BRIC Decade Ends as Growth Peaked: Goldman

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By Michael Patterson and Shiyin Chen - Dec 28, 2011 3:35 AM ET

    

In the past decade, mutual funds poured almost $70 billion into Brazil, Russia, India and China, stocks more than quadrupled gains in the Standard & Poor’s 500 Index and the economies grew four times faster than America’s.

Now Goldman Sachs Group Inc. (GS), which coined the term BRIC, says the best is over for the largest emerging markets.
BRIC funds recorded $15 billion of outflows this year as the MSCI BRIC Index sank 24 percent, EPFR Global data show. The gauge, which beat the S&P 500 by 390 percentage points from November 2001 through September 2010, has trailed the measure for five straight quarters, the longest stretch since Goldman Sachs forecast the countries would join the U.S. and Japan as the top economies by 2050.
“In emerging markets, we’re waiting for things to get worse before they get better,” said Michael Shaoul, the chairman of Marketfield Asset Management in New York who predicted in February that developing-nation stocks would fall this year. The $845 million Marketfield Fund (VONEMBI) has topped 97 percent of peers in 2011, data compiled by Bloomberg show.
BRIC indexes may fall another 20 percent next year, buffeted by the liquidity squeeze stemming from Europe’s sovereign debt crisis, Arjuna Mahendran, the Singapore-based head of Asia investment strategy at HSBC Private Bank, which oversees about $499 billion, said in an interview. Nations such as Indonesia, Nigeria and Turkey may overshadow the BRICS in the next five years as they expand from lower levels of growth, he said.

BRICs Slowdown

“The slowdown we’re seeing in the BRICs will continue for most of the first half,” Mahendran said. “Compared to the U.S., corporate profits haven’t been that good as companies face higher wages, higher interest rates and currency volatility, and at best, we’ll only start to see the effects of monetary policy loosening in the second half of 2012.”
Gross domestic product in the four countries rose at the slowest pace in almost two years last quarter and Goldman Sachs said this month that their potential economic growth rates have probably peaked because of a smaller supply of new workers. Even as Brazilian and Russian policy makers start to lower borrowing costs, profit growth in the MSCI index will slow to 5 percent next year from 19 percent in 2011, trailing the S&P 500 by five percentage points, according to more than 12,000 analyst estimates compiled by Bloomberg.
Average economic growth in the BRIC countries will decelerate to 6.1 percent next year from a high of 9.7 percent in 2007, according to September estimates by the International Monetary Fund. That would narrow the gap over America’s expansion to 4.3 percentage points, the smallest since 2004, the IMF data show. Global GDP may increase 4 percent next year, restrained by 1.1 percent growth in the euro area, the Washington-based fund said.

‘Meaningfully Slower’

Slowing exports to Europe and government restrictions on real-estate investment are curbing the expansion in China, the biggest emerging economy. India’s growth has been hampered by the fastest interest-rate increases since 1935 and the rupee’s decline to a record low, which fueled inflation and deterred foreign investment. Brazil and Russia, whose growth during the past decade was spurred by surging commodity demand, have been hurt by falling metals prices and the slowdown in China.
“In emerging markets across the board, all the numbers are pointing toward meaningfully slower growth” next year, Rajiv Jain, who oversees about $15 billion as a money manager at Vontobel Asset Management Inc. in New York, said in a Dec. 5 phone interview.
Jain’s emerging-market equity fund beat 98 percent of peers this year, buoyed by holdings of beverage and tobacco companies whose profits are resilient to economic slowdowns.

2011 Losses

The BSE India Sensitive Index led declines among BRIC equity gauges this year, falling 23 percent. China’s Shanghai Composite Index also dropped 23 percent, while Russia’s Micex retreated 18 percent and Brazil’s Bovespa sank 16 percent. The 21-country MSCI Emerging Markets Index (MXEF) lost 20 percent, while the S&P 500 gained 0.6 percent.
The MSCI BRIC Index slid 0.8 percent as of 8:30 a.m. inLondon and the MSCI Emerging Markets Index dipped 0.6 percent, set for the lowest close in a week. The Shanghai Composite gained 0.2 percent, the Sensex dropped 1.1 percent, while the Micex was little changed.
Egypt’s EGX30 Index (EGX30) tumbled 49 percent this year, the biggest decline in emerging markets, as political turmoil stifled tourism and deterred foreign investment following the popular uprising that ousted President Hosni Mubarak. The Philippine Stock Exchange Index posted this year’s largest gain, advancing 3.2 percent after higher consumer spending countered the global economic slowdown.

Peak Expansions

Longer-term economic growth rates in the BRIC nations are poised to drop as their working-age populations increase more slowly and then eventually shrink, according to a Goldman Sachs report on Dec. 7 titled “The BRICs 10 Years On: Halfway Through The Great Transformation.”
“We have likely seen the peak in potential growth for the BRICs as a group,” Dominic Wilson, an economist at Goldman Sachs, wrote in the report. Wilson made the New York-based firm’s first detailed long-term forecasts for the BRIC nations in 2003, two years after Jim O’Neill, then head of economic research, coined the term.
O’Neill, now chairman of Goldman Sachs’s asset-management unit, declined an interview request for this story. His latest book, “The Growth Map,” talks of “rosy prospects” for the BRICs as well as the potential of the “Next Eleven” most populous emerging economies.

Fund Flows

Goldman Sachs’s bullish outlook for the BRIC nations proved prescient as the economies expanded at an average pace of 6.6 percent during the past decade, more than four times faster than America, according to IMF data. Investors poured about $67 billion into Brazil, Russia, India, China and BRIC mutual funds from 2001 to 2010, data compiled by Cambridge, Massachusetts-based EPFR Global show.
This year’s fund outflows were the biggest on an annual basis since at least 1996, according to EPFR Global. India equity funds recorded about $4 billion of net withdrawals, while China funds lost $3.6 billion. Investors pulled $2.2 billion from Brazil, $326 million from Russia and $5.3 billion from funds that invest in all four of the BRIC countries. All emerging-market funds tracked by EPFR Global had about $47 billion of outflows, leaving assets under management at $605 billion.

Rate Cuts

Large fund outflows are a contrarian indicator because they may signal pessimistic investors have already sold, setting the stage for a trough in share prices, according to Jonathan Garner, the chief Asia and emerging-market strategist at Morgan Stanley in Hong Kong. Emerging-market funds recorded about $48 billion of outflows in the five months ended October 2008, when developing-nation stocks began a rally that sent the MSCI emerging-market index up 108 percent in 12 months.
Emerging-market stocks will probably outperform U.S. equities next year as central banks in developing countries cut interest rates to stimulate economic growth, said James Paulsen, the chief investment strategist at Wells Capital Management in Minneapolis. The MSCI emerging-markets gauge (MXBRIC) rose an average 35 percent after the BRIC nations began cutting interest rates in 2003, 2005 and 2008.
Brazil has reduced its benchmark Selic interest rate by 1.5 percentage points since August to 11 percent. China lowered banks’ reserve requirements in November for the first time since 2008, while forwards contracts in Russia and India show that traders are betting on interest-rate cuts in the next 12 months.
In the U.S., the Federal Reserve has pledged to hold interest rates near zero until at least mid-2013.

Easing Policies

“I like the emerging markets better than anything right now,” Paulsen said in a Dec. 7 interview on Bloomberg Television. “Most of these emerging-market policy officials are turning to easing policies.”
While the MSCI BRIC index has dropped to 8.4 times estimated profit from 13 times at the start of the year, valuations are still higher than they were a decade ago. The MSCI India Index trades for 15 times profit, up from 13 times in 2001, according to data compiled by MSCI Inc.
India’s price-earnings ratios have climbed to an 8 percent premium over U.S. stocks from a 63 percent discount 10 years ago, data compiled by MSCI show. The discount on Chinese shares narrowed to 35 percent from 59 percent, while it shrank to 29 percent from 76 percent in Brazil and dropped to 60 percent from 87 percent in Russia, based on MSCI indexes.

Relative Valuations

Compared to the U.S., valuations for BRIC markets don’t look cheap enough, said Ok Hye Eun, a Seoul-based fund manager at Woori Asset Management Co., which oversees the equivalent of $15 billion.
“BRIC markets won’t be an attractive destination for a while because there are still ongoing risks,” said Ok, citing the prospects of a potential collapse in China’s real estate market and the outlook for economic reforms in India. “I see more opportunities in the U.S.”
ICICI Bank Ltd. (ICICIBC), India’s biggest private lender, trades for 14 times profits, a 42 percent premium over San Francisco-based Wells Fargo & Co., even as analysts predict slower earnings growth at the Mumbai-based bank, according to data compiled by Bloomberg. ICICI Bank profits will increase 10 percent in the current fiscal year, compared with 28 percent at Wells Fargo, the biggest U.S. bank by market value, the estimates show.

