Tag: t_inflation

SG CPI-inflation: 30Y xp, basket composition

Posted on by tiger40490

% of burn rate … excludes tax payment, P in P+I

Is it better to spin off to a new bpost [[30Y xp@SG inflation]]?

k_deflation

For long-term burn rate management, inflation (along with medical) is one of the top 5 concerns. Long-term (30Y) prediction of inflation is unreliable. 3k/M burn rate doubling over 20Y is an unreliable prediction.

If we exclude flights, enrichment, bx, rental cost, then the crbr (couple retirement burn rate) is showing very low inflation. Indeed, each individual’s concept of “basket of goods” can vary greatly, just as each person’s retirement burn rate. (The last observation was echoed by Officer Teo at Bishan CPF service center.) My own burn rate record-keeping is more reliable and relevant data source than official inflation, though I can derive insight from official “basket of goods” including housing, private car, enrichment.

==== CPI basket. https://www.singstat.gov.sg/find-data/search-by-theme/economy/prices-and-price-indices/related-info/faq-on-cpi shows the percentage weights for an average Singaporean family, which contrasts my percentages (in color):

  • 25% housing + utilities .. (excluding telco) SG CPI uses imputed rent, so this weight is comparable to mine (30%). From here on, I need to include a phantom $2k imputed rent into my monthly burn rate. Also 25% weight in U.S. CPI
  • 21% nutrition
  • 17% transport … (including flights) more like 10% due to absence of car
  • 8% recreation + culture …. probably including tourism, dining
  • 6.5% education .. more like 15-20% in my basket
  • 6.5% medical .. (including bx, excl wellness) $176/M more like 4% of my 5k/M. Was 10% in my basket during Q3sg.
  • 5% household_durables … (unfamiliar category) includes semi-consumption or big-ticket items like furniture, electronics
  • 5% misc
  • 4% comms .. includes phones and monthly bills. $200/5k = 4%
  • 2% clothing

Warning: CPI excludes non-consumption expenditures such as loan repayments, purchases of houses, income taxes,,,

Q: which category is currently my biggest category, beside housing?
A: nutrition, utilities (MRT, energy, telecom…)

==== Q: Did individuals’ basket price double over 30Y?
Raymond said “less than doubled over 30Y”. Raymond pointed that actually some items became cheaper, often thanks to Chinese improvement in quality. (See also https://tanbinvest.dreamhosters.com/wp-admin/post.php?post=549&action=edit)  Raymond also felt housing inflation is too high due to government. I think he mostly referred to BTO prices.

Zeng Sheng said “maybe 60% increase” since he arrived in 1998 (22 years ago).

Pauline Teo’s book basically says “yes”, using 3% compound inflation rate. The Jan 2021 DBS seminar also used 3% compound inflation over 20 years. The Singapore CPI inflation rate shows average around 2%/Y, according to my google search in 2020.  BeReadyWithCPF microsite also used 2% inflation to forecast retirement cash flow.

— in 1994 I started living on my own, spending perhaps $500/M excluding rent. When I first met XiaoAn I think he guessed “probably below $1500 including rent” and I said yes. Assuming my 2001 burn rate was $1k/M excluding rent,

Q: would I be able to live alone today at the same burn rate?
A: Yes I’m confident. Look at my c++US phase excluding rent + airfare.

— Q: has price doubled over 30Y from 1991 to 2021?

  • shirt, pants, shoes – i feel didn’t double
  • pouch — doubled.. was probably $2-$3
  • cinema .. didn’t double. Alternatives include home movie
  • backpacks — didn’t double, due to cheap imports from China
  • doctor consultation – didn’t double, due to OPEC-style price control
  • —- nutrition
  • cheapest coffeeshop meal – didn’t double. $3~5, based on … 10 observations. My recall is rather imprecise and unreliable, often mixing cooffeeshop and foodcourt prices.
  • foodcourt .. comparable foodcourt meals costs $5~6. If I compare the price figures displayed in food court, then apparently doubled, but most of those stalls I “never” try. Probably in 1991 they were already pricier than mixed vegie rice.
  • bread – didn’t double
  • milk – didn’t double
  • Burger – didn’t double
  • Ice Kachang (and other deserts) – more than doubled. Used to be $0.60. I feel this is classic luxury item. I should simply avoid it.
  • —- housing-related
  • HDB rental – I was paying $300 in 1995 to 2005. Now should be more than double.
  • electricity tarrif before GST: 16.7c/kWh as of 2005. Not doubled.
  • —- transport:
  • MRT fare – roughly doubled. In contrast, NYC subway has increased from USD2/trip (2007) to $2.75 now.
  • bus fare — nearly doubled. Was 50c
  • air ticket – didn’t double. Actually lower if you include Budget airlines.
  • Taxi meter fare nearly doubled, but Grab is a bargain

