Monthly Archives: July 2011

Reid Out, Compromise In?

With Senator Reid’s bill struck down, many politicians still anticipate a last minute compromise between Democrats and Republicans.  Despite the glimmer of hope from Mitch McConnel, there is a quiet forbodence about where things are in the next 48 hours.

Let me put it this way, despite the claims of compromise, there is a large chance that the Federal gov’t will have some sort of default on Aug. 2nd.  All investors should make the appropriate plans.  Interest rates will rise and the dollar will tank.

Raising Debt Limit? Subject to Negotiations

According to Senate Majority Leader Harry Reid, the current negotiations taking place on a way of escalating the debt limit, “still had a way to go.”  They were pushed off until last Sunday in a “test vote on a Democratic deficit reduction bill.”  Right now, the White House is hoping for “as much time as possible” in order to come to a “bipartisan compromise” that will enable the government to increase its $14.3 tr. borrowing limit by the deadline on Tuesday and “avoid a default.”  Although there is still what to be done, negotiations had been occurring between leaders of the Republican and Democratic parties, along with the White House.

Negotiations and Test Votes

A test vote was scheduled for today on the debt limit plan which has been opposed by Republicans who said they could have blocked it.  But according to Reid, the vote was delayed in an effort to provide additional time for negotiators. To end debate it is going to need 60 “yea” votes.  One of the main issues currently facing Reid and his supporters is trying to get the deal happening before the opening of Asian markets which would be prior to 5pm EDT last Sunday, which, according to the report in Reuters, renders the timeframe “very tight.”

Although prior to this there was confidence from House Speaker John Boehner and Senate Republican leader Mitch McConnell that the forging of a bipartisan deal could follow “a week of bitter stalemate,” there was nonetheless “no clear sign that an agreement was near,” which is problematic.  Republic leaders discussed the matter at length with the president last week which was viewed as a “positive step as the White House had remained sidelined from acrimonious partisan sparring during the week.”

Consequences of No Increase

If the debt ceiling is not increased by Tuesday, the government will no longer be able to borrow more and could thus “quickly run out of money to pay all its bills.”  McConnell insists that America will not “default for the first time in its history – that’s not going to happen,” he said.

So, the hope has to remain that authority will be given to raise the debt ceiling.

Plummeting Euro Stocks

For a third consecutive day there was a drop in European stocks.  This might have been due to the fact that earnings missed estimates from Clariant AC (CLN)  (a Swiss chemical maker) to Merck KGA (MRK) (second largest drug manufacturer in Germany). The former plummeted 13 percent and the latter, 5.1 percent.  Other dives were encountered by PSA Peugeot Citroen (8.3 percent) as well as a lowering of financial shares from Banco Santander SA.

Political Problems?

Possibly the political implications of American politicians fighting over the country’s debt limit had an impact too.  The country’s index futures along with Asian shares however, remained pretty much static.

Stock Drop

Stoxx Europe 600 Index encountered a 0.5 percent sliding in London.  In February, however, the opposite was very much the case as it experienced a high.  According to an article in Bloomberg this may have been due to “concern that Europe’s fiscal crisis will derail the economic recovery and speculation that U.S. lawmakers will fail to agree on increasing the nation’s debt ceiling by next week’s deadline.”  As pointed out by BNP Paribas Fortis Global Markets research head Philippe Gijsels, “the earnings season has revealed that weakness in the global economy remains.  There have been some misses in terms of guidance and this shows us we’re in a mid-cycle slowdown with companies being held hostage by economic conditions.”

CME Group and Treasury Futures

The CME Group – the world’s “leading and most diverse derivatives marketplace) has increased the price of trading Treasury futures. This, according to a recent Reuters article, is an “effort to curb market swings created by growing fears of a government default.”

This latest action comes after CME increased the Treasury futures’ margin requirements.  Usually, margin requirements are increased through an exchange which thereafter raises “haircuts to discourage excessive risk-taking, in a bid to reduce volatility.” Trading is discouraged by wild market swings which then damages revenue of an exchange. Just last night the exchange said it plans to increase the “haircuts”/discounts on the Treasury collateral that it is to accept at the end of business this Thursday.  The last change it made like this was made in December 2007.  Ultimately, this means investors and traders are going to need to “post more Treasuries to back their CME futures and options holdings.”

