Monthly Archives: April 2011

Slow Growth for UK Economy

According to today’s figures from the Office for National Statistics (ONS), the UK economy only grew by 0.5 percent between January and March 2011. But apparently this wasn’t too much of a surprise and is pretty similar to what happened during 2010’s last quarter, which was blamed on poor weather conditions. But in terms of this quarter, there was also a nearly 5 percent drop in construction which is the largest depletion since the first quarter of 2009 which was explained due to the country’s recession at the time.

Good News for UK

However, in spite of all this not-so-good news, it is pretty impressive that Britain’s economy has managed to “avoid a double-dip recession.” Still, the country has to watch out since just estimates from yesterday indicated that the GDP figures are only “the first of three and the figures could be revised up or down in the coming months.” This is also because we only have access to 40 percent – less than half – of the data. But still, what we know today will probably lead to a maintenance of these historically low interest rates by the Bank of England’s Monetary Policy Committee (MPC).

Further, there has been some good news for those working in mortgages. The BBA (British Bankers’ Association) pointed out the slight escalation in the amount of mortgages gaining bank approval (around a thousand more than last month’s figures). Still, you have to look at what’s been going on during other times too to get a real picture. For example, last year in March, mortgage approvals were significantly higher – 10 percent in fact. So even though things do “look” a little better for now, the reality is that they’re not that great if you look at what was happening a year ago.

Housing Hell?

In addition, figures we’re looking at today don’t make it look like the housing market is going to be doing any major uplifts in the near future. Because of “economic uncertainty and ongoing mortgage restrictions” there are definite issues that have to be dealt with.
So while there is some kind of optimism in the UK’s housing market, there is clearly still some cause for concern. Britain still has a way to go to get back to figures for this time last year but there is definitely hope that it’s on its way.

Diminishing Dollar Depreciates


More bad news about the dollar. Just today it has depreciated further to “three-year lows.” This has resulted in US crude oil jumping to a 2 ½ year high and rising Asian stocks “as investors bet that the easy U.S. monetary policy will continue to drive money to riskier assets.” It is anticipated that the Bank of Japan will stick with its “ultra-loose monetary policy” and even go looser if there are further repercussions from the country’s tsunami disaster. In addition, the two largest banks in the country are maintaining close-to-zero interest rates which will probably result in investors still using the dollar and yen “as funding currencies to buy higher-yielding assets, commodities and equities.”
It seems that those playing the markets see it as a logical move to fund investment assets with the dollar “since U.S. interest rates are likely to stay low for a while.” Still, it looks like there will be a thinning of trading volume in Japan’s stock markets with the upcoming Golden Week holidays. There is also an anticipation of a further increase in the Nikkei “if earnings continue to impress the market.”

Dollar Index Drop

The .DXY (dollar index) dropped substantially to 72.878. This is lower than it’s been since July 2008. But this didn’t seem to impact the Euro which actually peaked to a “16-month high of $1.4878…. while the Australian dollar touched a post-float high of $1.0948.”
So while there is some good news in the markets, there is still quite a road to recovery ahead. The dollar will ebb and flow but right now it’s having a pretty bad time. Still, with markets so volatile, that could reverse at any time.

Mysteries of Malta

 

 

 

Surprising Maltese Status

 

It might be somewhat of a shock to those not-in-the-know that Malta – a tiny portion of land found in the Mediterranean Sea measuring approximately 300 sq km – is pretty big when it comes to economic and welfare aspirations and successes.  Yet apart from its somewhat modest size, there are other reasons one might be hard-pressed to find why Malta is so ambitious. It’s not like it has much of what to boast, with limited fresh water supplies, absolutely no domestic energy resources and hardly top of the list vis-à-vis natural resources.   At one point, around 30 years ago, it got much of its trade from tourism, but that isn’t the case today.