https://tablebuilder.singstat.gov.sg/table/TS/M212951 shows about 69 specific items (of the CPI basket, mostly nutrition). It plots the price change over 12 years.

What items are in the hard_basket?

— over 30Y, some things became …. cheaper !? See also globalization reducing minimum cost@acceptableFood

  • laptops, budget smartphones, routers
  • broadband
  • mobile plans. If you look hard, you can find some “products” that are cheaper than before.
  • bicycles esp. foldable
  • haircut — $5 in 1991
  • fan
  • stationery
  • white sugar, beer, … according to singstat

##[22]realistic Macro economic risks2threaten ffree

Posted on by tiger40490

This analysis takes effort. Here’s a modest start. I think without in-depth and comprehensive analysis, my bare-bones ffree is built on shaky ground and naive. My passive income and low burn rate is not a boundless umbrella capable of keeping out all /hazards/ —

  • asset country risk — what if Cambodia or Philippines gets into trouble and property market collapses? Capital control?
  • local market risk — (SnD) say BGC market, or BKK1 shop units
  • credit risk —
    • My rental income is “guaranteed” by developers. If rental market sinks and a developer fails, then my unit is still in usable condition, but I would lose the bulk of my rental income and need to earn the same amount (a few thousand only:) as salary.
      • Therefore, it pays to reduce over-concentration on one developer.
  • Currency risks — suppose I’m retired in Singapore, and PHP or USD weakens. Luckily, my SGD rental income is in SGD.
  • inflation risk — Singapore is hopefully well-managed. Lucky my overseas/local rental incomes rise with inflation
  • other SG country risk — what if the economy declines? What if rental demand declines? I feel U.S. rental demand is more robust than in SG.

Luckily in addition to the (SG/SEA) rental incomes I have diversification of incomes in the form of stock dividends.

See also the ffree derailers. In contrast, today’s blogpost is macro-level.

— Macro risks often affect thousands or even millions of people. I would not feel so bad. With BGC, FX risk affects tends of thousand of investors. With khm, country risk affects thousands of investors

With my Brazil HY/PE, credit risk not macro risk was the problem, affecting dozens of investors.

— another factor: For my bare-bones ffree set-up, One of the biggest uncertainties is predictability of (in/out) cash-flow.

Every investment has uncertainties aka risks. Experienced investors often categorize dozens of known risks into a handful of categories. The grouping is mostly conceptual and arbitrary.

As Wallace Xu said, rental prop mgmt probably needs the owner to stay local and learn the legwork. This should reduce (not eliminate) the cashflow risk.

Q: Singapore government did a scenario planning exercise. Shall I do the same?

On the other hand, there is a common “non-believer” tendency to cast doubt over any long-horizon cash-flow analysis. Even after we compile and analyze all the “hazards”, the non-believers still say that there are big “unknown hazards”. Some people even worry about the credit risk in insurance policies.

Well, I did live without a salary for 3 years.

There’s reason to believe that compared to other governments, Singapore government will continue to be more caring, more attentive, more resourceful, more frugal.

DBS seminar: CPI-inflation

Posted on by tiger40490

Most reputable authors from U.S., China (and other countries) present CPI inflation risk as one of the most serious risks for retirees. SG CPI trec is much much better. (However, my friend TJ.Lin disagrees…)

Even U.S. CPI inflation is not so bad in the short term. https://www.cnbc.com/2021/06/08/gold-as-an-inflation-hedge-history-suggests-otherwise.html says that The Federal Reserve tries to keep CPI inflation around 2% per year.

