Archive for International

The long arm of the dollar

By The Economist online….

FEW banks can match the quaint serenity of Banco Delta Asia’s headquarters in Macau. Housed in a pastel-yellow colonial building opposite a 16th-century church, its entrance is flanked by tall vases, depicting sampan gliding between karst hills. In the tiled square outside, men laze under a banyan tree and an elderly woman peels a boiled egg for lunch.

But in 2005 this backwater bank incurred the wrath and might of the world’s financial hegemon. America’s Treasury accused it of laundering money for North Korea, prompting depositors to panic, other banks to keep their distance and the Macau government to step in. The Treasury subsequently barred American financial institutions from holding a correspondent account for the bank, excluding it from the American financial system.

Macau is over 8,000 miles from Washington, DC. But it is hard to escape the long arm of the dollar. Its dominance reflects what economists call network externalities: the more people use it, the more useful it becomes to everyone else. One person’s willingness to accept dollars from another depends on a third person’s readiness to accept dollars from them.

The dollar also benefits from a hub-and-spoke model for the exchange of currencies, the invoicing of trade and the settlement of international payments, as the late Ronald McKinnon of Stanford University argued. If every one of the more than 150 currencies was traded directly against every other, the world would need over 11,175 foreign-exchange markets. If instead each trades against the dollar, it needs only 149 or so. If you cannot buy the afghani with the zloty, you can still sell one for dollars with which to buy the other.

Likewise, if every international bank keeps an account in New York, any bank can transfer funds to any other through the same financial hub. “The global financial system is like a sewer and all of the pipes run through New York,” says Jarrett Blanc of the Carnegie Endowment for International Peace.

This gives America’s Treasury great punitive power and jurisdictional reach. Many companies that do not buy or sell wares in America nonetheless make or collect payment through New York. Because these transfers pass through American financial institutions, the Treasury can claim jurisdiction on the ground that its banks are exporting financial services to the bad guy. It can also hit companies where it hurts. For many, exclusion from America’s financial system is a more potent threat than exclusion from America’s customers. Last month, for example, the Treasury threatened to seize dollars paid to Rusal, a Russian metals firm that is one of the world’s biggest aluminium producers, crippling it and upending the global aluminium market, until the turmoil forced a rethink.

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Category: Business and finance, Approved, Finance and economics, FINANCE

As the global economy picks up, inflation is oddly quiescent

By The Economist online…

A FEW years ago, the news about the euro-zone economy was uniformly bad to the point of tedium. These days, it is the humdrum diet of benign data that prompts a yawn. Figures this week show that GDP rose by 0.6% in the three months to the end of September (an annualised rate of 2.4%). The European Commission’s economic-sentiment index rose to its highest level in almost 17 years. Yet when the European Central Bank’s governing council gathered on October 26th, it decided to keep interest rates unchanged, at close to zero, and to extend its bond-buying programme (known as quantitative easing, or QE) for a further nine months.

The central bank said it would slow down the pace of bond purchases each month, to €30bn ($35bn) from January. But Mario Draghi, the bank’s boss, declined to set an end-date for QE. A hefty dose of easy money will be necessary, he argued, until inflation durably converges on the ECB’s target of just below 2%. It shows few signs of doing so, despite the economy’s strength. Underlying, or core, inflation, which excludes the volatile prices of food and energy, fell from 1.1% to 0.9% in October, according to data published a few days after the ECB meeting. The euro zone’s miseries of 2010-12 were unique. But in its present, happier state of vigorous activity, low inflation and easy monetary policy, it is like many other big economies (see chart).


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Category: Business and finance, Approved, Finance and economics, FINANCE

Catalonia and the perils of fiscal redistribution

By The Economist online

POPULISM is the weapon not just of the downtrodden. As the crisis in Catalonia demonstrates, the rich have economic anxieties of their own. Catalonia has an identity distinct, in important ways, from that of the rest of Spain. But the recent drive for independence has been energised by anger over the flow of fiscal redistribution from rich Catalans to their countrymen: people seen, in parts of the restless north-east, as thankless and lazy as well as alien. Paradoxically, globalisation has inflamed separatism around the world by raising the question Catalans now confront: to whom, exactly, do we owe a sense of social responsibility?

Every country or restive region has its own idiosyncratic history. Yet over the long run national borders are surprisingly malleable. Some circumstances offer better prospects for the small and newly independent than others. The smaller the country, the more easily its government can satisfy its people’s political preferences. A broadly satisfying compromise is easier among 300,000 people than 300m. But as Alberto Alesina and Enrico Spolaore note in their book, “The Size of Nations”, smaller countries also face hardships. They sacrifice economies of scale—they need, for example, to operate their own state agencies, rather than spread the expense of government across a larger population. Borders are bound to add to trading costs, leaving countries with smaller internal markets at an economic disadvantage. At times of foreign-policy tension, smaller countries, with correspondingly constrained armies and defense budgets, are easier to bully.


