highly depressed level of today, so you can expect some correction in property prices in the year's ahead.

To learn about what can happen when the property market corrects, we have to look at what has happened in America and Europe. They have allowed the property prices to increase too much due to low interest rate, subprime mortgages and financial instruments. When these markets correct, the damage to the economy has been severe.

In all, it is a bad time to invest in properties as a long term investment. People still have to buy a property to live in, although they should consider the option to rent a property. Apart from interest rate, property prices will also depend on supply and demand and the economic situation. But interest rate does play a big part.

Be careful about investing in properties (other than for own occupation).

Tan Kin Lian

Understanding fund brochures

The language used in fund brochures look impressive. But, what do the words really mean? Here is one person's explanation. Be careful before you invest. Understand what you are investing in.

Sunday, December 20, 2009

Why pay Singapore TV licence?

Dear Mr Tan
This subject has been brought up many times. Occasionally, the authorities would give replies, including at least once in Parliament, but they failed to convince the public.
Personally, I do not object to the Government collecting money from me because they need to pay the service providers too and, in this case, for "funding public service programs on TV and radio". However, I have always had an uncomfortable feeling as to how they actually spent $8 million a month.
Just my own thoughts.

Need to investigate AIG

Read this report.

Bonus of bankers

America should set caps on the bonus of bankers, just like UK and France. Read this report.

Panda in zoo in Chengdu, China

Watch this video.

Pearl Shaol Falls in Jiuzhaigou, China

Here is a video of this beautiful waterfall in Jiuzhaigou, China.

Take care of customers

Here is the ranking of various types of businesses based on how well they take care about their customers.

Saturday, December 19, 2009


We use wi-fi to access the internet from hotspots. What does wi-fi stand for?

Scenaries of Jiuzhaigou, Sichuan, China

Above: Waterfall in Jiuzhaigou

 Below: the water in the lakes have different colors.

Keeping patients safe

Holding doctors accountable for medical errors.

Climate summit in Copenhagen

An agreement has been reached, although it has limited impact. Still, it is good progress and is an important step towards the long journey. Read this report.

Goldman Sachs to give up Life Settlement business?

Read this report. The financial institution will buy the life policies from the owners for a cash amount (which is usually higher than the cash value given by the insurer) and maintain them to collect the proceeds on death.

UK: High Court action to shut down five "Land Banking” companies

Dear Mr. Tan,

Watch out for these companies setiing up in Singapore soon !
High Court action to shut down five "Land Banking” companies. 

Action taken in the public interest

The Secretary of State for Business, Innovation & Skills has presented petitions in the High Court to wind-up, in the public interest, five companies involved in marketing plots of land as investment opportunities.

The application to appoint a provisional liquidator was first heard on 8 October 2009, but at this hearing the companies, through their directors (see notes below), offered to give undertakings to the Court as to their future conduct and to cease trading pending the determination of the petitions. The Court accepted that these undertakings were sufficient to protect the public interest pending trial of the petitions. 

The undertakings however were not fully complied with and accordingly the Secretary of State returned to Court on 17 December 2009 with a further application to appoint a provisional liquidator. The companies did not oppose this further application. The Court accepted there had been a failure to comply with the undertakings and ordered the appointment of the Official Receiver as provisional liquidator of the companies.

Friday, December 18, 2009

Challenges for global economies for 2010

This article in the Economist magazine said that the global economies was helped by the government stimulus spendings and bailouts in 2009. The challenges lie ahead in 2010 as many underlying problems are not solved and new problems are being created, e.g. asset bubbles in emerging economies.

Financial planning - buying a property for own occupation

Here is a financial planning tip that applies to most families. If you buy a property (for your own occupation) at age 30 and repay the  mortgage loan over 25 years with 25% of your monthly income, you can take a loan of up to 5 years of your income. If both spouses are working, you can use the combined income, but deduct $1,000 for the cost of employing a maid and other expenses.

If the family income is $5,000 a month, you can buy a property of up to $300,000. If you buy a more expensive property, the repayment will take up more than 25% of the income, leaving less to save for retirement or for current expenses, or the repayment will take more than 25 years.

Although most people expect a working career to be 35 years, it is useful to plan for 25 years of repayment, to allow for some disruptions in the income stream during your working career, caused by unexpected events, such as unemployment or disability.

If you really need to pay more for the property, you can stretch up to 6 years of family income, after you have done your budgeting carefully.

