NEWS,20.11.2012

Seven And A Half Things To Know: Fiscal Cliff Spurs Super-Rich Panic

Thing One: Super-Rich Super Panic: Rich Americans likely have the most on the line as we near the fiscal cliff, the New York Times notes. Their tax rates would rise under the President's plan or if lawmakers don’t reach a deal. Some are taking action in advance. The Walton family, which founded Walmart, may save as much $180 million in taxes thanks to the company’s decision to push up its dividend payout to December from January so investors can count the income for this year, according to The New York Times. If Obama and Congress fail to reach a deal this year the tax rate on dividend income could more than double. But as The NYT notes in a separate article, under Obama’s plan, rich is defined rather broadly. It could mean the super-wealthy Waltons or an individual or small business owner making more than $200,000 per year.Meanwhile, corporations also stand to lose: More than $150 billion over 10 years in tax breaks, according to the Financial Times. Some business leaders say they would graciously agree to help America by giving up their corporate tax breaks so as long as they come with more complete corporate tax reform next year. Still, it’s likely what business leaders want the most is for lawmakers to reach a solution. Stock indexes rose to their best day in two months on Monday on optimism that lawmakers would agree to a deal, according to the Wall Street Journal. There’s at least one CEO out there claims he’s willing to give up tax breaks for a solution, NASDAQ head Robert Greifeld said politicians need to worry less about “winning” and admitted that “broadening the tax base” may be necessary to get the necessary deal done. Thing Two: Walmart's Thanksgiving May Be Ruined: As Walmart’s founders are looking for ways to skirt higher taxes, some of their employees are protesting the company’s decision to make them work on Thanksgiving. More than 30,000 people have already signed an online petition protesting the company’s decision to open on Thanksgiving Day. Meanwhile, the Wall Street Journal reports that labor officials are trying to decide as soon as possible whether to seek an injunction on behalf of Walmart to stop planned protests at 1,000 of its store locations on Black Friday, the biggest shopping day of the year. Walmart claims the protests are an illegal disruption of business. Thing Three: The Twinkie Is Saved: Twinkie enthusiasts calm down, you’ll still be able to relive the tasteless 1950s as often as you’d like. Hostess Brands, the makers of Twinkies, agreed to mediation, with the Bakers Union, the group the company claimed was forcing them to liquidate. But don’t stop hoarding Cup Cakes and Ding Dongs just yet, the company isn’t positive it will reach a solution, a Hostess spokesman told the Financial Times. The two sides will meet with the bankruptcy judge that ordered the mediation Tuesday in an aim to reach a new contract and save 18,500 jobs, according to the Wall Street Journal. If they can’t reach a deal, Hostess will be able to move forward with its plans to liquidate.Thing Four: Eurozone Crisis Still Not Over: The European crisis rages on and yes, leaders are still fighting about what exactly to do. European finance ministers are racing to find a fix after deciding last week to give Greece two extra years to cut its budget deficit creating a $19 billion hole in the country’s finances and angering the IMF, according to Bloomberg. Meanwhile, France, one of the region’s stronger economies isn’t faring too well. Moody’s cut the country’s credit rating and slammed President Fancois Hollande’s attempts to fix the economy, according to the Wall Street Journal.Thing Five: Ex-Trader Found Guilty Of Losing Lots Of Money: In the continuing saga of finding others to blame for banks’ risky behavior, ex-UBS trader Kweku Adoboli was convicted of one count of fraud for losing the bank $2.3 billion, according to Reuters. In defending himself Adoboli had said that his managers encouraged him to push the risk limits, adding that his huge loss came “in pursuit of the goals set by our leadership.”Thing Six: Credit Suisse 2.0: Apparently when one of your rivals cuts 10,000 jobs it makes you consider a few things. Credit Suisse is splitting off its investment bank unit outside Switzerland from its global wealth bank, Swiss investment banking and wealth management units in an aim to meet the “new regulatory reality,” according to the Financial Times. The move comes just a few weeks after rival UBS slashed 10,000 jobs in its investment banking unit. The move will likely keep the bank less vulnerable to the whims of international markets and corporate finance. The bank might also get another thing added to its plate soon. The New York Attorney General’s office is planning to file a lawsuit against Credit Suisse, alleging that the bank misled investors on the quality of its mortgage-backed securities in the lead up to the financial crisis, according to Reuters. Thing Seven: People Still Don't Like PCs: The death of the PC claims another victim. Intel CEO Paul Otellini announced yesterday that he’s stepping down from his post early after not successfully shifting the chipmaker from a PC-based business to a mobile business, according to Bloomberg. The unexpected announcement may indicate the depth of the company’s woes, Intel is typically known for careful succession planning and Otellini could have stayed on for another three years, according to the Financial Times.Thing Seven And A Half: Your Favorite Thanksgiving Moments Revealed: Just two more days for Thanksgiving and the best holiday of the year can’t come soon enough. Here are the 15 best moments of Thanksgiving (many in gif form) via Buzzfeed to get you through these last 48 hours of work.

