Wednesday, July 18, 2012

Pressure grows on China to rethink property cooling

As Chinese demand slows down what will happen to Australian and Canadian economies who’s mining infrastructures are currently being constructed to meet the peak demand and  potentially overbuilt? My prediction is a pullback in the next couple of years. Aivars Lode

Asia News 
18 July 2012

Pressure is growing on the Chinese government to rethink restrictions on so-called speculative real estate investment as slowing property sector investment compounds a slowdown in the wider economy.

Data published earlier this week by the Chinese National Statistics Bureau suggested the growth rate of investment and real estate development had fallen by 1.9% from January to June to 16.6%, compared with growth of 32.9% over the same period last year.

Article continues below

Growth in residential development, which accounted for just over 68% of the total, fell by 1.6%.
Growth in land acquisition for development fell by 19.9% – a decline likely to hit local governments, which rely on land lease sales for income.

Meanwhile, the data show overseas investors pulling out of development funding.

Against a 5.7% increase in funding to real estate development from January to June, foreign investment was down by 53.9% to RMB20bn ($3.1bn) and domestic loans up just over 8% at RMB759.2bn.

Mark Williams, chief Asia economist at Capital Economics, told IP Real Estate the government could nod through lending to developers following significant restrictions over the past few years.

"I suspect the government will turn a blind eye if some of the extra bank lending that's likely to be extended in the next few months ends up financing the completion of mothballed property projects or the start of new projects," said Williams, a former Treasury economist.

"The alternative of holding a stricter line on property market controls would require close monitoring of bank lending. That would slow down the stimulus, which is the immediate priority."

However, he said the government would not end its anti-speculation campaign unless GDP growth continued to slow – despite a broader loosening of macro policy.

Author: Shayla Walmsley

Tuesday, July 17, 2012

Special report: After Libor, where will the next scandal be?

I have not verified every item in the following article, however the article follows the same theme that I have been discussing in my Blog. Aivars Lode

Tuesday 17 July 2012

No one would have believed Libor interest rates could generate the biggest scandal in financial services since Fred Goodwin waltzed off into the sunset with a £500,000 annual pension.
That was until a journalist on the Wall Street Journal noticed there was something odd about the numbers banks were submitting during the financial crisis, prompting a multi-million pound transatlantic investigation.

Its findings shone an unflattering light into one of the City's dark corners that resulted in Barclays paying £290m in fines and saw the resignations of its chief executive, chief operating officer and chairman.

But Libor interest rates aren't the only oddity in the Square Mile.

Here we shine a light into a few more of the City's dark corners. The professionals dismiss talk of a scandal coming from any of them. But they used to say that about Libor interest rates.

Gold fixing

Twice a day the price of the precious metal is set – or (and it's a rather unfortunate term) fixed – by five banks: Bank of Nova Scotia, Deutsche Bank, HSBC, Société Gé*érale and (wait for it) Barclays.

The leader of the fix begins by proposing a price and the five then simulate trading, by looking at their own and client's buy and sell orders, around it until the price is set.

All transactions in gold in London are based on this price. It's an arcane process to say the least and until 2004 used to be done in conditions of high secrecy at the offices of NM Rothschild in St Swithin's Lane. The price was only set when all five members lowered little Union Jack flags.

Since Rothschild sold its interest in the market (to Barclays) a teleconference has been set up and members simply call out "flag" to indicate a change in position or "flag down" when they are ready to complete. Seriously.

The market itself is not regulated as such. It's done under the auspices of the London Bullion Market Association and follows a code of conduct.
There are also silver and platinum fixes.

The FTSE 100

Britain's premier stock market index. But did you know it's not even made up of the 100 biggest companies: to get in you have to be better than 90th place in terms of market capitalisation (the value of all your shares put together). And to get booted out you need to be below 111th (the index is reviewed every three months).