 

Maltese Manifesto

 

Still, the country knows what it wants. Indeed, by the year 2015, it plans to develop its financial services industry to 25 percent of GDP, establishing a “highly experienced, professional talent pool, a sound legal and regulatory framework, a ‘can do’ and reasonable time to market culture, and cost-competitiveness.” This could actually be pretty realistic since already in 2011 people are looking to the country for investment opportunities, moving away from regions such as Dublin and Luxemburg due to its current status as a “fully-fledged financial services center.”  

 

The statistics speak for themselves.  Just in the last three-and-a-half to four years there has been an increase of more than 40 percent of professional investor funds with a great tax fully EU sanctioned tax regime.

 

Malta Makes Top Ten

 

In addition, in a review of 139 countries in the World Economic Forum’s Global Competitiveness Report of 2010-11, Malta was ranked the 10th soundest banking sector and 11th for financial market development.   As well the country was named “one of the top three financial centers likely to increase in importance over the next two to three years,” in the Global Financial Centres Index third edition.  (Just Dubai and Shanghai beat Malta to the top position.)

 

Maltese Magnificence

 

But what else makes Malta so attractive to the economically-savvy and investors?  Apart from the country’s “well-regulated financial services sector,” both private and corporate clients have “excellent opportunities for efficient tax planning.”  As well, geographically it pretty much couldn’t be in a better place. Smack inside of the Gibraltarian straits, it boasts a “naval importance to conquering nations from Phoenicians to the British. Its maritime flag takes second largest ranking in Europe and seventh worldwide, and stunning registered yachts can be found there too.  The country can definitely be proud of its achievements which has been “recognized as the best known Mediterranean fund domicile…[offering an] option for those looking for a base in the European Union [rendering it] a real destination of choice.”

 

Today’s Tax-Tasty Empire 

 

Today Malta still has significant appeal as a tasteful tax haven.  Indeed, there were more than three hundred accountants, bankers, auditors etc. – hailing from around the world – at its now prominent Intax Exposition in the third week of March, with prime sponsors CSG Group and Zammit and Associates Advocates.  Participants were able to either network in informal settings or attend presentations to achieve their set goals, rendering it “one of the most important events in the sphere of international taxation and corporate structuring [in a place today considered] a financial services center of excellence.”

 

So while at first glance it may be true that Malta doesn’t have all that much of which to be proud, by scrutinizing the situation somewhat closer one can actually find quite the opposite. 

 

2012 US Budget Plan: Good or Bad News?

Republicans United on Budget Plan

The House of Representatives agreed on a budget plan last week (at a vote of 235-193) for 2012 which will involve “slashing trillions of dollars in government spending while cutting taxes.” This looks like it’s fantastic news, but since there is no such thing as a free lunch, who is going to pay? According to conservatives, it will be the country’s debt limit that will forge ahead and that’s not good news for Americans. The Bill became law last Friday.

Tough Negotiations Ahead

So it looks like this will just mark the start of tough negotiations ahead vis-à-vis debt and deficits. It is only going to be a matter of weeks as to whether or not there will be permission to increase the roof on the $14.3 trillion debt; a matter for Congress to decide. So even though Ryan’s plan has been passed for the 2012 fiscal year, it is unlikely that it is going to be a smooth ride ahead since this has been rejected by Democrats.

The anger is at the spending cut of nearly $6 trillion over the next 10 years. But in reality, this isn’t going to happen since analysts say that “there is almost no chance” of the Senate to approve the measure as it is. In addition, the White House isn’t happy but will nonetheless will be dedicated to work with the Republicans to reduce deficits that have peaked to record levels that there is no disagreement by anyone which have “imperiled the country’s economic future.”

Same Goal for All

Despite the fact that Republicans and Democrats differ on their approaches, according to Jay Carney, White House spokesman, the “goal remains the same.” Nonetheless, President Obama made a somewhat tough political attack on the Ryan Plan last week. Indeed, third-ranking Republican Kevin McCarthy attacked the part of the Bill which provides government funding until the end of September while at the same time reducing government spending by approximately $38 billion.

