Preparing for a global market crash in 2009

Published May 9, 2007

MONEY MATTERS

Preparing for a global market crash in 2009

When the tsunami from the economic down cycle in the US hits, Singapore investors can still profit, if they are ready

By CLEMEN CHIANG


MINISTER Mentor Lee Kuan Yew said recently that he believes Singapore's economic growth this year will reach the upper end of the government's forecast range of 4.5-6.5 per cent. But he added: 'Much will depend on how the US consumer behaves.'

MM Lee is spot on. I believe that the health of the US economy does not hinge on whether Fed chairman Ben Bernanke raises or lowers interest rates. This has no material impact on consumer spending. The most important statistic for predicting economic waves depends on the combination of two critical factors: the birth peak and the spending cycle.

According to the US Census Bureau, Population Estimates Program, starting in the late 1800s, births peaked in 1921 and again in 1961. Every 40 years there is a new generation created and every 80 years economic, business, and lifestyle revolutions emerge. This trend can be applied through the generations into the future. Based on this statistic and the demographics of the population, economic upturns and downturns can be forecasted in a systematic fashion.

Strauss and Howe's first book, Generations (1991), tells the history of America as a succession of generational biographies from 1584 to the present. They describe a 40- to 41-year spending cycle in which there is an initial 27-year boom followed by a 14-year downturn. The greatest spending cycle begins when the birth wave enters the workforce at the age of 19 to 22 until they reach 47 years of age.

The Consumer Expenditure Survey released in February by the US Census Bureau showed the major components of spending which account for about 90 per cent of total expenditure. They comprise: food, housing, apparel and services, transportation, healthcare, entertainment, personal insurance and pensions.

In the table, a birth peak takes place every 40 years - in 1881, 1921, 1961 and 2001. From each birth peak, we add 19-22 years to arrive at the start of the spending cycle. Before the age of 19-22, this birth peak population is not contributing to the economy. As such, the spending cycle starts in 1902, 1941, 1982 and 2023. Thereafter, spending grows which leads to a 27-year boom.

Unfortunately, when the birth peak population matures at 47 years old, it will result in a drop in spending for the next 14 years. This begins the 14-year down cycle.

I plotted the birth peak and spending cycle over the Dow Jones Industrial Average, which is the oldest continuing US market index. Starting with the birth peak of 1881, the economy grew from 1902 to 1928 which is the 27-year boom. From 1928 to 1941, it suffered a 14-year down cycle. In 1929, the market experienced its worst decline - the Great Depression.

From 1941 to 1982, the birth peak and spending cycle demonstrated their accuracy once again. Taking the next starting point at 1982, we can extrapolate to peek into the future. The economy will grow for 27 years from 1982 to 2009. Unfortunately, from 2009 onwards, I predict that the US market will crash and it will last for 14 long years.

The question is, how do we prepare for this market crash in 2009?

First of all, I must say that Singapore is well-prepared for this crash in the event that it does happen. We are strategically positioned in the following key industry sectors:

# biomedical sciences and healthcare

# chemicals

# clean energy

# education services

# electronics

# emerging industries

# engineering and environmental services

# headquarters and professional services

# infocommunications and media

# logistics

# precision engineering

# transport engineering.

More importantly, with the two integrated resorts, Marina Bay Sands and Resorts World at Sentosa, opening in 2009 and 2010, increased visitor arrivals will continue to reap tourism receipts to cushion the spending drop in the US.

Thus, the practical question should be: How do Singapore investors profit from a market crash in 2009?

Before I provide you with the answer, let's study the Singapore government Master Plan which can be found at www.ura.gov.sg. Two of the key proposals are:

# Long-term population growth from 4.4 million to 6.5 million by 2040-2050

# the 33-station Downtown MRT line.

An increase in the population size by 2.1 million in 30 to 40 years requires a proportionate increase of space for people to live in. There are two ways to go about this: laterally or vertically.

Under Concept Plan 2001, possible future reclamation is limited. That is, lateral development of space is capped.

Instead, we have to focus on vertical development, especially in those areas identified for this purpose.

As for transport, radial lines will enable you to travel to the city directly. Orbital lines will enable you to get from one place to another outside the central area more quickly. The existing 93 km of rail lines will increase to about 500 km in future. For car owners, rides will be faster and smoother in future with more capacity on expressways.

Piecing the puzzle together, I highly recommend investing in real estate during the market crash, particularly in areas that the growing population will be living in. These are found in the sub-regional centres as well as the regional centres.

However, with the prevalence of Internet and video conferencing, it is no longer necessary to commute to work in the central area on a daily basis. These exciting new technologies will give us a great deal more flexibility as to where we live in the years to come.

For me, I would want to live, work and play at Sentosa Cove - a most desired address. Here, you will discover the wealthiest individuals who will not be affected by the market crash because they have already invested for the future.

The writer is CEO, Freely Business School. www.freely.com


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Clement is a punk and a con man. Look at his face and you will know.

Yah, clemen must have bought a unit at sentosa so trying hard to promote his buy. Typical of a con man.

While Clemen's comments may seem hogwash to some, he is basically referring to what is the spending/saving pattern of an individual's life-cycle (very very roughly, an individual spends in the first 30-40 years of their lives before worrying about retirement and saving for the next 20-30 years). Note: A financial advisor will tell you that in the first 30 years, an individual's propensity to consumer is low because of financial committments but I wont go into that - i believe this no longer holds in this present age of easy credit etc.

I am no supporter of Clemen but I do know that as the baby boomers of the 1960s reach retirement age and as the world population greys, countries will face massive costs. Countries in the west which have defined benefit pensions will see spending greatly increase; Asian economies with much younger population in general and defined contribution pensions in place will be less burdened. This phenomena itself will shift the pattern of spending of individuals globally.

I believe markets will go into a secular bear trend for a few years but for different reasons than that suggested by clemen.

Dr Fake clemen, that SOB is a real fake loh, his freely shit will free you of all your money. Piece of shit con artist!

A bisexual bastard that likes to suck cock and swallow.
Clemen is for Cocksucker.
freely free your pants and blow your dick.

Ignore Clemen lah.
Why get bothered by him?

Just go grab some properties and increase your wealth.
Buy buy buy!
Up up up!

Because he ****ing con artist.

Quote:

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Originally Posted by clemen con artist

Because he ****ing con artist.

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OK OK! Cool down.
I agree with you that he is a con artist.

Just relax OK?
Go to a showroom now.
Grab some properties, make some money, and ignore him.

And talk about him anymore.
Stop here!