Inflation may check Singapore bank profits
May 05, 2010
SINGAPORE, May 5 — Singapore banks are mostly set to post double-digit rises in quarterly earnings as loans grew and bad debts declined, but rising inflationary pressures are raising medium-term concerns that higher rates may squeeze margins.
The city-state’s banks are benefiting from a strong recovery in the domestic economy, which is projected to expand as much as 9 per cent this year, its best annual performance since 2004. Singapore’s economy shrank 2 per cent last year.
But inflation — which is expected to hit a two-year high in the fourth quarter — is also posing a risk to short-term interest rates, which hit rock bottom during the financial crisis as Asian economies battled the global financial crisis.
“The main risk is an interest rate risk — a sharp repricing of the short-end of the curve which would result in a narrowing of net interest margins,” said Peter Elston, a strategist at Aberdeen Asset Management Asia.
“That repricing of the short end would be the result of a sudden change in inflationary expectations,” said Elston. Aberdeen owns OCBC and UOB in Singapore and Public Bank in Malaysia.
Analysts are bullish about bank earnings as strong capital markets and higher trading in currencies and bonds have helped lift results at global banks that are recovering from the credit crisis.
“The market will be looking for evidence of revenue recovery and that the earnings uplift from lower loan impairments is now largely a foregone conclusion,” Natasha Midgley, an analyst at Standard Chartered, said in a note. “In light of recent newsflow, we see scope for revenue-driven earnings’ upgrades.”
NEW STRATEGY
Banks will also benefit from a strong recovery in investor demand for mutual funds and insurance products, boosting fee income.
Analysts are also looking for clues from DBS chief executive Piyush Gupta on the progress he has made in implementing his new strategy that aims to widen the Singapore bank’s reach in Asia.
JPMorgan’s Harsh Wardhan Modi said Gupta has made a promising start, but he would like to see more progress in improving DBS’s Hong Kong business and gaining bigger market share in the segment serving small-and-medium enterprises as Asian economies recover.
In Malaysia, where most analysts do not provide quarterly forecasts, Macquarie Research expects banks will report on average a 43 per cent growth in net profit for Jan-March from a year ago, amid lower bad-debt charges.
Maybank’s earnings are set to outperform this year after its last financial year was marred by big writeoffs linked to acquisitions in Indonesia and Pakistan. — Reuters
Thursday, 6 May 2010
Wednesday, 5 May 2010
US stocks dive as Greek crisis takes toll
US stocks dive as Greek crisis takes toll
May 5, 2010 - 6:35AM
Overseas markets in crash mode
The DJIA was down by 2.0 per cent, and the S&P500 down by 2.4 per cent after heavy selling on
Investors dumped US stocks in Wall Street's worst session in three months on the fear that even with a bailout for Greece, Europe's debt crisis could spread to other weak euro zone countries.
The sell-off echoed a wave of fear that gripped financial markets as investors fretted the crisis in Europe could derail the global economic recovery. A gauge of investor fear jumped more than 18 per cent.
What you need to know
The SPI was off 104 points at 4630
The Australian dollar was buying 90.89 US cents
The Reuters Jefferies CRB index fell 2.34%
Big exporters to Europe including technology and industrial companies tumbled, with Hewlett-Packard off 3.9 per cent to $US50.64 and Caterpillar down 4.6 per cent to $US66.70.
"It looks like we've got some profit-taking on early-cycle exporters, companies with a big global presence over in Europe," said Fred Dickson, chief market strategist at D.A. Davidson & Co in Lake Oswego, Oregon.
Basic materials shares tumbled as the euro hit a one-year low against the US dollar. The Reuters-Jefferies commodity index and the S&P materials index both posted their worst day since early February, sliding 2.3 per cent and 3.5 per cent, respectively.
The Dow Jones industrial average lost 225.06 points, or 2.02 per cent, to 10,926.77. The Standard & Poor's 500 Index fell 28.66 points, or 2.38 per cent, to 1173.60. The Nasdaq Composite Index dropped 74.49 points, or 2.98 per cent, to 2424.25.
The CBOE Volatility Index, Wall Street's so-called fear gauge, finished up 18.1 per cent at 23.84 points, its highest closing level in three months.
Airline shares were hard hit, with the Arca Airline Index shedding 5.39 per cent after a recent run-up.
Despite the S&P 500's steep fall, the benchmark did not break major technical support except for a short-term bottom at 1181 on the S&P 500, the intraday low hit last week.
"For initial support most people are watching the 50-day moving average, which is at 1168," said John Schlitz, chief US market technician at Instinet in New York.
Encouraging US economic data on manufacturing and housing failed to provide a floor to the market. Reports showed new orders received by US factories in March unexpectedly increased and pending home sales rose to a five-month high.
On the upside, better-than expected earnings from drug makers Merck & Co Inc and Pfizer Inc boosted those shares by about 2 per cent each.
About 12 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, more than last year's estimated daily average of 9.65 billion.
