Fed sees sharp US budget cuts as "sizable risk"

WASHINGTON: The Federal Reserve sees a quick, sharp tightening of US spending as a "sizable risk" to the economy, minutes from a recent top-level policy meeting revealed Wednesday.

"Several" members of the Fed's interest rate-setting panel have expressed fears that uncertainty about dramatic budget cuts could curb business hiring and economic growth.

At the end of this year, if Congress does not act, automatic budget cuts will hack $1.2 billion off government spending at the same time that billions of dollars' worth of tax cuts expire.

Taken together, the measures aim to trim an estimated $6.8 trillion off the US deficit over a decade.

But they would also force a sudden contraction in government spending, crucial to the economy.

"If agreement is not reached on a plan for the federal budget, a sharp fiscal tightening could occur at the start of 2013," the minutes noted.

"Uncertainty about the trajectory of future fiscal policy could lead businesses to defer hiring and investment."

While Fed officials have previously spoken about the looming fiscal cliff, the minutes of the Federal Open Market Committee's April 24-25 meeting show the depth of that concern.

"It is clear from the minutes that some Fed officials have started to worry about the implications of the 'fiscal cliff,'" said Stephen Stanley, an economist with Pierpont Securities.

In April, Fed Chairman Ben Bernanke warned Congress that the central bank would not be able to act as a saviour for the economy if Congress failed to act.

"The size of the fiscal cliff is such that there is, I think, absolutely no chance that the Federal Reserve could or would have the ability whatsoever to offset that effect on the economy," he said.

Yet the subject remains highly contentious in Washington, which is mired in partisan sniping as the country rushes toward presidential elections in November.

The Republican speaker of the House of Representatives, John Boehner, has indicated he wants a showdown with President Barack Obama over the issue.

Last year the failure of America's political parties to reach a deal over budget issues resulted in a first-ever downgrade of the country's credit rating.

Meanwhile the Fed also warned that the incessant debt crisis in Europe could yet hit the United States.

"Strains in global financial markets stemming from the sovereign debt and banking situation in Europe continued to pose significant downside risks to economic activity both here and abroad," the minutes noted.

The minutes also showed some support for further stimulus if the US recovery slows sharply.

"The economy continued to expand moderately," participants noted. "Labor market conditions improved in recent months."

But most analysts saw the Fed standing pat.

"The committee, on balance, saw the incoming data as improving enough to alter its forecast in favor of stronger growth, lower unemployment, and higher inflation, but did not feel confident enough about the improvement to adjust its policy stance," said Michael Gapen of Barclays Capital.

There was also some skepticism that recent strong economic data could be the start of a rapid improvement in the world's largest economy.

Some members of the committee "thought it was premature to infer a stronger underlying trend from the recent positive indicators, since those readings may partially reflect the effects of the mild winter weather or other temporary influences."

S'pore Q1 GDP up 1.6% on-year

SINGAPORE: Singapore's economy grew 1.6 per cent on-year in the first quarter, compared to 3.6 per cent growth in the preceding quarter.

On a quarter-on-quarter basis, Singapore's economy grew by 10 per cent, reversing the 2.5 per cent contraction in the previous quarter. The figure was slightly higher than the 9.9 percent reported in Advance Estimates released last month.

Singapore is maintaining its economic growth forecast for 2012 at one to three per cent, amid uncertainty in the global economy.

The Ministry of Trade and Industry said any recovery in the global economy remains fragile and vulnerable to downside risks.

It also warned that a disorderly sovereign debt default in the eurozone could not be ruled out, and if it did happen, would pose considerable downsides for the global economy and Singapore's externally oriented industries.

The improved momentum was largely due to the upturn in the manufacturing sector. The sector grew 19.8 per cent on a quarter-on-quarter basis, rebounding strongly from the 11.1 per cent contraction in the previous quarter.

The construction sector, meanwhile, surged 32.1 per cent.

The wholesale and retail sector contracted 2.3 per cent in the first quarter. This weak performance was mainly attributable to a decline in re-export volume, which negatively affected the wholesale trade segment.

The finance and insurance sector contracted for the second time by 3.4 per cent, due to the sluggishness in fund management activities.

Don't get caught off guard by GBP

Amid the ongoing European debt crisis, the British pound has emerged as one of the unlikely safe-haven darlings for currency traders.

The pound has strengthened 3.4 per cent against the euro since the start of the year, and 7.4 per cent if measured from October last year.

To many traders, this is surprising, considering two major points.

First, Britain is going through its second recession in only three years.

Second, the Bank of England (BOE) has flooded the financial system with pounds through its quantitative-easing (QE) programme, to the tune of £325 billion (S$656 billion).

The main function of QE in any country is to lower yields by purchasing a large amount of securities (through expansion of the money supply).

Lower yields would then help to push interest rates down and, subsequently, boost lending.

All this is done in the hope that increased lending will give the economy a needed boost and, ultimately, stimulate growth.

