By Goh Eng Yeow

It is said that while history never repeats itself exactly, it often rhymes.

With this admonition in mind, I spent some time recently reading up on the credit crisis columns I had written last year to get a handle on how things might pan out in the coming months.

It turned out to be an interesting look back into the future.

Take the wild swings in the price of crude oil. Last June, I wrote a column blaming the relentless surge in crude prices on excessive speculation by traders. Who would have believed that traders were capable of creating an 'artificial' shortage of crude oil by buying billions of dollars worth of contracts, after other financial markets were effectively shut down by the global credit crisis?

The consequences of their actions were horrendous. Last year, crude oil breached US$100 a barrel in February, then US$120 two months later in April, before hitting a record high of about US$148 in July.

It sparked fear across the globe, causing prices to shoot up across the board as costs of transportation and electricity soared.

To get a feel of rising crude's impact in Singapore, all one had to do was to take a look at the nearest supermarket where panicky housewives regularly cleaned out the shelves of their packs of rice as prices soared early last year.

What must be more amazing was the subsequent collapse of crude oil to a mere US$35 a barrel by end-November.

It turned out that besides buying up much of the oil market, these big-time speculators were also simultaneously 'shorting' shares of global banks, by selling shares which they did not own in the hope of buying them back more cheaply later on.

And why not? They raked in big profits as oil prices continued to escalate, and it seemed like a no-brainer to 'short' financial stocks with no end to the credit crunch in sight. These traders had believed that the oil bubble would deflate only gradually after the Beijing Olympics, giving them time to liquidate their holdings.

But they failed to reckon that beleaguered banks such as the Royal Bank of Scotland would be thrown a lifeline by their respective governments after investment bank Lehman Brothers failed last September.

The resulting boost which banks' rock-bottom stock prices got from the bailout caused such a big squeeze on traders who had 'shorted' financial stocks that they were forced to jettison all their other holdings - including oil contracts - to pay for their massive losses.

The huge sell-off caused the oil bubble to burst spectacularly, as oil prices fell back to 2003 levels.

In the past two weeks, crude prices are again on the resurgence, following Israel's assault on Gaza.

But it is unlikely that crude will soar to last year's record levels again. The pain inflicted by its sudden collapse in price late last year is sufficient to keep any huge speculative binge on hold for now.

For investors, the big question is where to keep their money safe as central banks grapple with the enormous challenge of nursing the global economy back to health. So far, the big fear is that the global economy may slip into a 'liquidity' trap as the fear of risk becomes so great that individuals simply hoard money while banks refuse to lend, even to their best customers.

But some investors are also worried that hyper-inflation may emerge because of the US central bank's decision to slash interest rates to almost zero.

This has sparked fears that the US might try to print its way out of the financial fix it now finds itself in since it is the world's biggest debtor nation.

Surely such a concern proves once again that, over time, gold provides the only real store of value as an investment compared with paper money such as the US dollar, they argue.

But, as I noted in a column last March when gold shot past US$1,000 an ounce for the first time, the bulk of the world's gold reserves - 147 million ounces or so - is still held by the United States.

The US can always sell off part of its gold hoard to take the heat off the ailing greenback, flooding the world with a lot more gold than it has bargained for. So much for the allure of gold as an investment.

For a gaze into the crystal ball on how markets may behave this year, the observations made in a column last January stay appropriate.

I had noted then that even bearish markets needed to take a break and they rarely moved down in a straight line without making a rebound, however brief this might turn out to be.

Indeed, after the benchmark Straits Times Index plunged by 187 points, or 6 per cent last January, it rebounded 13 per cent in the next four months.

It then succumbed to a fresh sell-off as the rotting US market once again brought the global financial system to the brink of collapse.

In terms of an example of history moving in lockstep, nothing beats the e-mail I got from a reader after I wrote a column highlighting a suggestion that it might be more relevant to use the financial panic in 1873, rather than the Great Depression, as comparison for the current crisis.

In the e-mail, the reader produced a report from The Straits Times in December 1872 which gave details of a financial crisis which had hit Singapore hard.

'Business may be said to be almost at a standstill and the utmost distrust prevails. For the time the credit system is nearly in abeyance,' this newspaper had reported then.

It went on to observe that 'most people have their attention counting their losses and extricating themselves with all they can get hold of from the debris of the storm which indeed cannot be said to be over yet'.

Word for word, it could also be describing the financial quandary we are currently facing and is - if I say so myself - a vivid example of the role in which this paper has played in capturing the joys and calamities which had befallen Singapore in the past 160 years.

Happy New Year - and invest wisely.

This article was first published in The Straits Times on January 11, 2009.