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14-08-2011, 07:35 AM
The Straits Times
Published on Aug 14, 2011
Amid turmoil, try to be content
Work to acquire more important things and stop craving things we cannot have in this volatile period
By Christopher Tan
The global economic recovery is in serious trouble. That much you would have learnt from the media over the past few weeks.
At the beginning of this year, we shared through our writings that, over the next few years, we will be in an environment of uncertainty and risk, including slower growth in developed nations as well as lower investment returns and higher volatility.
This situation arose because of the great financial crisis in 2008. Developed nations are now repaying their debts, so these economies will be growing at a slower pace than in the past.
The prognosis was for the gross domestic product growth of the most badly hit economies to be 1.5 per cent to 2per cent in the coming years, slower than that in previous decades. So what has been said in the media recently about slower growth is not new.
Why then the sudden fall in the stock markets now?
Economic data revisions released last month confirmed that the slow growth scenario is indeed playing out in developed economies. This has raised fears that the United States may be going into a recession.
These fears have been compounded by the political disarray displayed by US political leaders during the debate on raising the country's debt ceiling. This has made investors wonder if US politicians can come together to tackle the bigger issue of long-term debt reduction. It has also led rating agency Standard & Poor's to downgrade the US credit rating below AAA.
In Europe, while a Greek default has been averted, the highly indebted countries of Spain and Italy have come under pressure as bond yields have moved higher over the last month. All these factors have created an uncertain atmosphere, and investors have lost confidence and sold down risky assets.
But the selldown is driven more by sentiment than a fundamental change of views. Slower growth is something we have expected all along. Besides, while the recent US economic data has been weak, there are still reasons to expect that the global economy will avoid a recession.
First, US consumers have already cut back on spending during the last three years and rebuilt their savings. Second, corporate balance sheets are in good shape, with companies reporting strong earnings and holding record levels of cash. Therefore, consumers and companies are better placed to ride out this period of economic weakness. Consumer spending and corporate capital expenditure will rebound once confidence returns.
Global industrial production has also been impacted by the earthquake in Japan in March and, as the country's industrial production improves, it will support global growth. Governments have also moved to restore market confidence.
The Group of Seven has issued a communique stating that it will 'take all necessary measures to support financial stability and growth', and the Group of 20 has also issued a similar statement.
Meanwhile, the European Central Bank has started buying Italian and Spanish bonds. The political debate which has generated so much uncertainty is, unfortunately, part of the adjustment that developed countries will have to go through as they slowly resolve longstanding problems. It is out of crises that the needed change in behaviour comes.
Investors need to be able to ride out the volatility caused by changes in sentiment and focus on their longer-term investment objectives.
People with longer-term time horizons can shift their investments to areas which are less affected and more likely to do better. These include emerging market equities, Asian corporate bonds, energy and agriculture.
But beyond just thinking about our investments, perhaps this is a good time for us to reflect on how we have been responding to the world post-2008.
Perhaps we have been overly confident. Despite living in uncertain times, we keep pushing property and car prices to ridiculous new highs. We fund our purchases by taking on more debt which will take our entire lifetime to pay. We live our lives as if the good times will always be here and we will always have our jobs.
Can we see that we are behaving in the same way that the developed world did decades ago? One day, this house of cards will tumble. We are motivated to chase the Singapore Dream and, as a result, we buy things we do not need, with the money we do not have, to impress the people we do not know.
My fear is that our pursuit of money to fund our dreams will lead to families which are broken, children who become delinquents and hearts that are less tender. Thus, we unknowingly make money our god.
As we revisit our financial plans in consideration of what is happening to the world now, perhaps it would be good to adjust them to meet our needs, instead of chasing our dreams.
This requires us to adopt an attitude of contentment, a state of mind achieved by deciding that we cannot have everything in life. We then work to acquire things that are more important and stop craving things that we cannot have. I have learnt that deliberate contentment is one of the surest paths to happiness.
The writer is the chief executive officer of wealth management firm Providend.