With the unprecedented amount of cash injected by the BOE, coupled with the flight to safety of European traders and investors, it is not difficult to see why yields are at a record low.

In fact, according to the latest figures on British bonds - known as gilts - yields for 10-year gilts are already below 2 per cent, a record low.

In essence, the flow of funds from Europe is helping the BOE with another QE programme.

BOE is taking a hawkish tone for two reasons. First, the flow of funds from Europe actually "helps" BOE maintain its QE programme.

Second, inflation is still stubbornly high, although it is not being caused by stronger demand.

Although we see the pound strengthening in the currency market, we need to be mindful of the underlying factors behind the currency's strength.

In Britain's case, the strength of the pound is not due to fundamentals.

When we bear this in mind, we can be more prepared to take steps and short the currency should the tide turn unexpectedly.

Trade call 

Short EUR/GBP at 0.7995

EUR/GBP has been moving in a solid downtrend, clearing almost 400 pips since March 28.
On the hourly chart, prices are flirting with the "round" number of 0.8000.

This is a level not seen since November 2008. Going with momentum, our bias is for a short and we will make an entry when prices fall to 0.7995.

A stop loss of 45 pips is located above the Monday-morning gap because we do not expect prices to go above the gap again.

We will have two targets on this trade, exiting the final position at 0.7905.

Gains from fast-track business

SINGAPORE - It all started at the age of 21 for him from a tentage beside his kampung home in Hougang.

Mr Danny Teo transformed an air-conditioning business based in that simple shelter into an appliance and electronics retail chain, now known as Gain City Best Electric.

Mr Teo, the founder and its executive chairman, said in Mandarin: "The company has to move forward, or it will move backwards. I have to always improve, expand the product line and provide more services."

In an interview with my paper last Monday at his Ang Mo Kio head office, he added: "Doing business is like being in a Formula One race. You have to race fast and avoid accidents."

Mr Teo, who turns 53 this year, said he went into the air-conditioning trade as he believed it had "a lot of potential", due to Singapore's warm climate and the fact that he was "afraid of the heat".

At age 16, he became an apprentice at a now-defunct local air-conditioning firm and picked up skills in maintenance and repair.

In 1981, he opened his own door-to-door air-conditioning maintenance business.

"I'm an independent person, with my own way of doing things. It's easier for me to express my abilities that way."

The man also explained why he did not follow in his parents' footsteps of supplying seafood to restaurants and coffee shops.

"In the past, I didn't think it was challenging enough. But, when I grew older, I realised the seafood business was actually not bad."

After he began his business, he took in an apprentice.

He eventually hired more people, roped in his four younger brothers and trained them.

The name of his business, Gain City, was derived from his desire to contribute to Singapore and help it prosper.

Singapore is known as the Lion City, while one English translation for "prosper" in Chinese is "gain".

In due course, he branched out into the refrigeration business and other home appliances and, about three to four years ago, consumer electronics such as notebooks and cameras.

Gain City has nine retail outlets. Its latest store in Changi City Point opened in November last year.

The firm is planning a new centralised warehousing facility in Sungei Kadut with a new retail store.

The 10-storey building is expected to open in the first quarter of 2014.

Besides retail business, Gain City is also in the wholesale business.

The company has been involved in installing air-conditioners for the F1 night race in Singapore since 2008.

One project Mr Teo got much satisfaction from was the International Monetary Fund-World Bank meetings in 2006, as the event came with many challenges, such as severe time constraints.

Gain City has pulled through tough times as well.

In fact, the business founder took the opportunity during slow periods, such as the 2009 recession, to hire and train workers, instead of retrenching staff and cutting pay.

This helped prepare the company to do more business subsequently.

"You have to make preparations regularly," he said of downturns.

"If you regularly do things properly, you'll be fine."

The firm has about 700 employees and, if Mr Teo has his way, the number will grow to 1,000.

While family members, including three of his brothers, are actively involved in the business, Mr Teo strives to keep work separate from family matters.

"In this way, when brothers work together, there won't be problems," he explained.

And he deliberately avoids harping on a "family culture" in Gain City.

He said: "Just get the work done properly. A family culture should naturally develop on its own.

"It's important to be sincere, honest, keep your word and be professional."

Japanese passenger killed in horror crash identified

SINGAPORE - The passenger in a taxi that was hit by a Ferrari which crashed into it on Saturday has been identified.

Ms Shigemi Ito, who is believed to be in her 20s, was sent to the Singapore General Hospital after the accident at Bugis, but died shortly after.

Her parents and brother were seen at a funeral parlour at Sin Ming drive on Monday, where her wake was being held, reported The Straits Times. They declined to speak to the media.

Ms Ito was working and living in Singapore.

Friends of Ms Ito received an SMS yesterday from a man who signed off as T.C. Thio, informing them of her death and details of the wake.

The man also said in the message that he was her boyfriend.

