Tony Tan: we might face Worst Global Recession in 30 years..

[Dennis Ng]

if you thought I said these words, (well, I did say similar words), NOPE, these are the words of Dr Tony Tan.

I hope no one called Dr Tony Tan a doomsayer.

Cheers!

Dennis Ng

SINGAPORE: Singapore's GIC, one of the biggest sovereign wealth funds, warned on Monday the world could be facing its worst recession in 30 years and that financial markets would be highly volatile.

Sovereign wealth funds from Asia and the Middle East have become more influential in financial markets after pouring billions of dollars into big banks on Wall Street and Europe that were reeling from losses related to the US mortgage market.

The Government of Singapore Investment Corp (GIC), which analysts estimate could manage assets or more than $300 billion, said financial turmoil would leave markets extremely volatile over the next one to two years.

"We could be facing a recession which is longer, deeper and wider than any recession we have encountered in the last 30 years," Deputy Chairman Tony Tan told GIC's staff on Monday.

"The financial contagion has now spread beyond US shores, increasing the likelihood of a global financial crisis and recession. Tan's remarks were "definitely one of the most bearish comments about the world economy", said Singapore-based economist David Cohen of independent consultancy Action Economics, but added that perhaps Tan was "a bit too gloomy".

The Singapore official gave his bleak outlook at a staff meeting attended by half of GIC's 1,000 employees.

Journalists were invited to the event at a convention centre, reflecting efforts by the otherwise secretive group to be more open and transparent.

Stake building by state-owned funds has raised concerns in the West that foreign governments might be investing for political rather than financial gain and may one day use the stakes to advance national interests.

GIC, which says it manages over $100 billion, spent 11 billion Swiss francs ($11 billion) on UBS convertible bonds last December after the Swiss bank sought to shore up its capital following losses from the US subprime mortgage market.

In January, it invested $6.88 billion in Citigroup Stocks in both banks have slid this year.

"We regard our investments in UBS and Citigroup as long-term investments which will give us good returns when markets stabilise and economic conditions return to more normal levels," Tan said.

UBS investors are due to vote on a 15 billion franc rights issue on Wednesday, which, if approved, would take the total of measures to fortify its balance sheet to around 34 billion francs.

GIC has said previously it had not yet decided whether to subscribe to the cash call. Tan did not take media queries at the staff meeting and no-one at GIC was available for comment.

[Dennis Ng]

I wrote something similar back in Jun 2007, when Global Stock Markets were still scaling new highs….and everything still looked so rosy…see my post below.

Sun Jun 24, 2007 by Dennis Ng

Recent plunge in China stock market and Dow didn’t trigger any effect on Asian Stock Markets, in my opinion, this is a sign of market going crazy. Even recent plunge in China market, DOW and other global markets also didn't react as well.

This is a global bull run driven by liquidity......however, when things turn around, it will be a BIG, BIG Crash becos much of the liquidity is attributed to Leverage by Hedge Funds, Private Equity, Yen Carry Trade etc, etc.... when liquidity tide turns and risk premium increases.....the crash would be like an avalanche....

The Crash would occur in both Global Stock Markets and Global Property Markets....remember the global stock market crash in year 2000 to 2002 was buffered by rise of global property markets.....so if BOTH Stock and Property markets crash, it will not be a pretty sight.

When the crash does come, it might be worse than 1928's Great Depression.

yes, in my opinion, STI index surpassing 4,000 points is a foregone conclusion.

However, I also think there'll be a crash in global stock markets and global property markets sometime in future, possibly end year 2008 or year 2009, after Beijing Olympics and U.S. Elections.

What will be the trigger for the Crash? It can be anything.

the thing with Global Liquidity as I mentioned, it can vanish overnight as well, when everyone rush for the exit, it is when the crash would occur. What cause everyone to rush for the exit door....I really don't know.

Prime Minister Lee said that even if China Stock Market crash, its impact on the world is expected to be limited.

In my opinion, actually if and when China Stock Market crashes say, from 5,000 points (now about 4,200 points) to 2,000 points, it might still create a domino effect. Why?

Imagine if by then majority of people in China are risking alot of their money in the stock market and even borrowing to "Play" in the market, when a crash comes, many households will go into financial ruin....it might then lead to a fall in consumption, and if and when the China's economy slows down (it need not even go into a recession) from the current Official 10% growth rate (unofficial REAL growth rate I guess is 20% instead) to say, 5% growth rate, it would be sufficient to create a demand shock to the rest of the world.

Do NOT underestimate the IMPACT of a DOMINO effect.

As I mentioned, my personal opinion is that when the next crash comes, it will be the WORST in Human History, as it would be the BIGGEST Crash in Both Global Stock Markets and Global Property Markets.....

why it will be the WORST in history is becos of the HUGE expansion in Deriviatives and LEVERAGE in the past 5 years......and the Massive Growth in things such as Collaterised Debt Obligaitons, Hedge Funds, Private Equity Fund etc....