Tan Kin Lian

Attractions of Kuala Lumpur

Read this article.

Thursday, December 17, 2009

Workers like flex-time

This article shows the appeal of flex-time. I had advocated pay by the hour, instead of monthly salary. It allow flex-time to be implemented easily.

To all fathers with daughters

You can let go, daddy.

Economics and financial planning

There are two schools of thought in managing the economy. Some economists believing in managing demand and let supply follow demand. Other economists believe in managing the supply and let demand follow supply.

There is a similar choice in financial planning. Many financial planners believe in getting the client to establish the goals, from which the financial plan can be developed. I find this approach to be not suitable, as the client is likely to set goals that are too high, and will setting aside savings that they cannot afford, based on their earning capacity.

I prefer to work on the earning capacity and allocate the proportion to be used for current expenses and the remainder for the future, which includes the purchase of a residential property for own occupation. Based on my analysis, a typical allocation is 50% for current expenses, 25% for property and 25% for retirement. This benchmark allocation should apply to most working families.

If a family has special needs, they may modify the allocation to suit their own situation, but the starting point should be to consider the financial plan based on this benchmark. For example, a high income earnings may be able to set aside a larger allocation for the future, while a low income earner may have to set aside a bigger allocation for current expenses.

The allocation for the future includes the combined contribution (of employer and employee) to the Central Provident Fund. The current combined contribution is 34.5% for most workers. To achieve the benchmark of 50%, the worker has to set aside 15.5% in a personal savings plan. This concept is explained in my book on financial planning.

Tan Kin Lian

Torchlight for travellers

I took the rechargeable torchlight with me for my tour of China. I stayed in 5 hotels over the 8 days. I had to change a hotel almost every day.

The layout of every hotel room is different and the switches are complicated. It is difficult to find the correct switch to turn on at night. The torchlight came in very handy. The locator light help me to find the torchlight in the dark. I use the torchlight to see the labels on the swtiches or to find my watch or other items that I needed.

This torchlight is very useful when you travel.

Why big banks are bad for the economy

Read this article. Here are some key points:

a) The big banks want to pay back the bailout money to be free of the pay caps and other restraints.
b) Their profits still come mostly courtesy of taxpayers. Their trading earnings are financed by more than a trillion dollars’ worth of cheap loans from the Federal Reserve, for which some of their most noxious assets are collateral.
c) They benefit from immense federal loan guarantees, but they are not lending much. Lending to business is very tight.
d) The whole system has grown more concentrated, as many big banks have taken over other banks. The growth of the biggest banks ensures that the next bailout will have to be even bigger. These banks will be more likely to take on excessive risk because they have the implicit assurance of rescue.

Future jobs in America

This article explains the future jobs that will grow in America. The industries are:

full service restaurants
local government
employment services
nursing care services
office of physicians
general merchandise stores
computer system services
home health care services
services for elderly and disabled
consulting services.

Many of these trends will apply to Singapore.

CT scans are costly and have their risk

Read this article.

Collapse of Pinnacle Notes Series 3

Hi Mr Tan,

Just when the public thought the toxic structured products saga has been settled, another one of the Morgan Stanley's Pinncale Notes Series has gone into mandatory redemption. Hong Leong Finance, one of 7 distributors of the Series 3 has informed me(see attached)that there is a mandatory redemption event and investors will lose all or substantially all their original principle invested. This happened not because of a reference entity like Lehman has collapsed but simply because the Notes have invested in a lot of unknown companies that have now defaulted. 

Many S'pore investors are just being told of this shocking Christmas present and more bad news may come as Series 2 and 6 are also sinking. 

Please post this in your blog as the creator and distributor of this product should not be allowed to get away with this. They used big corporate names as Reference entities to misled public into investing the product but actually invested something else!

Authority has to act to stop investment scams

Mr Tan
I note that in the Madoff case the prosecutors are considering prosecuting the programmers and perhaps the heads of the feeder funds. Presumably this is on the basis that they must have been aware that
something was not right but did nothing about it. They also  took huge payments for supporting a scam..

It takes many parties to operate a scam. I am often amazed that when investment schemes fail that the sales people and agents  blame the owners. The owners blame the agents and salepeople. All parties claim
complete innocence of any wrong doing.  With some of the investment schemes such as land banking plots, various oil Investment schemes, sunshine investments  etc it is obvious that many people involved know
that the investment scheme cannot work but choose to be involved anyway.