 

China escalates subsidies spat with US

China is to ask the World Trade Organisation to rule on its latest commercial spat with the United States, the WTO said on Tuesday, hoping it will back Beijing's complaint that punitive US tariffs imposed on a raft of Chinese goods are illegal.In a move that deepened the dispute, China will ask the WTO to set up a three-person dispute panel at a meeting on Nov. 30. If China wins the case and any subsequent appeal Washington could be forced to drop the tariffs it levied on 31 Chinese products which it said were being traded unfairly.The US tariffs affected photovoltaic cells and modules used in solar power, various steel products, off-road tyres, aluminium goods as well as towers for windfarms.Such capital-intensive and cyclical commodity products have frequently been at the centre of trade disputes as national industries have asked governments to step in and stop foreign competition from destroying profits and jobs.Steel products have frequently been involved, as more recently have solar power components, with the oversupplied global solar industry struggling to maintain its profit margins.The United States has been a fierce critic of what it says are clandestine Chinese subsidy programmes, but Beijing says Washington's efforts to tackle suspected wrongdoing have gone beyond the rules.China's complaint targets Public Law 112-99, which was signed by President Barack Obama in March, as well as US steps taken against suspected export-distorting subsidies between Nov. 20 2006 and the passage of the contested law.In a WTO filing, China said the US law had broken the rules because it applied retroactively to suspected Chinese subsidies as far back as 2006.The United States was also at fault, China said, because it used "double remedies" against China between 2006 and March this year.Double remedies means targeting the same Chinese exports twice over - once for being subsidised and once for being "dumped", or sold at unfairly cheap prices.China launched the complaint in September, just hours after the United States lodged a similar complaint against China's support for car exports.Under WTO rules a country accused of breaking the rules has 60 days to try to resolve the complaint, after which the complainant can ask the WTO to set up a panel of adjudicators to judge the merits of the dispute. The WTO's ruling is likely to be made public in mid-2013.

Watchdog investigates lending practices

Britain's consumer watchdog has launched investigations into several payday lenders over aggressive debt collection and expressed its concern about general poor practice within the sector.Payday lenders offer short-term loans, which are intended to be paid back when borrowers receive their wages. Britons have increasingly turned to these loans as mainstream banks have tightened their criteria for granting short-term credit."We have uncovered evidence that some payday lenders are acting in ways that are so serious that we have already opened formal investigations against them," David Fisher, the Office of Fair Trading's (OFT) director of consumer credit, said on Tuesday."It is also clear that, across the sector, lenders need to improve their business practices or risk enforcement action."The OFT identified issues around debt-collection practices, the adequacy of affordability checks made by lenders, the number of loans not repaid on time and the lack of forbearance shown by some lenders when borrowers get into financial difficulties.Wonga.com, which offers individuals short-term loans of up to 1 000 pounds, more than trebled its earnings last year. Like other payday lenders, the company has faced criticism that its annual percentage rate (APR), listed on Wonga.com as 4 214%, takes advantage of the financially vulnerable.The OFT is reviewing the whole sector and has said that some firms will face enforcement action if they do not improve their practices.Wonga said that it welcomed the OFT's review. "We provide a valued, transparent service to more than a million customers and want to see rogue practices rooted out across all financial services," it said.The OFT will publish a full report next year and state whether wider action is needed to tackle problems in the sector.