Want Want, Redecard

Want Want China Holdings Ltd. (151), a Shanghai-based maker of food and beverages, is valued at 36 times profits and analysts project earnings will increase 7.7 percent this year. The Hong Kong-listed shares are twice as expensive as Northfield, Illinois-based Kraft Foods Inc., which trades for 17 times earnings and may boost profits 13 percent, analyst estimates compiled by Bloomberg show.
Redecard SA (RDCD3), Brazil’s second-biggest card-payment processor, trades for 15 times profits, versus 12 times for New York-based American Express Co. Sao Paulo-based Redecard’s earnings will probably slip 3.8 percent this year while American Express posts a 19 percent gain, analyst projections compiled by Bloomberg show.
Outflows from emerging-market funds may continue next year as economic growth and company results disappoint investors, according to John-Paul Smith, the London-based emerging-market strategist at Deutsche Bank AG. Money managers surveyed by Bank of America Corp. from Dec. 2 to Dec. 8 said their emerging-market holdings are still 23 percent higher than benchmark weightings even after they cut positions from last month.

‘Structural Weaknesses’

“There will be a lot of volatility, but as people realize the underlying structural weaknesses of the BRIC economies, you’ll see money coming out,” Deutsche Bank’s Smith said in a telephone interview on Dec. 19.
China’s economic data have trailed estimates for the past two months, based on Citigroup Inc.’s Economic Surprise Index, a gauge of how much reports are missing economist projections in Bloomberg News surveys. Chinese manufacturing contracted by the most since 2009 in November, while new home prices declined in 49 of 70 cities tracked by the government the same month.
By contrast, U.S. data is beating analyst expectations by the most in nine months, according to the country’s Citigroup surprise index. Manufacturing in America expanded at the fastest pace in five months in November, the Institute for Supply Management said. Initial jobless claims fell to the lowest level since 2008 in the week ended Dec. 10, while U.S. housing starts in November climbed the most in 19 months, government data show.
Per-share earnings in the MSCI BRIC index trailed analysts’estimates by 13 percent last quarter, according to data compiled by Bloomberg. S&P 500 profits beat projections by 4.4 percent, the data show.

Labor Supply

While Goldman Sachs still expects the BRICs to join the U.S. and Japan as the world’s biggest economies by 2050, the bank predicted this month that the four nations’ contribution to the global expansion will diminish during the next few decades. Economic growth in the BRICs may fall to about 4 percent by 2050 as working-age populations dwindle, Goldman Sachs said.
The number of people aged 15 to 64 in Russia has already started to drop, while Chinese workers may peak at around 1 billion and begin falling by 2020, according to estimates by the United Nations. Brazil’s peak may come by 2040, with India’s topping out by 2060, the New York-based United Nations said. The U.S. will keep adding workers through 2100, the forecasts show.
“In the last decade, simply recognizing that the BRICs were the story was largely enough to propel outsized investment returns,” Goldman’s Wilson wrote in this month’s outlook report. “It is much harder to accept that simply believing in their long-term growth dynamics can be a sufficient investment thesis now, if it ever was.”
To contact the reporters on this story: Michael Patterson in London at mpatterson10@bloomberg.net; Shiyin Chen in Singapore at schen37@bloomberg.net.
To contact the editor responsible for this story: Laura Zelenko at lzelenko@bloomberg.net

Europe Crisis Reflects Deeper Ideological Divide: Eric Fine

By Eric Fine Nov 24, 2011 7:00 PM ET3 Comments

 

The crisis gripping Europe reflects a much larger problem: The world’s policy makers have fundamentally opposing views of how to manage their currencies and economies. Unfortunately, there’s no happy solution.

Let’s examine the ideologies. In the U.S., the dominant crisis narrative is that authorities faced a once-in-a-hundred-years storm in the financial panic of 2008. The only proper response, then, was for the Federal Reserve to provide unlimited funds until confidence returned and longer-term solutions were possible. Many Americans apply this lens to Europe, and conclude that the European Central Bank must similarly print money to solve its crisis now.

Germans, together with many emerging-market policy makers, see a very different narrative. To them, the crisis is the result of governments repeatedly building up debts in response to economic slowdowns -- the same explanation U.S. authorities offered for emerging-market crises in the late 1990s. They might further note that the U.S. hasn’t used the time bought with the Fed’s largess to address underlying problems, such as the sorry state of public finances.

These poles reflect deeply held beliefs, not intellectual or moral failures, as those on opposite sides of the divide appear to think. There’s no objective truth. Nobody really knows how much debt the U.S. and the euro area, which issue the world’s two leading reserve currencies, can bear. It’s also unclear how much inflation the citizens of advanced nations will tolerate before they lose faith in their currencies. As the U.S. and Europe test new limits, we may soon find out.
Monetary Policy

Consider monetary policy. Many in the U.S. believe the Fed can expand its balance sheet indefinitely, if necessary. They rightly point out that investors pile into the haven of dollars and U.S. Treasury bonds in times of crisis, and that this revealed preference suggests the dollar’s reserve-currency status is unassailable. Given the experience of the Great Depression of the 1930s and the stagflation of the 1970s, they reasonably conclude that bank runs should be treated with limitless liquidity, and that inflation can ultimately be resolved.

Germans draw their beliefs from a darker history. Between the two world wars, central-bank financing of government deficits fueled the hyperinflation that helped bring down theWeimar Republic and set the stage for the rise of Nazism. Many emerging markets have also learned painful lessons about what can happen when central banks become perceived as primarily lenders to government and enablers of fiscal incontinence. Their response to the American line is that if the fiscal and monetary authorities don’t establish credibility, suffering a bout of austerity may be far less bad than social breakdown. Not surprisingly, the charter of Germany’s Bundesbank forbids lending to government.

Can these differences be reconciled? One seeming compromise-- which will probably be proposed if the world faces another period of systemic risk -- is to invoke a new global reserve currency, namely the International Monetary Fund’s so-called Special Drawing Rights. If the IMF had the ability to issue unlimited SDRs, it could boost the reserves of central banks at will.

Such a move, though, would probably face opposition from the German side of the ideological divide, which would view it as yet another attempt to finance profligacy with funny money.

This suggests a second option will arise: to create some global standard to which the value of individual currencies can be tethered. Central banks would guarantee their currencies’value in gold, or against a basket of commodities. People with backgrounds in emerging markets would recognize such a commodity standard as essentially identical to a currency board, in which a central bank guarantees the exchange rate of its currency against that of a reserve currency. Currency boards tend to come about when people lose confidence in the fiscal and monetary authorities, almost always as a result of permanent monetization of government debt. Sound familiar?

Cautionary Tale

For policy makers who see the SDR as an answer, the recent European experience offers a cautionary tale. The European Financial Stability Facility represents an attempt to create a new balance sheet to bail out governments. Doing so in a crisis hasn’t worked out well, as the troubles of financially weak states have infected the stronger ones. This is why China, likeGermany, is reluctant to become a backstop for Europe. Once that happens, every new “crisis” will drag them in deeper, increasing the likelihood of contagion.

In the short term, the probable outcome is a continued policy muddle. Some central banks will follow the Fed’s example and keep expanding their balance sheets, while others will try to hold the line, like the ECB. To prevent the effects of such opposing policies from leaking across borders, countries might start to employ capital controls.

If the sides ever do agree on a single new architecture, it will probably happen in one of two bad ways. Financially strong countries, such as China and Germany, may become so infected by the weaker countries that the attractiveness of printing money overwhelms ideological constraints. Alternatively, the financially weak nations might give in to demands for austerity and tough choices.

In the final analysis, either option will be painful.

(Eric Fine is a managing director at Van Eck Global. He manages accounts that have positions in the sovereign and corporate debt of various countries, including a net short position in European sovereign debt. The opinions expressed are his own.)
To contact the writer of this story: Eric Fine at EFine@vaneck.com
To contact the editor responsible for this story: Mark Whitehouse at mwhitehouse1@bloomberg.net

三大积极因素助力A股企稳回升

三大积极因素助力A股企稳回升

受欧美大跌影响早盘直接低开，蓄势震荡一个小时后，股指突然发力上攻，并强势翻红。截止收盘，沪指报2397点，上涨2.49点，涨幅0.10%。

是什么原因促使股指企稳回升的？我们认为主要有三大因素：

1、央行表态浙江6家农信银行恢复存准率16%，这意味着定向宽松政策正在逐步推进。

2、换届后IPO首发通过率明显下降，表明证监会开始整治A股弱势的根源，利好股市。

3、神秘资金逆势拉抬四大行，疑似国家队再出手。

盘中的这波异动拉升是在银行为首的权重股带领下起来的，其实近期四大行的表现明显强于股指，主要是因为随着近期的频频下跌，股指再次来到汇金大举增持的点位，这意味着汇金也将面临被套的局面，同时作为国家队也有护盘维稳的要求，所以很有可能就是它们再次出手大举买入。据监测，目前主力资金明显流入、正加速入场，使很多个股快速翻红上涨。

总的来看，目前政策面已经悄然转向，继汇金大举增持四大行、国务院力挺小微企业、财政部宣布减税后，部分地区的存准率也开始有下调松动趋势，这意味着定向宽松的政策利好正在不断酝酿，有助于A股的企稳筑底。

投资者应该注意的是，据我们详细研究，目前操作要想获利，只能买入一类股：那就是国家政策大力扶持的品种，同时像前期暴涨的文化传媒概念也是同样的原因。(广州万隆)

President Barack Obama channeled the national frustration with the economy that threatens his political standing and challenged the U.S. Congress to pass a $447 billion jobs plan tilted heavily toward the Republican prescription of tax cuts.