— The DBS seminar
On 30 Jan 2021 After the presentation, I confronted the presenter “Your 3% inflation over-estimate (DBS official estimate) seems to discourage people from saving and encourage people to spend more”. I still believe it. The presenter (Adeline?) replied “We are encouraging people to save and invest.” Ok the difference is saving-n-investing vs saving.

Look at the average people without enough Earn/Save/Invest capabilities. If the average people believes inflation is well-controlled for the long term, to average 1%, then they would be motivated to save more. If they are led to believe inflation is fluctuating beyond control, and higher than they feel comfortable, then they would feel discouraged from saving.

The presenter’s answer seemed to imply “The ordinary Singaporean retiree will need a huge retirement nest egg, but even if you save like hell your savings will be decimated by inflation, so the ONLY solution is investment in growth assets.” I disagree on multiple fronts.

Key issue 1: 3% compound inflation rate is an overestimate in the Singapore context. I discussed in numerous blogposts. She used a refrigerator for illustration — $1000 fridge today will cost $2000+ in 25Y. Well, I would predict there will be smaller fridges mass-produced in cheaper locations, costing far less. This globalization effect (discussed in this blog) is visible in clothing, electronics, toys, bicycle etc.  Instead of fancy merchandise, retirees need reliable, durable or low-cost designs. Retire-in-style is lifestyle creep, not necessary or admirable.

Key issue 2: the proposed nest egg size (around 1M, identical to Pauline’s) is too large for most people. It is not mandatory and it’s too hard to achieve, so most people would get by with less to spend, and it will be fine, not unacceptable.

Issue 3: CPF-life is a bedrock that DBS tends to downplay as insufficient due to inflation. All annuities have limitations, but I am convinced that CPF-life is the most reliable insurer with probably the highest payout rate.

Now if you ask ordinary folks to save like hell and invest large amounts, they would have no confidence, because all the investments “fast enough to beat inflation” are risky. That’s propaganda. I think even 2% compound return can beat the inflation I experienced. Therefore, if you lower the target return to 2%, then there are many safe-n-easy investments such as CPF and money-market funds.

So for most ordinary folks with up to 200k long-term risk capital[1], I agree with DBS that mufu is easier, but not really safer[2]. (Personally I would prefer stock-picking for 20k.) Mufu can cover equities and bonds. Obviously DBS wants to promote mufu since DBS makes money mostly from mufu and endowments.

[1] There is likely some other cash piles, but they could be earmarked for education, housing etc or they get depleted.
[2] equity mufu is subject to the same market risks as stock-picking. Liquidity is inferior due to management fee and longer trough.

 

 

2022era@peakCPI #rare glimpse

Posted on by tiger40490

 

See also

Observation: Peak inflation is driven mostly by gas price, across SG, U.S. and Europe.

! This episode has seen rising bank interest income…. might lead to a net gain (against rising costs), iFF “enough free cash”

==== how much impact felt by me, my middle class peers or the poor

zoom-in on my exp recon record… I have a reliable, verified record of my monthly burn rate.. a valuable data set.

Q: which major categories would see the biggest hit?
A: taxLike[incl. mtg-I], misc[incl.supermarket]. Note I do pick and pay for groceries myself.

Q: what rate of inflation (in percent-per-year) would threaten my pff?
A: assuming $1000/M in misc category, so 7%/year inflation over 10Y would double it and affect my pff.

Bold: I believe my middle class cohort in SG and U.S. are well-off enough to be unaffected by an still-higher inflation, except…

What if a US middle class family earns USD 140k after tax, spends 120k, and tries to save 20k/Y? Inflation could cut family saving rate by 2~10k/Y, considering school fees, gas, fancy vacations,,,, So brbr, rather than income, seems to determine the inflation impact on a household. With a thick buffer, many middle class families don’t feel much impact.

— UK energy bill .. in Aug 2022, UK energy bill per household was projected to hit SGD 500/M, representing 11% of the median disposable income per household.

My reaction when I read it? Not much. I imagined my own total bill (currently SGD 200) rising to SGD 500, and I told myself we would simply cut consumption. Realistically how low can we cut to? Perhaps down to $400. That’s still huge inflation but not a big hit on my family burn rate…. compared to big tickets like edu[MSFM/Mindchamps/enrichment///], maid, IRAS

That’s one straw on the camel’s back, not the last straw.