The three-vehicle accident which involved a Ferrari, taxi and motorcycle also claimed two other lives - Ferrari driver Mr Ma Chi, 31, a private investor from Sichuan, and cabby Cheng Teck Hock, 52.

Mr Ma's female companion, believed to be in her 20s, is reportedly in stable condition at Tan Tock Seng hospital.

The world is her oyster

Despite zero experience in oyster farming, this plucky woman ploughed $500,000 into a derelict oyster farm and successfully persuaded restaurants here to buy local molluscs.

She had no prior experience in aquaculture.
But that didn't stop her from venturing into unchartered waters and investing half a million dollars to rebuild a derelict oyster farm which had gone bust.

That was three years ago.

Today, Madam Fanny Su, 50, juggles her full-time job as a manager for an international organisation and being a part-time farmer on her oyster farm, Hai Loong Mariculture, located off Pulau Ubin, near Chek Jawa.

Her venture into oyster cultivation began when she was looking to do more with her love for the outdoors.

She initially considered fish farming.

In 2009, she started scouting for a fish farm to buy and discovered there was an oyster farm which had gone out of business about a year ago.

Doing her sums, Madam Su found that oyster farming could be more cost effective, she says.

So she paid the farm's previous owners $50,000. Says Madam Su with a laugh: "It came with a small motorboat and a cat."

The oyster farm was in very bad shape, almost half sinking when she got it.

It took four months to rebuild and she engaged contractors and sought help from the local fishing community.

The structure of the farm, which used to span 2,000 sq m, now covers an area of 4,000 sq m.

The total cost of the repair and renovation works? A cool $500,000.

It was a risk from the beginning as oysters take at least a year to mature and there was no guarantee of a market for locally-cultivated ones.

Having no prior experience, Madam Su ramped up her game by attending overseas trade shows and oyster farming courses in the United Kingdom, Germany and Australia to learn the ropes of the trade.

The farm now cultivates Pacific oysters from spats (baby oysters) delivered from Australia and Chile every four months.

Today, after three years of persistence and hard work, the farm has begun to yield results.

Now the farm employs five workers and supplies 3,000 oysters a week to about a dozen restaurant-chain regulars here and to private consumers.

The farm has 500,000 Pacific oysters growing in baskets at any one time, and they are working toward producing 20,000 of the plump shellfish a month.

Madam Su reckons it will take at least another five years to recover her investment.

And it was no easy feat persuading local restaurants to buy her oysters at first.

Recalls Madam Su: "I went cold-calling door-to-door, carrying a small insulated ice-box containing fresh oysters! I started at Clarke Quay and Boat Quay.

"Most believed that imported oysters are the best. I had to persuade them otherwise. I invited the restaurant managers and chefs to sample our oysters and let them taste the quality for themselves."

They were eventually won over by the plump, fleshy and fresh produce.

Before delivery, the oysters have to be scraped clean, sorted into three different size groups and undergo extensive depuration, a process of cleaning, purging and sterilisation for two days to kill off bacteria and viruses that may be present.

The oysters are then placed in a cooler water tank, ready for shipment.

Once a week, the Agri-Food and Veterinary Authority of Singapore checks the surrounding water, the depuration system and collects oysters for testing.

Every weekend, Madam Su and her brother, Mr Frank Su, 58, who is retired from the army, pitch in.

She'll be busy with the paperwork and scraping duties, while her brother does maintenance work and monitors the farm.

For her, it really is a labour of love.

Video clip shows Ferrari speeding, beating the red light

SINGAPORE - The Ferrari involved in a horrific crash was caught on camera speeding and beating the red light before smashing into a taxi.

Video footage of the incident shows the red supercar slamming into the taxi five seconds after the traffic light turned green in the favour of the taxi at the junction of Victoria Street and Rochor Road.

ComfortDelGro taxi driver, who only wanted to be known as Mr Yeo, handed the two-minute long video over to Shin Min Daily news. Mr Yeo was travelling in his taxi at about 4am that Saturday morning when he witnessed the accident. The footage was shot via his in-car camera.

The video shows the 50-year-old cabby, who was driving four passengers to Newton Circus, travelling along North Bridge Road. Before he could make a right turn into Rochor Road, he stopped in the second lane from the left at the notorious junction as the lights had turned red.

On Mr Yeo's right was the ill-fated ComfortDelGro cab.

Once the lights turned green in Mr Yeo's favour, the cab on his right moved off immediately. The cab was barely one car length in front of Mr Yeo's vehicle when the Ferrari slammed into it.

The video shows a five-second interval between the traffic light turning green and the Ferrari crashing into the taxi.

Mr Yeo said that he did not realise it was a Ferrari at first as the red shadow was so fast he could not make it out. He estimates that the driver was travelling at more than 100kmh.

He also thought the accident was minor. He only realised how close he was to death when he reviewed the video footage later that day.

He went to pray at about 6am before heading home and sharing the incident with his wife and children.

Those who witnessed the accident can call the police at 1800-547-1818.