President Barack Obama channeled the national frustration with the economy that threatens his political standing and challenged the U.S. Congress to pass a $447 billion jobs plan tilted heavily toward the Republican prescription of tax cuts.

The president, speaking before a joint session of Congress, demanded six times that lawmakers act “right away” on a plan that would boost spending on infrastructure, stem teacher layoffs and cut in half the payroll taxes paid by workers and small business owners.

“The question is whether, in the face of an ongoing national crisis, we can stop the political circus and actually do something to help the economy,” Obama told the lawmakers yesterday.

Job growth stalled last month and the unemployment rate has hovered at or above 9 percent for more than two years. The president’s job-approval ratings are falling to new lows as public doubts about his stewardship of the economy rise. Public opinion of Congress has dropped even lower.

Tax cuts account for more than half the dollar value of the president’s latest plan to turn the economy around, and administration officials said they believe that will have the greatest appeal to Republicans in Congress. The president dared his adversaries to oppose a provision that would extend and deepen payroll tax cuts due to expire Dec. 31.

“I know some of you have sworn oaths to never raise any taxes on anyone for as long as you live,” he said. “Now is not the time to carve out an exception and raise middle-class taxes, which is why you should pass this bill right away.”

Common Ground
House Majority Leader Eric Cantor, a Virginia Republican who has been a frequent critic of Obama, said there may be areas of common ground, such as tax reductions for small businesses.

“That’s something we Republicans have been advocating for quite some time now,” Cantor said in a Bloomberg Television interview. He also indicated Republicans may support extending the payroll tax for workers.

Still, some other Republicans were hesitant.

“I am not sure that a payroll tax holiday is really going to spur the economy,” said Representative Bill Huizenga, a Michigan Republican. He added that “a better tax break would be something that would spur along innovation and wealth generation” and creates “ancillary jobs.”

The 2012 presidential election and the political consequences of public blame for inaction on joblessness formed an undercurrent in the speech. Even as Obama warned against delay, he noted “the next election is 14 months away.” He said he would take his case for passage of the bill “to every corner of the country.”

On the Road
He speaks today in Richmond, Virginia, in Cantor’s congressional district. On Sept. 13 he’s scheduled to travel to Columbus, Ohio.

Hours before Obama addressed Congress and a national television audience, Federal Reserve Chairman Ben S. Bernanke said policy makers will discuss at their next meeting this month the tools they could use “to promote a stronger economic recovery in the context of price stability.” In a speech to economists in Minneapolis, Bernanke stopped short of signaling what he believes is the central bank’s best option to aid the economy.

Treasuries and the Standard & Poor’s 500 Index futures declined after Obama detailed his plan. Ten-year yields climbed two basis points to 1.99 percent as of 10:35 a.m. in London. S&P 500 futures fell 0.3 percent.

Covering the Cost
Obama stressed that he would pay for the entire jobs package with offsetting spending cuts and increases in tax revenue over the next decade. He said he would announce the offsets by Sept. 19.

Obama didn’t mention the total cost in his televised address. Nor did he utter the word “stimulus,” though Republican lawmakers were quick to draw comparisons with the $825 billion spending and tax-cut program of 2009 that has become unpopular with voters.

Representative Kevin McCarthy of California, the third- ranking Republican in the House, dubbed the new plan “Stimulus 2.0.”

The package includes spending favored by Democratic constituencies. It would include a $105 billion infrastructure proposal for school modernization, transportation projects and rehabilitation of vacant properties. Most of the economic impact from the infrastructure spending would be next year though some of it would come in 2013, according to an administration official, who briefed reporters on condition of anonymity.

‘Make a Difference’
“Ultimately, our recovery will be driven not by Washington, but by our businesses and workers,” the president said. “But we can help. We can make a difference.”

The administration estimated that $35 billion it’s seeking in direct aid to state and local governments to stem layoffs of educators and emergency personnel would save the jobs of 280,000 teachers, according to a White House fact sheet.

The centerpiece of the plan is the cuts in payroll taxes, which cover the first $106,800 in earnings and are evenly split between employers and employees. Obama would reduce the portion paid by workers next year to 3.1 percent from 6.2 percent. The rate had been cut 2 percentage points under the terms of a tax deal reached last year, and that reduction is set to expire Dec. 31.

The White House also would use temporary payroll tax reductions next year to offer incentives for new hiring and assist small businesses.

Helping Smaller Firms
Businesses would get the same 3.1-point reduction on taxes they pay on the first $5 million of their payroll, a limit that skews the benefit toward smaller firms. The full 6.2 percent employer contribution would be waived on the first $50 million net increase in a company’s payroll.

The proposal includes additional tax credits for hiring veterans and workers who have been unemployed more than six months. The administration also wants to make it illegal for employers to discriminate against applicants who are unemployed.

The fiscal boost from the jobs package next year would be larger than in the first year of the 2009 economic stimulus, said Mark Zandi, chief economist at Moody’s Analytics Inc.

Zandi, who was briefed on the plan before the president’s speech, forecast that passage of the entire jobs package would add 2 percentage points to economic growth next year and bring down the unemployment rate by 1 percentage point compared with current policy, under which a temporary payroll tax cut and extended unemployment benefits both expire Dec. 31.

Long-Term Unemployed
In a step aimed at the long-term jobless, Obama proposed granting states authority to pay unemployment benefits to people who have been out of work for more than six months while they train for jobs at businesses at no cost to the employer for up to eight weeks.

States also would be able to use unemployment-insurance funds to make up for wages lost by workers whose hours were cut back in lieu of a layoff and for those 50 and older who took a lower-paying job after a layoff.

The White House wants to incorporate the changes in the unemployment-insurance program along with a one-year continuation of extended unemployment benefits. The extended benefits cover jobless workers for up to 99 weeks.

The administration considered and rejected a temporary repatriation holiday that would allow companies to return overseas profits without paying corporate income taxes on the proceeds. The White House concluded that it wouldn’t have as great an impact on job growth as the new hiring incentives, the administration official said.

The official said the small businesses targeted by the tax incentives confront credit constraints and often have sustained declines in the value of the collateral they can use.

To contact the reporter on this story: Mike Dorning in Washington D.C. at mdorning@bloomberg.net

Norway buffs armor as currency wars open new front

Norway buffs armor as currency wars open new front

September 8, 2011, 1:26 PM.Central bank alarms are ringing in Scandinavia now that currency traders must roam further north to find a safe-haven alternative to the Swiss franc USDCHF.

Norway’s krone rose 2% against the euro Tuesday, its biggest jump since Jan. 2009, after the Swiss National Bank said it would prevent its currency from rallying over a certain level against the euro — sending some investors seeking a safe-haven in the krone and Swedish krona. The Norwegian krone USDNOK has gained about 1% against the U.S. dollar since the SNB move. Read more on Swiss move.

But the Norwegian central bank appears ready to step in to make the krone less attractive.

On Thursday, Norges Bank Governor Oystein Olsen directly addressed the krone’s jump after the SNB move, and warned:

A krone that is too strong can over time result in inflation that is too low and growth that is too weak. In that case, monetary policy measures will be taken. In Norway, the key policy rate is the relevant instrument.

After the speech, Citi currency analyst Greg Anderson said that “the pertinent issue for FX markets is the amount of appreciation that Norwegian authorities will tolerate before beginning to interfere as the Swiss ultimately chose to do.” Citigroup economists think there’s now a strong possibility of a Norwegian rate cut at the central bank’s Sept. 21 policy meeting if the krone keeps rising.



But the Norwegian central bank, which in 2009 became the first major European institution to hike interest rates since the credit crunch, has a little more wiggle room than its Swiss counterparts did. In Norway, benchmark interest rates are at 2.25%. In Switzerland, where central bank authorities failed to stave off the Swiss franc’s rise with more conventional currency interventions before Tuesday’s vow to buy unlimited quantities of euros, rates are near 0%. But Norway may not be able to hold out for long.

