China Leverage Risks Bypass Super-Saver Households as GDP Slows

China Leverage Risks Bypass Super-Saver Households as GDP Slows

China’s campaign to rein in credit growth, a move that’s spread panic among the nation’s automobile dealers as they worry about access to financing, is a side-issue for 27-year-old lawyer Kevin Han.

Han is an archetype of Chinese workers who on average sock away 30.6 percent of their disposable income, amounting to 6.9 trillion yuan ($1.1 trillion) in total household savings in 2012, according to Louis Kuijs, chief China economist at Royal Bank of Scotland Group Plc in Hong Kong. Han’s breakfast is 5 yuan for a cup of soybean milk and a hardboiled egg or a steamed bun. He has a 20-yuan lunch of white rice, with small portions of meat and vegetables, in the cafeteria at his Beijing workplace. He spends about the same for dinner. Read more of this post

Hedge Funds Are for Suckers

Hedge Funds Are for Suckers

By Sheelah Kolhatkar on July 11, 2013

At the height of the financial crisis in 2008, a group of famous hedge fund managers was made to stand before Congress like thieves in a stockade and defend their existence to an angry public. The gilded five included George Soros, co-founder of the Quantum Fund; James Simons of Renaissance Technologies; John Paulson of Paulson & Co.; Philip Falcone of Harbinger Capital; and Kenneth Griffin of Citadel. Each man had made hundreds of millions, or billions, of dollars in the preceding years through his own form of glorified gambling, and in some cases, the investors who had poured money into their hedge funds had done OK, too. They were brought to Washington to stand up for their industry and their paychecks, and to address the question of whether their business should be more tightly regulated. They all refused to apologize for their success. They appeared untouchable.

Read more of this post

Toxic China Lake Incites Next Generation as Xi Eases GDP Focus

Toxic China Lake Incites Next Generation as Xi Eases GDP Focus

Ian Chen recalls his father quietly accepting he could no longer wade into a lake near their home in southern China where he’d swum his whole life. The raw sewage and agricultural waste spilling into the water meant it wasn’t safe anymore.

Twenty years later, Chen worries a new source of pollution may be about to envelop his hometown of Kunming. Silence wasn’t an option for the 29-year-old who sold flat-screen televisions on London’s Oxford Street before returning to Kunming, where he now owns three cake shops. He took to the Internet to drum up opposition to a refinery planned on the edge of town that residents fear will spew toxic particles. Read more of this post

China Finance Chief Lou Says 6.5% Growth Wouldn’t Pose Problem, signaling the government may tolerate a slower pace of expansion than officials have previously indicated

China Finance Chief Lou Says 6.5% Growth Wouldn’t Pose Problem

By Ye Xie – Jul 11, 2013

Chinese Finance Minister Lou Jiwei said a 6.5 percent economic-growth rate wouldn’t be a “big problem,” signaling the government may tolerate a slower pace of expansion than officials have previously indicated.

Lou, speaking yesterday at the U.S.-China Strategic and Economic Dialogue in Washington, also said he’s confident in achieving a 7 percent growth rate this year. That’s lower than the government’s 2013 target of 7.5 percent, given in March. First-half expansion was probably below 7.7 percent “but not too far from it,” he said. Read more of this post

Asia is fighting a new disease that has reduced shrimp output in Thailand as much as 40%, driving prices higher for Western restaurants and retailers.

Updated July 11, 2013, 6:44 p.m. ET

Disease Kills Shrimp Output, Pushes U.S. Prices Higher

NOPPARAT CHAICHALEARMMONGKOL in Bangkok and JULIE JARGON in Chicago

Asia is fighting a new disease that has reduced shrimp output in Thailand as much as 40%, driving prices higher for Western restaurants and retailers.

The disease appeared in Thailand, the world’s largest shrimp exporter, late last year after ravaging shrimp stocks in China in 2009 and then in Vietnam. With production plunging, shrimp prices in the U.S. have jumped 20% in recent months, according to Thailand’s leading exporter. Grocery stores and restaurant chains in the U.S. say they hope the shrimp shortage will be short-lived and manageable, though they may have to raise prices to avoid a hit to earnings. Read more of this post

Inside Thunderbird B-school’s chronic decline

Inside Thunderbird B-school’s chronic decline

July 11, 2013: 10:55 AM ET

The school, long known for its international business focus, is selling its Arizona campus to a for-profit education company, kicking up a storm of controversy.