— US 40-year high inflation .. in Mar 2022, U.S. inflation hit a 40-year high, but my midclass friends didn’t feel much impact, according to my informal chats.
Those who struggle to save can be wiped out by inflation. I think that’s one reason U.S. media has so much coverage of inflation — U.S. households are reported to have low saving rate i.e. low BRBR.

— SG 10-year high inflation .. In Mar 2022, Sg core inflation hit a 10-year high. It provided a rare glimpse into (solar eclipse) “high inflation in the Singapore (and U.S.) context”. ‘A perfect storm’: Why inflation is rising in Singapore and what can be done – CNA (channelnewsasia.com) has one section focused on average consumers, with a breakdown by CPI category.

  • housing .. modest inflation at 1.4%pa, despite utility tariff hikes
  • .. Note home price inflation of 2021 is NOT captured in CPI inflation, but it indirectly pushes up rental
  • nutrition .. same inflation at 1.4%pa, but this was before the Ukraine war
  • gas and non-public transport.. contributed to a 9% inflation in the transport category over 2021
  • ( mortgage interest cost .. is part of CPI, but this category’s inflation figure is absent in the article.)

Q: Based on the official basket compositions, over 2021-2022 did I feel any noticeable livelihood pain due to CPI (given it was a 10-year high)?
A: yes, non-zero

  1. MRT fare, taxi fare
  2. Cristofori
  3. cinemas .. focusing_effect
  4. utilities… not noticed but I believe there is
  5. desserts, fresh cut fruits
  6. During this period, arguably the hottest basket item is rental, according to my 2022 colleagues (foreigners).

Wife said groceries (part of misc category) has seen up to $300/M hike over recent years.

Q: Are the official composition and the 2022 inflation numbers relevant, reliable, and realistic?
A: generally yes, though I have no real experience on housing inflation. My experienced inflation might be higher or lower than official numbers.

https://www.channelnewsasia.com/commentary/inflation-taxes-rising-costs-living-supply-chains-singapore-budget-2022-2492451 .. The chief author is a Chicago-Fed economist and professor, educated in the US.

The authors claimed that “Inflation has been high chiefly because of the unprecedented stimulus from fiscal and monetary policies worldwide”

The authors characterized the current situation as “a large amount of cash and a small supply of goods”… referring to QE and supply-chain disruptions during the pandemic.

cpfLife strength against inflation@@ 2phase analysis

Posted on by tiger40490

As of 2021, my default retirement destination is Singapore ( roaming_retirement as a viable 2nd option). So there’s a real, valid question, raised at the recent DBS seminar:

Q: is CPF-life payout sufficient against Singapore inflation

My fundamental stance — I’m betting on Singapore government to manage inflation and sustain CPF-life pay out.

— Phase 1: now till 65 — Government bumps up ERS amount by about 3% annually to match inflation.
I’m basically confident to meet ERS, perhaps by liquidating some property assets.

— Phase 2: from 65 to my twilight years — Vance Chhoa pointed out that monthly payout amount won’t increase year after year and will suffer from erosive inflation.

Given that I plan to live 30 years in Phase 2, this erosion will be significant.

Basically I choose to put it out of mind for now. I will surely think about it in the future. No hurry.

See recreational_investing_for_retirees and MOETF

[22]elastic: hard basket

Posted on by tiger40490

 

See also

At the 2022 inflation peak, across the countries I know, most of the high inflations actually hit (minor categories or) “elastic” categories [i.e. easily replaced by cheaper alternatives] like food, entertainment, travel. In contrast, A small “hard basket” determines the amount of purchasing power loss , or the shrinking of my dollars (saved or earned) during bad inflation.

This is an Aha insight. The CPI figures and inflation economics are misleading or inapplicable until we uncover this insight. Based on the  economics concept of Substitute, this insight is a a fundamental observation, laying a cornerstone for my blogs on CPIx-inflation, burn rate, livelihood, FullerWealth, freedom, exclub, successC/successE, recreations, wellbeing[Kahneman], stresses of modern life..

Inelastic demand (def) .. might be an abstract descriptor. It refers to the limited drop in demand for a good when its price goes up. In the hard basket, consumers still need (“demand”) the same items at the same quantity, even when prices rise.

