Building Pyramid Schemes, the Singapore Way

A few days ago, I was at a dinner party and got to meet a lot of nice and interesting entrepreneurs and senior executives in telecoms and technology.

One of them decided to share some of his investment wisdom with me — I didn't tell him about my background — and here's what he told me:

1. You buy a house for say SGD 700k. You'll need say 200k as a downpayment, and borrow 500k from ABC bank (I'm not going to name the bank involved).
2. Then, you withdraw those 200k equity you have at say 2%.
3. With the 200k, buy bonds of ABC bank (which lent you the mortgage in the first place). Those bonds pay about 5%.
4. Then, because you've bought your home with money borrowed from ABC, and you've bought bonds of ABC with the cash of your equity withdrawal, the bank will lend you some more money, up to about 50% of your bond holdings, if you agree to buy more of those bonds. So you get another say 100k with an interest of about 2.5%, that you'll invest in the ABC bank bonds at 5%.

You end up with:

• about 120% of the value of your home borrowed
• almost 50% of the value of your home invested in ABC Bank bonds
• being an interest rate speculator, and buying illiquid debt from a bank which future is obviously more than hazardous given the schemes it's setting up.

What do you think?

Portfolio Update — Long EUR

I haven't had much time to write in the past couple of days. But here's a quick portfolio update:

• I started buying Euros against SGDs which is trading as a historical high. This I don't really consider as part of my portfolio, since it's my personal bank accounts we're talking about...
• I also open a small speculative position on EUR/USD by buying call options strike 1.28. Let's see this one unwinds. I hope to be able to increase the size if I'm proven right. EUR/USD was trading at 1.2730 when I opened the position a few minutes ago.

Hello World — From Singapore

Just wanted to let you guys know that I have arrived in Singapore about 24 hours ago, and that I hope to get up and running during the next few days and resume the normal posting — though with a bigger lag than usual: 12 hours time difference with NYC, 8 hours with London.

Singapore GDP grows by 23% QoQ

Bloomberg is reporting that Singapore's GDP grew 23% from the previous quarter, twice as much as estimated by the economists:

April 14 (Bloomberg) -- Singapore’s economy grew more than twice the pace economists estimated in the first quarter and the central bank said it would allow further gains in the currency in the third tightening of monetary policy in a year.

The Singapore dollar jumped to a record after a trade ministry report showed gross domestic product rose at an annual rate of 23.5 percent last quarter from the previous three months. That’s up from 3.9 percent in the fourth quarter, and compares with the 11.4 percent median estimate in a Bloomberg News survey of 14 economists. The central bank said separately it will allow the Singapore dollar to appreciate more.

As I moving there and hope for the best, I still wander... and ask these obvious questions:

• How sustainable is this kind of growth? 
• Is this real growth? Or growth fueled by massive credit growth?

Do you have the answer? Please let me know in the comment section.