NEWS,19.11.2012

Global shadow banking hits $67 trillion

The system of so-called shadow banking blamed for aggravating the global financial crisis grew to $67 trillion globally last year, a new high, amid calls from the world's top policymakers for greater control of the sector.A report by the Financial Stability Board (FSB) on Sunday appeared to confirm fears among policy makers that shadow banking is set to thrive, beyond the reach of a regulatory net tightening around traditional banks and their activities.Officials at the European Commission in Brussels see closer control of the sector as important in preventing a repeat of the financial crisis that toppled banks over the past five years and rocked the euro zone.The study by the FSB, set up by the world's top economies (G20) to police global finance, said shadow banking around the world more than doubled to £62 trillion in the five years to 2007 before the crisis struck.But the size of the total system had risen to $67 trillion in 2011, more than the total economic output of all the countries in the study.The multi-trillion dollar activities of hedge funds and private equity companies are often cited as examples of shadow banking.But the term also covers investment funds, money-market funds and even cash-rich firms that lend government bonds to banks, and which in turn use them as security when taking credit from the European Central Bank Even the man credited with coining the term, former investment executive Paul McCulley, gave a catch-all definition.McCulley said he understood shadow banking to mean "the whole alphabet soup of levered up non-bank investment conduits, vehicles and structures", such as the special investment vehicles that many blamed for the financial crisis.The United States had the largest shadow banking system, said the FSB, with assets of $23 trillion in 2011, followed by the euro area with $22 trillion and the United Kingdom at $9 trillion.The US share of the global shadow banking system has declined in recent years, the FSB said, while the shares of the United Kingdom and the euro area have increased.The FSB warned that tighter rules that force banks to hoard more capital reserves to cover losses could bolster shadow banking.It advocates better controls, although cautions that shadow banking reforms should be dealt with carefully because the sector can also be a source of credit for business and consumers.Forms of shadow banking can include securitisation, which can transform bank loans into a tradeable instrument that can then be used to refinance credit, making it easier to lend.In the run-up to the crisis, however, banks such as Germany's IKB stored billions of euros of such instruments in off-balance sheet vehicles, which later unravelled. Another example is a repurchasing agreement, or repo, where a player such as a hedge fund could sell government bonds it owns to a bank, agreeing to repurchase them later.The bank may then lend those bonds onto another hedge fund, taking a position on the government debt. Such agreements are used by banks to lend and borrow. A risk could arise if one of the parties in the chain collapses.The European Commission is expected to propose EU-wide rules for shadow banking next year.

 

Stocks, commodities rise on fiscal cliff hopes

World share markets and commodities surged yesterday as traders focused on politicians' indications that they are ready to compromise to avoid the US "fiscal cliff".Wall Street stocks climbed more than 1%, extending a rally that began on Friday, while crude oil was up more than 2%.US lawmakers indicated compromises were possible in negotiations to avert US$600 billion in tax increases and spending cuts due to start in January - the "fiscal cliff" that threatens to send the US economy back into recession.Democratic Senator Dick Durbin said on CNN: "What I hear is a perceptible change in rhetoric from the other side."Also appearing on CNN, Republican Representative Tom Price said: "Every member of our caucus appreciates that this fiscal crisis, this challenge that we have, is ever closer."Opinion polls show that Republicans would shoulder more of the blame if the country goes over the fiscal cliff.MSCI's world equity index jumped 1.8%, in one session erasing the 1.8% drop it posted last week. Monday was the best day for the index since September 14."Stocks could rise substantially if US policymakers can negotiate a 'grand bargain' that credibly addresses long-term tax, spending, and entitlement reforms," said Jonathan Golub, strategist at UBS in New York.The Dow Jones industrial average was up 160.54 points, or 1.28% , at 12,748.85. The Standard and Poor's 500 Index was up 21.22 points, or 1.56%, at 1,381.10. The Nasdaq Composite Index was up 46.39 points, or 1.63%, at 2,899.52.Optimism in Europe over the prospects of a deal this week to release much-needed aid for Greece also lent support.European officials are expected to discuss a two-year funding plan for Athens at a meeting on Tuesday, which would postpone any longer-term solution until after a September 2013 German general election.European Central Bank policymaker Joerg Asmussen said last weekend that the ministers were likely to agree to the deal and leave resolution of a longer-term debt stabilisation plan for Greece, at the heart of a disagreement with the IMF, until later.The euro rose 0.56% to $1.281, well above the two-month low of $1.2661 hit last week and near the top end of its recent range, suggesting the foreign exchange market expects an agreement on Greece."This message from the ECB would tell me that, yes, what we are heading to this week is an agreement that would keep Greece out of trouble for the next year or so," said Gilles Moec, senior European economist at Deutsche Bank.European share markets rebounded from last week's lows, mainly on the growing optimism over the US political negotiations.The FTSE Eurofirst 300 index of top European shares closed 2.3% higher, led by sectors tied to the pace of economic growth. Banks climbed 3.6% , with US shares of Barclays up 5.6% to $15.82.In the region's main centres, London's FTSE 100, was up 2.4%, while Frankfurt's DAX and Paris' CAC-40 rose more than 2%.Safe-haven bond markets reflected the stronger risk appetite, with the 10-year US Treasury down 10/32 to yield 1.6165%.The 10-year German government bond fell and its yield rose to 1.362% from 1.326% on Friday. Traders said there was room for yields to rise if euro zone policymakers reached an agreement at their meeting on Tuesday.In the currency markets, the dollar briefly extended its gains against the yen on expectations a new Japanese government will push the central bank to taking aggressive monetary stimulus measures to boost growth after next month's elections.The greenback was slightly lower against the yen at 81.24. Earlier, it rose to its highest level since April 25.The Bank of Japan began a two-day meeting on Monday but was not expected to take any new policy steps before the December 16 vote.The rising hopes of a deal on closing the US budget gap, which has clouded the outlook for global growth, spread through commodity markets, lifting oil, copper and gold.Copper rallied 2.6% to $7,803.5 a ton on the London Metal Exchange, and gold rose $19.52 to $1,733.2 an ounce.A 0.5% drop in the dollar index, which had eased from a two-month high hit on Friday, added to demand by making commodities priced in the greenback more affordable for buyers holding other currencies.Brent crude rose above $110 a barrel as the escalating violence between Israel and the Palestinians fuelled concern about supplies from the Middle East.Investors fear the conflict may draw in other countries and possibly disrupt energy exports from the region, which supplies more than a third of the world's crude.Brent crude for January delivery was up 2.5% and U.S. crude futures added 2.8%.