An increase to the roof on the country’s debt that needs to be put into place by July 8, has been supported by the Republicans. But this can only happen if there is “substantial progress toward reducing the $1.4 trillion annual deficit.” As well, Obama claimed that if the roof is raised, there would need to be significant Congress support. But this is essential as if America “defaults on its debt” there could be another global economic recession.

How Will Cuts be Made?

Naturally people want to know how these cuts are going to be made. First, there will be a significant decrease in domestic spending and high-end corporate and personal tax rates will go from 35 to 25 percent. But the major cuts will be in a reform of Medicare elderly health care who in future will be receiving a “federal subsidy based on income and health status and would pick private insurers for medical coverage,” in an effort to save it.

Nonetheless, Democrats are arguing that this will end up being disadvantageous to seniors who will end up with raised medical bills (at least $6,000 a year). This has been criticized for not sticking to America’s “promise” to its elderly that “after a lifetime of work they will be able to depend on Medicare to protect them in retirement.”

Budget Cuts Upset Some

At the end of the day no matter where or how the budget cuts are made, someone, somewhere isn’t going to be happy. What has to be agreed upon however, is that such cuts do need to be made for America not to renege on its commitment to the world to take part in ensuring the recovery of the 2008 global economic downturn and a future dedication to prevention of another one.

Republicans United on Budget Plan

The House of Representatives agreed on a budget plan last week (at a vote of 235-193) for 2012 which will involve “slashing trillions of dollars in government spending while cutting taxes.” This looks like it’s fantastic news, but since there is no such thing as a free lunch, who is going to pay? According to conservatives, it will be the country’s debt limit that will forge ahead and that’s not good news for Americans. The Bill became law last Friday.

Tough Negotiations Ahead

So it looks like this will just mark the start of tough negotiations ahead vis-à-vis debt and deficits. It is only going to be a matter of weeks as to whether or not there will be permission to increase the roof on the $14.3 trillion debt; a matter for Congress to decide. So even though Ryan’s plan has been passed for the 2012 fiscal year, it is unlikely that it is going to be a smooth ride ahead since this has been rejected by Democrats.

The anger is at the spending cut of nearly $6 trillion over the next 10 years. But in reality, this isn’t going to happen since analysts say that “there is almost no chance” of the Senate to approve the measure as it is. In addition, the White House isn’t happy but will nonetheless will be dedicated to work with the Republicans to reduce deficits that have peaked to record levels that there is no disagreement by anyone which have “imperiled the country’s economic future.”

Same Goal for All

Despite the fact that Republicans and Democrats differ on their approaches, according to Jay Carney, White House spokesman, the “goal remains the same.” Nonetheless, President Obama made a somewhat tough political attack on the Ryan Plan last week. Indeed, third-ranking Republican Kevin McCarthy attacked the part of the Bill which provides government funding until the end of September while at the same time reducing government spending by approximately $38 billion.

An increase to the roof on the country’s debt that needs to be put into place by July 8, has been supported by the Republicans. But this can only happen if there is “substantial progress toward reducing the $1.4 trillion annual deficit.” As well, Obama claimed that if the roof is raised, there would need to be significant Congress support. But this is essential as if America “defaults on its debt” there could be another global economic recession.

How Will Cuts be Made?

Naturally people want to know how these cuts are going to be made. First, there will be a significant decrease in domestic spending and high-end corporate and personal tax rates will go from 35 to 25 percent. But the major cuts will be in a reform of Medicare elderly health care who in future will be receiving a “federal subsidy based on income and health status and would pick private insurers for medical coverage,” in an effort to save it.

Nonetheless, Democrats are arguing that this will end up being disadvantageous to seniors who will end up with raised medical bills (at least $6,000 a year). This has been criticized for not sticking to America’s “promise” to its elderly that “after a lifetime of work they will be able to depend on Medicare to protect them in retirement.”

Budget Cuts Upset Some

At the end of the day no matter where or how the budget cuts are made, someone, somewhere isn’t going to be happy. What has to be agreed upon however, is that such cuts do need to be made for America not to renege on its commitment to the world to take part in ensuring the recovery of the 2008 global economic downturn and a future dedication to prevention of another one.

