How will a default by the US affect Singapore?

I read an article in the newspapers today and it confirmed my fears that Singapore could once again suffer a severe downturn if the US government does not raise its debt ceiling come 2 August. Many would have to face extreme hardship once more.

Salient points in the article:

1. US banks account for some 15% of domestic lending in Singapore.

2. If US defaults, US banks will withdraw their funds from Singapore.

'Should the US default and a credit crunch happen, it would make the fall of Lehman look like a picnic,' Robert Prior-Wandesforde, Credit Suisse.

I remember what happened when Lehman Brothers collapsed. The stock markets went into tailspins. All the buyers disappeared. Real estate was similarly affected as prices of condominiums here in Singapore declined some 30% in some cases.

I remember at the time, Soleil at Sinaran was newly launched and many buyers actually forfeited their 5% deposits and did not exercise their options to purchase. It was that bad.

My Geology professor once said to us that economists have made a mess of the world and it would be impossible for me to comprehend the mess totally. Thus, it would suffice for me to know what actions to take to position myself for whatever eventuality.

If the debt ceiling should be raised, the party will continue. Inflation could get worse and the stock market could see a new high. What to do? Stay invested.

If the debt ceiling fails to be raised, the party will end. Credit will become hard to come by or at least be more expensive. This affects costs in all its forms and will affect all businesses and individuals. What to do? Divest.

We should take a position that will allow us to benefit if either scenario should come to pass. How do we do this? The simplicity of my answer might just disarm you: be 50% invested.

Good luck.

Read article in The Straits Times here.

Debt ceiling gridlock: Who will get paid?

Banks are slashing jobs!

Banks are retrenching. Should we be worried? Is a recession round the corner? Your guess is as good as mine. Best to have our emergency funds ready just in case. If we are thinking of buying shares on the cheap, make sure we have a war chest ready as well. Oh, make sure it is not empty. ;)

HSBC will slash more than 10,000 jobs as part of the global banking giant's recently announced cost-cutting drive, a report said.

Broadcaster Sky News said senior executives at the bank "are close to finalising costs cuts that will result in thousands of jobs being axed across the bank's sprawling global empire."

The report on Wednesday said London-headquartered HSBC may chop more than 10,000 positions across its operations, citing unnamed sources.

A bank spokeswoman in Hong Kong on Thursday declined comment on the report.


Read full report here.

Swiss banking giant Credit Suisse said on Thursday that its second quarter net profit plunged 52 percent, adding it would cut about four percent of its workforce worldwide.

Net profit for the three months ending June fell to 768 million Swiss francs (US$957 million, 667 million euros) from 1.6 billion francs a year ago, amid "disappointing performance" by its investment bank unit.

Concerns over the European debt crisis and weakening global economic indicators led to weak client demand and a poor trading environment, said the group.


Read full report here.

Good luck to us all.

Cache Logistics Trust: 2Q 2011.

The decision to use funds from the partial divestment of Saizen REIT to invest in Cache Logistics Trust at the right prices a few months ago continues to be rewarding.

The management has declared a DPU of 2.086c for 2Q 2011 which is much higher than the DPU of 1.71c the same quarter last year in 2010. At the high of 99c/unit hit this morning, the REIT had an annualised distribution yield of 8.43%. Income distribution will go XD on 2 August and is payable on 29 August.

Current gearing level is 29.1% and this will increase to 30.2% upon completion of acquisition of a warehouse facility in Loyang belonging to Air Market Express. This acquisition is expected to contribute 0.05c in DPU in time.

I also like how its cost of borrowing has come down with its all in interest cost now at 3.92% compared to 4.37% in the last quarter. This contributes to a higher level of distributable income.

Some other numbers:
NAV/unit: 88c.
Interest cover ratio: 9.2x


Interest cover ratio came down from 9.5x in the last quarter. This suggests that interest expense in dollar terms has gone up faster than net property income (NPI). However, at 9.2x, it is still much healthier compared to AIMS AMP Capital Industrial REIT, Cambridge Industrial Trust or even Sabana REIT. So, I am not unduly worried. Just have to keep an eye on things, as always.

See announcement here.
See presentation slides here.

Related post:
Cache Logistics Trust: 1Q 2011.

Sabana REIT: 2Q FY2011.

I have been accumulating units in Sabana REIT even after it went XD the first time round, convinced that it has many high quality assets and that the income distribution is sustainable for the foreseeable future.

Last night, it released results for 2Q FY2011 and results were largely in line. DPU of 2.18c was declared, slightly less than my expectation of 2.2c. At the current unit price of 94.5c, it means a distribution yield of 9.23%.

Some numbers:
NAV/unit: 98c.
Gearing: 25.1%
Interest Cover Ratio: 7.6x

Nothing exciting but I will be keeping an eye on gearing and interest cover ratio. Gearing increased by 0.2% while interest cover ratio went down from 7.9x to 7.6x. There was also a higher drawdown of rental support for 9 Tai Seng Drive. In the near future, these are perhaps not really big concerns but if they persist, they could be.

Better quality assets aside, if the management is not doing a good job, they could destroy a good thing. Well, we will have to wait and see. Meanwhile, enjoy the dividend.

See presentation slides here.