US Treasury Reaction

The American Treasury market has been undergoing significant tension recently.  Worldwide investors are currently looking at the possibility of a US default next month if lawmakers are unable to make a deal on increasing the limit for the national debt.  International investors are currently anticipating a Greek default and are also worried about the significant slowing of the American economy.  American lawmakers had problems dealing with debt plans since they were not offering much option for compromise.  This thus has upped “the threat of a ratings downgrade and default that could sow chaos in global markets.”

CME Response

Michael Shore, a CME spokesman, said that haircuts are reviewed every month and changes are made as needed.  A 0.5 percent haircut on American Treasury bill as collateral.  This is compared to the percentage rate which is currently zero.

Spanish Oil in Libya?

Libya’s Political Unrest

A report from The Tripoli Post two days ago detailed the sorry situation in Libya as rebels attempt to get rid of the country’s leader,  Muammar Al Qathafi.  They are doing this following “a rule of 41 years.”  The rebels have “appealed to Spanish corporates for financial aid to begin reconstruction of the North African country even as Al Qathafi continues to hang on to power.”

Spanish oil giant Repsol YPF has been encouraged by National Transitional Council (NTC) leader Mahmud Jibril to start working again in Libya “using frozen Libya regime assets in Spain as a financial guarantee for new projects.”  Jibril said that if Spain is unable to provide aid now “the NTC’s legitimacy will fade in the eyes of the Libyan people.”  It is not just Spain that Libya has these expectations from; other nations should be providing aid too.

Spain’s Status

So where is Spain holding in all of this?  Currently the country is thinking about all options vis-à-vis investments. There is the possibility of frozen Al Qathafi assets “to be used as collateral for loans to the NTC or as new investment in rebel-controlled areas.”  At the moment, Spain can’t move until Libya decides on whether Al Qathafi should stay or go.

Other Aid: Qatar and Russia

Libya is getting aid from other places though so the pressure doesn’t just have to be on Spain.  Both Qatar and Russia have been sending aid and more was expected from Russia just two days ago.  But to date, Russia has already sent 72 tons aid to Libya.  Indeed, Moscow is extremely concerned about the conflict.  Alexander Lukashevich, the country’s Foreign Ministry’s official spokesman said that they will do everything they can to “help all Libyans in need, no matter which part of the country they live in.”

As well, Qatar has sent at least 200 tons of aid (including medical supplies) as a way of helping the Libyan opposition forces.  So clearly Libya is not alone.  Much is being done from outside to help the country in its current situation.

Whopping Welsh Investments

Whopping Welsh Investments

Over the 2010-11 fiscal year, according to a news article in the Daily Post, Finance Wales (FW) “invested a record £39 million in Welsh businesses.”  However, this led to the company again going over its annual investment budget, with 199 debt and equity investments, rendering the total to over 2,600.Š  To date, there has been an investment totaling more than £197 million in SMEs in Wales. This resulted in an a leveraging of another £390 million investment.

 Sian Lloyd Jones, CEO of FW said, “I’m pleased we’re continuing to play an important role in helping Welsh businesses achieve their growth ambitions in such a difficult funding climate.

We made a large number of new investments in the year and we also continued to invest in businesses in our existing portfolio, which highlights the importance of follow-on funding for growing businesses.”

Other Welsh Investment News

There has been more good financial news for Wales.  FAUN (LLANGEFNI manufacturer) will be merging with Zoeller Waste Systems as well as acquiring OTTO Lifts.  This is great news for the company as with all its experience combined, according to Simon Hyde, it’s CEO, this will be able to “create a strong platform to capitalize on the developing maintenance and private sector markets.”  In addition, according to another Daily Post article, he believes this union will “bring together the knowledge and skills of three of the European RCV market’s leading firms.”

Australia: Where the Growth Is

Western Australia Wins

Based on last month’s CommSec State of the States quarterly report, it seems that hands down, out of the whole country, Western Australia’s economy is the strongest. The way the economic growth test was undertaken was to investigate the following issues: construction work; dwelling commencements; economic growth; equipment investment; housing finance; population growth; retail spending and unemployment.

Why Go West?

So what is the reason for this phenomenon?  It seems that Western Australia is where it’s at vis-à-vis mining and engineering that drives exports and commercial construction. As well, according to an article in Nett.com, “Western Australia has displaced the Australian Capital Territory as the strongest state economy in Australia.”

In addition, it seems that when looking at retail spending, Western Australia is the place to go.  However, it’s not all good news for the state.  Take a look at housing and you’ll see that new dwellings are actually dropping.  On the decade’s average, the plummet was recorded at 10 percent.  House prices too have dropped “by an average of 7.5 percent over the past year.”