Doom and Gloom Ahead for Global Economy?

Things aren’t looking good again. We keep hearing about the global economic crisis but were hoping that the recovery from it was well underway. Unfortunately, when looking at the stats, this doesn’t seem to be the case. Oil prices are increasing, sovereign debt burdens are becoming unsustainable and along with lack of certainty vis-à-vis the future of Japan. These issues will be on the table at today’s meeting of the Group of Seven members. Political ramifications will also be discussed such as mid-east unrest. The plan is to develop a “more stable global economy less prone to the booms and busts that have marketed the last two decades,” according to a Reuters report.

Japan Not Jesting

Japan is definitely having a hard time and their recovery is going to have an impact on that of the world economy. Its own outlook seems very unclear right now according to deputy managing director of the IMF, Naoyuki Shinohara. No one knows exactly what is going to transpire at this meeting and news is expected after Friday but there may be some information from US Treasury Secretary Timothy Geither and French Finance Minister Christine Lagarde. This year’s G20 will be chaired by France.

G20 Goals

The G20 is the main forum now for attempting to ensure that there will not be a repeat of the 2007-9 financial crisis “which triggered the worst global recession since World War Two.” The agreement by G20 leaders two years ago was to reduce the inconsistencies “between export-rich countries” like China “and debt-burdened consumer economies including the United States.” However today, many economists blame this for worsening the crisis.

The G20 is still having problems though. Even though there has been significant recovery in the global economy, it has not been so successful in coming to an agreement on how to manage these issues. It is anticipated that leaders in the finance world will be working on developing “indicative guidelines” as a way to identify any potential trouble areas but finding those countries that are not sticking to the rules (such as America and China and possibly even Germany and Britain) will take somewhat longer.

IMF and G20

The IMF is about to meet up. It meets up twice a year and at this meeting it looks like it will be warning the G20 not to become “too complacent” just because it looks like the worst of the financial crisis is over. Of course it will be tougher for the IMF to negotiate with the G20 at this point, when they are not in crisis mode according to the IMF’s chief economist Olivier Blanchard.

The IMF is always seeking to “reduce government debt in advanced economies,” but it might be tough for America to slash its deficit by 50 percent over the next two years which is what the G20 wants it to do. But apparently this isn’t such an unrealistic expectation since America’s Treasury claimed Washington will be able to “meet its commitment.” In addition, Obama yesterday put forward his plan to reduce the deficit in the next decade by $4 trillion. One of the things he said was that since the very wealthy have not had tax increases in the last fifty years, making them pay more now will ultimately benefit other members of society.

There is still work to be done vis-à-vis the global economic crisis but things are generally improving. However, this does not give western countries the green light to rest on their laurels as there is still significant work ahead and changes to be enforced.

Economic Health Track

Preventive Global Economic Crisis Measures

It was bad enough that we had to endure the worst global economic crisis since the Second World War, but what would be even worse would be not learning from it. So what can be done today? Measures need to be taken now to ensure a continual “tracking of economic health.”

This perhaps is not news. There have indeed been attempts to keep tabs on global (as well as regional) economic health in the past. But what is different now is the agreement set by global financial leaders on exactly how this will happen in an attempt to “short-circuit the kinds of problems” that resulted in 2008’s heaviest economic crisis.

New Economic Tracking Methods

The plan as set out in Friday’s deal is – according to G20 officials – that such new tracking will “closely follow indicators such as governments’ budget and trade deficits, personal savings levels and investment flows between nations.” What this means is that there will be an attempt to predict problems before they occur as a preventive measure against rocking the world economy.

This is all very well and good but there are some skeptics. It is still unclear as to exactly how this will happen. But there is hope and there was much discussion on this matter two days ago at the IMF, World Bank and policy setting committees meeting involving US representatives, European officials and more. The hope is that Europe will finally come out of this mess smelling of roses, or at least making significant inroads into clearing its debt issues, while America will work hard to deal with its deficit and public finances.