You also have to be a British company. Sort of. Kazakhmys, for example, is headquartered in London and its shares are listed here. But it's a bit of a stretch to call it British. WPP, the advertising and media group, is headquartered in Dublin but because its shares have a primary listing in London it gets in. Ryanair, however (to the chagrin of its boss, Michael O'Leary) is out. Even though it has an operating base here, the primary listing of its shares is not in London. What that shows is the FTSE Committee is scrupulously honest. It obeys the somewhat quixotic rules to the letter.

Being in the FTSE 100 is a big deal. It gets you noticed, brings in analysts to write about you and forces tracker funds to invest in you. Indices can also be traded and there are innumerable derivatives contracts linked to them.

If there's to be a scandal it's more likely to involve traders trying to influence who gets in (or is booted out). Trading in stocks and shares is, of course, tightly regulated. The formation of the index, though, is not.

The Foreign Exchange Market

Or the Forex market in City-speak. It's hard to call this a dark corner. It's the biggest market in London, and in the world, in terms of the sheer volumes of money changing hands – $4trn (£2.6trn) daily. Not that this stops people from trying to manipulate it.

Central banks such as the Bank of England, the US Federal Reserves and lots of others are always at it, either trying to push their currencies higher (when they fear a forced devaluation and inflation) or lower (to make exports more competitive). Their efforts tend to meet with very limited success.

Speculators, particularly hedge funds, are very active and their role can also prove highly controversial.

Of more concern right now are the games being played by so called "high-frequency traders" who use black boxes to place blistering numbers of currency trades in nano seconds.

Lots of influential people question their activities and want the hammer brought down. They might have a point.


Over-the-Counter Derivatives

No, this is not a strange new product at Waitrose.

It is a contract between two parties and usually involves a bank either as a broker or on one side or another of the deal.

Let's say you produce animal feed and you're worried the price of lysine (an additive) will go up. For a fee, you can ask an investment bank to produce a contract that will allow you to buy the stuff at a fixed price in, say, six months' time. Thus you are protected.

A supplier of lysine (worried that the price might fall) might also sign a deal to sell at a similar, fixed price. The bank sits in the middle.

These contracts can be highly complex. The consequences of a big bank having a lot of nasties that could blow up in the event of the economy doing something unexpected keeps watchdogs awake at night.

They want to regulate the whole thing more tightly, standardise contracts and make them tradeable over exchanges. Which might help a bit.

Oil markets

This one could be a real nasty.

Derivatives based on oil prices are, of course, regulated. But the "spot" crude price is not. And a report for the G20 has found, guess what, that the market is open to manipulation.

The price at the pumps is (in part) dependent on oil price benchmarks which retailers use to work out the price for future supplies. The rates are calculated based on submissions from firms which trade oil daily. So, guess what, it rather depends on how honest banks and hedge funds that do this trading are. Oh dear.

Price-reporting agencies point out that they employ journalists to weed out false submissions from those with an incentive to push prices one way or another. But the Libor affair has set alarm bells ringing about markets based on the submissions of people who participate in those markets.

Sunday, July 15, 2012

Hardheaded Socialism Makes Canada Richer Than U.S.

Wow Aussie and Canada are getting quite cocky as it appears that they are on a safe wicket. When the boom from the mining build out stops, just wait for the sucking sounds as they both move to recession. Aivars Lode

By Stephen Marche Jul 15, 2012 6:30 PM ET
On July 1, Canada Day, Canadians awoke to a startling, if pleasant, piece of news: For the first time in recent history, the average Canadian is richer than the average American.
According to data from Environics Analytics WealthScapes published in the Globe and Mail, the net worth of the average Canadian household in 2011 was $363,202, while the average American household’s net worth was $319,970.
A few days later, Canada and the U.S. both released the latest job figures. Canada’s unemployment rate fell, again, to 7.2 percent, and America’s was a stagnant 8.2 percent. Canada continues to thrive while the U.S. struggles to find its way out of an intractable economic crisis and a political sine curve of hope and despair.
The difference grows starker by the month: The Canadian system is working; the American system is not. And it’s not just Canadians who are noticing. As Iceland considers switching to a currency other than the krona, its leaders’ primary focus of interest is the loonie -- the Canadian dollar.
As a study recently published in the New York University Law Review pointed out, national constitutions based on the American model are quickly disappearing. Justice Ruth Bader Ginsburg, in an interview on Egyptian television, admitted, “I would not look to the United States Constitution if I were drafting a constitution in the year 2012.” The natural replacement? The Canadian Charter of Rights and Freedoms, achieving the status of legal superstar as it reaches its 30th birthday.

