The U.S. economy is in a bubble inflated by “phony money” from the Federal Reserve and will burst within a few years, warned David Stockman, who was budget director for President Ronald Reagan

Stockman Warns of Crash Of Fed-Fueled Bubble Economy

The U.S. economy is in a bubble inflated by “phony money” from the Federal Reserve and will burst within a few years, warned David Stockman, who was budget director for President Ronald Reagan.

In an essay published yesterday in the New York Times (NYT), Stockman wrote that the Fed’s quantitative easing policies in the aftermath of the credit crisis have flooded stock markets with cash even while the “Main Street economy” remains weak. The combination, he wrote, is “unsustainable.”

“When it bursts, there will be no new round of bailouts like the ones the banks got in 2008,” wrote Stockman, a former senior managing director at Blackstone Group LP (BX) and a former Republican congressman from Michigan. “Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even today’s feeble remnants of economic growth.”

Stockman, 66, is the author of “The Great Deformation: The Corruption of Capitalism in America,” which will be published April 2. Read more of this post

Indonesia’s Yudhoyono Party Stumbles as Corruption Charges Undermine Support

Yudhoyono Party Stumbles as Corruption Charges Undermine Support

Indonesia’s ruling Democrat Party chose the country’s president, Susilo Bambang Yudhoyono, as chairman ahead of national elections next year amid jockeying among possible replacements that could stall spending on roads and ports. Yudhoyono was elected March 30 at an extraordinary congress in Bali to succeed Anas Urbaningrum, who resigned after becoming at least the third senior party official linked to corruption allegations in less than two years. Read more of this post

Insight: China’s losing battle against state-backed polluters

Insight: China’s losing battle against state-backed polluters

1:41am EDT

By David Stanway

SHANGHANG COUNTY, China (Reuters) – When Zijin Mining Group threatened to move its headquarters some 270 kms from its home county of Shanghang to Xiamen on China’s southeast coast, a local Communist Party boss rushed to confront the company’s chairman Chen Jinghe.

“If you want to move, you’ll have to move the Zijin Mountain to Xiamen as well,” the official told Chen, referring to a vast local mine that has helped transform the firm into China’s top gold producer and second-biggest copper miner. The exchange, recited with some pride by local residents, reflects the anxieties felt by regional governments as they consider the prospect of losing their biggest cash-cows. It also highlights the challenges facing Beijing as it tries to take on entrenched local bureaucracies and the powerful state-owned polluters they sponsor and protect, with the central government desperate to address decades of chronic environmental damage and force growth-addicted provinces to raise standards. Read more of this post

Angang Steel gets bourse warning following losses; China’s largest shipping conglomerate COSCO suspended after loss of 9.56b yuan; Three years of deficits could see the shipping firm removed from market

Angang gets bourse warning following losses

Updated: 2013-03-29 11:22

By Wang Ying in Shanghai ( China Daily) Read more of this post

Guangdong Publicly Says It Has “huge” Hidden Debts in Pension Fund; About half of China’s 31 provinces are unable to pay their retiree costs and rely instead on financial transfer from the central government

Guangdong Publicly Says It Has “huge” Hidden Debts in Pension Fund

03-29 15:15 Caijing

It says debts were cumulated for one critical reason: a large number of retirees who were entitled to a pension without contributions when China first launches its pension system.

The government of Guangdong has expressed concerns about its pension liabilities, saying the provincial government’s pension fund is running up “huge” hidden debts, opening a peephole into the patchy pension system in the world’s second-biggest economy. The government will seek to solve the many problems in the pension fund by raising financial subsidies and exploring ways to invest the money, government officials said in an official report on Thursday. About half of China’s 31 provinces are unable to pay their retiree costs and rely instead on financial transfer from the central government. Pension shortfalls could reach 18.3 trillion yuan in 2013, and 68.2 trillion by 2033, according to a recent report by economists at Deutsche Bank and the Bank of China. What makes things even worse is that China is facing a timebomb of aging population, with a sharp rise in those over age 65, the proportion of which stands at 8.2 percent now, and is expected to rise to 30 percent by 2064. The government report of Guangdong, a southern province topping total GDP rankings in among all provinces, did not reveal the amount of its deficit and reasons making the debts non-explicit. It says debts were cumulated for one critical reason: a large number of retirees who were entitled to a pension without contributions when China first launches its pension system. Without financial transfer from governments, the retirees are actually supported by young Chinese employees, it said. Pension revenue was close 250 billion yuan in Guangdong in 2012, compared with an expenditure of just below 150 billion. China’s pension system was designed as a combination of an inclusive welfare system supported by state subsidies and individual mandatory savings by both employees and employers whose contributions vary in regions. Budget expenditures in social network totaled 98.24 billion yuan in Guangdong in 2011, the report shows, tripling those in 2006. Its portion to general budget also hiked to 14.64 percent in 2011 from 12.53 percent five years ago. The government entrusted the country’s national security fund to “invest and manage” its pension fundin early 2012, as an alternative to state fiscal support to “retain and grow” value, the first and the single case in the country as local governments are loath to hand over their cash. Government officials did not disclose income of the investment in the report, but pledged the government will ensure the money is safe in following up management.

