Countries & Regions Archives - Page 214 of 374

April 7, 2013

Lessons for Australian banks: Why Risk Managers Should Be Spymasters | ProPublica

Jesse Eisinger’s interview with risk specialist John Breit highlights an issue facing Australian banks. Residential mortgages are allocated a low risk weighting — 15% to 17% because of historic performance — compared to 50% for US banks. The big four banks piled into this area because of the perceived low risk, leveraging up to 50 times capital. Risk-weighted capital ratios (around 10%) still appear healthy, but they conceal a hidden danger from the resulting housing bubble.

[Breit] despises the concept of “risk-weighted assets,” where banks put up capital based on the perceived riskiness of the assets. Inevitably, he argues, banks will “pile into” the same types of supposedly safe investments, creating bubbles that make the risks far more severe than the initial perceptions. Paradoxically, risk-weighting can leave banks setting aside the least capital to cover the biggest dangers.

“I could not be more disappointed,” he said. “The cynic in me thinks this is all in the interests of senior management and regulators to avoid blame. They may not think they can prevent the next crisis, but they then can blame the statistics.”

April 4, 2013

One Soviet Leader China Could Emulate…and it’s not Gorbachev | The Diplomat

Professor Minxin Pei analyzes the options facing the Chinese Communist Party:

…it appears that what informs the political thinking of China’s new leadership is the experience of the late-Soviet regime. In particular, three different leaders and their policies apparently weigh heavily on the minds of the new occupants of Zhongnanhai. Having endured a decade of political stagnation amid rapid economic growth, China’s new leaders are obviously not in a mood to try another version of the Brezhnev model, the essence of which is pretending to govern while doing nothing in reality. Yet, aware of the enormous risks of introducing democratic reforms into a sclerotic political system, they abhor the radical Gorbachev model even more.

Their problem is that the other roads lead to nowhere and eventually they will be forced to embrace democratic reform. Rather than rejecting the Gorbachev option, the CCP should analyze the process and look for ways to minimize the disruption. Gradual transition to a central governing council of 7 to 9 elected officials representing all major political parties, with the CCP initially holding the majority of seats, seems the lowest risk alternative.

April 4, 2013

ASX 200 warns of correction

The ASX 200 broke medium-term support at 4950, signaling the start of a correction for Australian stocks. Reversal of 21-day Twiggs Money Flow below zero confirms medium-term selling pressure.
ASX 200 Index
Initial target for a correction is the rising trendline around 4700. Even correction back to 4500 does not disrupt the primary up-trend and would present buying opportunities for investors.

* Target calculation: 5000 + ( 5000 – 4500 ) = 5500

April 3, 2013

S&P 500 and 10-year Treasury yields

The yield on 10-year Treasury Notes retreated below 2.00%. Falling bond yields indicate the expected time horizon for low short-term interest rates is lengthening — a negative reflection on the economy.

The first line of support for $TNX is 1.70%; breach would signal another attempt at 1.40%. Bullish divergence on 13-week Twiggs Momentum indicates that a base is forming and primary support is unlikely to be broken.
Nasdaq 100 Index

The S&P 500 retreated from its 2007 high at 1575.

S&P 500 Index

* Target calculation: 1530 + ( 1530 – 1485 ) = 1575

Bearish divergence on 21-day Twiggs Money Flow continues to warn of mild selling pressure. Breach of support at 1530 — and the rising trendline — would warn of a correction.
S&P 500 Index
The Russell 2000 Index is stronger, having broken clear of its 2007 high at 860. A correction that respects the new support level (860) would confirm a strong primary up-trend.
VIX Index

While there are structural flaws in the US economy, QE from the Fed has forced investors to increase risk in search of yield. The current advance shows no signs of ending.