Please note that yes, if this CRASH occurs, Singapore will NOT be spared. Singapore is like a small "sampan" in a big ocean. However, in my opinion, Singapore will be one of the Few SAFE Havens in the whole world becos Singapore is one of the rare few countries in the world whereby we are financially strong, each S$ issued is somewhat backed by foreign reserves we have.

Furthermore, Singapore is a Global Financial Centre, whereby even in a crisis, there'll still be Wealth parked in Singapore due to the many advantages that Singapore has.

We will not know the exact timing of the next Crash. My guess is end year 2008 or year 2009, LBWOES's guess is much earlier than that.

Importantly, we must ask ourselves how are we prepared for this Crash, how are we positioning ourselves to not only survive the Crash but be one of the Few that will actually increase our wealth massively in the coming Crash.

Each Crash is a MAJOR Transfer and Re-allocation of Wealth. The IMPORTANT question is whether you will receive wealth or you will suffer loss.

[Dennis Ng]

http://www.bloomberg.com/apps/news?pid= ... refer=home#

GIC Says Global Recession May Be Worst in 30 Years (Update3)

By Yoolim Lee and Liza Lin


April 21 (Bloomberg) -- Government of Singapore Investment Corp., the sovereign fund that has invested about $18 billion in UBS AG and Citigroup Inc. since December, said the world economy may be headed for its worst recession in three decades.

``We could be facing a recession which is longer, deeper and wider than any recession that we have encountered in the last 30 years,'' Tony Tan, deputy chairman of GIC, as the company is known, said in a speech to more than 500 employees in Singapore today.

Tan said GIC, which oversees more than $100 billion, faces its ``most challenging years'' since being founded 27 years ago, as the global supply of credit contracts. His remarks come as the fund considers investing more in UBS, which is reeling from $38 billion of writedowns.

The banking industry will probably be the worst affected by a global recession, said Guy de Blonay, a director at New Star Asset Management Ltd. in London, which manages $1.2 billion in financial stocks.

``You cannot rule out the possibility of an operating environment for banks taking a sharp turn for the worse,'' he said. ``Indeed, history suggests that a deep banking crisis is not over until the sector has been subject to broad re- capitalization and management shake-ups.''

The International Monetary Fund this month changed its forecast for global economic growth to 3.7 percent for 2008 from an earlier projection of 4.1 percent. It also said there's a 25 percent chance of a world recession, citing the worst financial crisis in the U.S. since the Great Depression.

`Extreme Uncertainty'

The reduction was the third by the Washington-based lender since July, when it predicted the world economy would cope with the U.S. credit squeeze and grow 5.2 percent this year.

GIC, set up in 1981 as the government's fund manager for Singapore's foreign reserves, has earned an annual average 9.5 percent since its inception, it said two years ago at its 25th anniversary.

Tan, 68, told his employees that they're entering a period of ``extreme uncertainty'' in the world economy and global financial markets.

``The next years may well be among the most challenging years for GIC since our establishment,'' Tan said. ``As banks continue to deleverage, cutting down on their lending activities and causing contraction in credit supply, the prospects for the U.S. economy and possibly even the world economy are fraught with considerable downside risks.''

More Scrutiny

Adding to the challenges, sovereign wealth funds face more scrutiny by the U.S. and European nations after buying assets including banks and real estate. The U.S. is pushing the government-run funds to agree to guidelines being drafted by the International Monetary Fund and the Organization for Economic Cooperation and Development.

U.S. Treasury Secretary Henry Paulson and sovereign wealth funds of Abu Dhabi and Singapore agreed last month to adopt rules for greater disclosure. The efforts are aimed in part to head off protectionist sentiment in Congress against foreign investors.

Citigroup, the biggest U.S. bank, and UBS are two of the hardest-hit companies by the collapse of the subprime mortgage market. Citigroup on April 18 posted a $5.11 billion first- quarter loss on almost $16 billion of trading writedowns and increased bad loan reserves, and cut 9,000 jobs.

UBS on April 1 said it will seek 15 billion francs ($15 billion) on top of the $13 billion it already raised from GIC and an unidentified Middle Eastern investor. GIC owns rights to acquire stock with 9.5 percent of its voting rights.

Return Targets

GIC said this month it will examine the terms of UBS's rights offer before deciding on whether to participate. The dilution to shareholders and those holding UBS's mandatory convertible notes from the rights offer is a ``necessary step,'' GIC said at the time.

Tan today defended funding Citigroup and UBS, saying the investment is ``long term'' that will yield returns when markets stabilize.

GIC, which doesn't publish financial statements, aims to achieve a rate of return exceeding the average inflation rate in the U.S., Japan and Germany, according to its Web site. Its average rate of return over global inflation was 5.3 percent per annum since 1981, the fund said two years ago.