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Category: Business and finance, Approved, Finance and economics, FINANCE

US Stocks Edge Higher Ahead of a Big Week

The major U.S. indexes moved higher over the past week despite weak new and existing home sales. New home sales fell to a sharply lower-than-expected annualized rate of 571,000, while existing home sales fell 1.3% to an annualized rate of 5.44 million. The primary driver behind the stock market rally has been better-than-expected second quarter earnings, higher expectations for tax reform and more dovishexpectations for the Federal Reserve.

International markets moved lower over the past week. Japan’s Nikkei 225 fell 0.09%; Germany’s DAX 30 rose 0.02%; and Britain’s FTSE 100 rose 1.2%. In Europe, the European Central Bank’s plans to phase out its massive stimulus program early next year could slow down the region’s strong recovery. In Asia, economists are concerned that a crackdown on backdoor borrowing by local governments in China could put a drag on growth. (See also: Time to Buy Alibaba Bonds? BofA Merrill Thinks So.)

The SPDR S&P 500 ETF  rose 0.76% over the past week, as prices have trended sideways around the 50-day moving average at $244.76. Traders should watch for a breakout toward R1 resistance at $249.73 or a breakdown to test lower trendline and S1 support at around $242.00. Looking at technical indicators, the relative strength index (RSI) is neutral at 47.63, while the moving average convergence divergence (MACD) remains in a bearish crossover dating back to early August but could see a bullish crossover in the near future. (For more, see: Dividend and Large Cap: 2 ETFs to Watch on Outsized Volume.)

 

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Category: SPY, DIA, IWM, QQQ

Not there yet Janet Yellen: System is safer now, though ‘all-too-familiar’ risks remain

Federal Reserve Chair Janet Yellen, looking back a decade after the onset of the financial crisis, said Friday the financial system is safer now than it was then though some adjustments to regulations may be needed.

The central bank chief spoke at the Fed’s annual conference in Jackson Hole, Wyoming.

Though the speech is closely watched in financial markets, Yellen offered no clues about the future of monetary policy, instead focusing on the history of the crisis and what regulators have done in response. She warned that future crises are inevitable but said the housing meltdown taught valuable lessons.

“The events of the crisis demanded action, needed reforms were implemented, and these reforms have made the system safer,” she said in prepared remarks.

Yellen rejected arguments that regulation had stifled banking activity, insisting that higher capital requirements actually promoted loan growth.

Her review came less than six months before her term ends in February. President Donald Trump has been circumspect about whether he will reappoint her, and Yellen has refused to speculate about her future.

 

Fed watchers had been looking for some level of reflection from Yellenabout the Fed’s response to the crisis, and that was the focus of the speech. She cited the need for the bailout programs put into place in response to a liquidity crush on Wall Street and touted the effectiveness of the new regulations, such as the Dodd-Frank reforms.

However, she said the Fed is continually reviewing the moves to see what’s working and what might be holding back the system.

“A broader set of changes to the new financial regulatory framework may deserve consideration. Such changes include adjustments that may simplify regulations applying to small and medium-sized banks and enhance resolution planning,” she said.

“More broadly, we continue to monitor economic conditions, and to review and conduct research, to better understand the effect of regulatory reforms and possible implications for regulation.”

For instance, she said the Volcker Rule, which limits banks’ ability to trade for their own benefit, may need some “simplifying.” She also said regulations should be examined to make sure they aren’t disproportionately harming community and regional banks.

She cautioned against wholesale changes, particularly when it comes to risk-taking in the financial markets.

“Any adjustments to the regulatory framework should be modest and preserve the increase in resilience at large dealers and banks associated with the reforms put in place in recent years,” she said.

Yellen also was expected to address the current climate and the potential for dangers ahead like the real estate bubble that precipitated the crisis.

Fed officials have expressed varying levels of worry about the continuing climb of risk assets like stocks.

Indeed, Yellen cited the likelihood of “the all-too-familiar risks of excessive optimism, leverage and maturity transformation re-emerging in new ways that require policy responses.” read more

Samsung’s boss is sentenced to prison

By The Economist online

SAMSUNG’S founding family, the Lees, have good reason to dislike room 417 of Seoul’s Central District Court. In 2008 it was where Lee Kun-hee, the chairman of the sprawling South Korean conglomerate, was found guilty of tax evasion. On August 25th his son, Lee Jae-yong, the vice-chairman of Samsung Electronics, stood in the same room and was sentenced to five years in prison on charges including bribery, embezzlement and perjury. The elder Mr Lee has been in hospital since suffering a heart attack in 2014. Samsung now lacks both its official and de facto bosses.