April 2, 2013

North Korea tests the limits of a MAD world | Business Spectator

Gideon Rachman points out in Financial Times that the doctrine of mutually assured destruction (MAD), employed by the West in nuclear confrontations, assumes a rational adversary:

In many respects, North Korea has replicated some of the very worst features of Maoist China: the isolation from the outside world, the labour camps, the cult of personality and the willingness to tolerate mass starvation at home. The latter is particularly chilling, when one remembers that nuclear deterrence is meant to rely on an unwillingness to accept the death of millions of your compatriots.

April 2, 2013

Mitch McConnell Prepares To Give Barack Obama The Political Shellacking Of A Lifetime – Forbes

Ralph Benko shares an insight on US healthcare from columnist Warren Brookes on Forbes:

Brookes shared an indelible insight. He observed that it was possible to provide good health care at an affordable cost through the free market, rationing it by price. And it was possible to provide good health care at an affordable cost by the government through state agencies, rationing it by thoughtful policy. And that America had managed to create a monstrous hybrid of the two, the worst possible system: lousy care at unaffordable prices.

April 1, 2013

Has Australia hit the floor with interest rates?

Izabella Kaminska made a strong argument on FT Alphaville last year for the RBA to lower interest rates and weaken the Australian Dollar to protect manufacturing and export industries:

Australia’s current account deficit coupled with a deeply negative net external debt position both provide strong fundamental impetus for currency weakening. Should the RBA want to engineer currency depreciation, lower interest rates are likely to be more than enough. Indeed, even if interest rates decline only gradually to reflect a structurally slowing economy there are plenty of fundamental reasons for the Australian dollar to weaken.

The case for lower interest rates still holds true but the RBA is obviously concerned by signs of recovery in housing prices that could exacerbate the existing property bubble. Robert Gottliebsen at Business Spectator reports:

In less than three months the market price of a bottom of the range Meriton inner-Sydney apartment has risen 6 per cent from about $500,000 to around $530,000……According to Meriton’s Harry Triguboff, local buyers have jumped from 15 to 40 per cent of the market.

There is a solution. The RBA can lower interest rates provided it simultaneously introduces macroprudential steps similar to those being considered by the RBNZ: increase the amount of capital banks must set aside to cover potential losses from high loan to valuation ratio (LVR) home loans. That would make high LVR loans more expensive and discourage property speculation, taking some of the heat out of the housing market.

March 31, 2013

Mongolia needs better roads, schools and hospitals: so why all this talk about saving for the future? | Making development work for all

Australia could also learn from the Chilean experience of resources boom-bust cycles and adopt similar policies to those being considered by Mongolia. Gregory Smith explains:

Eric Parrado, former head of the Chilean ‘Economic and Social Stabilization Fund’, tells us that “if natural resource booms are well managed they can be a blessing” and that “an important general lesson is that governments should avoid temptation to spend significant temporary surpluses”.

March 30, 2013

When You Weren’t Looking, Democrat Bank Stooges Launch Bills to Permit Bailouts, Deregulate Derivatives « naked capitalism

Yves Smith reports on attempts to undermine the Volcker Rule and why the rule is so important:

In the US, depositors have actually been put in a worse position than Cyprus deposit-holders, at least if they are at the big banks that play in the derivatives casino. The regulators have turned a blind eye as banks use their depositaries to fund derivatives exposures. And as bad as that is, the depositors, unlike their Cypriot confreres, aren’t even senior creditors. Remember Lehman? When the investment bank failed, unsecured creditors (and remember, depositors are unsecured creditors) got eight cents on the dollar. One big reason was that derivatives counterparties require collateral for any exposures, meaning they are secured creditors. The 2005 bankruptcy reforms made derivatives counterparties senior to unsecured lenders.

March 30, 2013

‘Most of the banks are zombie banks’ | Het Financieele Dagblad

Translation from an interview by Marcel de Boer & Martin Visser with Willem Buiter, chief economist at Citgroup:

Is Europe creating zombie banks?

These already exist. Most of the banks are zombie banks. There is little new lending to businesses and households. Zombie banks will not offer credit even on good projects — that is already evident on a large scale.

Full article (in Dutch) at ‘De meeste banken zijn zombiebanken’ | Het Financieele Dagblad.