Cyprus Battling to Meet EU Bailout Terms

Cyprus lawmakers met yesterday to try and work out the terms of a European bailout, which may include tapping bank accounts with deposits above 100,000 euros. Lawmakers rejected a initial levy to tax all bank accounts a few days ago. This article details a few potential plans, including tapping accounts at the biggest bank lender, the Bank of Cyprus. Yesterday lawmakers agreed to "wind down" Cyprus Popular Bank and put the losses on its depositors. Cyprus is the fifth euro-area nation to request a rescue; the problems in Cyprus stem from Greece's debt restructuring, which was a big area that Cyprus's banks invested in.

Link: http://www.bloomberg.com/news/2013-03-22/cyprus-approves-capital-controls-as-ministers-prepare-to-meet.html

Brother of Hedge Fund Executive Indicted

Rengan Rajaratnam, the brother of Raj Rajaratnam, who is in jail for insider trading, has been indicted for the similar allegations. He is accused of helping his brother use non-public material when trading two stocks in 2008. These insider tips and information helped Rengan make around $1.2 million, within a two day span. Raj is serving an 11-year prison term for conspiracy and securities fraud. This was a huge indictment for the US, the SEC, and the FBI - it is the biggest hedge fund executive to go to jail. Many people are angry that those accused for insider trading are only paying a (huge) fine and not usually sent to jail; this is a step in the right direction by having white collar criminals serve jail time. 

Link: http://www.bloomberg.com/news/2013-03-21/raj-rajaratnam-s-brother-charged-with-insider-trading.html

Russia-China gas deal is stuck

http://www.reuters.com/article/2013/03/22/us-russia-china-gas-idUSBRE92L10P20130322

In the article, the author talks about a deal between China and Russia for conventional gas, has been stuck at the talks level. The deal would possibly involve Russia selling gas from its new Eastern Siberian gas fields to China. The problem is that both sides are not agreeing on the price of the gas. Russia wants to get the same price that it does from its European buyers ($300 per 1000 cu. m.) but China is only willing to pay $250. China argues that $250 is the maximum price that it can offer without forcing its petroleum companies into losses. Also, above this price, China maintains, that its producers would lose their competitive advantage in the global markets.

The deal is important for Russia as it is looking for ways to finance more oil and gas projects, construct pipelines, etc. China, on the other hand, is expecting a shortfall in meeting its energy needs. China is the fastest growing energy consumer and therefore needs the deal to meet the demand for gas.

The deal needs to be finalized fast if Russia wants to enter the Asian markets. This is because there are many other suppliers such as Myanmar that are also willing to supply gas to China.

Obama Urges Israeli Public to Pursue Peace

President Barack Obama exhorted Israelis to come to terms with the Palestinians, following a visit to the West Bank on Thursday, in a public appeal for sacrifice in the name of peace.

"Given the march of technology, the only way to truly protect the Israeli people is through the absence of war," Mr. Obama told a large crowd of mostly young Israelis at the Jerusalem Convention Center. "Because no wall is high enough, and no Iron Dome is strong enough, to stop every enemy from inflicting harm."

The crowd repeatedly cheered Mr. Obama's calls for a Palestinian state and his observations that Palestinian and Israeli youth have the same dreams.

He described a meeting earlier in the day with a group of Palestinians between the ages of 15 and 22. "Talking to them, they weren't that different from my daughters," he said. "They weren't that different from your daughters or sons."

The purpose of his public address to Israelis became clear when he said that politicians must be pushed by constituents to seek peace.

March 21, 2013, 11:53 a.m. ET

Source: http://online.wsj.com/article/SB10001424127887324103504578373924113848596.html?mod=WSJ_hps_MIDDLENexttoWhatsNewsThird

Americans Guessing at Amount Needed for Retirement

http://www.washingtonpost.com/business/retirement-is-a-numbers-game/2013/03/19/b36ed882-90e0-11e2-9cfd-36d6c9b5d7ad_story.html

This article discusses the fact that most Americans are simply guessing at the amount of annual income they need to be saving in order to retire comfortably. When they calculate the actual amount that they should be saving, the gap is often large between what is necessary and what is actually being saved. Most Americans are solving this problem by planning on retiring at a much later age than intended. The EBRI says that this plan isn't always a good idea, just in case individuals aren't physically able to work as long as they want to. They advise trying to save a substantial amount by age 60. The key for many Americans to be able to retire comfortably is simply to stop consuming at an excessive rate and save rather than try to keep up with the Jones'. Americans also need to become informed of the percentages they will need to save at a younger age in order to reduce the need of having to save excessive amounts in their 40s and 50s. If Americans start saving responsibly they will be able to retire earlier, therefore opening up more jobs to younger individuals in need of work.

A Bear Market To Come?