If a Fund Turns on a Dime, Watch Your Dollars; The demise of the Willow Fund offers two lessons in investment risk

March 30, 2013

If a Fund Turns on a Dime, Watch Your Dollars

By GRETCHEN MORGENSON

LAST October, shareholders in the Willow Fund, a closed-end investment fund sponsored and sold by UBS, received some disturbing news: the fund, which had assets of almost $500 million in 2006, was being liquidated.

With a portfolio that specialized in distressed debt instruments, the Willow Fund had suffered losses of almost 80 percent in the first three quarters of 2012 after its longtime manager switched gears: he had abandoned the corporate debt markets he was familiar with and piled into some colossally bad derivatives trades. The investors, some of whom hadn’t realized they were holding a portfolio filled with risky bets against the debt of European nations, were stunned.

What happened to the Willow Fund is a cautionary tale for any investor who entrusts his or her money to an investment fund. Its demise highlights the dangers when a portfolio manager makes a big change in investment strategy. It also raises questions about how assiduously this fund’s independent directors watched over the manager as he ramped up his portfolio’s risk levels. Both are problems that investors cannot be complacent about. Read more of this post

Era of Fed Stimulus Wanes

March 31, 2013, 12:08 p.m. ET

Era of Fed Stimulus Wanes

By CYNTHIA LIN

Between U.S. stocks reaching highs and Treasury TWE.AU -0.35% yields holding near all-time lows, one of these two contrary markets will eventually have to give.

At the moment, the Federal Reserve’s easy-money policy makes it so that there is enough to go around, bolstering risky and haven assets alike. But the more the U.S. economy improves, the closer investors get to a financial marketplace with less Fed support that can sap the strength from one of these markets.

Entering the second quarter with a fresh batch of key economic data on deck, investors will get evidence as to whether the U.S. recovery this year can defy the downturn suffered in each of the past two springs. Hand in hand with that will be whether and how the Fed reacts by adjusting its $85 billion monthly bond-buying program.

“We are getting closer to the end,” John Brynjolfsson, managing director of global macro hedge fund Armored Wolf LLC, said of the Fed’s stimulus efforts. “Discussion of tapering helps to make the exit less of a digital on-off decision, and should allow the Fed to more gradually wean the markets off its support.”

Mr. Brynjolfsson owns put options on the Standard & Poor’s 500-stock index to hedge against a sharp drop in equities, while also positioning for a fall in Treasurys prices against German bund prices. Read more of this post

Consultants’ fees slash workplace pensions

March 28, 2013 6:36 pm

Consultants’ fees slash workplace pensions

By Josephine Cumbo

Workplace pension savers could see up to 50 per cent of their retirement pots used to pay for pension advice given to an em-ployer, says a new report.

As millions of workers are automatically enrolled into workplace pensions, a probe by Which?, the consumer group, has exposed the size of “consultancy charges” that are being passed to pension savers without their knowledge. Read more of this post

Stocks, Commodities Break Up the Band; The Correlation Between the Two Markets Is at its Lowest Since October 2008

March 31, 2013, 9:14 p.m. ET

Stocks, Commodities Break Up the Band

The Correlation Between the Two Markets Is at its Lowest Since October 2008

By JERRY A. DICOLO

Commodities have been shut out of the stock market’s recent party.

Even as the U.S. stock market notched record highs in recent weeks, prices of raw materials, often used as a barometer of the global economy, have languished.

Read more of this post

Thailand’s Pichai Chunhavajira will draw on his experience during the dark days to help him resolve SME Bank’s ingrained woes

Changing the system from the inside out

Pichai Chunhavajira will draw on his experience during the dark days to help him resolve SME Bank’s ingrained woes.

Published: 1 Apr 2013 at 00.00

Are we in a new bubble? It certainly seems like it, considering the massive trading volume on the stock exchange, the long queues at the Bangkok International Motor Show and the ever-changing city skyline as new buildings seemingly appear each day.

“You have to admit there are some areas that are overheating, but overall it’s not that bad,” said Pichai Chunhavajira, executive chairman of the Small and Medium Enterprise Development Bank of Thailand (SME Bank).

One major difference today is that speculation aside, most of the country’s banks and top companies remember the lessons learned from the Asian economic crisis. Risk management, asset diversification and balance sheets today for the country’s top firms have all significantly improved over the course of the past several years. Debt-to-equity ratios have fallen sharply, as many chief financial officers remember painfully the dangers of excessive leveraging and overdependence on banks for funds. Read more of this post