Q: in SG/U.S. given that many substitute goods come in myriads of price levels, which specific items in my “basket” are the hardest hit by high inflation … 刚性需求 ?

  1. — half-ranked by hardness
  2. fruits, raw veg, raw meat/fish, starch
  3. non-elective medical/dental care .. esp. polyclinic and TCM
  4. (US) health insurance
  5. school fees
  6. utilities .. [telecom, heating,].. To cope, I would eat out, stay outside home longer, take shower at office/swimming
  7. public transport .. To cope, I would avoid taxi, prefer bicycle, live close to connectivity hubs (U.S. or SG)
  8. rent .. To cope, definitely relocate to remote, smaller, old houses. RV is popular among older Americans.. [[nomadland]]
  9. college .. To cope, delay enrollment or choose less expensive colleges.
  10. — disqualified items
  11. most foods .. There are many price levels, so I could always opt for “less hiked varieties”

Q: within this hard basket, which items are the biggest in terms of dollar amount?

  1. rent
  2. public transport
  3. utilities

Q: within this hard basket, which 2 items are the “hardest”[least elastic] ?
A: see the half-ranking

— Q: within this hard basket, which 2 items (tend to) experience the fastest inflation?

  1. rent
  2. gasoline?
  3. basic healthy nutrition.. See the singstat data in SG CPI-inflation: 30Y xp, basket composition

To varying levels of effectiveness, governments could slow down inflation in public-education/public-transport/public-utility/public-healthcare costs

 

##2007 OFR per capita: SG=top2

Posted on by tiger40490

Note data below includes OFR + gold holdings of each central bank.

https://www.nationmaster.com/country-info/stats/Economy/Reserves-of-foreign-exchange-and-gold-per-capita 2007 data shows

  • #1 SG at USD 35k/citizen
  • #2 HK at USD 22k/citizen

https://www.citypopulation.de/en/world/bymap/financialreserves/ has 2016 data.

Small countries like Sg and HK need big OFR to defend their currencies, and prevent imported inflation.

— per country .. (less important for this blogpost)

https://data.worldbank.org/indicator/FI.RES.TOTL.CD?most_recent_value_desc=true 2021 data shows total OFR

  • #1 Chn
  • #2 Japan
  • #4 USA
  • #5 India
  • #7 HK .. USD 497B
  • #10 Sg .. USD 425B

 

gold^property^annuity : long-horizon

Posted on by tiger40490

This blogpost is mostly long term considerations and focused on (51%) gold, as a long term preservation and diversification. Beware gold is NOT a growth asset

I have done enough (too much?) thinking and discussing on insurance products. This analysis builds on that.

— Different holding periods to realize the partial capital protection
Both gold and insurance are non-growth assets providing reasonable long-term “capital protection”. This partial protection have multiple limitations beyond inflation.

In the “standard” scenario, both require holding power for potentially long period. In special scenarios both can show quick return.

  • Insurance , not gold, delivers non-negative return as soon as you die (or TPD).
  • Gold , not insurance, can show a positive return depending on market

— current income … (long-horizon consideration?)
gold is hopeless. In fact it has negative yield.

Reliability and credit rating is higher with CPF-life than my other non-work income sources. However, rental income tend to grow.

— windfall appreciation:
annuity is hopeless

In normal to good times, properties are promising. In the long run, U.S. properties outside a few special cities, do NOT show strong appreciation.

In very bad times, gold can appreciate hugely.

— long-horizon inflation risk:
Annuity provides a fixed payout that fears inflation.

Globally, annuity returns usually derive from bonds. As global life expectancy grows, there might be increasing allocation to bonds on the global level. Long bonds fear inflation.

I feel rental and dividend assets are an inflation-hedge but increase credit risk (+market risk)..

Gold is the strongest currency over long horizons.

— long-term wealth preservation esp. through black swan crashes
No “asset” is 100% safe, fire-proof, war-proof, everything-proof. Among them, Gold might be the best, if you find a way to store it safely in the local city, and if liquidity remains high.

In war, cultural revolution or famine, your gold (or any asset for the matter) will not buy you food, medicine or air-tickets !

Gold’s long-term appreciation doesn’t depend on local economy whereas property can fail if the local economy fails. Other investments also pose higher (market, credit, country…) risks over longer horizons.