But it’s not just the US and Europe that need work. China is not exactly innocent either with its tight currency grip. It needs to become more flexible, enabling their “exchange rates to adjust in response to market forces.”

One Step at a Time

Still, the achievements that were made on Friday shouldn’t be sniffed at. Indeed, Christine Lagarde (Finance Minister for France) said that this “monitoring agreement” marked a “significant achievement” in a move towards greater confidence in the world economy and preventive measures for the future of global financial issues.

While all members of the G20 will partake in these efforts in the long-term, in the shorter term, it will be the seven largest economies (which is expected to be: Britain, China, France, Germany, India and Japan). Perhaps what will also happen is that there will be a public noise about country’s individual issues which will prevent for example, China, which has in the past remain secretive of its issues, from keeping anything from the IMF. This is one such example of economic health tracking.

So there is still work to be done, lots of it in fact. But there is also hope. Since Friday’s meeting it looks like at least there will be huge efforts in place to try to prevent another disastrous global economic crisis. It is going to be a step-by-step process, but at least the process is actually in place now.

America Stocks and Shares in Flux

Alcoa Inc. Up and Down

US Stock traders might want to think twice before acting following the International Monetary Fund’s estimate slash for US economic growth. This led to a general plummet in stocks – such as Alcoa Inc. – yesterday at closing. However, the company did have some good news having a first quarter profit on “higher aluminum prices and improved sales.” Analysts claim this was likely due to a “weaker dollar and higher energy and raw materials cost.” In addition, its reported earnings for January-March were a staggering $308m, even more significant given its $201 m LOSS a year ago. Still, it wasn’t all good news since its shares did drop 18 cents to $17.74 yesterday. The company is usually the first out of 30 companies which comprise the Dow average to reports earnings every quarter.

Corporate Profits Concerns

One concern traders are having is how higher oil and food costs will impact corporate profits. Once the IMF claimed higher gas prices may slow down “the pace of the US economy and offset a boost from the Federal Reserve’s bond-buying program,” stocks took a downward turn. But there have been increases in other areas, such as the Dow Jones industrial average which went up 1.07 point, closing at 12,381,11. Although it wasn’t great news for energy companies that dropped 1.9 percent. Nasdaq also lost 0.3 percent.

It is hoped however, that corporate earnings in general will exceed expectations for the ninth consecutive quarter. While that of course would be great, there are other matters of concern such as high oil prices and “an aftershock that struck Japan on the one-month anniversary of the March 11 earthquake and tsunami disaster.”

Price of Recovery

So there has been a recovery of sorts, that’s for sure. However, this has come at a price since there has been significant job losses as well as other costs that have impacted the average man in the street and his pocket. Yet it does look like there will be more revenue growth during this earnings season, with over 30 percent of companies possibly reporting a revenue growth of “at least 10 percent,” according to Howard Silverblatt, S&P senior index analyst. So it is a bit of an ebb and flow situation. But in an attempt to really try to make it, companies are now taking stock and looking to make deals such as the purchase of American Medical Systems Inc. by Endo Pharmaceuticals for around $2.6 bn., “a premium of 34 percent.” As well, Level 3 Communications bought Global Crossing Ltd., which skyrocketed 69 percent. This “all-stock transaction is valued at about $1.9 bn.

Stock Exchange Souring?

The stock exchanges are currently in flux. There has been a peak in the “struggle to control NYSE Euronext Inc.” but NYSE parent company still rejected the $11.3 billion bid put forward by Nasdaq OMX Group Inc. and IntercontinentalExchange Inc. straight out. NYSE Euronext is insistent it will be “sticking by its $10 billion deal to be acquired by Deutsche Boerse, a German exchange operator.” This despite NYSE Euronext drop of nearly 3 percent.

