Carbon-Intensive Investors Risk $6 Trillion ‘Bubble,’ Study Says

Carbon-Intensive Investors Risk $6 Trillion ‘Bubble,’ Study Says

Investors in carbon-intensive business could see $6 trillion wasted as policies limiting global warming stop them from exploiting their coal, oil and gas reserves, according to a report.

The top 200 oil, gas and mining companies spent $674 billion last year finding and developing fossil fuel resources, according to research by the Carbon Tracker Initiative and a climate-change research unit at the London School of Economics. If this rate continues for the next decade some $6 trillion risks being wasted on “unburnable” or stranded assets, according to the report, released today.

Banks, funds and institutional investors are seeking clarity from government and central banks about how greenhouse- gas emissions may affect the value of their investments. The Bank of England said last year it will evaluate whether the U.K.’s exposure to investments in polluting industries poses a risk to financial stability after a group of more than 20 investors called for a such a probe.

“If the markets carry on regardless, with the regulators looking the other away, they’re just asleep on their watch,” James Leaton, research director at Carbon Tracker, a project by non-profit Investor Watch, said in an interview in London. “The longer it goes on, the bigger the bubble will get.” Read more of this post

In Europe, Paid Permits for Pollution Are Fizzling

April 21, 2013

In Europe, Paid Permits for Pollution Are Fizzling

By STANLEY REED and MARK SCOTT

LONDON — On a showery afternoon last week in West London, a ripple of enthusiasm went through the trading floor of CF Partners, a privately owned financial company. The price of carbon allowances, shown in green lights on a board hanging from the ceiling, was creeping up toward three euros. That is pretty small change — $3.90, or only about 10 percent of what the price was in 2008. But to the traders it came as a relief after the market had gone into free fall to record lows two days earlier, after the European Parliament spurned an effort to shore up prices by shrinking the number of allowances. “The market still stands,” said Thomas Rassmuson, a native of Sweden who founded the company with Jonathan Navon, a Briton, in 2006.

Still, Europe’s carbon market, a pioneering effort to use markets to regulate greenhouse gases, is having a hard time staying upright. This year has been stomach-churning for the people who make their living in the arcane world of trading emissions permits. The most recent volatility comes on top of years of uncertainty during which prices have fluctuated from $40 to nearly zero for the right to emit one ton of carbon dioxide. More important, though, than lost jobs and diminished payouts for traders and bankers, the penny ante price of carbon credits means the market is not doing its job: pushing polluters to reduce carbon emissions, which most climate scientists believe contribute to global warming. The market for these credits, officially called European Union Allowances, or E.U.A.’s, has been both unstable and under sharp downward pressure this year because of a huge oversupply and a stream of bad political and economic news. On April 16, for instance, after the European Parliament voted down the proposed reduction in the number of credits, prices dropped about 50 percent, to 2.63 euros from nearly 5, in 10 minutes. Read more of this post

Tata Faces Crisis as $20 Billion Spent on Water: Corporate India

Tata Faces Crisis as $20 Billion Spent on Water: Corporate India

India, the world’s second-most populous nation, is doubling spending on water management to a record as conglomerates from the Tatas to Adani face shortages that the United Nations calls an impending crisis.

The federal and state governments have set aside 1.1 trillion rupees ($20 billion) for sewage treatment, irrigation and recycling for the five-year period ending March 2017, G. Mohan Kumar, special secretary in the Ministry of Water Resources, said in an interview. The nation with 1.2 billion people, which treats only 20 percent of its sewage, is pouring more money as inadequate clean water is threatening to stunt growth in industrial and farm output.

Disputes with farmers demanding rights to their irrigated land have stalled about $80 billion of investment by companies including Posco and ArcelorMittal (MT) as Prime Minister Manmohan Singh seeks to revive an economy growing at the slowest pace in a decade. Tata Steel Ltd. (TATA), India’s biggest maker of the alloy, is setting annual targets to cut water usage as two-thirds of the country faces a scarcity, H.M. Nerurkar, managing director said in an April 11 interview.