Canadian Luck

Good politics do not account entirely for recent economic triumphs. Luck has played a major part. The Alberta tar sands -- an environmental catastrophe in waiting -- are the third-largest oil reserves in the world, and if America is too squeamish to buy our filthy energy, there’s alwaysChina. We also have softwood lumber, potash and other natural resources in abundance.
Policy has played a significant part as well, though. Both liberals and conservatives in the U.S. have tried to use the Canadian example to promote their arguments: The left says Canada shows the rewards of financial regulation and socialism, while the right likes to vaunt the brutal cuts made to Canadian social programs in the 1990s, which set the stage for economic recovery.
The truth is that both sides are right. Since the 1990s, Canada has pursued a hardheaded (even ruthless), fiscally conservative form of socialism. Its originator was Paul Martin, who was finance minister for most of the ’90s, and served a stint as prime minister from 2003 to 2006. Alone among finance ministers in the Group of Eight nations, he “resisted the siren call of deregulation,” in his words, and insisted that the banks tighten their loan-loss and reserve requirements. He also made a courageous decision not to allow Canadian banks to merge, even though their chief executives claimed they would never be globally competitive unless they did. The stability of Canadian banks and the concomitant stability in the housing market provide the clearest explanation for why Canadians are richer than Americans today.
Martin also slashed funding to social programs. He foresaw that crippling deficits imperiled Canada’s education and health- care systems, which even his Conservative predecessor, Brian Mulroney, described as a “sacred trust.” He cut corporate taxes, too. Growth is required to pay for social programs, and social programs that increase opportunity and social integration are the best way to ensure growth over the long term. Social programs and robust capitalism are not, as so many would have you believe, inherently opposed propositions. Both are required for meaningful national prosperity.

Orderly Fairness

Martin’s balanced policies emerged organically out of Canadian culture, which is fair-minded and rule-following to a fault. The Canadian obsession with order can make for strange politics, at least in an American context. For example, of all the world’s societies, Canada’s is one of the most open to immigrants, as anyone who has been to Toronto or Vancouver will have seen. Yet Canada also imposes a mandatory one-year prison sentence on illegal immigrants, and the majority of Canadians favor deportation. Canadians insist that their compassion be orderly, too.
This immigration policy is neither “liberal” nor “conservative” in the American political sense. It just works. You could say exactly the same thing about Canada’s economic policies.
Canada has been, and always will be, overshadowed by its neighbor, by America’s vastness and its incredible versatility and capacity for reinvention. But occasionally, at key moments, the northern wasteland can surprise. Two hundred years ago last month, the War of 1812 began. Thomas Jefferson declared, “The acquisition of Canada, this year, as far as the neighborhood of Quebec, will be a mere matter of marching.” The U.S. was comparatively enormous -- with almost 8 million people, compared with Canada’s 300,000. The Canadians nonetheless turned back the assault.
Through good luck, excellent policy and even some heroism, Canada survived the war. But it has taken 200 years for Canada to become winners.
(Stephen Marche is a novelist and columnist for Esquire Magazine. His most recent book is “How Shakespeare Changed Everything.” The opinions expressed are his own.)
Read more opinion online from Bloomberg View. Subscribe to receive a daily e-mailhighlighting new View editorials, columns and op-ed articles.
Today’s highlights: the editors on good news from Guantanamo, why Jamie Dimon’s bonus should be clawed back and how to put more electric cars on the road; William D. Cohan on Romney’s magical IRAAlbert R. Hunt on the candidates’ need to spell out debt-cutting plans; Anthony Luzzatto Gardner on Bain Capital under Romney.