By Taylor Ellis

(Poets&Quants) — With its 2012 fiscal budget $4 million in the red, the Thunderbird School of Global Management has agreed to grasp a sorely needed lifeline. The school, long known for its international business focus, is selling its Arizona campus to a for-profit education company. The decision has kicked up a storm of controversy. At least two board members have resigned in protest and nearly 2,000 of the school’s alumni have signed a petition contending that its agreement with Laureate Education Inc. would “cheapen the value of the [Thunderbird] degree.” “This is the end of Thunderbird as we have known it,” wrote Merle Hinrich, a director and alumnus, in his resignation letter. “The Laureate transaction is a tragedy for Thunderbird and a total windfall for Laureate.” Thomas Greer Jr., another board member who resigned, called the decision to sell Laureate a campus built with tuition funds and donations “unconscionable.” Greer vowed to no longer contribute either his time or his money to the school. Read more of this post

‘Debt peril’ awaits 1.25m UK households if rates rise

Last updated: July 11, 2013 10:15 pm

‘Debt peril’ awaits 1.25m UK households if rates rise

By Claire Jones, Economics Reporter

Up to 650,000 more UK households face “debt peril” if mortgage rates rise unexpectedly before the economy returns to full strength, a think-tank warns.

The Resolution Foundation said on Thursday that 1.25m households would have to spend half their disposable income on repayments by 2017 if the Bank of England’s official rate rose 2 percentage points higher than forecast without a recovery in wage growth. Read more of this post

Shadow financing charted in China; At least 50% of the debt on smaller developer balance sheets would be from trust financing, funding construction at initial stages which puts the company and the trust at redemption risk

Shadow financing charted in China, and a property catch-up

David Keohane

| Jul 11 11:18 | 10 comments | Share

Part of the UP SHIBOR CREEK… SERIES

You’ll note that real estate is where a significant amount of the credit apparently flows and thus quite a bit of the risk resides — property developers, particularly the small ones, have had to go begging to trust companies and underground lenders at interest rates usually in the low to mid teens and for something like 6 months to two years. The duration mismatch is pretty obvious. Read more of this post

China exports slide raises doubts about currency policy

China exports slide raises doubts about currency policy

6:41pm EDT By Pete Sweeney

SHANGHAI (Reuters) – China’s bet that it could reap the benefits of a more powerful yuan without paying a price in competitiveness is looking increasingly risky.

An unexpected slump in exports in June marked the latest worrying sign of a slowdown in the world’s second-biggest economy and raised the prospect that regulators may be forced to drag the yuan back down after a massive rally this year. Read more of this post

Loose Lips Sink Euro Bond Markets in Crisis: Cutting Research

Loose Lips Sink Euro Bond Markets in Crisis: Cutting Research

A European Central Bank paper released last week used 25,000 news media releases between January 2009 and October 2011 to investigate how much political communications affected sovereign bond yields during the region’s fiscal crisis. The ECB study focused on public pronouncements on fiscal policy and state finances by officials. It found in the short term that certain types of commentary had a quantifiable effect on the spread between the bond yields of Greece, Ireland and Portugal over German bunds. The impact was biggest for Greece. Policy makers at the regional level communicated more positively on average by using words such as “implement.” For those at the national level, the most-used word was “fail.” Read more of this post

Venture Capital: The Art of Picking the Few from the Many

Venture Capital: The Art of Picking the Few from the Many

Published in Knowledge@Wharton

Venture capital (VC) has never been a mega-industry, but many who work in the sector seem happy with the current state of affairs. VC funds raised $20.6 billion in 2012, Thomson Reuters reported, but this amount is dwarfed by the $311 billion that was raised by the private equity industry, including venture capital, in 2012, according to research firm Prequin. The sector has also had some recent ups and downs in terms of fundraising. The latest figures show that the VC industry has shrunk since raising $25.6 billion in 2008, but is recovering from the depths of the financial crisis in 2010 when fundraising fell shy of $14 billion.

Read more of this post

How Do Private Equity Firms Create Value?

How Do Private Equity Firms Create Value?

Published in Knowledge@Wharton

In the Hollywood version of a hostile takeover, the boss would grab control of a company, throw out the slackers, move into the corner office and start barking out orders. The message is, “it’s my way or the highway!”

But what makes for good drama on the screen doesn’t necessarily work in real life. When a private equity (PE) firm buys a portfolio company, it’s much more like a romance instead of a war movie. For the new partnership to work, both parties must really believe they will be better off together instead of alone. Read more of this post

Property bubble in Indonesia

Property bubble in Indonesia?

The announcement yesterday that Indonesia is planning policies to quell rising property prices against a backdrop of rising inflation comes as concerns grow over the health and stability of the real estate market, with some suggestions that a bubble is forming.

BY KARIM RASLAN –

6 HOURS 19 SEC AGO

The announcement yesterday that Indonesia is planning policies to quell rising property prices against a backdrop of rising inflation comes as concerns grow over the health and stability of the real estate market, with some suggestions that a bubble is forming.

A small two-room apartment far from the city centre in Jakarta can cost up to US$80,000 (S$101,100) — increasingly out of reach of ordinary Indonesians, an Al Jazeera report in May highlighted. Read more of this post

Thailand Needs to Invest in People, Not Rice

Thailand Needs to Invest in People, Not Rice

The search for lessons from lost economic decades has led from Japan to the U.S. to Europe. Now the spotlight turns to Thailand (SET).