Published on Aug 14, 2011
Amid turmoil, try to be content
Work to acquire more important things and stop craving things we cannot have in this volatile period
By Christopher Tan
The global economic recovery is in serious trouble. That much you would have learnt from the media over the past few weeks.
At the beginning of this year, we shared through our writings that, over the next few years, we will be in an environment of uncertainty and risk, including slower growth in developed nations as well as lower investment returns and higher volatility.
This situation arose because of the great financial crisis in 2008. Developed nations are now repaying their debts, so these economies will be growing at a slower pace than in the past.
The prognosis was for the gross domestic product growth of the most badly hit economies to be 1.5 per cent to 2per cent in the coming years, slower than that in previous decades. So what has been said in the media recently about slower growth is not new.
Why then the sudden fall in the stock markets now?
Economic data revisions released last month confirmed that the slow growth scenario is indeed playing out in developed economies. This has raised fears that the United States may be going into a recession.
These fears have been compounded by the political disarray displayed by US political leaders during the debate on raising the country's debt ceiling. This has made investors wonder if US politicians can come together to tackle the bigger issue of long-term debt reduction. It has also led rating agency Standard & Poor's to downgrade the US credit rating below AAA.
In Europe, while a Greek default has been averted, the highly indebted countries of Spain and Italy have come under pressure as bond yields have moved higher over the last month. All these factors have created an uncertain atmosphere, and investors have lost confidence and sold down risky assets.
But the selldown is driven more by sentiment than a fundamental change of views. Slower growth is something we have expected all along. Besides, while the recent US economic data has been weak, there are still reasons to expect that the global economy will avoid a recession.
First, US consumers have already cut back on spending during the last three years and rebuilt their savings. Second, corporate balance sheets are in good shape, with companies reporting strong earnings and holding record levels of cash. Therefore, consumers and companies are better placed to ride out this period of economic weakness. Consumer spending and corporate capital expenditure will rebound once confidence returns.
Global industrial production has also been impacted by the earthquake in Japan in March and, as the country's industrial production improves, it will support global growth. Governments have also moved to restore market confidence.
The Group of Seven has issued a communique stating that it will 'take all necessary measures to support financial stability and growth', and the Group of 20 has also issued a similar statement.
Meanwhile, the European Central Bank has started buying Italian and Spanish bonds. The political debate which has generated so much uncertainty is, unfortunately, part of the adjustment that developed countries will have to go through as they slowly resolve longstanding problems. It is out of crises that the needed change in behaviour comes.
Investors need to be able to ride out the volatility caused by changes in sentiment and focus on their longer-term investment objectives.
People with longer-term time horizons can shift their investments to areas which are less affected and more likely to do better. These include emerging market equities, Asian corporate bonds, energy and agriculture.
But beyond just thinking about our investments, perhaps this is a good time for us to reflect on how we have been responding to the world post-2008.
Perhaps we have been overly confident. Despite living in uncertain times, we keep pushing property and car prices to ridiculous new highs. We fund our purchases by taking on more debt which will take our entire lifetime to pay. We live our lives as if the good times will always be here and we will always have our jobs.
Can we see that we are behaving in the same way that the developed world did decades ago? One day, this house of cards will tumble. We are motivated to chase the Singapore Dream and, as a result, we buy things we do not need, with the money we do not have, to impress the people we do not know.
My fear is that our pursuit of money to fund our dreams will lead to families which are broken, children who become delinquents and hearts that are less tender. Thus, we unknowingly make money our god.
As we revisit our financial plans in consideration of what is happening to the world now, perhaps it would be good to adjust them to meet our needs, instead of chasing our dreams.
This requires us to adopt an attitude of contentment, a state of mind achieved by deciding that we cannot have everything in life. We then work to acquire things that are more important and stop craving things that we cannot have. I have learnt that deliberate contentment is one of the surest paths to happiness.
The writer is the chief executive officer of wealth management firm Providend.
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