 

European stocks make biggest rebound in 10 weeks

European equities have rebounded from multi-month lows to post their biggest daily gain in 10 weeks, thanks to signs of progress in US talks to avoid a budget crisis.Leading Democratic and Republican lawmakers voiced confidence over the weekend that a deal would be reached to avoid the so-called "fiscal cliff" of some US$600 billion of tax hikes and spending cuts which threatens to plunge the United States into recession in 2013.An unexpected rise in US existing home sales for October added to the brighter sentiment towards the world's biggest economy on Monday, which has become a significant source of growth for European companies as their domestic region stagnates."The news about the fiscal cliff over the past few days has been much more positive," said Donald Huber, portfolio manager at Franklin Templeton Investments, which has about US$750 billion in assets under management.The FTSEurofirst 300 index provisionally closed up 2.3% to 1,091.50 points, while the EuroSTOXX 50 rose 2.8% to 2,495.19 points -- both posting their biggest one-day gain since early September and rebounding from multi-month lows.The rebound comes after EuroSTOXX 50 dipped into technically oversold territory on the seven-day relative strength index (RSI) on Friday for the first time in nearly two months.Then, a big rally followed but ran out of steam after two sessions, and this time too analysts were doubtful about the sustainability of the gains unless the fiscal cliff problem is actually resolved rather than just postponed."We had the lows and the market is oversold... so it is just short-covering," said Vincent Guenzi, chief strategist at Cholet Dupont."That [progress in negotiations] was the catalyst for the short-term gain of the market. That could help the market maybe gain 1% or 2% more, but to really have the end of the downtrend of the last weeks we need something real."Monday's broad-based rally took all the STOXX 600 sector indexes into positive territory, led by economically sensitive ones like autos, banks, construction, technology and basic resources.Healthcare, which is less dependent on economic cycles for demand, lagged with a rise of 1%.Nokia was a top gainer among individual stocks, with reports of its Lumia 920 selling out in Germany fuelling hopes of strong demand for the new smartphone.Shares in the Finnish cellphone maker added 9% on Monday, but are still down 39% since the start of 2012.Nokia is the most shorted company in EuroSTOXX 50, with 19.7% of outstanding shares on loan according to data from Markit, potentially making it vulnerable to sharp short-covering rallies on any sentiment improvement or positive news.That gives Nokia a utilisation rate - shares borrowed versus the total number available for loan - of 93.5%, against just 6.2% for EuroSTOXX 50 as a whole.