“Like the SNB, the Norges Bank may eventually arrive at a point where intervention is necessary,” wrote Anderson in emailed comments. “In fact, given the Swiss experience and the way markets learn, the evolution to that point may be relatively rapid.”

Oil sustains Norway as EU wallows in debt

Oil sustains Norway as EU wallows in debt

High oil prices, strong trade bring prosperity to Nordic nationStories You Might Like


OSLO (MarketWatch) — Blessed with large petroleum reserves, Norway is riding a wave of prosperity brought by high oil prices and robust public finances while the rest of Europe is mired in a debt crisis.

This Scandinavian nation of 4.9 million is the biggest oil producer and exporter in western Europe, with most of the oil production taking place offshore in the North Sea. Norway was also the world’s second largest exporter of natural gas after Russia last year, when crude oil, natural gas and pipeline transport services made up nearly 50% of its exports value.


A crane vessel is being resupplied outside of the oil town of Stavanger, Norway. “We’re a commodity-based economy,” said Snorre Evjen, senior economist at Fokus Bank, in a recent interview in his office overlooking the Parliament building in Oslo. “It all stems from the oil price and the strong terms of trade. Export prices have increased substantially, while import prices have remained fairly stable.”

To make sure future generations also benefit from the oil resources first discovered in 1969 and which will eventually run out, Norway saves petroleum revenues in a pension fund valued at roughly $550 billion. The so-called 4% fiscal rule limits the swings in the Norwegian economy; under the rule, the government aims to spend only 4% of the pension fund annually, though the exact percentage can vary.

“The country’s finances are solid,” Evjen said. “We don’t have net debt. That’s why Norwegians don’t worry too much.”

The budget surplus was more than 10% of gross domestic product last year, and unemployment is currently 3.3%. The mainland economy, which excludes oil and shipping, is expected to grow 3.3% this year and 4% next year after growth of 2.2% in 2010, the OECD estimates.

Norway’s population is also increasing rapidly, driven by labor immigration from Sweden, Poland and the Baltic nations, as newcomers are attracted by high wages and the low unemployment rate. Norway is part of the European Economic Area and participates in the European Union’s single market, but it’s not an EU member after two failed attempts by referendum to enter the union. As a result, the nation benefits from the free movement of goods and labor, but has its own monetary policy and currency.

Krone strength
The sovereign debt crisis, which has roiled the 17-nation zone that uses the euro, has had no impact on Norway’s real economy. In the financial markets, however, Norwegian stocks have fallen along with equities elsewhere in Europe; Oslo’s OBX stock index /quotes/zigman/1475606 NO:XOBX -0.10% is down nearly 19% year-to-date. At the same time, investors have bid up the value of the krone, while strong demand has pushed down the yields on Norwegian government bonds.


Reine, a fishing village in Lofoten, Norway. Steinar Juel, chief economist at Nordea in Oslo, said in an interview that the krone — a small, illiquid currency which tends to be sold when investors want to exit risky assets — has been acting differently. The currency has rallied around 8% against the dollar so far this year.

“The krone isn’t a safe haven in the same way as the Swiss franc, but we see a tendency that the krone is becoming more like that,” Juel said.

In recent weeks, investors looking for safety have piled into the Swiss franc, prompting the Swiss central bank to take a series of measures in an effort to stem the strength of its currency. Like the Swiss franc, the Norwegian krone and the Swedish krona are increasingly appealing.

Strategists at FxPro noted in a recent report that “one of the considerable attractions of the krone for foreign investors is the fabulous state of the public finances.”

Of concern for Norway is that the high exchange rate and rising wage demands are beginning to weigh on the competitiveness of the trade sector,” they cautioned.

That concern was evident when Norway’s central bank, Norges Bank, kept interest rates on hold at 2.25% in early August, reluctant to increase rates further given markets turbulence and clear signs of slowing global growth.

Norway is also dealing with the impact of the July 22 twin attacks, when an extremist killed 77 people and injured dozens others.

“The terror attacks will have a dampening effect on consumption,” Juel said. “It could take some time before people start acting normally.”

“We may lower the growth numbers somewhat because of weaker growth internationally,” he added. While the estimate revisions haven’t been finalized, he thinks growth in the mainland economy this year and next will be around 2.75%, lower by about 0.5% and 0.25% for 2010 and 2011, respectively, than Nordea’s previous forecasts.

“Slower hikes from Norges Bank will in 2012 to a large extent counteract the negative impulses from slower growth abroad,” Juel said.
/quotes/zigman/1475606 Add XOBX to portfolio NO:XOBX Oslo Stock Exchange Equity Index 324.72 -0.31 -0.10% Volume: 1.85MAug. 19, 2011 2:14p
Polya Lesova is chief of MarketWatch’s London bureau.

屈宏斌：三大方案拆除平台债炸弹

屈宏斌：三大方案拆除平台债炸弹

本文来源于《财经网》　2011年08月03日 20:58 我要评论（0）

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发行市政债券并以其收益偿还银行贷款；出售公有资产将为偿还债务筹集资金，对地方政府资产证券化是中期方案；在中央和地方政府之间重新调整收入分配，是地方政府的财政地位得到强化的最终解决方案

　　我们认为最近关于地方政府债权规模的讨论并未抓住要点。无论是 10.7万亿（官方数据）抑或14万亿（非官方估测）人民币，都低于GDP的36%。若将中央政府的债务计算在内，中国政府债务总额达到2010年GDP 的54%左右。这一债务水平虽不低，但与发达国家以及大多数新兴国家相比，仍属可控状态。需要注意的是，地方债务逾 70% 的收益都流向了基础设施建设以及土地投资，从而提高了政府的资产额。因此，总体上而言，我们认为中央和地方政府的资产负债表仍相当强劲。
　　但由于银行借款的期限结构与长期基建项目的投资回收周期不匹配，因此存在着流动性风险。鉴于过半的债务都会在2013 年年底到期，我们认为未来政府需要着手重组地方债务并防止发生对银行的重大违约。我们认为当局有三种选择：
　　推动发行长期地方债券，以确保地方政府如期偿还银行贷款。考虑到私营部门巨大的银行存款（64万亿人民币），需求应该不成问题。
　　中期的选择是盘活资产以偿还贷款。地方政府仍拥有收费公路、港口、隧道以及2万多家国有企业，其中70%以上都在盈利。在任何情况下，我们都认为将地方政府从商业活动中脱身出来，并使其专注于公共服务是一个必要的步骤，这也是中国政府进行改革的主要目标。
　　从更长期看，最终措施是给予地方政府更大的财政收入份额，从而使地方政府能够持续为基础建设投资提供资金。
　　解读地方债务
　　地方债务规模可控；尚无偿付风险
　　但存在流动性风险 - 需进行债务重组以避免对银行的违约
　　发行地方债券为最佳选择
　　无论是10.7万亿还是14万亿人民币，地方债务规模仍属可控。前者是国家审计局（NAO）的预测，是41,300名工作人员花了近三个月的时间调查了6,567家地方政府融资平台公司后得到的结果。利用不同的统计数据，某些私营部门预计总数为约14万亿人民币。
　　不论数字是多少，这都是一笔巨大的数额。但若以占中国GDP的比重来看，就没有那么惊人了。首先，即使假定为14万亿人民币，再加上6.8万亿人民币的中央政府公债，政府债务总额为20.8万亿人民币，或为GDP的54%（2010年）。与发达国家和大多数新兴国家相比，中国的公债仍在可控范围内（参见图1）。


　　其次，公债总额（中央加地方）与政府总收入相比仍较低，并且财政收入还在强劲增长。中国政府（总体来看）财大气粗，去年总收入高达 8.3万亿人民币。20.8万亿人民币的总债务相当于2010年政府总收入的2.5倍，这比美国的近 6.5 倍要好得多，就在撰写本文的同时，美国仍在争取于截止日期前提高债务上限。上半年财政收入同比增长30% ，今年有望达到10万亿人民币，这意味着总债务/收入比可能在年底降到2倍。
　　在过去十年中，利息占政府总收入的比重下降，目前该比率仍属可控（参见图2）。
　　无偿付能力问题
　　与许多其他由于过高的运营支出导致公债不断增加的国家相比（见表1），中国地方债务逾70% 的收益都用于基础建设融资以及土地收储，这增加了政府的资产额。因此，尽管债务水平较高，但地方政府的资产负债表仍非常强劲。