“Water availability is a very big issue and in the coming days this will be a far bigger issue,” A.P. Choudhary, chairman of Rashtriya Ispat Nigam Ltd., India’s second-biggest state-run steelmaker, said in an interview. “Water is critical for the steel industry’s growth and no company is comfortably placed.” Read more of this post

Triple A-rated Netherlands on Edge of Economic Crisis; Unemployment Surges as Home Prices Collapse

Netherlands on Edge of Economic Crisis; Unemployment Surges as Home Prices Collapse

Posted: 21 Apr 2013 12:05 PM PDT

Netherlands is underwater in more ways than one. Der Spiegel reports Underwater: The Netherlands Falls Prey to Economic Crisis

More than a decade ago, the Dutch central bank recognized the dangers of [the housing] euphoria, but its warnings went unheeded. Only last year did the new government, under conservative-liberal Prime Minister Mark Rutte, amend the generous tax loopholes, which gradually began to expire in January. But now it’s almost too late. No nation in the euro zone is as deeply in debt as the Netherlands, where banks have a total of about €650 billion in mortgage loans on their books. Consumer debt amounts to about 250 percent of available income. By comparison, in 2011 even the Spaniards only reached a debt ratio of 125 percent.  The Netherlands is still one of the most competitive countries in the European Union, but now that the real estate bubble has burst, it threatens to take down the entire economy with it. Unemployment is on the rise, consumption is down and growth has come to a standstill. Read more of this post

Canadians Surpass Americans in Net Worth, But Will it Last?

April 18, 2013, 2:30 PM

Canadians Surpass Americans in Net Worth, But Will it Last?

By Don Curren

They’ve been known to get pretty excited when a new, big-name discount retailer comes to town, but thanks to a booming housing sector, Canadians are more affluent than their American neighbors.

At least for the moment, that is.

Canada’s net worth was at a healthy 648% of gross domestic product in the final quarter of 2012, according to a report from independent economic research firm Capital Economics, which has gained something of a profile for its bearish views on Canada’s economy, and particularly its housing market.

By contrast, U.S. net worth was a more modest 550% in the same period.

The catch is that Canadians’ wealth advantage is built mostly on the big run-up in housing prices in recent years, and that’s a very shaky foundation, at least from Capital Economics’ point of view. Read more of this post

ASEAN looking a bit like ’97

ASEAN looking a bit like ’97

APR 22, 2013

This is an abridged translation of an article from the April issue of Sentaku, a monthly magazine covering Japanese political, social and economic scenes.

An economic upturn always has the potential for crisis. Members of the Association of Southeast Asian Nations (ASEAN) appear to be blessed with an economic boom. But there is a feeling of deja vu as current circumstances closely resemble those on the eve of the Asian financial crisis, which started in July 1997. Read more of this post

Yudhoyono’s Selection for Finance Minister Rattles Market

Yudhoyono’s Selection for Finance Minister Rattles Market

President Susilo Bambang Yudhoyono’s decision to opt for an acting finance minister to replace Agus Martowardojo threatens to cloud the policy outlook as Indonesia struggles to revamp its fuel-subsidy program, step up infrastructure investment and damp price pressures.

Hatta Rajasa will replace Martowardojo, who is set to become the next Bank Indonesia chief, the government said April 19. Rajasa is chairman of the National Mandate Party, a member of Yudhoyono’s Democrat Party coalition, and will also remain coordinating minister for the economy.

The Jakarta Composite Index, which has gained about 16 percent this year and reached a record last week, fell after the announcement that came an hour before the close of trade on April 19. Rajasa assumes the role as the government plan to curb fuel subsidies threatens to boost inflation that reached a 22- month high in March, adding to the burdens of an economy facing falling prices for its commodity exports including palm oil.

“The decision is quite strange — it will have a negative impact on the stock market and the rupiah,” said David Sumual, an economist at PT Bank Central Asia in Jakarta. “Indonesia needs a finance minister with a background in macroeconomic and fiscal policy, as there are so many problems in the economy.” Read more of this post

Baht Flashes Sell Signal as Prasarn Sees Froth: Market Reversal

Baht Flashes Sell Signal as Prasarn Sees Froth: Market Reversal

At least three trading patterns show Thailand’s baht, this year’s best-performing Asian currency, is poised to fall as policy makers step up warnings that its rally to a 16-year high is stretched.