Declining stocks outnumbered advancing ones on the NYSE by a ratio of about 6 to 1, while on the Nasdaq, about 29 stocks fell for every five that rose.
Reuters
http://www.smh.com.au/business/markets/us-stocks-dive-as-greek-crisis-takes-toll-20100505-u7o3.html
May 5, 2010 - 6:35AM
Overseas markets in crash mode
The DJIA was down by 2.0 per cent, and the S&P500 down by 2.4 per cent after heavy selling on
Investors dumped US stocks in Wall Street's worst session in three months on the fear that even with a bailout for Greece, Europe's debt crisis could spread to other weak euro zone countries.
The sell-off echoed a wave of fear that gripped financial markets as investors fretted the crisis in Europe could derail the global economic recovery. A gauge of investor fear jumped more than 18 per cent.
What you need to know
The SPI was off 104 points at 4630
The Australian dollar was buying 90.89 US cents
The Reuters Jefferies CRB index fell 2.34%
Big exporters to Europe including technology and industrial companies tumbled, with Hewlett-Packard off 3.9 per cent to $US50.64 and Caterpillar down 4.6 per cent to $US66.70.
"It looks like we've got some profit-taking on early-cycle exporters, companies with a big global presence over in Europe," said Fred Dickson, chief market strategist at D.A. Davidson & Co in Lake Oswego, Oregon.
Basic materials shares tumbled as the euro hit a one-year low against the US dollar. The Reuters-Jefferies commodity index and the S&P materials index both posted their worst day since early February, sliding 2.3 per cent and 3.5 per cent, respectively.
The Dow Jones industrial average lost 225.06 points, or 2.02 per cent, to 10,926.77. The Standard & Poor's 500 Index fell 28.66 points, or 2.38 per cent, to 1173.60. The Nasdaq Composite Index dropped 74.49 points, or 2.98 per cent, to 2424.25.
The CBOE Volatility Index, Wall Street's so-called fear gauge, finished up 18.1 per cent at 23.84 points, its highest closing level in three months.
Airline shares were hard hit, with the Arca Airline Index shedding 5.39 per cent after a recent run-up.
Despite the S&P 500's steep fall, the benchmark did not break major technical support except for a short-term bottom at 1181 on the S&P 500, the intraday low hit last week.
"For initial support most people are watching the 50-day moving average, which is at 1168," said John Schlitz, chief US market technician at Instinet in New York.
Encouraging US economic data on manufacturing and housing failed to provide a floor to the market. Reports showed new orders received by US factories in March unexpectedly increased and pending home sales rose to a five-month high.
On the upside, better-than expected earnings from drug makers Merck & Co Inc and Pfizer Inc boosted those shares by about 2 per cent each.
About 12 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, more than last year's estimated daily average of 9.65 billion.
Declining stocks outnumbered advancing ones on the NYSE by a ratio of about 6 to 1, while on the Nasdaq, about 29 stocks fell for every five that rose.
Reuters
http://www.smh.com.au/business/markets/us-stocks-dive-as-greek-crisis-takes-toll-20100505-u7o3.html
The depressing lessons of history, ignored: it is the market cannot be left to regulate itself.
The depressing lessons of history, ignored
MARK CROSBY
May 5, 2010
If experience has taught us anything, it is the market cannot be left to regulate itself.
ONE might think that as an economist I would have great faith in markets and market systems. But in my view the most important part of my training as an economist was aimed at working out under what conditions markets fail - and what to do about them.
Most economists are in agreement that markets, if left alone, will not work very well. Natural monopolies and pollution problems require regulation or perhaps public provision to help the market along. Most economists, myself included, regard financial markets as subject to important forms of market failure. Banks have a bad history of failing, and creating significant problems for the wider economy when they do, and so regulation to strengthen that industry is an important part of an economy's legal infrastructure.
Even in the US this view of the importance of regulating finance was dominant after the Great Depression. During the Depression thousands of banks failed, prolonging and deepening the downturn. While most of the world economy was in recovery from the Great Depression in 1933, the number of bank failures in the US that year extended it there for several more years.
Subsequent changes to financial systems meant that banks and finance were very stable until the deregulation in many economies that began in the early 1980s. Much of this deregulation was a good thing, promoting more competition for example, but in some cases deregulation went too far. The first post-Depression failure in the US occurred shortly after financial market deregulation had begun, with widespread problems and failures in the savings and loan sector.
There have also been problems with particular financial products related to deregulation. In the mid-1980s, many banks in Australia offered their customers ''cheap'' Swiss franc loans. At a time when interest rates in Australia were well into double digits, farmers and many small-business customers were encouraged to borrow overseas at lower rates in francs.
Economic theory would suggest that higher interest rates in Australia tend to predict a weakening Australian dollar. In this case theory was right and a halving of the value of the Aussie in the space of a year resulted in a doubling of the principal outstanding for borrowers in $A terms. This could have bankrupted many, but legal cases against the banks resulted in the banks wearing large losses, rather than their customers.
The key issue in the lawsuits was the fact customers were not properly advised of the risks involved in taking out a foreign-currency loan.