In his latest post on Marketwatch entitled "10 signs your stocks are about to tumble", author and columnist Jeff Reeves paints grim picture on what he believes is to come in the market.
Lately in the news, all the problems seem to be brewing abroad while the domestic signs of a impending bear market and potential recession are staring us in the face.

To summarize a few of his points:

The market is over-bought. Cash in investors accounts is hitting dangerous lows,  and the current rally in the market is thought by many to be unsustainable. He goes into interesting detail about the "wedge" that prices have been showing. What this means is that momentum is slowing, and there looks to be no catalysts to propel it further. In fact, foreign troubles alone are causing a great amount of skepticism in the market.

He goes further to describe some more macroeconomic issues that we are all too familiar with such as high gas prices and unemployment. Overall a very interesting read and has lead me again to recommend getting out of equities.

If there are any who disagree with his prognosis, I would be very interested to hear about your views and maybe even why you think the market can still rise.


10 signs your stocks are about to tumble

Microfinance in India: Road to redemption

This is an article from the economist back in January discussing the problems with microfinance in India. Indian micro-lending banks were effective until they started making reckless loans and using "strong arm-collection tactics" which ruined the lives of many of the Indian poor. These tactics and loans are against Grameen principles where micro-lenders would often discuss the business plans with the poor as to avoid making bad loans. Also, they should not force loan collection as the purpose of microfinance apart from monetary profits are also social profits. Other successful microfinance banks have extend the repayment period or extended new loans in order for the poor to get back on their feet should they be unable to pay the old loan.

The Micro-lending in India has new national guidelines to draw a line between profit and profiteering such as creating a cap on interest rates and barring micro-lenders to lend to customers with more than one loan, which will hopefully improve microfinance in India.

Source: http://www.economist.com/news/finance-and-economics/21569447-industry-starting-revive-road-redemption

British inflation hits nine-month high, further rises likely

In February, consumer price inflation rose to 2.8 percent, after holding steady at 2.7 percent since October, and looks set to rise further. The number, however, would probably not reduce the chances that the Bank of England will sooner or later pump more money into the economy to stimulate the stagnant economy because they are more interested in growth than in inflation at the moment. High inflation has reduce British households' disposable income, and a further rise will be a concern to the government regarding the decreasing consumption. The Bank forecasts inflation will exceed 3 percent later this year due to upward pressure on the cost of imported goods and raw materials caused by sterling's near 7 percent slide against the dollar since the beginning of 2013 and higher utility bills. What could be expected from the Bank of England to help better the situation? The arrival of new Bank governor Mark Carney in July may bring some changes, but more importantly, stopping any further sterling fall would be necessary because of its damaging consequences on inflation.

Source: http://uk.reuters.com/article/2013/03/19/uk-britain-inflation-idUKBRE92I0AI20130319

British economies struggling to maintain spending

http://www.economist.com/news/britain/21573132-britains-squeezed-households-largely-explain-countrys-flatlining-economy-dropping-shopping

This article states that the British economy is starting to see less and less people care about spending due to low growth rates and high price fluctuation. With the average growth rate being 2 percent right now and the average price increase on goods is at 3 percent. Also with the average person having only about 15000 dollars in spending money per household after taxes and mortgage payments, leaving very little income. This is tough on the European economies and the recession has hit everyone including overseas.

Venezuelan opposition leader promises to cut subsidized oil to Cuba

http://www.reuters.com/article/2013/03/18/venezuela-election-idUSL1N0CA8MN20130318

Venezuela has elections on April 14 to decide the President after the death of Hugo Chavez. The two candidates are the current acting President Nicolas Maduro and the opposition candidate Henrique Capriles. Nicolas Maduro is seen as Chavez's successor.

Henrique Capriles has stated that he would end the export of highly subsidized oil to Cuba if he comes to power. Under Chavez, Venezuela was exporting large quantities of oil at extremely cheap prices to Cuba, a communist nation and a Venezuelan ally. This is a major burden on the Venezuelan economy, which is already suffering from low growth and high inflation. Stopping the export of a 100,000 barrels daily to Cuba would provide more resources for the domestic economy and would help reduce inflation. This would also allow foreign companies to access some oil reserves in Venezuela and sell them at a near market-price rate and not the state-decided price.

Maduro is expected to maintain Chavez's style of governance which would focus on nationalization and socialism. It would be interesting to see how Henrique Capriles would change Venezuelan economic policies if he comes to power

Federal worker pay freeze likely to be extended

http://money.cnn.com/2013/03/15/news/economy/federal-worker-pay-freeze/index.html?iid=SF_E_River

Many federal workers will suffer from a continuation of the two year pay freeze. This will extend the pay freeze to December 31st. This lack in pay raises will hurt many federal workers as they were expecting to see a .5% raise in pay by next month. On top of this, the budget cuts that were recently implemented are forcing many federal workers to take a 20% pay cut for five months. Plus many agencies have started hiring freezes, so this begs the question of is too much of the federal budget deficit problems being put on the backs of the federal employees?