These people enable the scam and give it credibility by their involvement.

Singapore has a reputation for providing rigourous punishment to a few individuals to discouorage anti-social or criminal behaviour by the rest of the population. As an example:-  jail sentences being applied
for using mobile phones while driving.

Perhaps applying very stiff penalties to one or two company directors, sale people and agents for their involvement in fraudulent investment schemes would encourage others to think more carefully about what they
allow themselves to be involved in and earn commission for.

I agree with your views. I am unhappy with the passive response of the Authority in Singapore towards these investment scams. I will do my best to argue the case for the Authority to be more actively involved in stopping these scams.

Snap election in Singapore?

Here is an article by Seah Cheang Nee.

Minimum wage and employment

Paul Krugman argued that cutting the minimum wage will not increase employment. Here are his reasons. I agree with his thinking.

Impact of Sichuan Earthquake in 2008

Sichuan suffered a big drop in tourism revenue for the past 12 months. Tourist visits to Sichuan dropped significantly after the earthquake. It is only starting to recover. My tour guide said that he looked after only three tour groups during the past 12 months.

My group was able to get the top class hotels as pack of the package for an affordable price. It is a good time to visit Sichuan as the cost is still low and the service is excellent. Sichuan has excellent natural landscapes, sceneries, mountains, waterfalls and rivers. Tourism is an important part of its economy.

Visit to Sichuan, China

I visited Sichuan China for the past 10 days from 9 to 16 December. I was not able to update my blog during this period as Blogspot is still blocked in China. I shall be writing about some interesting observations from my visit.

Tuesday, December 08, 2009

Rechargeable torchlight with locator light

Here is a photo of the rechargeable torchlight with the locator light turned on.

It is easy to locate the torchlight at night to visit the bathroom or kitchen for a drink of water.

You do not need to turn on the main lights and waste electricity.
In an emergency or power failure, you can find the torchlight easily.

It takes 12 hours to charge the battery and can last for about two weeks, based on light usage.

This special feature of a locator light was designed by me and produced to my specification.
The torchlight sells for $6.50 and can be bought from my office ($5.50 for purchase of 5 or more pieces). Office open Mondays to Fridays, 9 am to 6 pm. (The price will be revised to $8 from 2010 when this is made available at the retail outlets).

Delivery can be made to your address for a delivery charge of $7. You can get several friends to buy the torchlight together and share the delivery cost. 

Poor return on special funds

A customer was advised to invest a large single premium in an investment linked product in 2007. He was not clear about the investment. The cash value is now only 55% of the invested sum. I was surprised that the value is so low, as the stock market must have dropped only 20% during this period. I learned later that he was advised to invest in a some special funds.

The public should be careful about these types of special funds, which have high charges and low transparency, and generally perform worse than the broad market. It is better to take the market risk and invest in the STI exchange traded fund.

Lock up for 2 years at low return

Someone asked for my views about a 2 year insurance product that offers a return of  1.5% per annum. I felt that this return was rather low for the investment to be locked up. My preference is to keep the money in cash (earn 0.5% per annum) and wait for better investment opportunities.

Use of Medisave for health screening

Minister for Health Khaw Boon Wan said that the Government is considering to allow Medisave to be used for health screening, but needs some safeguards to be in place to prevent abuses.

A good safeguard is to set a cap on the amount that can be withdrawn for health screening, to be used once every three years. Within this cap, the medical facilities will compete to provide the best packages that is available. Independent experts can comment on the usefulness of these packages. Consumers who wish to spend more can still use their own money, and not draw down on Medisave.

Temasek 20 and 30 year bonds

Temasek Holdings has issued 20 and 30 year bonds paying a coupon rate of 4% and 4.2% respectively. Based on the issue price (which is slightly below par), the bonds offer a slightly higher yield of 4.149% and 4.37% respectively.

Temasek Holdings has a AAA rating from S&P and Aaa rating from Moody's. These are the highest rating available for bonds. The credit risk is as low as government bonds.

However, there is the risk of a change in interest rate. If a 20 year bond yields 4% and the interest rate for this duration increases to 5%, the prices of the bonds will drop by 8.4%  If the interest rate increases to 7% (due to high inflation), the price of the bonds will drop by 28%. When you invest in a long term bond, your return is locked up for this period. You only suffer a capital risk if you decide to sell off the bonds prematurely on the market.