The baht’s 2.3 percent advance this month pushed the 14-day relative strength indicator to 25, data compiled by Bloomberg show. A reading below 30 typically signals a reversal may occur. Trading envelope and stochastics oscillator indicators also suggest the baht’s rise has gone too far.

Central bank Governor Prasarn Trairatvorakul told reporters in Bangkok on April 19 that the baht’s advance has started to move beyond fundamentals, 10 days after he said the rally was “too fast.” Finance Minister Kittiratt Na-Ranong reiterated his call last week for the central bank to cut interest rates to deter inflows to the country’s bond market. Read more of this post

Japan Inc. Hesitates to Invest as Stocks Rally on Plummeting Yen

Japan Inc. Hesitates to Invest as Stocks Rally on Plummeting Yen

The last time Masao Namiki bought machinery for his company, Emperor Hirohito had just died, Japanese investors took the Rockefeller Center as a trophy, and a new central bank chief was about to prick the bubble economy. It was 1989.

The $1 million Namiki borrowed to outfit his workshop with computerized lathes and drills almost bankrupted him as orders from clients Canon Inc., Panasonic Inc. and NEC Corp. evaporated. As interest rates cranked up to 6 percent, crashing stock and land prices wiped out $15 trillion in wealth and triggered an economic malaise that still drags on.

The bubble, and the five recessions since, help explain why business owners like Namiki aren’t buying into investor euphoria over new Prime Minister Shinzo Abe’s campaign to end deflation. Even after the steepest five-month slide in the yen for 18 years made global companies like Toyota Motor Corp (7203). more competitive and Japan the world’s best-performing major stock market, Namiki said he’s still not ready to invest.

“If we had the orders I’d think about adding equipment, but right now the work’s just not there,” the 72-year-old said at his small factory in Tokyo’s Ota district, where he and a handful of employees have made thousands of steel molds for phones, stereos, and keyboards. “The manufacturers are still in wait-and-see mode.”

The reluctance to borrow and spend of companies like Namiki’s that don’t operate abroad and make up the bulk of Japan’s economy is the biggest threat to Abe’s plans, said Nomura Research Institute Chief Economist Richard Koo. Read more of this post

China bond executives arrested in probe into alleged skimming; Relaxed quotas could give Asian central banks taste for China bonds

China bond executives arrested in probe into alleged skimming

Thu, Apr 18 2013

* Executives from CITIC, two other firms arrested

* Alleged profit skimming via complex trading practices

* Investigation could involve other institutions

* Regulation lags bond market’s explosive growth

By Gabriel Wildau

SHANGHAI, April 18 (Reuters) – Three Chinese financial industry executives have been arrested for allegedly using complex bond trading practices to skim client profits for personal gain, state media reported this week.

Executives from state-owned CITIC Securities , China’s largest brokerage by assets, unlisted fund management company Wanjia Asset Management and Qilu Bank, a small lender 20 percent owned by Commonwealth Bank of Australia , are under investigation by the Shanghai Public Security Bureau, the official Securities Times reported on Wednesday. Read more of this post

Chinese investors short gold in London as prices tumble while the retail public buys; Tianjin Precious Metal Exchange flooded with requests from investors looking to short gold

Chinese investors short gold in London as prices tumble

Staff Reporter, 2013-04-20

Members of the public have rushed to buy gold amid the current price drop, while investors have been actively short selling. (Photo/CFP)

Chinese investors in London are increasingly short selling gold shares as the price of the precious metal has lost about 30% of its value from a year and a half ago.

The price of gold in the city hit a low of US$1,385.70 an ounce at one point on April 15, a plunge of nearly 30% from a historic high of US$1,920.38 an ounce in September 2011, according to the Chinese-language National Business Daily, which quoted an official at the research unit of Donghai Futures.