Around this time, Bankers Trust in the US was being sued by four of its customers over losses related to derivatives products.
One was Proctor&Gamble, whose chairman at the time said: ''There is a notion that end-users of derivatives must be held accountable for what they buy. We agree completely, but only if the terms and risks are fully and accurately disclosed. The issue here is Bankers Trust's selling practices.'' In the end all four suits against Bankers Trust were settled out of court and it was forced to write off more than $100 million in derivatives payments owed to it.
The Swiss loan episode and other problems in the mortgage market in Australia in the early 1990s led to stronger regulation regarding protection of customers purchasing financial products - borrowers are required to acknowledge that they understand the terms of their mortgages. As a result, mortgages in Australia tend to be quite simple and Australian banks have not been in difficulties such as those now faced by Goldman Sachs due to the creation and promotion of overly complicated derivative products.
The US has pursued further deregulation since the 1980s. Alan Greenspan as chairman of the Federal Reserve was famous for arguing that the market would resolve potential problems. In a sense Greenspan was right, but the cost of the market solution has been enormous. The lack of regulation in the US mortgage market led to foreclosures and the housing meltdown.
The lack of customer protections has enabled financial firms to sell more and more complicated products to customers. The sophistication of these products has caught out not only customers, but even many sophisticated financial market players, such as the ratings agencies.
Goldman Sachs has claimed to a US Senate committee that it is only a ''market maker'', creating liquidity and prices for financial market products. The problem with that is that Goldman is the creator of the product - it is very easy to make money if an institution that is trusted creates a dodgy product to sell to unsuspecting customers and sets up a side scheme that makes money when the dodgy product fails. This is not market-making but making a market that is designed to fail.
The US in particular needs much more consumer-friendly legislation. Proposed changes to Australian regulations in the area of superannuation that more strongly protect consumers are to be encouraged. It is all very well to make a market, but some markets ought not to be made in the first place.
Mark Crosby is associate professor and associate dean, international, at the Melbourne Business School, University of Melbourne.
Source: The Age
http://www.smh.com.au/business/the-depressing-lessons-of-history-ignored-20100504-u7b7.html
MARK CROSBY
May 5, 2010
If experience has taught us anything, it is the market cannot be left to regulate itself.
ONE might think that as an economist I would have great faith in markets and market systems. But in my view the most important part of my training as an economist was aimed at working out under what conditions markets fail - and what to do about them.
Most economists are in agreement that markets, if left alone, will not work very well. Natural monopolies and pollution problems require regulation or perhaps public provision to help the market along. Most economists, myself included, regard financial markets as subject to important forms of market failure. Banks have a bad history of failing, and creating significant problems for the wider economy when they do, and so regulation to strengthen that industry is an important part of an economy's legal infrastructure.
Even in the US this view of the importance of regulating finance was dominant after the Great Depression. During the Depression thousands of banks failed, prolonging and deepening the downturn. While most of the world economy was in recovery from the Great Depression in 1933, the number of bank failures in the US that year extended it there for several more years.
Subsequent changes to financial systems meant that banks and finance were very stable until the deregulation in many economies that began in the early 1980s. Much of this deregulation was a good thing, promoting more competition for example, but in some cases deregulation went too far. The first post-Depression failure in the US occurred shortly after financial market deregulation had begun, with widespread problems and failures in the savings and loan sector.
There have also been problems with particular financial products related to deregulation. In the mid-1980s, many banks in Australia offered their customers ''cheap'' Swiss franc loans. At a time when interest rates in Australia were well into double digits, farmers and many small-business customers were encouraged to borrow overseas at lower rates in francs.
Economic theory would suggest that higher interest rates in Australia tend to predict a weakening Australian dollar. In this case theory was right and a halving of the value of the Aussie in the space of a year resulted in a doubling of the principal outstanding for borrowers in $A terms. This could have bankrupted many, but legal cases against the banks resulted in the banks wearing large losses, rather than their customers.
The key issue in the lawsuits was the fact customers were not properly advised of the risks involved in taking out a foreign-currency loan.
Around this time, Bankers Trust in the US was being sued by four of its customers over losses related to derivatives products.
One was Proctor&Gamble, whose chairman at the time said: ''There is a notion that end-users of derivatives must be held accountable for what they buy. We agree completely, but only if the terms and risks are fully and accurately disclosed. The issue here is Bankers Trust's selling practices.'' In the end all four suits against Bankers Trust were settled out of court and it was forced to write off more than $100 million in derivatives payments owed to it.
The Swiss loan episode and other problems in the mortgage market in Australia in the early 1990s led to stronger regulation regarding protection of customers purchasing financial products - borrowers are required to acknowledge that they understand the terms of their mortgages. As a result, mortgages in Australia tend to be quite simple and Australian banks have not been in difficulties such as those now faced by Goldman Sachs due to the creation and promotion of overly complicated derivative products.
The US has pursued further deregulation since the 1980s. Alan Greenspan as chairman of the Federal Reserve was famous for arguing that the market would resolve potential problems. In a sense Greenspan was right, but the cost of the market solution has been enormous. The lack of regulation in the US mortgage market led to foreclosures and the housing meltdown.
