Tuesday 11 June 2013

Economic Timeline 1997-2007


I'm currently doing an assignment on the major economic events between early 1990s to 2007, and thought maybe I can share it here. I believe that by having a better understanding of past events, it would help us recognized and react appropriately when similar situation arise. Do note that this outline is aimed provide a brief summary of the events. Some explanations might be simplified to avoid going too in depth.
 

1997 Asian Economic Crisis 
The 1997 Asian Economic Crisis started in Thailand and later spread to other countries in the region. Prior to 1997, Thailand had adopted a fixed exchange rate policy which pegged its currency with the US dollars. Following the monetary tightening policies of the Federal Reserve in 1994 which sent the US dollar surging, Thailand rapidly depletes its foreign reserve in order to maintain its currency pegs.  Anticipating a devaluation of the baht as the foreign reserve dries up, Thailand came under speculative attack of the speculators and traders which drove down the Baht even further.  Many banks in Thailand which had previously borrowed heavily in dollars and yens to lend funds in baht now find themselves unable to meet their debt payments obligations. Thailand’s banks were in trouble.
The crisis quickly spread to nearby countries in the region as investors were afraid that these countries were similarly vulnerable. This led to a massive dumping of the currencies of many Southeast Asian countries. At the height of the crisis, IMF intervened to prevent further deterioration of the situation.
The fall in value of currencies in the region including yen and yuan had substantially reduced the export competitiveness of Singapore. The financial panic also reduced international capital flow. The combining effects led to the fall of STI by about 60% from its previous peak.  However, the crisis was short-lived for Singapore. Singapore's strong macroeconomic fundamentals and healthy financial system had limited the impact of the crisis. In addition, MAS was quick to response with exchange rate and wage policies to regain export competitiveness. As a result, the STI quickly regain its loss. 


1997-2001 Dot-Com Bubble  


The speculative bubble began in the early 1990s as the world enters the Internet age. Seeing huge profitability, the market poured capital into this rising sector without any serious consideration of the business model. Many tech companies with no earning capabilities is able to raise millions of dollars through public listing. From 1995 to 2000 the tech heavy NASDAQ index soared by more than 800%. However, reality started to sink in as many tech companies reported huge loses and many of them folded within months from their public listing. In addition, the then Federal Reserve Chairman, Alan Greenspan, noted the irrationality of the market behavior had hiked interest rate to dampen the economy. Finally, the Dot-com bubble popped, NASDAQ plummeted rapidly and the US economy sank into a mild recession. 


2002 – 2007

As the US economy head towards a recession, Alan Greenspan reverses its monetary policy by lowering interest rate. By 2003, the economy began to recover. 
Following the cut in interest rate between 2001 and 2004, the US economy steadily improved. The monetary policies had apparently succeeded in driving the economy out of recession. The combination of low interest rate and a healthy economy led to an unprecedented boom in the housing market, pushing up housing prices rapidly. It also encourages investors to source for higher yielding instruments with greater risk, leading to the exploding market for securitized mortgages.
Securitization of nonconforming high risk subprime loans became popular. As the risk of the loan is borne by the investors, mortgage brokers had little incentives to perform due diligence.  Loans were easily granted to individuals with low credit score. Such high risk mortgage backed loans are then restructured and credit enhanced through the use of Collateralized Debt Obligations (CDOs) which essentially carve out AAA-rated securities from the initial junk loans.   
By the summer of 2007, the adverse effects of excessive risk taking due to subprime lending began to surface. Default rate increased as housing prices falls, pushing many financial institutions to the brink of bankruptcy. As a result, stock market plummeted.
 

Friday 7 June 2013

Portfolio Update

I have recently liquidated all my REITs and made a little profit from my first foray into investment. The recent talk of QE tapering had shaken my confidence in dividend yield stocks as the possibility of interest rate hike in the near future had substantially altered my belief of REIT's risk profile.

Moving forward, I will be on the look out for stocks which are cash rich and low debt.