An investment consultant at Mintai Precious Metals, a member of the Tianjin Precious Metal Exchange — one of two precious metal exchanges in China approved by the State Council — said his company was flooded with requests from investors looking to short gold. Read more of this post

Rob Arnott of Research Affiliates: Most hedge funds disappoint; Funds have underperformed at a time when they are drawing more and more money from middle class retirement accounts

Rob Arnott: Most hedge funds disappoint

By Stephen Gandel, senior editor April 19, 2013: 11:51 AM ET

Funds have underperformed at a time when they are drawing more and more money from middle class retirement accounts.

Blue bar shows what happened to the portfolios risk-adjusted returns when hedge fund were added. Source: Research Affiliates

FORTUNE — Hedge funds have been a bust.

That’s how Robert Arnott, one of the nation’s most successful investment managers, sees it. That’s also the conclusion of a piece of research posted on his firm’s website this week.

The research, which is titled “The Lure of Hedge Funds,” directly refutes one of the key claims hedge funds managers make when they try to attract investors.

“There are some outstanding hedge funds, but they are considerably outnumbered by the multitudes of lousy ones,” says Arnott, who heads Research Affiliates.

Hedge funds have traditionally been investment vehicles for the rich and universities. But in the past decade or so, they have drawn more and more money from public pensions and other accounts that hold the retirement funds of the middle class. Assets in hedge funds have more than tripled in the past decade to $2.25 trillion, according to Research Affiliates.

“The results have been a disappointment, and yet asset flows continue at an astronomical rate,” says Arnott.

Part of that has to do with the sales pitch.

On the face of it, hedge funds have had a rough go of it recently. The vast majority of funds have done worse than the market for the past four years. To add insult to injury, last year even mutual funds outperformed hedge funds, which charge much higher fees than their rivals.

But hedge fund managers and the industry in general have long contended that those criticizing the funds for not having the highest returns are missing the point. They say hedge funds achieve their investment returns with less risk. You hear of the benefits of diversification, and risk-adjusted-returns. The pro-hedge fund camp argues that when you factor in the lower risk, investing in hedge funds is a better bet than just blindly putting your money in the market.

But Arnott says that’s a bunch of baloney. Read more of this post

Jim Chanos’s New China Presentation Will Have You Convinced The Country Is Doomed For A Hard Landing

Jim Chanos’s New China Presentation Will Have You Convinced The Country Is Doomed For A Hard Landing

Sam Ro | Apr. 19, 2013, 12:26 PM | 58,050 | 14

Jim Chanos gave a devastating presentation on China at Mish Shedlock’s Wine Country Conference. Chanos has been bearish on China for quite a while.  However, his new presentation is particularly fascinating because it has some pretty graphic cartoons. “The cartoons/illustrations, gruesome/silly, as they are, are FROM Chinese sources!” said Chanos in an email to Business Insider.  “That’s why we put them in-so that people know that the media inside China is becoming more skeptical itself.”

Read more of this post

CBRC Renews Push to Regulate Wealth Management as Credit Expands

CBRC Renews Push to Regulate Wealth Management as Credit Expands

The China Banking Regulatory Commission said it will scrutinize lenders’ wealth-management and short-term note sales, control increases in bad loans and focus on debts in an attempt to limit “severe risk.” The regulator has told banks to improve the accuracy of how they classify loans, to monitor non-performing loans and to control total lending to local government financing vehicles, according to a statement posted on the CBRC website yesterday. “The authorities are serious about the whole explosion of wealth management — and they must also be concerned at the scale of credit creation,” Michael Shaoul, chairman of New York-based Marketfield Asset Management LLC, said in an e-mail. First-quarter credit creation was about $1 trillion, he said.

Chinese banks rely on wealth-management products, which pay higher rates than regulated deposits, to retain clients who are diverting savings to other investments. The sales are transforming the stable and cheap deposit base that has supported lenders into one that is “more mobile, expensive and short-term,” creating repayment risk, Fitch Ratings has warned. The outstanding balance of banks’ wealth-management products may have been 13 trillion yuan ($2.1 trillion) at the end of 2012, compared with 8.5 trillion yuan a year earlier, according to Fitch. The pace of expansion is faster than during the 2009 credit boom and is taking place through wealth management and corporate debt-issuance systems, not through the better regulated bank-loan system, Shaoul said. Read more of this post