The younger Mr Lee, who plans to appeal against the verdict, was accused of paying bribes to Choi Soon-sil, a confidante of the country’s former president, Park Guen-hye. Prosecutors had argued that he hoped the payments would secure government support for an $8bn merger of two Samsung affiliates, Cheil Industries, the group’s unofficial holding company, and Samsung C&T, a construction firm. The state-run National Pension Service, the single biggest shareholder in C&T, voted for the plan in July 2015. The deal was controversial, but it helped Mr Lee consolidate his control over the group and clear the way for his succession.

The decision is a milestone in a broader influence-peddling scandal that brought down Ms Park. She was impeached in March and arrested soon after; she now awaits the verdict in her own trial. Mr Lee’s conviction bodes poorly for her.

Less clear is what will happen to Samsung itself. Shares in Samsung Electronics, the group’s main earner, dipped by 1.05% following the verdict. Yet any slump may be fleeting. The group’s three chief executives were not caught up in the trial. While Mr Lee was awaiting the verdict in his case, the firm boasted record profits, thanks to booming demand for its memory chips. An analysis by the Asan Institute, a think-tank in Seoul, showed that each twist in the case had little impact on its share price. Last year had brought the disastrous release of the Galaxy Note 7 smartphone, which had an unfortunate habit of bursting into flames. But the firm unveiled a new model this week. Its share price has risen by more than one-third this year.

Yet Mr Lee’s absence could create a power vacuum at the centre of the group, which might prevent it from making big bets. “The good thing about having a founding family is they can think about the long term,” says Yoo Kyung-Park of APG Asset Management, a Dutch pension firm that owns shares in Samsung Electronics. The Future Strategy Office, which acts as the group’s control tower, was dismantled in February after Mr Lee’s arrest. Two of its former executives were also jailed. Bosses will be unwilling to make major decisions without the family’s sign-off, says Park Sangin of Seoul National University: “In a monarchy you need a king.”

One convicted South Korean boss, Chey Tae-won of SK Group, a telecoms and chemicals giant, avoided this problem by turning his jail cell into an office. While serving time for embezzlement earlier this decade, he held more than 1,600 meetings in 17 months. In theory Mr Lee could do the same. But the appetite for such behaviour is waning. Demands are intensifying to reform South Korea’s chaebol, the mighty conglomerates that helped forge the country’s economy but which are now often criticised for cosy ties with politicians. Byzantine structures allow the sons and grandsons of company founders to wield great influence, whether or not they have controlling stakes. The 26 Samsung affiliates, which operate in businesses from life insurance to smartphones, are controlled by the Lee family through a complex web of cross-shareholdings.

The decision is a milestone in a broader influence-peddling scandal that brought down Ms Park. She was impeached in March and arrested soon after; she now…

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Category: Business and finance, Approved, Business and finance, Business

The pay is too damn low: July Jobs Report Shows Growth, but Wages Stubbornly Stagnant

The July employment report was almost about as good as it gets. The U.S. economy generated 209,000 new jobs, well in excess of the anticipated 180,000. As expected, the unemployment rate fell to 4.3 percent, matching the May low for this cycle. Average hourly earnings have yet to accelerate, but the pace did increase modestly in the month, and the participation rate edged higher. If the Fed does, indeed, intend to shrink its balance sheet starting in September, there was likely nothing in this report that would dissuade it from doing so. And following the report, expectations for a December rate hike increased to 40 percent from the 37 percent the day prior.

The one missing ingredient at this level of unemployment remains the stubborn refusal of wages to increase in a meaningful way. The last time the unemployment rate was close to this low, in 2007, wages were growing between 3.0-3.5 percent on a twelve-month basis. It should be noted, however, that back then core inflation was running between 2.0-2.3 percent as measured by the Personal Consumption Expenditure (PCE) deflator, not the 1.5 percent pace of this past June.

We will see how consumer prices started out the third quarter on Friday with the July Consumer Price Index report. The twelve-month headline rate is expected to edge higher to 1.8 from 1.6 percent in June, while the core rate is expected to be unchanged at 1.7 percent.

As labor continues struggling to participate fully in this recovery, shareholders are the beneficiary. Profit margins remain high, and corporate earnings are exceeding expectations. Second quarter earnings season is now roughly 90 percent complete, and according to Factset, S&P 500 companies in the aggregate are reporting an increase in margins compared to last year.[i] And earnings are likely to grow by 10.1 percent when full second quarter results are in, well ahead of the expected 6.4 percent pace at quarter end. Only the consumer discretionary sector is expected to see a decline.