　　在所用的资金中，约62%用于城市基础设施建设（36.7%）和交通运输项目（24.9%）。另有10.6%用于购买土地。总之，这些投资共7.9万亿人民币，具有巨大的商业价值。
　　但存在流动性问题
　　但由于债务的期限结构与项目的投资回收周期不匹配而存在流动性问题。如图4所示，逾50%的地方债务将在2013年年底到期，另有17%的债务将于2014年和2015年间到期。
　　但由于逾 70% 的债务都用于投资回报期较长的长期基建项目融资，这意味着未来三至五年内这些项目难以产生足够的现金流来偿付当地贷款。
　　尽管地方政府有其他收入来源，但考虑到 2013年年底到期的短期债务是地方政府年收入的1.4倍，该债务的偿还仍具挑战性。我们认为，为避免对银行的违约，当局需果断采取措施对地方债务进行重组。
　　拆弹平台债
　　我们认为中国政府有三种方案来进行债务重组，其中债券-贷款互换最为可行。
　　1. 市政债券-贷款互换
　　第一个选择是开始发行市政债券并以其收益偿还银行贷款。从本质上看，这为地方政府发行新债（长期债券）以偿还旧债（短期债券）的展期打开了大门，从而缓解了对银行的违约风险。
　　同时，为地方政府开辟了融资渠道，以透明和市场化的方式来满足未来基础设施投资之需。由于中国正处于城市化的进程之中，在未来几十年内对基础设施建设的需求仍然很大，因此如何以更好的方式为此类投资进行融资，将对维持中国的长期发展起到关键作用。
　　相关媒体报道显示，试点地方债可能最快将于年内发行。沿海地区的地方政府具有相对较强的资产负债管理能力，因此可能成为第一批候选人。如果成功，该计划可能在全国范围内推广。这可能比多数预期的更快。
　　2. 盘活政府资产
　　地方债的积累伴随着资产的增加，其中大多为基础设施项目和土地（图3）。地方政府目前仍拥有20,000多家国有企业，其中 70%以上均有盈利。所有这些都显示，地方政府有强大的金融实力来避免偿付能力的风险。
　　出售公有资产将为偿还债务筹集资金。不管怎样，我们认为地方政府有必要出售这些资产以实现其由经济主体向公共服务机构的转变，这是未来五年政府职能转变的关键目标。为此，地方国有企业上市将是最佳方案，但真正的挑战在于如何对通过其它渠道出售这些资产进行管理以防止腐败和国有资产的流失。
　　对地方政府的资产进行证券化是另一个可行方案。城镇基础设施建设和交通运输项目为主要投资对象，这些项目一般具有稳定的现金流，适于进行资产抵押证券化。一些高质量的项目（例如收费公路）可能已经为贷款或债券发行作了抵押（通过城镇基建公司），但公共事业公司、医院和土地也可成为证券化的目标。
　　由于资本市场的欠发达特征，证券化是中期方案。未来数年需要克服一些制度障碍。例如，中国需建立促进证券化发展的法律框架。


　　对地方债券的需求不是问题，尤其是中国家庭积聚的大量储蓄。虽然这些家庭具有雄厚的财力，但他们的投资选择有限。
　　根据中国央行的数据显示，尽管国内金融市场在过去数年内得到长足发展，但其中 70%以上中国家庭的金融资产依然为现金和存款。存款的收益率非常低，一年期存款的实际利率仅为 0.3%。这意味着对回报率较高的投资工具的需求非常强烈。
　　中国的储蓄规模足以为发行地方债提供资金，进而深化债券市场和拓宽投资渠道。




　　为落实该计划，我们认为中国需要提高地方政府的融资透明度，并引入更多成熟的机构投资者和评级机构，以便市场为其信用风险准确定价。
　　3. 财政收入分配的重新调整
　　在中央和地方政府之间重新调整收入分配，是地方政府的财政地位得到强化的最终解决方案。这将促使地方政府更好地履行对地方社会和经济发展的责任。
　　在1990年代初期，中国政府出台了一项旨在集中税收收入的重大财政改革计划。中央政府集中国税，并收取大量其他税款（例如增值税和企业所得税），只将余额归入地方政府。结果，在牺牲地方政府的情况下，中央政府的财政收入占总数的比例从 1990 年代初期的 30%不到上升到50%以上。
　　问题是，地方政府仍然承担了大量的基础设施融资压力。在收入不足的情况下，多数地方政府别无选择地通过地方政府融资工具（LGFV）向银行贷款。自 1990年代初期以来，多数地方政府的融资工具（尤其那些国家层面的融资工具）累积大量债务的现象已不足为奇。
　　从中期和长期来看，地方政府需要扩大其收入来源，而不能仅仅依赖于土地出让收入、中央政府转移支付或地方政府融资工具。在一些试点方案中已引入新的地方税种，包括物业税和资源税。
　　今年物业税已在上海和重庆进行试点，其所有收入均归地方政府。新疆于 2010年 6 月实施了一项资源税，去年筹得 20亿元人民币，相当于新疆 2009年财政收入的 7%。其他省份（例如内蒙古和山西）正致力于推出资源税试点。
　　屈宏斌为汇丰银行大中华区首席经济学家，孙珺玮为汇丰宏观经济分析师

'Dow Theory' Confirms Sell Signal

'Dow Theory' Confirms Sell Signal

By STEVEN RUSSOLILLO

If there were any doubts that stocks have entered corrective mode, the "Dow Theory" is now telling us the market is heading down.

The century-old Dow Theory, a way to analyze market trends and turning points, says both the Dow Jones Industrial Average and Dow Jones Transportation Average need to move in tandem to confirm the trend. On Tuesday, the Dow Theory officially gave a sell signal, as Dow industrials and Dow transports broke decisively through June lows, with the Dow transportation index hitting a 2011 low.

The selling comes as worries about the global economy have rippled through financial markets in recent weeks amid signs of further weakening.

The symbiotic relationship between the two indexes is a clear sign to Dow theorists that the economic message and the market outlook are moving in tandem. The idea is that making goods is one leg of the industrial economy and moving those goods around is the second leg, so their trends should be in sync.

Phil Roth, chief technical market analyst at Miller Tabak & Co., said in a Wednesday note that Dow theorists pointed to several divergent actions early last month. For example, the Dow transports hit an all-time high in early July, but the industrials weren't able to follow suit.

The actions were early indicators that the market's uptrend was due for a reversal, which consequently has taken place over the past few weeks. "A sell signal has been confirmed," Mr. Roth said.

The Dow Jones Industrial Average broke an eight-day skid Wednesday, rising 29.82 points, or 0.3%, to 11896.44.

The Dow Jones Transportation Average—a 20-member index of airlines, railroads and trucking companies—turned positive in midafternoon trading, erasing a 1.9% loss, and finished up 0.5%, to 4967.18

Despite the intraday bounce, the index, which includes bellwethers FedEx Corp. and United Parcel Service Inc., remains firmly in correction territory, down 12% from its all-time closing high on July 7.

For now, market technicians are adjusting their models to reflect the stock-market's swoon.

"New short-term oversold extremes mean probabilities are increasing for a short-term rebound, but a rebound is probably a reflex affair in a medium-term trend that just turned down," Mr. Roth said.

Write to Steven Russolillo at steven.russolillo@dowjones.com

Japanese, Swiss Move to Push Currencies Lower

Japanese, Swiss Move to Push Currencies Lower

By TAKASHI NAKAMICHI And TOM LAURICELLA

The collateral damage from the U.S. and European debt crises has shifted the front lines of the currency wars to Japan and Switzerland.

Japan has intervened in currency markets in an effort to stem the rising yen. Will this unilateral move effectively contain the currency's climb and improve conditions for the country's exporters

.The Japanese government intervened Thursday morning in currency markets to stem the rise of the yen against the dollar, hoping to preserve modest growth in an economy rebounding surprisingly well from the March earthquake and tsunami—but that now appears threatened by a soaring currency undermining exporters.

The Bank of Japan also announced that it would end later in the day a policy meeting originally scheduled to spill over to Friday and would make an announcement Thursday afternoon. That suggested the central bank was coordinating with the Ministry of Finance in moving to keep the yen from hitting the postwar record high it has flirted with in recent days. The BOJ has been widely expected this week to take steps to pump more cash into the economy by purchasing bonds and other assets.

The action in Tokyo came a day after the Swiss National Bank caught markets by surprise, cutting interest rates to nearly zero and pledging to pump billions of newly minted francs into its markets in order to fend off a flood of money entering the country from investors seeking a safe haven.

In announcing Japan's intervention, Finance Minister Yoshiko Noda said the government was moving to counter what he called "one-sided," "excessive" and speculator-driven rises in the yen.

In similar language, the Swiss central bank called its currency "massively overvalued," adding that it "will take further measures against the strength of the Swiss franc if necessary."

The intervention by the Finance Ministry underscores a renewed currency activism by Japan as the yen has danced near record highs over the past year. Above, Japan's Finance Minister Yoshihiko Noda in a parliamentary committee meeting in Tokyo Wednesday.

The moves by the two economies—which analysts doubted would have lasting success as long as uncertainty dominates global markets—reflects another in a growing list of knock-on effects from the 2008 financial crisis and its aftermath.