The lack of customer protections has enabled financial firms to sell more and more complicated products to customers. The sophistication of these products has caught out not only customers, but even many sophisticated financial market players, such as the ratings agencies.
Goldman Sachs has claimed to a US Senate committee that it is only a ''market maker'', creating liquidity and prices for financial market products. The problem with that is that Goldman is the creator of the product - it is very easy to make money if an institution that is trusted creates a dodgy product to sell to unsuspecting customers and sets up a side scheme that makes money when the dodgy product fails. This is not market-making but making a market that is designed to fail.
The US in particular needs much more consumer-friendly legislation. Proposed changes to Australian regulations in the area of superannuation that more strongly protect consumers are to be encouraged. It is all very well to make a market, but some markets ought not to be made in the first place.
Mark Crosby is associate professor and associate dean, international, at the Melbourne Business School, University of Melbourne.
Source: The Age
http://www.smh.com.au/business/the-depressing-lessons-of-history-ignored-20100504-u7b7.html
The risks of buying into IPOs
Wednesday May 5, 2010
The risks of buying into IPOs
Personal Investing - By Ooi Kok Hwa
Investors may not necessarily make quick gains from share offerings
AS our economic outlook is getting more promising, there are growing interests from companies to list on Bursa Malaysia.
However, despite the higher number of initial public offerings (IPOs) and bigger, broad trading volumes lately, we noticed that the general public’s buying interest, especially of retail investors, in recent IPOs remains low.
If we were to scrutinise IPO prospectuses, we will seldom come across one that states the main purpose of the company seeking to go public is to share its profits with the investors. Instead, most companies would want the investors to share the risks involved in running the companies.
Hence, more often than not, the first few sections of the prospectuses will highlight all the risks involved in buying into those IPOs.
Investors need to understand that buying into IPOs does not necessarily mean investors can make quick gains. Sometimes, they may need to hold on to those investments for medium to long term.
There are two main types of share offerings:
Public issues involve companies issuing new shares to investors and the money raised will be channelled into reducing companies’ borrowings or used for future expansion.
As for offer for sale of stock, the shares that investors subscribe to are from existing company owners. Therefore, the money raised from the new investors will be channelled to existing owners, which also means the existing owners will have cashed out a portion of their investments in those companies.
The Table shows how the owners of a listed company, Company A, are able to get back their original investment through an IPO. The total shareholders’ funds of RM800mil represent the total original investment cost of Company A’s existing owners.
Let’s assume Company A offers 25% of its shares to the general public (line f) and the type of offering is offer for sale. If the IPO price to book value per share is about four times (line e), the offer for sale of 25% of its outstanding shares will allow the existing owners to recoup all of their initial capital invested in the company (Line g, h and i).
Even though this does not imply that Company A is not able to perform in future, investors need to understand that the remaining 75% of the shares or 1,534 million (0.75 x 2,045 million shares) owned by the existing owners are in effect “free” to them.
If Company A is fundamentally strong with good future prospects, then investors should not be too worried about the existing owners cashing out.
However, if the fundamentals of Company A start to deteriorate, investors need to be extra careful as the remaining 75% of the shares owned by the existing owners are now costless to them. Under such circumstances, every share the existing owners manage to sell into the market, regardless of the price, is extra gain for the owners.
Therefore, the existing owners can afford to sell the shares at any price they wish. However, if the price is below what retail investors had paid, it will mean a loss to them.
● Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.
http://biz.thestar.com.my/news/story.asp?file=/2010/5/5/business/6190058&sec=business
The risks of buying into IPOs
Personal Investing - By Ooi Kok Hwa
Investors may not necessarily make quick gains from share offerings
AS our economic outlook is getting more promising, there are growing interests from companies to list on Bursa Malaysia.
However, despite the higher number of initial public offerings (IPOs) and bigger, broad trading volumes lately, we noticed that the general public’s buying interest, especially of retail investors, in recent IPOs remains low.
If we were to scrutinise IPO prospectuses, we will seldom come across one that states the main purpose of the company seeking to go public is to share its profits with the investors. Instead, most companies would want the investors to share the risks involved in running the companies.
Hence, more often than not, the first few sections of the prospectuses will highlight all the risks involved in buying into those IPOs.
Investors need to understand that buying into IPOs does not necessarily mean investors can make quick gains. Sometimes, they may need to hold on to those investments for medium to long term.
There are two main types of share offerings:
- public issue and
- offer for sale.
Public issues involve companies issuing new shares to investors and the money raised will be channelled into reducing companies’ borrowings or used for future expansion.
As for offer for sale of stock, the shares that investors subscribe to are from existing company owners. Therefore, the money raised from the new investors will be channelled to existing owners, which also means the existing owners will have cashed out a portion of their investments in those companies.