The third quarter looks less promising. Estimates have been lowered since the end of the second quarter, as expectations for the energy sector in particular have been reduced along with the price of oil. Earnings in the third quarter are now expected to grow by 5.6 percent, down from 7.1 percent on June 30. But it should be noted that third quarter estimates are now lower for all but technology and telecom, which is still expected to suffer a decline, just of somewhat lesser magnitude. Nevertheless, current estimates of 9.5 percent for the full year have remained relatively steady.

Despite the robust July jobs report, bond yields fell for the week. The ten-year note closed at 2.26 percent, down from 2.29 the prior week, although it did bounce off its lows following the jobs report on Friday. The two-year note rose just one basis point on the week to 1.36 percent. The dollar rebounded sharply after the jobs report as well, arresting for the time being its year-long decline. Stocks edged higher, with the S&P 500 adding just 0.2 percent to close just one point shy of the record set the week before. The Dow Jones Industrial Average did manage to set another new record high at week’s end, its eighth consecutive record close.

Congress is in recess until after Labor Day, and with earnings season winding down, equity investors will be grasping about for something to fill the void as we get into the historically-weak months of August and September.

 

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Genius money-saving home decorating ideas — Savings Experiment

Did you know: Using tape can be a low-cost way to decorate your home?

Washi tape is a Japanese masking tape made of rice paper, and comes in all types of patterns and colors. Since the tape can be used and repositioned easily without damage to surfaces, the decorative options are endless.

Walls, cabinets, window blinds — even your furniture and shelves can be completely transformed with the colors and patterns you choose. And for only around $4 a roll at most office and art supply stores, it’s a small cost with big possibilities.

So get creative, and break out the tape!

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Category: did you know, home decor, interior design tips, Savings Experiment

5 ways to not blow your unused airline miles

The complex nature of airline loyalty programs has left many consumers who sign up for their co-branded credit cards wanting for more. Not only have airline miles becoming increasingly harder to use these last few years, but award availability can sometimes be scarce. To add insult to injury, new fees and fuel surcharges are heaped onto what used to be “free travel” all the time.

Still, the best airline credit cards continue to offer excellent value for those willing to jump through all of the additional hoops and hurdles. The key to getting the most out of them is understanding how to work the system, and of course, picking the right card to begin with.

If you’re tired of stressing over your unused airline miles, it might be time to try a different card – or simply find a better way to work with what you’ve got. Here are five tips to help you do just that:

Save your airline miles for off-peak travel.

If you feel like award redemptions are overpriced and scarce, take a look at off-peak pricing and you’ll likely change your mind. Where holiday breaks and summer often come with higher prices for flights – even when you’re paying with points – off-peak and off-season travel generally costs a lot less.

Take the American AAdantage program, for example. Where a round-trip MileSAAver flight to Europe from the contiguous United States costs 60,000 miles during summer, it costs just 45,000 miles during their off-peak season, which is October 15th – May 15th.

By saving your airline miles for off-peak travel, you can stretch them a whole lot further and perhaps enjoy better award availability, too.

Consider a flexible travel credit card.

If you’re tired of navigating a single airline loyalty program or want as many options as possible, a flexible travel card might provide the options you want. With a card like the Chase Sapphire Preferred credit card, for example, you can earn points that are transferrable to several airlines including Southwest, United, and British Airways to name a few.

If you don’t wind up finding the availability you need or don’t feel like messing with airline programs at all, you can also use your points to book travel with any airline through the Chase Ultimate Rewards portal. Since the portal works a lot like Expedia.com, you just input your dates and choose the flight that works best for you with no regard for blackout dates or capacity controls.

Sign up for a card with no blackout dates or better availability from your home airport.

Speaking of blackout dates, some airline loyalty programs don’t have them. One that comes to mind specifically is the Southwest Rapid Rewards program.

If you have Southwest miles and find a seat on a plane, it’s yours. This is a huge perk if you need to book several seats on a single flight or don’t have a lot of flexibility in the time or date you fly.
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Category: bonds, cloud, computers, data, dell, earnings, earnings season, healthcare, nasdaq, nyse, oil prices, stock market, stocks, utilities, wall street, csx, nj, jnj, tast, intc, jpm, fast, gs, bac, ge, lly, wfc, c, unh, emc, tri

Simple, independent and multinational; another trilemma

By The Economist online
THE scandal over the leaked Panama papers may dominate the headlines for a few days yet. It seems to reinforce the populist narrative that there is one law for the global elite and another for the rest of us. There is little scope for tax evasion for “wage slaves”, who find that tax is deducted from their pay before they get hold of it.

The issue may be another example of that common political problem; the trilemma, under which three options are available, but only two at most can be selected. In this case, it is a simple tax system; independent national tax policies; and the existence of multinational companies and investors. Economies agree that simple tax systems are the best; they do not distort behaviour. But countries also like to set their own tax policies; hence some…

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Category: Business and finance, Buttonwood’s notebook

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