Singapore : Inflation erodes away bank savings

businesstimes.com.sg :

Cash-rich Singaporeans averse to risky alternatives are in an unhappy spot of having their savings eroded by inflation. Not only is inflation clearly on the rise - it hit a 26-year high of 6.6% in January - banks are further cutting their already miserable deposit rates. Last week, DBS Bank slashed its fixed deposit (FD) rate again to 0.9% for a 12-month deposit of $1 million. The latest revision is less than half of the 2.02% it offered on Jan 2. And OCBC Bank's 12-month FD rate has been lowered to 1.2% from 1.4-1.8% last year. This is for amounts between $500,000 and $1 million.

Despite the paltry returns on deposits, those with spare cash appear to have few choices beyond the safe haven of banks. Typical interest rates for savings and demand deposit accounts are 0.3 per cent. Interestingly, bankers said that generally, people with excess cash don't seem to be using it to pay down loans such as mortgages. Some observers reckoned that money is left in savings and demand deposits accounts while people mull the choices of higher returns elsewhere. Bankers said that customers are asking about higher-yield products, though caution seems to be the order of the day. Some of the more gung ho are venturing into foreign currency products.

- This is a clear and present threat to investors and savers who put aside money for a rainy day, only to see these savings get eaten alive by high and increasing rates of inflation. Savers are in fact being punished for putting money aside. What is the point of saving money at a 1% fixed deposit rate or worse, a 0.25% to 0.3% savings account interest rate, when the inflation rate as reported by the CPI figures is running at 6.6% a year?

Not long after the SIBOR rates fell to 1.5%, seemingly in tandem with the timing of the Fed rate cuts, Singapore banks started slashing their interest rates on deposit accounts. I watched in horror as the interest rate on my Fundsupermart FSM Cash Fund, an investment fund that consolidates investors' money into a consolidated fixed deposit pool, fell from 2.5% to 2%, and then down below 2% and down to today, where it stands at a pitiful 1.483%.

I have since pulled out some of that FSM Cash Fund money and put it to work in Canadian income trusts which give me a yield of 12-15% per year, or over 1% per month. I am receiving dividends from my personal share of their oil and gas production to the tune of several hundred dollars a month. And as inflation takes off and oil prices continue to set new records, either the dividends or the share prices of these oil & gas companies will increase, or both. I cannot recommend them unreservedly, however - prices are volatile, do not have 100% correlation with oil prices, and are subject to country, currency, sector, and company risk. It is perhaps not a problem for peakoilers like me who study the subject of energy obsessively, but it may not be for those who do not understand anything about the energy markets. Caveat emptor.

Iran inflation surges to 19.6%, highest pace in 8 years

bloomberg.com :

Iran, the world's fourth-largest oil producer, is facing gasoline shortages, as well as youth unemployment of 21% and U.S. economic sanctions. President Mahmoud Ahmadinejad has responded by imposing gasoline rationing, boosting subsidies and raising government spending, sending inflation to its highest annual pace in eight years, accelerating to 19.6% in December 2007, up from 10.9% in the month after Ahmadinejad took office in August 2005.

The president has used Iran's oil riches to boost his political support. Spending on subsidies for items such as sugar, wheat and cooking oils has increased by more than 50% since 2005. The IMF, in its annual review of Iran's economy, called for "phasing out energy subsidies" and stressed "the importance of addressing the numerous distortions stemming from the extensive controls on prices." Iran's oil refineries, which were badly damaged during the 1980-88 war with Iraq, are unable to meet the country's needs: it must import about 40% of its gasoline. Iran pays 52 cents for an imported liter that it sells for about a fifth of that price under the government-run rationing program.

- The particular circumstances for each country may vary but globally, the same thing is happening everywhere - rising inflation in all countries, whether they are resource producers or goods manufacturers, or consumers, or a mixture of both.

(2008-03-11 12:47:55 SGT) [Biz] Permalink

Crude oil hits $108.21 record as returns outpace stocks

bloomberg.com :

Crude oil traded near $108 a barrel in New York after rising to a record yesterday [10 Mar 2008] as investors bought futures because the returns have outpaced those of financial markets. Crude oil futures for April delivery surged to $108.21 a barrel, the highest since trading began in 1983, and closed at a record $107.90 a barrel.

Oil in New York surged 80% over the past year as the S&P 500 and Dow averages dropped. China, the second-biggest oil-consuming country, increased crude-oil imports by 18% last month and halted overseas shipments to meet rising demand. Hedge-fund managers and other large speculators increased net-long positions, or bets on higher oil prices, in the week ended March 4, a Commodity Futures Trading Commission report showed. Gold, platinum, wheat and soybeans have all been pushed to records over the past month as a falling dollar and rising demand spurred investor purchases.

- Welcome to $108 oil. When I left the office yesterday evening, crude oil was hovering just above $104 and threatening to break down all the way to the $100 support level. So what spooked the crude traders? It looks like a combination of the falling dollar, reports of China's rising demand, hedge fund buying, and overall it's a story of money looking for some place to go.

The next resistance levels would probably be at $110, $120, and $150 - nobody can know for sure since we are literally in uncharted territory here. Support levels for crude oil remain at $100, $95, $89 and $85, and I wouldn't count on the last 2 or 3.