The dollar this week flirted with a record low against the yen near ¥76.25. After heavy verbal threats from officials earlier in the week that intervention was imminent, the dollar rose back above ¥77, and was at ¥77.13 just before the intervention at 10 a.m. Tokyo time. It then popped up to as high as ¥78.47.

Traders said Japan spent about ¥400 billion to ¥500 billion on the move, and acted alone, without support from other countries. Some analysts expect Japan to keep intervening, as it tries to push the dollar to ¥80, a level seen as critical for exporters.

Prior to Wednesday's move in Switzerland, the franc had risen 11% against the dollar in just the past month and 13% against the euro. On Wednesday the Swiss franc fell 0.6% against the dollar and 1.6% against the euro.

The pressures on Japan and Switzerland emanating from the currency markets echoes the complaints about a "currency war" last September from Brazil's finance minister. Brazil has slapped penalties on certain kinds of investments by foreigners in order to try to limit money flowing into the country.

Some investors speculate that the currency moves may prompt a globally coordinated intervention, although the complex logistics, expense and limited chance of success make that unlikely.

Before last year, Japan had gone more than six years without buying or selling currencies to alter the value.

.While emerging-market countries such as Brazil and others in Asia have seen their currencies rise for reasons different to Switzerland and Japan—investors in search of high yields and economic growth—the end result is similar: Domestic economies can be heavily influenced by outside events.

"When the financial seas are choppy as a result of what the whales are doing, it makes life very uncomfortable for the shrimp as well," says Barry Eichengreen, a professor at University of California, Berkeley.

Because investors are moving money out of two of the most widely used currencies—the dollar and euro—the dislocations at the other end of the trade are that much greater for small economies such as Switzerland, says author Liaquat Ahamed, who won the Pulitzer Prize for his book "The Lords of Finance."

"Tiny shifts in capital…just swamp their capital markets and cause disruptions in their domestic economic management," he said.

Japanese officials were driven to act as Japanese companies have reacted with increasing alarm to the yen's steady rise against the dollar and other currencies. While lowering the cost of some critical imports, including oil and food items, the elevated Japanese currency has eroded profits at Japan's many exporters. A strong yen hurts Japan Inc.'s competitiveness by lowering the yen-value of revenue earned in dollars and making products more expensive overseas.

A litany of executives at brand-name companies such as Nissan Motor Co., Panasonic Corp., and Toshiba Corp. warned last week during first-quarter earnings press conferences that it has become increasingly difficult to maintain their current production levels in Japan amid the high yen. "The current strong yen is out of reach of an individual company to deal with," Nissan corporate vice president Joji Tagawa said last week.

The Swiss stock market is also feeling pressure. The country's main stock index is off almost 15% this year.

For Japan, Thursday's intervention by the Finance Ministry underscores a renewed currency activism as the yen has danced near record highs over the past year. Before last year, Japan had gone more than six years without buying or selling currencies to alter the value.

.On Sept. 15, 2010, with the dollar worth about ¥83, the Japanese government executed its largest-ever, single-day, yen-selling intervention. In conjunction with BOJ easing, that helped stabilize the currency for a time. A sharp spike in the value of the yen after the March 11 natural disasters prompted joint intervention by the Group of Seven on March 18. The dollar strengthened in the following weeks, before new U.S. weakness pushed the greenback down again in recent days.

Switzerland has been more active in recent years in trying to cap its currency's rise.

In the wake of the 2008 financial crisis through June 2010, the Swiss National Bank conducted massive purchases of euros to fight the rise of the franc. Thanks to the euro's decline in the first half of 2011, the central bank reported losses of roughly $15 billion.

The Swiss central bank is owned by shareholders, including Swiss member states known as cantons. To the extent that currency market losses hurt the bank's profits, the Swiss franc's rise "becomes a fiscal issue," said Edwin Truman, senior fellow at the Peterson Institute for International Economics.

The challenge for Swiss authorities is that investors aren't being driven by interest-rate differentials, so the bank may have limited ability to curtail their appetite for Swiss assets.

"It's not a yield issue, it's a safety issue," Mr. Truman said.

University of California's Mr. Eichengreen says there are lessons for the U.S. from Switzerland's woes, despite the huge differences between the two economies.

"We're going to have to learn that what the Chinese think about the debt-ceiling imbroglio can turn out to be really important to the U.S. in the same way that what the foreign investor thinks about Geneva is really important for Switzerland," he says.

Late Wednesday, the dollar was at 0.7703 franc from 0.7625 late Tuesday. The euro traded at $1.4323 from $1.4202.

—Takashi Mochizuki, Neil Shah and Chester Dawson contributed to this article.
Write to Takashi Nakamichi at takashi.nakamichi@dowjones.com and Tom Lauricella at tom.lauricella@wsj.com

A Bet on a Falling Stock Market

A Bet on a Falling Stock Market

By STEVEN M. SEARS | MORE ARTICLES BY AUTHOR


The options market is telegraphing warning signals for the stock market.

Goldman Sachs is telling clients that trading patterns in so-called binary options -- which increase in value should the Standard & Poor's 500 index fall by 10% over the next month -- are telegraphing bearish signals.

(These specialized options contracts are not listed on exchanges but are traded privately among major investors.)

These binary options -- which have only two outcomes – show that the perceived risk of a sharp stock-market decline increased in the past week, according to Goldman's Krag "Buzz" Gregory in a note to clients.

The heightened fear clearly reflects the debt-crisis debate in Washington, which now appears to be averted, and a stream of troubling economic news in recent days.

Many major investors and money managers often hedge their stock portfolios to protect positions. Put options increase in value when stock prices drop.

While most investors buy puts options that trade on exchanges, including the S&P 500 index, or the SPDR S&P 500 ETF Trust (ticker: SPY), institutional investors also can choose from private trading markets operated by major banks.

In these over-the-counter markets that are closed to ordinary investors, banks create financial products that have some, but not all, of the characteristics of exchange-traded options.

Binary options, which Goldman Sachs analyzed to determine the likelihood of a sharp stock-market decline, pay off only if the stock market declines by a certain percentage. Because of this either-or feature, binary options can be less expensive, but just as potent, as options on the S&P 500 index that are traded at the Chicago Board Options Exchange.

The value of over-the-counter trading is high-level information that is cleaner, and more valuable, than other forms of market news that are widely known. Knowing what is happening in the upper echelons of the market lets investors refine their trading strategies.

"The number one investor question we've gotten over the past week has been on estimating the 'optimal hedge' under various market down, volatility up market scenarios in early August if the debt ceiling debate reaches a stalemate and the macro data deteriorates," Gregory says.

Gregory likes hedging with the S&P 500 index options. He likes buying the September 1285 put, and selling the September 1250 put, to create a "put spread" that would increase in value if the index, recently at about 1280, declines. The spread cost $12 when Gregory first modeled the trade.

Though it is clear that the U.S. will not default on its debt payments, thanks to a last-minute debt-ceiling deal from Congress, the September options offer protects against the aftershocks of the debate.

The September put options protect portfolios if bond-rating agencies decide to downgrade the nation's credit rating because the political compromise did not do enough to eliminate the national debt. In addition, the hedge protects portfolios against a potential wave of bearish sentiment that could be unleashed if the market returns to focusing on slowing economic growth.

Swiss central bank battles to halt franc’s rise

‘Massively overvalued’ franc hurts economy, SNB says; euro surges

 

The euro /quotes/zigman/4868091/sampled EURCHF +2.28%  , which had earlier notched a fresh all-time low versus the Swiss unit below 1.08 francs, rebounded sharply and traded at CHF1.1132 in recent action, a gain of 2.5% from Tuesday.
The U.S. dollar /quotes/zigman/4868123/sampled USDCHF +1.36%  rose 1.5% to trade at 77.65 centimes. The U.S. unit had earlier sank to an all-time low versus the safe-haven franc as relief over an agreement to raise the U.S. government’s debt ceiling gave way to worries over weak growth.
There are 100 centimes in a franc.
In a statement, the Swiss National Bank said the currency is “massively overvalued at present” and that its strength “is threatening the development of the economy and increasing the downside risks to price stability in Switzerland.”

“The SNB will not tolerate a continual tightening of monetary conditions and is therefore taking measures against the strong Swiss franc,” it said.