Let’s assume Company A offers 25% of its shares to the general public (line f) and the type of offering is offer for sale. If the IPO price to book value per share is about four times (line e), the offer for sale of 25% of its outstanding shares will allow the existing owners to recoup all of their initial capital invested in the company (Line g, h and i).
Even though this does not imply that Company A is not able to perform in future, investors need to understand that the remaining 75% of the shares or 1,534 million (0.75 x 2,045 million shares) owned by the existing owners are in effect “free” to them.
If Company A is fundamentally strong with good future prospects, then investors should not be too worried about the existing owners cashing out.
However, if the fundamentals of Company A start to deteriorate, investors need to be extra careful as the remaining 75% of the shares owned by the existing owners are now costless to them. Under such circumstances, every share the existing owners manage to sell into the market, regardless of the price, is extra gain for the owners.
Therefore, the existing owners can afford to sell the shares at any price they wish. However, if the price is below what retail investors had paid, it will mean a loss to them.
● Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.
http://biz.thestar.com.my/news/story.asp?file=/2010/5/5/business/6190058&sec=business
Another View: Market Makers or Market Gamers?
INVESTMENT BANKING
Another View: Market Makers or Market Gamers?
May 4, 2010, 1:56 PM
Michael Stumm, the chief executive of Oanda, argues that weak requirements on transparency and disclosure have enabled a conflict-of-interest culture to dominate the financial industry.
Now that the securities fraud investigation of Goldman Sachs has reached the Justice Department, the financial industry has hit a new low in public opinion. It’s never been easier to hate the banks.
The leaders of governments around the world have taken note and are using this anger to court favor with voters. Naturally, they’re pushing for greater legislative control over the banking system.
It remains to be seen if Goldman Sachs did knowingly and fraudulently sell junk securities to unsuspecting clients, or if, as Goldman contends, the firm did nothing wrong in the mortgage-related deal and provided proper disclosure. I would argue that the final outcome of the Securities and Exchange Commission’s civil fraud suit matters little. The fact that an American regulator is questioning the trustworthiness of a sterling Wall Street firm means we’ve already crossed the Rubicon.
There is no doubt that serious changes are coming. They will be expensive and complicated, and they may not even fix the problems they’re intended to solve. And when these changes come, we in the industry will have no one to blame but ourselves. It may be trite to say this now, but it did not have to be this way.
Most of the world’s leading industrialized countries, with the notable exception of Canada and Japan, have come out in support of new fees and taxes for the banking system. One such idea is the “Tobin tax,” which would attach a fee to every financial transaction. Another is set out in a document recently leaked from the International Monetary Fund, which advocates for two new taxes on the banking system. Money from these would pay for a potential future economic crisis.
To our industry’s discredit, some of the largest names in the business have earned reputations for relying on questionable practices to make oversized profits. As President Obama warned in his recent address to Wall Street, if your business model is based on bilking your customers, it is time to change how you do business.
Transparency is the distinction between making a deal or a market, and gaming a deal or a market. A business that shows its customers how things work behind the scenes is able to prove its operations are honest. Transparency ultimately equates to fairness.
There are times when a market maker must take the opposite side of a client’s position to ensure an active market. However, this should be accomplished through technology that automates the process to ensure there is no conscious manipulation to bet against clients. If the firm offering the security holds a position — or if any affiliated entity holds a position — this information must be made available to the prospective buyer. Full disclosure with respect to the underlying securities must also be published.
In the case against Goldman Sachs, the S.E.C. contends the firm deliberately suppressed information about the quality of the underlying securities and did not disclose that the hedge fund firm Paulson & Company was taking a short position. If true, it means Wall Street’s most respected investment bank sold a product to clients at worse odds than if those clients walked into a casino and bet their money on a single spin of a roulette wheel — worse odds because casinos at least acknowledge to their patrons that the odds are stacked in favor of the house.
It is shameful that the investment industry has been reduced to deliberate attempts to prey on the vulnerabilities of investors in order to profit. Gone are the days, it seems, when banks and investment firms operated on principles of adding value to the investment process. Now these firms make the majority of their profits through proprietary, or “prop,” trading, in which in-house traders conduct transactions on behalf of the firm. This is an inherent conflict of interest that has propagated a new operating philosophy based on making money any way possible, even if it means taking advantage of your client.
The weak requirements around transparency and disclosure have enabled this new culture to dominate the industry. But I can tell you firsthand that fairness and profit need not be mutually exclusive. Oanda’s core value is transparency, so we publish open and short positions for each supported currency pair on our foreign-exchange trading platform. These are positions held by actual clients, and having access to this information makes it possible for traders to gauge real market sentiment.
In contrast, those who attempt to profit by gaming the market will obfuscate the truth — or purposely misrepresent facts — to prevent customers from making informed decisions. Too many market makers fall prey to this temptation. They increase their rate of “wins” over clients by hiding information or using technology in what I can only describe as a perverse way.
The investment industry continues to concentrate development efforts more on creating advantages for themselves, rather than committing to an efficient market. There is a technology “arms race” under way on Wall Street, as evidenced by the adoption of high-frequency trading that favors those with the largest information technology budgets. Deals with exchanges that allow for an early look at market prices or the creation of dark pools that hide the trading activity of the large firms have served only to put smaller traders at a disadvantage.