So it’s up and down, ebb and flows, clearly in flux. Like with any full-scale recovery, it is going to take time. The whole world has been impacted by not only what happened in Japan, but the general economic crisis and caution cannot be thrown to the wind. Slowly, slowly though, things will pick up even when other things struggle temporarily. It’s about taking things one step at a time and realizing extreme action isn’t the answer as the world tries to get out of the emergency lane once and for all.

South Korea’s Global Potential

For best results, merge. It seems that the chair of South Korea’s Financial Services Commission (Kim Seok-dong) is considering the merger of two securities companies, Daewoo Securities and Woori Investment & Securities (no. 2 and 3 investment banks by market capitalization). Hopefully this would lead to the creation of a “giant with global potential.” This makes sense as, joined together, the merger would mean they would become South Korea’s largest investment bank.”

Merging Really the Answer?

Maybe. But maybe not. It seems that going large scale isn’t always the solution and even if this merger leads to a giant in South Korea, it won’t necessarily become a global player. The country is still missing the “the necessary cross-border merger-and-acquisitions volume to support a big international investment bank.” As well, since Woori Investment is a Woori Finance Holdings affiliate, it is 57 percent government-owned. So let’s not get too excited too soon. It may make more sense for investors to look into a “combined mega-broker, with bigger domestic clout.”

Other Investment Options?

Perhaps what would thus be more profitable for Woori Investment & Securities would be working with Merrill Lynch, with which it is having talks to purchase its South Korean private banking business. This negotiation would result in “a combined 1 trillion won ($919.5 m) worth of assets from roughly 700 high net worth individuals.”

Woori would definitely gain from this vis-à-vis its private banking. Merrill Lynch has significant expertise in wealth management and this can only be of benefit to Woori Investment.

IMF on World Economic Recovery

Banking Rules Insufficient

Financial leaders who have recently signed on new banking rules may be counting their chickens before they’ve hatched. According to the IMF, such rules are not going to be able to help vis-à-vis the global financial crisis. So what is the solution? The IMF is setting out “new tools” through which to examine how a financial body can affect the whole system and from there work out its “systemic importance” which will enable them to make a company pay “a proportional fee to guard the entire system.

Financial Bodies to Pay Up

A change in the system clearly has to take place. Currently the situation is such that the financial crisis is burdening everyone, resulting in a “full-blown crisis of the system.” But it’s the financial bodies that need to start taking responsibility for this. They need to pay up and stop burdening the central banks which end up bailing them out. So the solution, according to the IMF, probably has to be some kind of tax on these bodies. Indeed, Dominique Strauss-Kahn (IMF Managing Director) insists: “we need better resolution mechanisms to end the scourge of too-big or too-important to fail [firms], including along the critical cross-border dimension.” But so far, efforts to make this happen have not been fruitful.

Global Recovery News: Frail

Indeed, if efforts are not successful in this vein then it will deeply impact the recovery of the global economic crisis. According to the IMF the recovery will suffer due to this “moral hazard,” which is an “apathy cultivated when lenders are confident they’ll be bailed out.” Governments need to start pushing financial institutions to eliminate bad assets and properly assess their balance sheets.
So it’s important that everyone pitch in. No one should be sitting back on their laurels. All institutions have responsibility to ensure the smooth recovery of the global economy.

Can the Government Afford to be Republicans?Can the Government Afford to be Republicans?

Republicans are likely to have a tough time sticking to budget if they put into plan their idea of cutting government spending by nearly $6 trillion over the next ten years. Barack Obama would certainly have a thing or two to say to the creator of this idea, Paul Ryan (House Budget Committee Chairman) about this as well since it’s pretty contrary to his plans for government spending. Last year the President of the United States’ task force set out a figure of $4 trillion and his own budget plan was around six times lower!

Impact on US Medical Health Programs

If Ryan’s plan goes into effect from October 1 2011, this will have a huge impact on the country’s Medicaid and Medicare health programs and also put “hard caps on government spending and tax cuts.” Democrats won’t be happy about this but the plan will probably accrue “the support of the Republican-controlled House.”

What it will do to the country, its economy and the global financial crisis as a whole, remains to be seen.