The bank also left open the threat of outright intervention in the currency markets, saying it was keeping “a close watch on developments on the foreign-exchange market and will take further measures against the strength of the Swiss franc if necessary.”
Thorsten Polleit, an economist at Barclays Capital, said the SNB’s decision to boost its monetary base — the sight deposits banks hold with the central bank — from around CHF 30 billion ($39 billion) to CHF 80 billion — is effectively a form of quantitative easing.
The moves “are clearly driven by the negative consequences for the Swiss economy and the financial sector of an environment of sagging worldwide growth, accompanied by the Swiss franc exchange rate having climbed to record highs [versus] major currencies,” Polleit said.
But strategists expressed doubt the central bank will be able to stem the franc’s rise as the euro-zone’s debt crisis threatens Spain and Italy and concerns grow over the fragility of the U.S. economic recovery.
“The SNB will be well aware that it is swimming against the tide and that without a solution to the euro-zone sovereign debt crisis it will be difficult to convince investors to dump the franc,” said Jane Foley, senior currency strategist at Rabobank in London.
“This is the primary reason that the SNB has chosen to reduce its three-month Libor target rather than to intervene in the FX market,” she said, noting that the SNB saw its balance sheet hit hard by previous interventions in 2009 and 2010.
Peter A. Rosenstreich, chief foreign-exchange analyst at Swissquote Bank in Geneva, said the SNB’s verbal intervention will be “mildly effective” in the short term, but that the impact is likely to soon wear off.
The decision to target the three-month rate as close to zero as possible “is merely for show,” Rosenstreich said, “since traders are not in the Swiss franc for the interest-rate differential” with other currencies. With rates already near zero, the move will do little to impede safe-haven flows into the franc.
Meanwhile, Steen Jakobsen, chief economist at Saxo Bank, said the SNB move helped prompt him to move from a “risk off” to “neutral” stance on market strategy.
“The move by the SNB today to move towards QE is a clear warning signal to me that the policy risk has become too big for global policymakers,” indicating a policy response to slowing growth from the Group of 20 nations may be imminent, he said, in emailed comments.

 

Debt Ceiling's Overlooked Flash Crash

Debt Ceiling's Overlooked Flash Crash

By JOHN JANNARONE
Markets were remarkably unmoved by Washington's political theater over the debt ceiling. The fall in stocks was limited. Any bounce from this weekend's deal was quickly overshadowed Monday by more bad news on the U.S. economy.

But, in an obscure corner of the stock market, investors did get a reminder of the risks still lurking in the system—in particular, Wall Street's popular practice of depending heavily on short-term funding to finance long-term investments.

At the height of the debt-ceiling uncertainty on Friday, a handful of mortgage real-estate investment trusts suffered a mini flash crash. Shares of Annaly Capital Management plummeted 19% in a few minutes in the morning, and American Capital Agency fell 22% before recovering the lost ground. The two REITs invest in government-backed mortgage securities using huge amounts of short-term debt.

.The quick selloff was said to be induced by stop-loss orders that many investors place on these shares, which trigger a sale if the share price moves a certain amount. The big fear for the companies has always been a spike in interest rates. That could create a double whammy, hitting the value of the REITs' long-dated mortgage securities, while also raising the cost of financing their short-term debt pile.

But the root of Friday's panic actually came from a different source. Investors suddenly worried that REITs would lose access to the debt market they rely on for funding. Typically, REITs use repos, or repurchase agreements, getting leverage by pledging their government-mortgage securities as collateral. That amplifies returns, helping Annaly pay a hefty 16% dividend yield.

WSJ's John Jannarone describes the brief panic that wafted through the REIT sector last week over fears of higher interest rates that may have resulted from a U.S. default. AP Photo.
.Yet, dependence on repos carries a big, if rarely pondered, risk. As of March 31, Annaly had $80 billion in repos. That included $11 billion due in one day and $22 billion due in two to 29 days. In contrast, 99% of Annaly's $94 billion in mortgage-backed securities had maturities of more than one year. If Annaly couldn't replace maturing repos, it could be forced to liquidate assets.

Fortunately, the repo market is unlikely to freeze up entirely. It functioned through the financial crisis, and the Federal Reserve would probably work hard to avoid any interruption, given its importance to the banking system.

And some tightening in the repo market is probably manageable. Steve DeLaney of JMP Securities says REITs can borrow against 95% to 97% of a government-backed mortgage security's value in the repo market. That percentage fell during the crisis, but only to about 93%.

But the fact remains that Annaly is beholden to the repo market, as well as being heavily exposed to any shift in interest rates. As plenty of highly leveraged borrowers learned in the crisis, hefty short-term funding can change from a profit engine to a huge liability overnight.

Write to John Jannarone at john.jannarone@wsj.com

Euro Pressured by European Crisis

Euro Pressured by European Crisis

By JAVIER E. DAVID And TANIA CHEN

Renewed concerns about Europe's ability to avert financial disaster pressured the euro, momentarily eclipsing the stormy U.S. debt-ceiling debate as investors mulled whether the euro-zone crisis could take a turn for the worse.

Barely a week after a landmark European Union summit struck an accord to rescue financially distressed Greece, investors have yet to be fully mollified.

Even in the face of widening pessimism about the U.S.'s ability to overcome the political stalemate and raise its $14.3 trillion debt ceiling by early next week, the euro fell for the second-consecutive session.

Analysts have nervously eyed the yields on Italian and Spanish government debt—the euro zone's third- and fourth-largest economies, respectively—as proxies of the market's growing concern that Europe can successfully manage the possibility of Greece's debt woes leapfrogging to Spain and Italy.

Italian government bond yields rose further Thursday after the Treasury held a long-term bond auction. Ten-year yields rose to 5.82% from 5.68%, and even two-year debt yields rose to 4.20%, well above the 3.5% interest rate that EU leaders promised the Greek government.

"The Italian auction did not go as well as expected and spreads are creeping higher," noted Brian Kim, currency strategist at RBS Securities. "As time goes by, people are getting a bit more skeptical" about the Greek rescue package. "You still need to see the details behind it all."

Late Thursday, the euro was at $1.4331, from $1.4369 late Wednesday. The dollar was at ¥77.72 from ¥77.99. The pound was at $1.6373 from $1.6331. The dollar was at 0.8010 Swiss franc from 0.8017 franc.

The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 74.117 from about 74.087.

In the meantime, today's dollar trading was choppy and range-bound, with the greenback rising against the euro but falling against the yen. Market watchers were waiting for the results of a congressional vote on a possible debt agreement.

The uncertainty that hangs over the market continues to contain the dollar's gains, as U.S. lawmakers are still at a loss to reach agreement on the debt ceiling. This has undermined risk sentiment, which helped drive stocks and other risk-correlated assets lower as investors fear either a default or a downgrade of the U.S.'s coveted triple-A credit rating—or both.

In a measure of how the debt-ceiling debate has undermined confidence in the dollar, risk-related currencies—which normally fall during periods of global turmoil—have surged for a lack of investors willing to hold the greenback.

Analysts say neither of the scenarios looks favorable in the long term. "The U.S. is just going to have to muddle through its own fiscal crisis," says Mark McCormick, currency strategist at Brown Brothers Harriman. He added that the likelihood of the U.S. going into default was still unlikely, but few are holding out hope for a perfect agreement as the Aug. 2 deadline approaches.

FXCM Agency Model

FXCM is one of the largest US brokers. It is very active in Asia and recently acquired the British ODL brokerage, seeking expansion in Europe. The $200 million that it’s expected to raise until the end of November will give a boost to its business.

So, with this broker trading on Wall Street, the stock price can reflect the state of the industry – the impact of new regulation proposals will be reflected in the stock – we’ll see which CFTC rules are meaningful and which aren’t. We’ll also get to see how the quarterly profitability reports that are required by the CFTC impact the stock price. Is a high profitability rate favorable for the broker, or not?

For market makers the answer is that a lower profitability rate means that the forex trader is “burned” faster and that the broker made money more quickly. For ECN / STP / NDD brokers like FXCM, the answer is expected to be the opposite – successful traders mean more trades – more profits from spreads.
And speaking about market makers vs. ECN / STP / NDD models, the prospectus contains FXCM’s opinion on this. It used to be a market maker (principal broker) and turned into a No Dealing Desk (agency) broker. In the prospectus, highlighted by FT Alpahville, they explain the inherent problem:

Our agency model is fundamental to our core business philosophy because we believe that it aligns our interests with those of our customers, reduces our risks and provides distinct advantages over the principal model used by the majority of retail FX brokers. In the principal model, the retail FX broker sets the price it presents to the customer and may maintain its trading position if it believes the price may move in its favor and against the customer. We believe this creates an inherent conflict between the interests of the customer and those of the principal model broker. Principal model brokers’ revenues typically consist primarily of trading gains or losses, and are more affected by market volatility than those of brokers utilizing the agency model.

Izabella Kaminska at Alpahville makes a good point that it “takes one to know one” – in this case, very closely – they switched models so they know what the interest of the broker is when it is a market maker…

But, I do believe that FXCM’s current model is the better way for forex brokers. The IPO will add to their transparency and will hopefully impact others as well. And as aforementioned, tracking the share price will be quite interesting.