Transparency and fairness for all market participants? Hardly.
Such government moves as extracting new taxes and taking aim at executive bonuses, while undoubtedly proving immensely popular with a jaded public, detract from the main issue. Though it may sound naïve and even a bit simplistic, what is needed is greater transparency to force a change in the way business is conducted. While it is impossible to mandate “fairness” as a business requirement, transparency can be both legislated and measured, and this will do more to level the field than any other administrative requirement.
The current investigation against Goldman Sachs is still in the early stages, but the damage to the industry’s reputation has already taken its toll. I remain optimistic however, that the day is coming when transparency is seen by financial executives as a competitive goal to strive for, rather than something to avoid.
Michael Stumm is the chief executive of the Oanda Corporation, a provider of online foreign currency exchange trading and services and the source of the currency rates used by leading institutions including PricewaterhouseCoopers, Ernst & Young and KPMG.
http://dealbook.blogs.nytimes.com/2010/05/04/another-view-market-makers-or-market-gamers/?ref=business
Another View: Market Makers or Market Gamers?
May 4, 2010, 1:56 PM
Michael Stumm, the chief executive of Oanda, argues that weak requirements on transparency and disclosure have enabled a conflict-of-interest culture to dominate the financial industry.
Now that the securities fraud investigation of Goldman Sachs has reached the Justice Department, the financial industry has hit a new low in public opinion. It’s never been easier to hate the banks.
The leaders of governments around the world have taken note and are using this anger to court favor with voters. Naturally, they’re pushing for greater legislative control over the banking system.
It remains to be seen if Goldman Sachs did knowingly and fraudulently sell junk securities to unsuspecting clients, or if, as Goldman contends, the firm did nothing wrong in the mortgage-related deal and provided proper disclosure. I would argue that the final outcome of the Securities and Exchange Commission’s civil fraud suit matters little. The fact that an American regulator is questioning the trustworthiness of a sterling Wall Street firm means we’ve already crossed the Rubicon.
There is no doubt that serious changes are coming. They will be expensive and complicated, and they may not even fix the problems they’re intended to solve. And when these changes come, we in the industry will have no one to blame but ourselves. It may be trite to say this now, but it did not have to be this way.
Most of the world’s leading industrialized countries, with the notable exception of Canada and Japan, have come out in support of new fees and taxes for the banking system. One such idea is the “Tobin tax,” which would attach a fee to every financial transaction. Another is set out in a document recently leaked from the International Monetary Fund, which advocates for two new taxes on the banking system. Money from these would pay for a potential future economic crisis.
To our industry’s discredit, some of the largest names in the business have earned reputations for relying on questionable practices to make oversized profits. As President Obama warned in his recent address to Wall Street, if your business model is based on bilking your customers, it is time to change how you do business.
Transparency is the distinction between making a deal or a market, and gaming a deal or a market. A business that shows its customers how things work behind the scenes is able to prove its operations are honest. Transparency ultimately equates to fairness.
There are times when a market maker must take the opposite side of a client’s position to ensure an active market. However, this should be accomplished through technology that automates the process to ensure there is no conscious manipulation to bet against clients. If the firm offering the security holds a position — or if any affiliated entity holds a position — this information must be made available to the prospective buyer. Full disclosure with respect to the underlying securities must also be published.
In the case against Goldman Sachs, the S.E.C. contends the firm deliberately suppressed information about the quality of the underlying securities and did not disclose that the hedge fund firm Paulson & Company was taking a short position. If true, it means Wall Street’s most respected investment bank sold a product to clients at worse odds than if those clients walked into a casino and bet their money on a single spin of a roulette wheel — worse odds because casinos at least acknowledge to their patrons that the odds are stacked in favor of the house.
It is shameful that the investment industry has been reduced to deliberate attempts to prey on the vulnerabilities of investors in order to profit. Gone are the days, it seems, when banks and investment firms operated on principles of adding value to the investment process. Now these firms make the majority of their profits through proprietary, or “prop,” trading, in which in-house traders conduct transactions on behalf of the firm. This is an inherent conflict of interest that has propagated a new operating philosophy based on making money any way possible, even if it means taking advantage of your client.
The weak requirements around transparency and disclosure have enabled this new culture to dominate the industry. But I can tell you firsthand that fairness and profit need not be mutually exclusive. Oanda’s core value is transparency, so we publish open and short positions for each supported currency pair on our foreign-exchange trading platform. These are positions held by actual clients, and having access to this information makes it possible for traders to gauge real market sentiment.
In contrast, those who attempt to profit by gaming the market will obfuscate the truth — or purposely misrepresent facts — to prevent customers from making informed decisions. Too many market makers fall prey to this temptation. They increase their rate of “wins” over clients by hiding information or using technology in what I can only describe as a perverse way.