The bonds will refund the principal in full at the maturity date, i.e. the end of the period.
For retirees who wish to have an regular income of a higher yield over 20 and 30 years, this is a good choice. Many insurance companies invest in these type of bonds, but they take away 2% from their policyholders, giving a net yield that is much lower. It is better for the retiree to invest directly in these bonds.

I have asked my bank and stockbroker to tell me how these bonds can be purchased. I will post the findings later.

Tan Kin Lian

Poor yield on life insurance policy

A policyholder paid premium for 21 years under a whole life policy and obtained a surrender value that represented a yield of less than 2%. The insurance had advertised an actual yield of more than 5% for other products of similar durations.

The policyholder was unhappy with the poor yield on his policy and asked for an explanation. He was told that it was due to the specific type of product, which provided high coverage. In my view, this should not account for the large difference in the yield.

It is likely that this policy was given a lower yield due to the restructuring of the bonus. As the bonus varies for each policy, it was difficult for the policyholder to know if he had been given a fair rate of return.

Sunday, December 06, 2009

Lehman Note Arbitration in USA

Investor win arbitration case.

Tour of Jiuzhaigou, China

I will be leaving for a 8 day tour of Jiuzhaigou in Sichuan, China from Wednesday.

Security measures went absurd

Read my experience.

Least corrupt countries

Singapore scores well in the ranking of least corrupt countries.

Foreign shares listed in SGX

Be careful when investing in these shares. Read this article.

Over-investing in mortgages

This article explains why banks over-invest in mortgages and cause the global financial crisis.

Denying insurance claims

Mortgage insurers are now following the practice of health insurers in denying claims. Read this article.

Bus owner practices risk management

I know of a private bus owner who evaluates the following options to insure his bus:
a) Third party only
b) Third party fire and theft
c) Comprehensive.

His old bus has a current market value of $40,000 and the difference in premium needed to cover fire and theft is $200. This works out to a rate of 0.5%. He decided to pay this premium, as he could not afford to take a total loss through theft or fire.

He decided not to buy the comprehensive cover as the difference in premium is too high. He decided to retain the risk and to pay for repairs to his bus on his own. In most cases, this can be funded by the savings in the premium.

This is an example of applying the principles of risk management. Insure the large losses with low frequency, and retain the small losses with high frequency.

I advise consumers to get the relevant facts and decide on the best risk management strategy, instead of relying blindly on the advice of the agent (who has a conflict of interest) or other people (e.g TKL) to decide for them.

Saturday, December 05, 2009

Claim payable under a hospital bill

When you submit a claim under a hospital bill, the insurance company will apply the following deductions on the amount that you have spent for medical treatment:

a) Pre-existing illness. You are usually not covered for medical conditions that exist before you purchase the insurance, including congential conditions.

b) Exclusion. Certain medical conditions are specifically excluded, e.g. HIV, self-inflicted injuries.

c) Sub-limit. You are allowed to claim up to a liit for each item, such as daily room and board, hospital expenses and surgery. Any expense above the sub-limit will not be claimable

d) Pro-ration. If you are insured for a lower class of ward, and you are treated in a higher class of ward, a pro-rated formula may apply. Only this pro-rated portion of the expenses will be counted.

e) Deductible. This is the amount that you have to bear first, before you can make a claim for the excess of the eligible bill.

f) Co-insurance. You have to pay a percentage of the eligible bill in excess of the deductible.

When you submit your hospital bill, the insurance company will apply the sub-limits, exclusions and pro-ration to get the eligible amount. It will then apply the deductible and co-insurance to determine the final amount that is payable.

Before you incur a large bill, it is advisable to get an estimate of the hospital bill from your doctor and to check with your insurance company on what proportion of the bill is payable under the insurance policy.

Tan Kin Lian

Signs and messages

Sent to me by a friend.

Advertisement in A Long Island Shop:
Guitar for sale....... Cheap....... strings attached.

Ad In Hospital Waiting Room:
Smoking Helps You Lose Weight ... One Lung At A Time!

On a bulletin board:
Success Is Relative. The more The Success, The more The Relatives.

When I Read About The Evils Of Drinking, I give Up Reading

My Grandfather Is Eighty And Still Doesn't Need Glasses. He Drinks Straight Out Of The Bottle.

You Know Your kids Have Grown Up When: Your Daughter Begins To Put On Lipstick Or when your Son starts To wipe It Off

Sign In A Bar:
'Those Of You Who Are Drinking To Forget, Please Pay In Advance.'