在广州看到惊人内幕：房地产业即将迎来倒闭潮

在广州看到惊人内幕：房地产业即将迎来倒闭潮

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和讯    2011-07-26 19:36:34


　　“最后一根稻草”压垮中国房地产企业——已近在咫尺!
　　由于过度重视与地方政府关系，而过度轻视宏观战略预测，过分蔑视社会公众怨声，中国大部分房地产企业正将迎来严峻宏观调控和市场泡沫破灭的严厉惩罚——未来6-12个月，中国房企将会有相当比例破产倒闭。

　　房地产企业的最后一丝侥幸正变成绝望。2010年调控以来，银根收紧，房地产的企业信贷和个人房贷都急剧紧缩，股市融资也停顿下来。2011年以来，房地产商的最后希望只有房地产信托了。但是这扇门也在逐渐关闭，一季度房地产信托总额由2011年 4季度的659亿下降到443亿元，占总信托的份额更是由14.9%骤降到4.69%。此后下降更快，而借贷成本急剧上升，由10%上升到20%，甚至个别达到30%。
　　这扇门终于在6月份关上了。从17日起，国内主要信托公司已经暂停除保障房以外的房地产信托业务。虽然此次监管层并未以红头文件的形式下发，而是采用了电话逐个通知的“窗口指导”。此外，监管层还要求今后信托公司凡涉及房地产相关业务，都要到银监部门逐笔审批。这意味着实际卡住了房地产信托。
　　房地产商应对宏观调控的另一个对策是，东方不亮西方亮，一线沿海城市已涸泽而渔了，就转战二三线城市，炒热这些地方的楼市，通过预售购房款的方式，以获得流动资金，维持一线城市的运转费用。今年上半年，二三线城市楼价继续上涨让它们又看到了一丝生机
　　上周，这两个指望绝处逢生，侥幸过关的最后幻想都破灭了。
　　7月18日消息，二三线城市的“限购令”名单不久将出炉。据悉，住建部已着手调查分析部分二三线城市和中小城市房价快速上涨的原因，并据此圈定新一轮的限购城市名单。这与国务院常务会议日前强调要求房价上涨过快的二三线城市也要执行限购政策的决定几乎同步。
　　7月20日，银监会召开2011年第三次经济金融形势通报分析会，刘明康主席要求，银行金融机构审慎开展与地方政府之间的战略合作，警惕网络借贷、民间借贷和小额贷款公司等领域的风险，密切关注二三线城市的房地产市场风险。
　　7月22日，中央政治局召开会议，会议指出：“要坚持不懈搞好房地产市场调控和保障性住房建设，坚持调控决心不动摇、方向不改变、力度不放松，坚决遏制住房价格过快上涨，确保落实保障性住房建设计划，确保建设质量，确保分配公平。”
　　从住建部到银监会，再到国务院，最后到最高核心层的党中央政治局会议，均一再强调“房地产调控的决心不动摇，力度不放松”。由此可以断定，已经关紧了的房地产融资大门不可能短期打开。除非相当一批房地产企业倒闭，由此带动房价较大幅下降，楼市调控成果得到明显体现。
　　时至今日，合法融资主渠道大门已经关严，地产商的“最后一根稻草”是民间借贷。上周，本人到广东调研，与当地两个代表性商会进行了较充分的交流，得知，即使是商会朋友之间，地产的借款利率已经达到了年40%——这一利率意味着，如果借款两年半，其本金都会被耗光。
　　现在已可以肯定地判断，中国地产商10年以来的好日子走到了尽头，很多地产企业已经深陷“四面楚歌”绝境，逼近“霸王别姬”时刻。在不远的将来，房地产业将发生很多令人唏嘘不已的悲剧。
　　然而，地产商未来的“悲惨世界”很少有人会同情。因为其中很多人的暴富本来就是对社会公众的侵夺，当然他们贪的是小头，地方政府占的是大利;因为中央三令五声，三轮调控，很多人置若罔闻，一路对抗走到黑;因为本人和中华元智库自2009年以来不断升级对房地产危机的警告力度，然而很多人将之作为耳旁风。
　　2009年10月19日，本人撰文《房地产泡沫已成中国人财富最大威胁》(首发于第一财经日报)指出：最令人头疼的是，房地产泡沫的隐患正日益放大，如果不能果断有效遏制其继续膨胀的态势，如再膨胀三年，将难免出现巨大雪崩，也难免将击穿中华文明复兴的经济底线，最糟糕的是，它与全球纸币崩溃 (主权债务危机)同时袭来，则中国国内矛盾将空前激化，中国将难免被迫用武力向外转嫁社会危机。
　　2009年年底，笔者连发《房地产泡沫硬在地方政府既得利益》、《结婚房为何会成为中国人命运绞索》、《楼市泡沫雪崩为何十倍猛于A股大跌》、《当泡沫难免，推高股价比推高房价好》、《中国楼市泡沫：黄金眼中大，人民币眼中小》(以上文章均刊发于第一财经日报)，为2010-2011必将越来越严厉的楼市调控预警。
　　2010年以来，中华元智库不断升级房地产危机预警，1月推出战略报告《中国房地产泡沫正将盛极而衰》;2010年3月，刊发《楼市轿子理论：坐轿者快把抬轿者压垮了》;4月刊发《房产盛极而衰 黄金将成为中国投资品之王》(以上两篇文章刊发于第一财经日报);2011年1月，推出战略报告《中国楼市：回调或崩盘》;2011年3月，推出战略报告《中国楼市拐点已到》……如此不断预警，作为战略预测者的中华元智库已经是尽心尽力了，只能说破产倒闭真的是这些地产商的宿命了。
　　这种“战略迷失悲剧”仅仅地产商的笑话吗?非也，类似的悲剧正在金融业拉开帷幕，随着全球主权债务危机的蔓延，全球纸币危机的深化，纸币信用资产正日渐逼近大崩溃的前夜。倘若这个大崩溃像现在房地产危机这样降临，那些缺乏黄金、石油、铜等实物资产财富，主要是纸币信用资产——现金、债券、证券等的金融机构，将面临灭顶之灾。这包括中国大多数保险公司、证券公司、基金公司，相当大比例银行、信托等等，相当有可能遭遇严峻的信用风险，甚至一些金融机构将被清零。这个越来越大的未来悲剧可能，本人已经预警了5年时间。
　　“战略迷失悲剧”未来还可能发生在地方政府身上，过去很多年，地方政府一直是以“土地招拍挂”等手段，不断扩张既得利益，这样下去，终究有物极必反的时候。一言以蔽之，“公务员泡沫”将是中国最后的泡沫，而这个泡沫现也开始走向破灭的道路。

Worldly, Wise and Worried

Why Euro May Keep Defying Gravity

Why Euro May Keep Defying Gravity

By KELLY EVANS

Betting against the euro isn't a no-brainer.

The euro-zone economy is weakening, at least one nation is careening toward default, and the breakup of the 17-member currency bloc can't be entirely ruled out. In a sign that duress continues to spread, yields on 10-year Spanish and Italian debt rose on Friday despite the latest bailout deal reached for Greece. They now stand at about 5.8% and 5.4%, respectively, up about half a percentage point each from January.

.Yet all this has hardly torpedoed the euro. In fact, the currency has strengthened 6.6% against the dollar this year to $1.4358 as of Friday. It is nearly 11% stronger than a year ago, even as sovereign-debt troubles have continued to build and the euro zone's economic growth prospects have dimmed. It almost seems obvious the euro's next move should be down. Yet Nomura Securities, for one, barely expects it to budge. Analyst Jens Nordvig expects the euro will be at about $1.40 at the end of the quarter—and still around $1.40 at year end.

That is as much because of dollar weakness as euro strength. Indeed, the euro has weakened this year against other, sturdier currencies, such as the Swiss franc. U.S. fundamentals "make it tough to be a dollar bull," says Deutsche Bank currency strategist Alan Ruskin. The nation's weak economic recovery, high unemployment and, importantly, near-zero interest rates all make the currency relatively less attractive. That is likely to keep the euro around these levels until the Federal Reserve starts to raise interest rates or the European Central Bank lowers its own.

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Andrea Comas/Reuters

The euro has strenghtened even as sovereign-debt troubles have continued to build and the euro zone's economic growth prospects have dimmed.
.The Fed is clearly on the sidelines for the time being. As for the ECB, it raised its benchmark rate this month to 1.5% and will be loath to reverse course unless its juggernaut economy—Germany—slows sharply. Indeed, strong export growth to emerging markets has helped propel the German economy despite the costlier euro. This, says Bank of America Merrill Lynch strategist David Woo, is a big reason the currency hasn't been weaker.

Of course, global economic growth looks to be slowing. A hard landing almost certainly would sink the euro and buoy the greenback. For now, though, euro strength isn't an oxymoron.

Write to Kelly Evans at kelly.evans@wsj.com