What Does Cyprus Mean?

After reading about what is happening in Cyprus over the weekend, the question naturally arises: are they handling this the right way? Why the Bank of Cyprus? Will this be a trend across Europe? Will the run on The Bank of Cyprus be a damning blow to a recession recovery already stunted by a slightly strengthening Euro?

Over the weekend it was announced that a percentage of all deposits in The Bank of Cyprus will be taxed. This so far has caused an uproar, and a run on the bank. People were given the incentive to pull their money and find a new safe haven, however many were unable to get their money when they needed it. Michael Gayed recommends rotating out of equities at this point, and migrating to precious metals or bonds to weather this storm. If your investment strategy is aimed more towards "timing" the market, then this strategy is for you.

Is this the start of a long depressing trend in Europe?

http://www.marketwatch.com/story/if-cyprus-is-the-butterfly-is-gold-the-pesticide-2013-03-18

China Showing Symptoms of Financial Crisis: Report

This article suggests China may be headed for a financial crisis similar to the one experienced by the United States in 2007.  The article notes that China is currently experiencing similar symptoms to the ones the U.S. observed prior to the crisis as the country has been experiencing skyrocketing property prices, slowing growth and a large increase in leverage.  The article notes that property prices have swelled some 113% from 2004 to 2012, yet China's rate of growth in 2012, 7.8%, was its slowest in 13 years.  Also, leverage, as measured by domestic credit per gross domestic product, has increased 34% since 2007.  The more highly the country leverages itself, the more painful a deleveraging period could be.  Do you guys believe China is in for difficult times ahead?


http://www.cnbc.com/id/100562024

Europe financial sector is fragile, says IMF

The IMF feels like Europe has to support its banks more and try to create a banking union, which would protect the EU from future shocks. The IMF assessed the European banking and insurance sector and could see that a lot has been done in response to financial crisis, however a lot more was still needed, because the EU is still vulnerable since the growth could be lower than expected or the market could lose its confidence. The Eurozone is still highly affected by the financial crisis, its GDP is still not where it used to be, banks still have high debts and government are not able to create stability. However many measures have been taking in order to reestablish confidents European assets.  For example banks have been trying to raise new capital and the EU a single Eurozone regulator was created (controlled by the European Central Bank). But at the moment the banking sector is restricted and its bad debts negatively affect Europe’s economy.

 http://money.cnn.com/2013/03/15/news/economy/europe-banks-imf/index.html?iid=SF_E_Lead

Pound Sterling Sees a 3-Year Low

Following a 1.5% contraction in the United Kingdom's manufacturing sector in January, the pound sterling has fallen to $1.48. This is the lowest it has been since 2010. The slump has mainly been credited to a reduction in the production of pharmaceuticals and building materials, as well as North Sea oil and gas investments. Coupled with a contraction in growth, exports, and in national income, this has led to fears of a triple-dip recession– a common concern from the last two years. The hope is that the chancellor will implement varied and strong policies to boost growth post a budget debate, but the economy still faces many adversities. But given that the US, Japan, and Germany are slowly pulling out of the recession, and are supplemented by the growth of demand for UK goods in countries like Brazil, China, and India, there is some hope for a recovery.

http://www.guardian.co.uk/business/2013/mar/12/recession-manufacturing-slump

Booming Business of Border Control

This article talks about the growth in the homeland security market due to innovative technologies. This growth continues despite the sequester cuts that included the Department of Homeland Security which dominates 60 percent of the 31 billion dollar market. Some of the things that the technologies are doing are quite fascinating, but more importantly keeping those who work border control safe. However, because of the heavier reliance on technologies, it is quite directly removing jobs from the market. While the value of keeping hard-working individuals out of harm's way might exceed the utility for jobs, this is a prime example Marx's demise of capitalism. For those who may lose frontline jobs in this market due to being replaced by technology, where are they to seek future employment? We see similar similar trends in other industries as well with class sizes growing in education with the MOOCs and technological industrialization of manufacturing. These innovations give rise to new markets all the time, but what about the labor force that is not educated enough to pivot into these markets?

http://www.thefiscaltimes.com/Articles/2013/03/15/The-Booming-Business-of-High-Tech-Border-Security.aspx#page1

African Banking Profits A Distant Reality

Banks across Africa are finding it hard to produce significant profit despite the coutnry's largely untapped market. This article from the economist tells us that access to a financial institution varies greatly by country, and even intra-country access to banks is highly variable. Banks need to continue to build bank branches, which are very  costly to do. Until this need is met, many Africans will have relatively little access to a bank account, and banks will also not see profits, a lose- lose situation in the short term.