This may strike some as odd, considering Thailand’s 5.3 percent growth, its young and expanding population, and the surprising level of political stability in Bangkok. In her two years leading Thailand’s 68 million people, Yingluck Shinawatra has somehow managed to tamp down the virtual civil war that led to the ouster of her prime minister brother in 2006. Read more of this post

Radical Buddhism Threatens Myanmar’s Path to Democracy

Radical Buddhism Threatens Myanmar’s Path to Democracy

Two years into its transition from dictatorship to democracy, Myanmar is finding out how dangerous freedom can be. Since June 2012, when fighting broke out between Buddhists and Muslims in western Arakan state, attacks against Myanmar’s tiny Muslim minority have spread throughout the country. More than 200 people have been killed in Buddhist-Muslim riots, and more than 150,000 rendered homeless — most of them Muslims.

Many Burmese think that former regime figures are stoking the attacks, hoping to create an excuse for the military to reassert its influence. Perhaps. Another set of Burmese leaders, however, have quite openly fueled sectarian tensions. Monks associated with the 969 movement — named after the attributes of the Buddha and Buddhism — have promoted a boycott of Muslim businesses and a ban on interfaith marriages. Some have been accused of egging on followers as they torched Muslim homes and shops. Read more of this post

Bernanke May Want to Hint At July Tapering Move Now: Scotiabank

Bernanke May Want to Hint At July Tapering Move Now: Scotiabank

07/10/2013 15:32 -0400

Via Guy Haselmann of Scotiabank,

What Bernanke Might Want to Say

In past speeches, Bernanke has said that central banks should not surprise markets.  However, he has also said that central banks should not threaten action, because the threat is then counter-productive to what they are trying to achieve under current policy.  Therefore, waiting 2.25 months until the September meeting seems impractical to me and counter to earlier speeches. Bernanke can use his speech today to bring clarity to the market, while limiting market damage.  For the reasons mentioned, he may want to hint at an earlier-than-expected tapering (say at the July meeting rather than the September meeting).  At the same time, he may want to emphasize asset purchases may continue for longer than expectations.   Of course, he will also emphasize that tapering is merely a slowing of the rate of purchases (slower easing) and that a rate increase in a long way off.  Trying to extend forward guidance at the same time that he moves forward the initial timing of tapering will help limit an adverse market reaction. One reason the Treasury market priced in a Q4 2014 rate hike – moving the first hike forward by 6 months after the June FOMC – was because the FOMC central tendencies lowered the low end of its unemployment rate forecast for end-2014 to 6.5%, which is the Fed’s target for the first rate hike.  Bernanke may wish to verbally lengthen this assessment. Bernanke may wish to say something about the revised exit strategy guidance paper (from January) that is likely to be released at the July meeting.  The original paper said that QE will likely end 6 months after the first taper and rates will be hiked 6 months after QE ends.  Bernanke may wish to hint that both of these time frames are likely to be extended.   In addition, the FOMC noticed (likely with angst) the rise in mortgage rates.  Bernanke can use this opportunity to emphasize that no Fed mortgage assets will ever be sold (but rather allow to run-off).  The first paper discussed asset sales, but Bernanke said at the June FOMC press conference that the Fed does not intend to sell any mortgages.

Background, Reasoning, and Justification

Bernanke gives a speech today in Boston beginning at 4:10 PM entitled “The First 100 Years of the Federal Reserve: The Policy Record, Lessons Learned, and Prospects for the Future”.  There will be a post-speech ‘Question & Answer’ period.  This is an ideal time for him to fine-tune the Fed’s complicated message to markets.  He can use this opportunity to send up a trial balloon for next week’s semi-annual report to Congress.  I suspect Bernanke could even have his staffers leak questions to ask to those in the audience in order to frame and direct the conversation. I believe the Fed has drifted toward acceptance of tapering because of concerns about: 1) financial instability, 2) asset bubbles and 3) amassing difficulties for its exit strategies, not because economic nirvana has been reached.  The FOMC likely recognizes that economic strength is not ideally where they would like it to be, but they understand that $85 of monthly asset purchases has a greater impact on asset prices than it does on lowering the Unemployment Rate (UR).   Therefore, I believe the decision to taper at one of the next two meeting is almost a certainty.  “Data dependency” will dictate the length and pace of QE, but will no longer delay the tapering start date past the next few months. Bernanke can site “progress” as the reason for tapering.  The UR has fallen from 8.2% to 7.6% and employment has expanded by over 200k jobs per month on average over the last 6 months.  A tapering announcement would afford the FOMC the opportunity to get all members on the same, increase their flexibility going forward, and remove it as an uncertainty overhanging markets.