Sign In Driving School:
If Your Wife Wants To Learn To Drive, Don't Stand In Her Way.

Behind Every Great Man, There Is A Surprised Woman.

The Reason Men Lie Is Because Women Ask too Many Questions.

Getting Caught Is The Mother Of Invention.

Laugh And The World Laughs With You, Snore And You sleep Alone

The Surest Sign That Intelligent Life Exists Elsewhere In The Universe
Is The Fact That It Has Never Tried To Contact Us.

Sign At A Barber's Saloon In Detroit :
We Need Your Heads To Run Our Business..

A Traffic Slogan:
Don't Let Your Kids Drive If They are Not Old Enough Or Else They Will Never Be.

Sign In A Restaurant:
All Drinking Water In This Establishment Has Been Personally Passed By The Manager.

Sign On A Famous Beauty Parlor Window:
Don't Whistle At The Girls Going Out From Here. She May Be Your Grandmother !

Messy IT systems used in banks

Read this article.

Insurance company need to hold more capital

Insurance companies will be required to hold more capital. Read this article.

Friday, December 04, 2009

Creating jobs in America

Here are some suggestions from the New York Times on creating jobs in America.

Low payout for medical claim

Hi Mr Tan,
I saw this article on the forum last week but till now I have not seen any reply from Income on it (Normally companies will be quick to respond to letters in the ST forum).

Can you comment on why an expected payout of $3,600 can end up to be only $240?
Maybe you can even share this in your blog.

Puzzled by insurer's payout for medical claim

RECENTLY, my wife was hospitalised at Mount Alvernia Hospital for four days. Her medical bill came up to $7,995.15.

She is insured under Income's IncomeShield Plan MA, but the total payout by Income was a shocking $240.
I called Income to find out how it arrived at that sum and was told that technically the $7,995.15 was classified as "room and board", hence limiting the claim.

The $7,995.15 included a renal screen, bed charges, clinical consumables and supply, diagnostic imaging services, equipment use, laboratory services, outside hospital services, pharmacy cost, resident medical officer fees, treatment fee and doctor attendance fee.

Given a deductible of $4,000 per policy year and 10 per cent co-insurance, any man in the street would expect an insurance payout of $3,595.63. But this is not the case.

My wife has faithfully paid her premium for the past 15 years without a single claim and this is what she gets in return. I am writing this so the public is made aware of such pitfalls in their medical insurance.

For big insurance companies to cite a technicality as an excuse not to make a decent payout is in no way fair. I urge the Consumers Association of Singapore and leaders in the insurance industry to look into this loose definition of "room and board".
In my opinion, given my wife's good record, Income should honour the $3,595.63 payout as a goodwill gesture.

Lastly, I would like to ask the Central Provident Fund Board why only $450 a day can be used from Medisave for hospitalisation.

Ong Kok Lam

The uninsured cannot afford health care

This article explains the problem of the uninsured in America. Medical care is very costly. Those who are employed can get health insurance, paid by their employer. The employer pays a group rate which is one third of the cost of individual insurance.

In Singapore, citizens can get treated in subsidized wards and enjoy a subsidy of up to 75%. They have to pay only 25% of the full cost. The cost in restructured hospital is lower than in private hospitals. The elderly, which are likely to need health care more, will be able to benefit from the subsidized wards.

Those who are well off or have insurance can go for the non-subsidized or private care.

Thursday, December 03, 2009

Urgency to create jobs

Many educated Americans, who have lost their job for nearly a year, find that their unemployment benefit is running out. They are desperate to get a job. Some are willing to work for free, to show that they can contribution and wait for a chance to get a full time job later. Many are willing to work as day labor to get paid by the day.

In the past, during boom times, the free market was able to create jobs. Most of these jobs are created by small businesses. In difficult times, these businesses are not able to get credit, as banks are more cautious. Without credit, these small entrepreneurs cannot grow their business and employ the available labor.

Many people hope that the economic situation will improve. But, it could get worse - and this is the more likely outcome. There has been so much loss of trust in our business, financial institutions and even in the free market.

Many governments reduced interest rate to reduce business cost and encourage business owners to expand this business and create more jobs. This strategy does not seem to be working. It is now time for governments start to create jobs directly. It may be necessary to reduce the length of the work week so that the available jobs can be shared by more people.

The economic system has to change. We may have to go back to some form of central planning.

