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.
Friday, August 19, 2011
Monday, August 8, 2011
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
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
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）。
 |
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。
 |
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。
 |
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。
 |
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。
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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
Thursday, August 4, 2011
'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
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
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
Wednesday, August 3, 2011
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.
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
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.
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
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
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