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The most dangerous crisis and what should we do?

Monday, June 8, 2020

I didn't plan on blogging but after listening to a story and also watching PM Lee's address to the nation yesterday, I decided to blog.

The story is about how someone's friend is now trying to borrow money from mutual friends since losing his job during this crisis.

We are not talking about borrowing tens or hundreds of dollars either but much more.

It is a story that sounds familiar enough and it reminds me of blogs like these:

1. From rich to broke?

2. If we are not rich, don't act rich.

I won't share the details of the story I just heard.

I wish the person well and that he learns from this painful experience.

A reader once told me this:

3. "Compared to anger and fear, shame is 1000 times worse."

Even with all the measures taken by governments around the world, millions and millions of jobs have been lost.

So, there will probably be many more of such stories as the crisis lingers on.

After all, yesterday, PM Lee said COVID-19 is the most dangerous crisis humanity has faced in a very long time.

He said that we would have to live with COVID-19 for a very long time just like we did with Tuberculosis.

I don't remember the time when Singapore had to live with Tuberculosis for a very long time but my parents do.

Watch PM Lee's address to the nation yesterday here:

Right now, it seems that people on Main Street are very pessimistic as unemployment is high and the economy is in recession.

Right now, it seems that people on Wall Street are very optimistic as the market indices defy gravity.

Right now, as always, AK is saying we should stay pragmatic.

To the people on Main Street, remind ourselves that COVID-19 will pass and things will go back to normal one day.

Don't be too pessimistic and think that the world is ending soon.

To the people on Wall Street, remind ourselves that even though COVID-19 will pass, it will not happen soon and that COVID-19 will be with us for quite some time yet.

Don't be too optimistic and throw caution to the wind.

Be pragmatic.

Singapore has past reserves which we have drawn upon to help weather this crisis.

The Singapore government has given monetary support to all Singaporeans during this crisis.

PM Lee said we have drawn almost $100 billion to fund 4 national budgets to fight this crisis so far which is 20% of our GDP and this is hard to sustain.

So, we should not count on this being done indefinitely.

Of course, as all of us have different circumstances, I doubt that the monetary support from the government is sufficient for everyone.

This is why, if we have been prudent, we should have past reserves too and this is, of course, an emergency fund.

The emergency fund should be enough to fund 6 to 24 months of expenses, depending on our employment prospects.

"We are particularly concerned about those in their 40s or 50s, who are often supporting children and elderly parents at the same time, and have financial commitments to meet." - PM Lee

How big an emergency fund?

In times of need, we would be glad that we have an emergency fund.

PM Lee said that we are fortunate that Singapore has past reserves to draw upon to fund national support measures.

Unlike other countries, we do not have to borrow money to fund these support measures.

The parallel here for us individuals is that banks are fair weather friends.

They are not altruistic institutions whatever their advertisements might say.

We should not depend on credit because it might not be there when we need help the most.

PM Lee said yesterday we have to prepare for a very different future.

"The next few years will be a disruptive and difficult time for all of us." - PM Lee

The difficult time ahead is not just due to the blow to our economy caused by the COVID-19 pandemic but also due to an increasingly less benign attitude towards globalisation.

Being financially prudent and having an adequate emergency fund is more important than ever.

Related post:
Avoiding financial ruin.


AK71 said...

"I am still staying invested, adding to my investments from time to time but not throwing in everything including the kitchen sink.

"There could come a time when I throw in everything BUT the kitchen sink but even if I don't do so, it is OK to me.

"I rather make sure that I am ready for a relatively long and bumpy ride which could be in store for us in the weeks or months ahead."

Buffett thinks it is going to get worse.

Elaine said...

You answered all the questions before we could even ask!

AK71 said...

Hi Elaine,

I didn't do it on purpose.

I am innocent.

Honest. :)

Unknown said...

Hi AK,

Not sure if you read about Sembcorp Marine rights issue.

Could you talk to yourself about it?

Thank you!

AK71 said...

Hi Unknown,

I just replied to another on the same matter.

You might want to refer to it:

laurence said...

You answered all the questions before we could even ask!

AK the Oracle is omniscient and prescient.
Nothing escapes The Oracle.

AK71 said...

Hi Laurence,

AK is mental and talks to himself too much.

In the process, he asks himself questions and answers them.

100% bonkers. ;)

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