To be or not to be a saver?

Crude oil prices have again risen to around USD90 a barrel, almost without much notice or comment, except when prices are raised again and again at the petrol stations, as happened yet again today when the last rise is still in my consciousness.

So I searched for some remarks I sent to friends a couple of years ago when oil prices were at USD114 and no less than Goldman Sachs was forecasting oil at USD200 a barrel!

As it turned out GS was dead wrong but as someone once said, even a stopped clock is right twice a day. So perhaps it’s time to share my past remarks with a wider audience.

Below was what i said, with slight modification.

Even as the oil price rises, Singaporeans are somewhat insulated because of the strong Sing dollar which is good

  • as we import most, if not, all of the stuff we consume from Ribena to rice. So we pay less and get the same or more, depending on whether what we consume has gone up in price in the exporting countries
  • when GIC and Temasek want to invest massive amounts of tax-payers’ money abroad in an uncertain market, our super S$ can buy more assets when used overseas
  • as super-rich foreigners attracted to buy Singapore assets will have to pay more, instead of buying up our country and our heirlooms on the cheap.
  • as foreigners who come here to stay, study, seek medical services or pleasure etc, have to pay more in terms of their own currency, so that they will have a higher hurdle to cross and not price out all Singaporeans
  • as we can have even cheaper foreign labour (or even talents) because the wages we pay when converted into their home currency will be more

However, pity those in Singapore who

  • saved more, spent less and eschewed going into debt. What’s their reward? Deposit rates have always made up for inflation, according to a friend who pulled an interest vs inflation rate chart going back 30 years. 2007 was the only time where the inflation rate had outpaced deposit rates. Money on deposit is now losing 5% per annum in value and even worse when measured against property prices.
  • have invested abroad and now see both their foreign currency deposits and income decimated by the strong S$.

So what’s the solution for the squirrel Singaporean? My answer:

  •  Get paid in S$ but work abroad to get a better bang for your wages
  • Retain funds already sent offshore to take advantage of interest rate differentials, though the AUD is probably the only unit that pays decently today
  • Spend all your loose change, because with inflation at some 3%, bank deposit rate 0.25 to 0.75% for the small saver, and oil prices at USD90, better splurge today and diet tomorrow
  • Spend more time and money overseas, especially where your money gives you a Singapore standard of living at half the price or less. Time was the lights work, the taps work and the telephone works – seemingly only in Singapore. But which large city today within a six-hour flight time or less from Singapore doesn’t offer the same but with lower price tags? This is made more attractive when return air or coach fares could cost less than a long taxi journey in Singapore!

Time to watch the oil price gyration again and see if the GS forecast made in 2008 will come true in 2011!

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