Tan Kin Lian

Avoid over insurance and moral hazard

There was a case of a person who bought personal accident insurance from many insurance companies, and had an accident where he lost an eye. The total amount claimed under the insurance companies amounted to more than $2 million.

The insurance companies suspected that the accident was intentional,i.e. moral hazard. But they were not able to prove their case in court. They lost the case and had to pay the claims.

To avoid moral hazard, some insurance company adopt the following approaches:

a) ask the applicant to declare the total amount that is insured under all existing policies
b) restrict the total amount that can be paid under a claim.

If the applicant declares a total insurance that is excessive, the insurance company is likely to reject the application to avoid moral hazard. If the applicant fails to disclose this material fact in the application, the insurance company has the grounds to reject the claim.

If an insurance company provides insurance for $500,000 and sets a limit of $1 million for all claims for the same event, and the insured has insured for a total of $2 million, the insurance company is required to pay only half of the insured sum, i.e. $250,000.

Tan Kin Lian

SCMP: Businessman sues Merill Lynch over loss on warrants

Read this article.

Wednesday, December 02, 2009

Policy loan

Most life insurance policies allow you to take a loan against the cash value of your policy. You have to pay an interest rate, which is usually 6% to 8% per annum.

The savings in your policy earn a yield of around 2%. You are therefore paying an additional interest of 4% to use your own money. This is a bad deal.

To give a fair deal to its policyholders, the insurance company has to reduce the interest rate on policy loan or give a higher yield on the savings. A fair spread should be 2%. You can find out if the insurance company is treating you fairly by asking about this spread.

How much life insurance to own?

One method that can be used is called the "human life value" approach. This is calculated as the present value of the family's share of the deceased breadwinner's future earnings. It is calculated as follows:

a) Estimate the individual's average annual earnings over his or her productive lifetime
b) Deduct taxes, insurance premiums and the cost of self-maintenance; the remainder is used to support the family
c) Determine the number of years from the present age to the retirement age
d) Use a reasonable discount rate the determine the present value

For example:
present age: 30
retirement age 65
annual earnings $50,000
self maintenance: $20,000
support family: $30,000
present value for 35 years at 4% discount: 19.41
amount to insurance needed: $582,000

This is slightly more than 10 years. For such a large sum, it is necessary to buy decreasing term insurance.

If the period is taken as 25 years (i.e. the children would have grown up), the factor is 16.24. The amount of insurance needed is $487,000. This is close to my rule of thumb of 10 years.

Optimism in Banda Aceh

My friend in Aceh told me the following:
a) Banda Aceh had a population of 250,000 before tsunami. Today, the population had increased to 400,000. More people came during the reconstruction. Some are likely to stay over the longer term.
b) The city is buzzing at night. The traffic is quite busy, although not as congested as large cities around the world.
c) Aceh is now peaceful, with the end of the insurgency and independence movement. The Governor of Aceh is a local person.

Tuesday, December 01, 2009

Holiday in Banda Aceh

I am travelling for a short holiday to Banda Aceh on 1 Decemeber and will return to Singapore on 5 December.

Risk Management

There are five ways to manage risk:

a) Avoidance
b) Loss control
c) Retention
d) Non-insurance transfer
e) Insurance

Insurance is just one method of risk management. It is appropriate only for the low frequency and high severity risks, such as premature death or serious disability. We only need to insure against the "premature" occurrence of these events, as everyone will have to die eventually and it cannot be prevented.

Most people use a combination of avoidance, loss control and retention to handle most risks of high frequency or low severity. There is no point in insuring against these risks as the cost of insurance is rather high and it is quite a hassle to make a claim.

Retention means that you set aside savings to pay for the losses that are likely to occur. It is better to have savings to pay for medical expenses and retirement income when one gets old, rather than depend on insurance to pay these benefits. Sometime, when you need insurance to pay your expenses, you may find that your claim is rejected due to some technical reason.

An example of "non-insurance transfer" is when your medical expenses are transferred to your employer through the contract of employment.

To summarize, having adequate savings is as important as having insurance. It is better to pay a small premium to cover the risk of premature death, accident or disability and to save the money separately for future needs.

However, if the insurance policy provides a good return on your savings, compared to other types of investments, it is all right to save through an insurance policy. For this to happen, the expense and other charges for the insurance policy must be much lower than it is now. The "effect of deduction" should not exceed 15% of the accumulated regular premiums (compared to 40% that is taken away now by most insurance policies).

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