Australian States Faring Badly

While Western Australia might have a lot to smile about in terms of economic growth, the state might want to lend a shoulder to NSW and Queensland.  Neither state has been faring well at all although the report did indicate that Queensland does have a good chance of getting better especially with the potential of “construction activity in the wake of recent disasters.”

Okay, but then what about NSW?  Apparently its economy can do better and has that chance due to “high population growth and stable housing lending.”  Interest rates could become more stable in both NSW and Queensland too.  With this, the states could receive “the momentum” they need “injecting interest in the housing sector.”

Stocks Tumble in Early Trading

In an almost eerie omen of what may come if the debt ceiling is not raised on US debt, the DOW Jones tumbled 1.2 percent in early morning trading.  Whether or not stocks pare gains is not as important as the indicator that this reaction to both European debt troubles and stalled negotiations over the US debt means for the weeks ahead.

To Default or Not To Default

Most experts don’t believe the US will actually default, yet there is a vocal minority in favor of letting the system reset itself in order to get back on track and reduce the deficit. By constantly raising the debt ceiling, more money is printed and when that happens the dollars value declines, which is a type of default.

Either way it goes, the USA and Western economies are facing a serious test on their strength and viability for the future.  This is actually important since the biggest growth is being seen in the emerging powers of India and China.

HTC Buys Its Own Shares

The second largest smartphone manufacturer in Asia, HTC Corp. (2498) is planning on purchasing up to 2.4 percent of its shares.  According to a report in Bloomberg, this move follows a U.S. International Trade Commission rule “that it infringed two Apple Inc. (AAPL) patents.”

In practice what does this mean?  While 2.4 percent doesn’t seem so much, in reality it means that it will be buying around 20 million shares in the next couple of months.  Approximately 50 percent of these will be given to employees and the rest will be canceled.

Plummeting HTC Shares

In Taipei last week the HTC shares plummeted 6.5 percent to NT$907 “amid concern the patent dispute with Apple will affect earnings by crimping sales in the U.S. or boosting costs,” closing “at a six-month low of NT$870 on July 13.”  The company also said it plans to appeal this ruling.   The finding by Carl Charneski, the Administrative Law Judge on July 15 is anyway “subject to review by the full six-member International Trade Commission in Washington.”  But if the finding is upheld, America may ultimately “ban imports of some HTC phones that run on Google Inc. (GOOG)’s Android, the nation’s most popular smartphone operating system.”

Such Bad News?

Apparently things could be worse though for HTC.  In an article in Bloomberg, it was recorded that  Taipei-based Beyond Asset Management Co., president Michael On, said that the company “will probably resolve the issue by paying royalties, which will raise costs.”

Together with Apple, HTC accrued more than double revenue from mobile phones in the first quarter from last year, while shipping their wares to additional markets worldwide.

REDAN and Shelter Afrique Deal

Currently in the midst of negotiations for a $1bn deal is REDAN (Real Estate Developers Association of Nigeria) and Shelter Afrique (a pan-African housing development finance organization).  According to a news article on the subject, he deal – if it all goes through – will lead to the construction of 150,000 “low and medium housing units across the country.”  In the hope that this will actually happen, some key government organs have been incorporated, in a Memorandum of Understanding (MoU).  As Mr. Goke Odunalmi (Sec-Gen of REDAN) commented, “we are finalizing discussions with Shelter Afrique for a housing finance deal of about $1bn. About 12 developers will receive about $50m each.”

Also to be brought into the partnership for increasing efficiency of the work, will be Lagos Bureau of Lands, the Federal Mortgage Bank of Nigeria (FMBN) and the FCTA.  The FMBN will be the mortgage part of the housing units manager and the other two organizations will be providing the land for the project.  As well, according to Chief Olabode Afolayan, President of REDAN, the FMBN is being requested to “guarantee access to the loan, noting that the nation’s apex mortgage institution will serve as the delivery vehicle for the 12 enlisted developers.”  One of the reasons for FMBN’s involvement is that loans are never given out without collateral so going to Shelter Afrique to access the loan will be helpful with FMBN’s backing.

Following this, the money gained from Shelter Afrique will be used for housing construction.  Following that the houses will be sold to National Housing Fund contributors which will make it easier to get the money back.  FMBN’s role at that point will be used to help pay the loan back since it is “the only secondary mortgage institution in the country.”

Making Housing Affordable

The main aim of the project of course, is to make housing affordable for “most Nigerians,” a situation that is currently not in place.  With this new project, all that will change and the country will become a place where having a home is almost a basic right.