Tuesday 4 June 2013

Academic Update AY2012/13 Sem 02


The workload for this semester is quite heavy with a lot of readings from my Econs mods. Out of the 5 modules, 2 were particularly demanding (ST3236 and EC3312). ST3236 was a nightmare for me. Each week, I spent more than 6 hrs attending lectures and re-watching webcasts because I simply could not follow the lecturer's pace. I also have to spend an entire day each week attempting its tutorial, but usually I can only do less than half of it at the end of the day. By the second half of the semester, I realize I'm spending too much time on this one module, hence I decided to sort of give up on it and focus more on the remaining 4 modules which I have a higher confidence of getting a better grade. On the other hand, I enjoyed both my econs mods immensely this semester. Overall, the SAP is better than I have expected, but still, I think I would be disappointed if I missed the Dean's List this semester.

Year1-Sem1
ST1131 Introduction to Statistics A-
MA1101R Linear Algebra I A
MA1102R Calculus A
EC1301Principles of Economics A
GEK1508Einstein's Universe and Quantum WeirdnessA
 
Year1-Sem2  
CS1010 Programming Methodology A-
ST2131 Probability B
MA2108 Mathematical Analysis I B+
EC2102Macroeconomic Analysis I A
PC1322Understanding the UniverseA+

Year2-Sem1 
ST2132Mathematical StatisticsA+
ST2137 Computer Aided Data Analysis A+
EC2101Microeconomics Analysis I A
LSM1302Gene and SocietyA+
GEK2503Remote Sensing for Earth ObservationA-
 
Year2-Sem2
ST3131Regression AnalysisA
ST3236 Stochastic Processes IB+
ST3239 Survey Methodology A-
EC3312Game theory & its application in economicsA
EC3333Financial Economics IA+

MC80
CAP4.725


ST3131
The module is taught by Chan Yiu Man. Although many say that he is not a good lecturer, I actually find him decent in delivering concepts. His illustrations make it much easier to understand. Module is not difficult and easy to follow. Workload is light except for the project work which need to be submitted within a tight schedule. Could be advantages if you have some prior knowledge in R and SAS by taking ST2137 first.

ST3236
As mentioned above, this module is hell mainly because of the lecturer, Sun Rongfeng who make everything so abstract and include things that are so difficult to understand. Doing his tutorials is highly frustrating and demoralizing. Although his mid term was not difficult, the distribution of grade is some-what uniform. I suspect it was because many are misled into thinking that the answers involve some alien-ish concepts seen in the lecture notes. Advice: never take this module if it is offered by the math department.

Mid-Term mean-median: 50.56-50 (/100)

ST3239
This module is more qualitative than quantitative. Dr Chua Tin Chiu who is also our Vice Dean, spent most of the time sharing with us his experience as a statistics/survey consultant. Although his stories are very interesting, it gets tiring after awhile. The technical aspect are often lacking in his explanation and notations are confusing as 2 textbooks with different notations are used. Not a very interesting module, but workload is light and it is one of the few modules which fulfill the Business and Finance specialization requirement.

Mid-Term mean-median: 17.5-17 (/25)

EC3312
Very interesting module. However it can be quite abstract some times and I have to re-read the textbook several times in order to understand it. It does not help that the lecturer, Luo Xiao, has a very thick accent and poor command of English. Although his mid terms (and possibly finials) is challenging, he is very lenient in his marking. Even so, the midterm median is not very high. Those who are not particularly academically inclined should avoid this module as it somehow attract many Zai Kia from different faculties, pushing up the level of competition.

Mid-Term median: 30/40

EC3333
One of the best module I have taken. Useful and interesting for those that are interested in investing. This module build a foundation for many of the derivatives. However, due to the heavy content, many things are being rushed through towards the end of the semesters making it difficult for student to catch up with the pace. Dr Lim Boon Tiong is an animated lecturer with entertaining hand gesture throughout his lecture. His paper is highly mathematical. Advantages for those with strong mathematical background.

As usual, if anyone would like to have materials such as lecture notes or tutorials for any of the modules that I have taken before, you may access them through this link: NUS Modules.