The investment industry continues to concentrate development efforts more on creating advantages for themselves, rather than committing to an efficient market. There is a technology “arms race” under way on Wall Street, as evidenced by the adoption of high-frequency trading that favors those with the largest information technology budgets. Deals with exchanges that allow for an early look at market prices or the creation of dark pools that hide the trading activity of the large firms have served only to put smaller traders at a disadvantage.
Transparency and fairness for all market participants? Hardly.
Such government moves as extracting new taxes and taking aim at executive bonuses, while undoubtedly proving immensely popular with a jaded public, detract from the main issue. Though it may sound naïve and even a bit simplistic, what is needed is greater transparency to force a change in the way business is conducted. While it is impossible to mandate “fairness” as a business requirement, transparency can be both legislated and measured, and this will do more to level the field than any other administrative requirement.
The current investigation against Goldman Sachs is still in the early stages, but the damage to the industry’s reputation has already taken its toll. I remain optimistic however, that the day is coming when transparency is seen by financial executives as a competitive goal to strive for, rather than something to avoid.
Michael Stumm is the chief executive of the Oanda Corporation, a provider of online foreign currency exchange trading and services and the source of the currency rates used by leading institutions including PricewaterhouseCoopers, Ernst & Young and KPMG.
http://dealbook.blogs.nytimes.com/2010/05/04/another-view-market-makers-or-market-gamers/?ref=business
Spanish stocks fall 5%
Spanish stocks fall 5%
May 5, 2010 - 7:54AM
AFP
The Spanish stock market plunged more than 5.0 per cent on Tuesday on investor fears the Greek debt crisis could spread to other eurozone countries - such as Spain - struggling to contain public deficits.
The benchmark Ibex-35 share index shed 5.41 per cent led by losses in banking stocks amid concern that Spain could be hit with fresh credit downgrades following a cut by Standard & Poor's last week.
The stock market was also hit by market rumours that Spain would ask for 280 billion euros ($A398.58 billion) in aid from the International Monetary Fund, which were dismissed by Spanish Prime Minister Jose Luis Rodriguez Zapatero as "absolute madness".
"These rumours are intolerable," he told a news conference in Brussels.
The head of the OECD meanwhile insisted that the situation in Greece was not comparable to that in Spain or another eurozone state seen as vulnerable, Portugal.
On Sunday, European nations endorsed an unprecedented 110-billion-euro ($A157.62 billion) bailout package to save Greece from bankruptcy and shore up the euro single currency.
Both the Moody's and Fitch agencies said Tuesday they were not reevaluating their rating for Spain, which is currently AAA, the highest possible rating.
"At the moment that I am speaking to you, the rating for Spain is still triple A, with a stable outlook," a Fitch spokeswoman told AFP in Paris.
S&P on Wednesday lowered Spain's long-term sovereign credit rating to AA from AA+ amid fears its recession could further weaken its public finances.
The move on Spain came one day after it cut Portugal's long-term credit rating by two notches and reduced Greece's rating the junk status, the first eurozone country rated less than investment grade since the launch of the euro.
Spain, which has the eurozone's third-largest deficit after Ireland and Greece, was last cut by S&P in January 2009 when its credit rating was lowered one notch from AAA.
Markets are especially sensitive to Spain's fiscal situation because of the size of its economy, which is Europe's fifth largest. European banks also have far greater exposure to Spanish debt than to Greek or Portuguese debt.
While Greece's public deficit was equal to 13.6 per cent of its gross domestic product (GDP) last year, in Spain it was 11.2 per cent.
Greece's debt-to-GDP ratio is 115.1 per cent, compared to just 53.2 per cent in Spain.
Spain will on Thursday issue five-year bonds with a proposed interest rate of 3.0 per cent that will expire on April 30, 2015. It hopes to raise at least two billion euros.
© 2010 AFP
http://news.smh.com.au/breaking-news-business/spanish-stocks-fall-5-20100505-u7t6.html
May 5, 2010 - 7:54AM
AFP
The Spanish stock market plunged more than 5.0 per cent on Tuesday on investor fears the Greek debt crisis could spread to other eurozone countries - such as Spain - struggling to contain public deficits.
The benchmark Ibex-35 share index shed 5.41 per cent led by losses in banking stocks amid concern that Spain could be hit with fresh credit downgrades following a cut by Standard & Poor's last week.
The stock market was also hit by market rumours that Spain would ask for 280 billion euros ($A398.58 billion) in aid from the International Monetary Fund, which were dismissed by Spanish Prime Minister Jose Luis Rodriguez Zapatero as "absolute madness".
"These rumours are intolerable," he told a news conference in Brussels.
The head of the OECD meanwhile insisted that the situation in Greece was not comparable to that in Spain or another eurozone state seen as vulnerable, Portugal.
On Sunday, European nations endorsed an unprecedented 110-billion-euro ($A157.62 billion) bailout package to save Greece from bankruptcy and shore up the euro single currency.
Both the Moody's and Fitch agencies said Tuesday they were not reevaluating their rating for Spain, which is currently AAA, the highest possible rating.