I have very low (below 1%) allocation to stocks currently but when my allocation grows to 10%, gold hedging may become important.

— high maintenance?
annuity is best; property is worst.
Physical gold requires storage. Perhaps some paper gold can be considered.

— liquidate when you must, in X years?
Insurance is the right asset to liquidate when you have an “acceptable” reason to liquidate such as TPD. You are not subject to the market condition in X years.

If you need to liquidate for some other reason, then all three liquidations can be …. unprofitable, poorly-timed, depending on the X. In this scenario, gold has a better chance of being profitable.

— logistics of liquidating:
gold is way better, but still has limits. Consider war time. Your physical gold (and properties) would be hard to liquidate if you happen to be in the war zone.

— difficulty of holding long term. Nothing new here. See items above

— legacy:
legacy depend on many of the factors above.

Gold is the easiest to inherit, or to manage, by inexperienced family members including my wife.

annuity has a bequest amount, which shrinks as I live longer.

 

1M65 plan by MrCPF #w1r2

Posted on by tiger40490

This short CPF site article has some simple insights derived from Loo’s personal story. Loo’s $1M by 65 is more realistic than many other popularized financial targets.

earn/save/invest .. With Loo’s profile unknown, here’s what we can deduce — Loo is good at saving, and his investment skill shines at CPF-SA.

— current income .. Loo puts too much in CPF-SA with $0 current income, but he likes div stocks.
— inflation .. an unspoken risk when you lock away so much cash for so long. Loo basically bets on SG government to contain inflation risk
— OA->SA transfer .. was a major method.
— unpalatable liquidity of CPF-SA … is the price for the extremely competitive riskless compound 4% growth
🙁 He can’t use the SA fund for education or housing, but after 55, he could pledge his HDB and withdraw the free portion above BRS.
— burn rate habits: Loo’s habits are same as mine.

  • “simple holidays”
  • rent-out individual rooms
  • renovations

— Singaporeans’ popular reasons for wanting to be rich:
Loo polled readers on their reasons for wanting to be rich. (Presumably Singaporean respondents.)  An overwhelming majority answered they wanted to be rich so they could retire and not work anymore. The response made him wonder. While there is nothing wrong with wanting to be rich Loo believes the pursuit of wealth should be for the right reasons… not “stop working and wasting life”.

Likewise, Jacob of ERE pointed out “after we solve the free-from problem, we face the free-to problem”.

 

%%CRBR]SG: improving over past10Y #R.xia

Posted on by tiger40490

see also

Based on a mail to my friend XR, on retirement burn rate in SG.

Q: Inflation hits everywhere including public transport and food, so how come my prospect of Singapore CRBR has improve over the last 10Y?

— expected wellness costs remain unchanged. Insurance cost would increase with age but no surprise.
— food:
I now eat more raw fruits and vegetables.

  • Most fruits are inexpensive and I avoid those rare fancy fruits.
  • The vegetables I eat raw are always cheaper than any cooked food.

There are many low-cost food options that I didn’t notice 10Y ago. For example,

  • frozen food is both healthy and cheaper than fresh.
  • Smoothies are now part of my daily meals and I prepare it at home, at very low cost.

My meals are smaller than 10Y ago.

When I go beyond fruits/raw-veg/smoothies and eat hot food, I eat mostly home cooked, compared to commercial food 10Y ago. I bring leftover of home cooking to office, so I seldom need to buy commercial food.

I have also cut down on fresh bakeries by 70-90%. Most of the bakeries I eat are bought my other people, so I may not know the cost.

If my average meal 10Y ago costs $3, it is now 70% like $2. Therefore, a fancy restaurant meal is now 30 times my average meal cost.

—  transport:
fare inflation is very easy to observe. It has not gone up as fast as I worried 10Y ago.

There are also senior citizen fares that I didn’t notice.

I guess the elephant in the room is car ownership. 10 years ago I often toyed with the possibility of owning a car when I have a bigger family. Most of my Singapore peers, younger or older, seem to drive nowadays. Unlike them, I don’t want a car in Singapore. Am now more comfortable using public transportation and bicycle, because I’m slowly mellowing up, growing more patient with my commutes.