"At the moment that I am speaking to you, the rating for Spain is still triple A, with a stable outlook," a Fitch spokeswoman told AFP in Paris.
S&P on Wednesday lowered Spain's long-term sovereign credit rating to AA from AA+ amid fears its recession could further weaken its public finances.
The move on Spain came one day after it cut Portugal's long-term credit rating by two notches and reduced Greece's rating the junk status, the first eurozone country rated less than investment grade since the launch of the euro.
Spain, which has the eurozone's third-largest deficit after Ireland and Greece, was last cut by S&P in January 2009 when its credit rating was lowered one notch from AAA.
Markets are especially sensitive to Spain's fiscal situation because of the size of its economy, which is Europe's fifth largest. European banks also have far greater exposure to Spanish debt than to Greek or Portuguese debt.
While Greece's public deficit was equal to 13.6 per cent of its gross domestic product (GDP) last year, in Spain it was 11.2 per cent.
Greece's debt-to-GDP ratio is 115.1 per cent, compared to just 53.2 per cent in Spain.
Spain will on Thursday issue five-year bonds with a proposed interest rate of 3.0 per cent that will expire on April 30, 2015. It hopes to raise at least two billion euros.
© 2010 AFP
http://news.smh.com.au/breaking-news-business/spanish-stocks-fall-5-20100505-u7t6.html
Why you should worry about Greece
Why you should worry about Greece
GREG HOFFMAN
May 3, 2010
A glance at a chart of the All Ordinaries index since its March 2009 low gives a fair indication that worrying is not currently on the agenda for most investors. ''Stocks are going up,'' they might observe of the 50 per cent rise, ''now's the time to buy.''
''Stocks have already gone up,'' we might reply at The Intelligent Investor. And as our former editor James Carlisle likes to remind people, stocks have no mass and therefore cannot have ''momentum'' in the scientific sense.
Small, regular gains can be easily stripped away by downward ''gaps'' in price; such as that experienced last week by investors in popular biotech stock Biota, which saw its stock fall sharply after investors were disappointed with the latest royalty payments relating to its anti-flu drug, Relenza.
It's important that we don't become complacent following a year of strong gains. And our team has many things on its worry list. One of those is a potential sovereign debt explosion. We saw wobbles in Dubai late last year and Greece is currently making plenty of headlines.
''The Greek debt crisis is now morphing into something much broader,'' wrote Mohamed El-Erian in the Financial Times recently.
El-Erian is chief executive and co-chief investment officer of Pimco, the world's largest bond investor. That alone would make his thoughts on the topic noteworthy. The fact that he is also a former deputy director of the International Monetary Fund (and was put forward as a potential managing director of the IMF in 2004) provides even more weight to his insights.
''Markets are now catching up to the reality of over-burdened public finances in the aftermath of the global financial crisis,'' El-Erian explained.
''These developments are of particular concern to countries with elevated debt levels and challenging maturity profiles for this debt. Indeed, absent some dramatic change in sentiment, they will need to worry not only about their ability to mobilise new funding from the private sector at reasonable cost, but also about keeping their existing creditors on board.''
He then stated his view of the likely next steps in this messy situation: ''As a result, credit downgrades will multiply. And once a package is approved for Greece, there will be questions as to whether similar packages can be secured for other vulnerable countries in the European Union.''
Eye-catching insight
Those comments are usefully succinct but not particularly out of the mainstream. What caught my eye in the same piece was the following insight:
''...the disorderly market moves of recent days will place even greater pressure on the balance sheets of Greek banks and their counterparties in Europe and elsewhere. The already material risks of disorderly bank deposit outflows and capital flights are increasing. The bottom line is simple yet consequential: the Greek debt crisis has morphed into something that is potentially more sinister for Europe and the global economy. What started out as a public finance issue is quickly turning into a banking problem too; and, what started out as a Greek issue has become a full-blown crisis for Europe.''
With substantial action from the European Union and the IMF, these ructions may prove a sideshow for Australian investors (as did last year's concerns about Dubai). But if El-Erian's fears prove well founded, we may be at the start of something much more serious.
The key point is that there are substantial risks in the global economy and it is foolish to ignore them. And, on a related note, over the past two years we've seen just how vulnerable our Aussie dollar can be to a loss of confidence.
Perhaps we're now firmly locked in to a Chinese ''growth miracle'' and our currency has found a new, permanently high plateau. But if that's not the case, now might prove an advantageous time to add some well-chosen international exposure to your portfolio.
This article contains general investment advice only (under AFSL 282288).
Greg Hoffman is research director of The Intelligent Investor
http://www.smh.com.au/business/why-you-should-worry-about-greece-20100503-u2s0.html
GREG HOFFMAN
May 3, 2010
A glance at a chart of the All Ordinaries index since its March 2009 low gives a fair indication that worrying is not currently on the agenda for most investors. ''Stocks are going up,'' they might observe of the 50 per cent rise, ''now's the time to buy.''
''Stocks have already gone up,'' we might reply at The Intelligent Investor. And as our former editor James Carlisle likes to remind people, stocks have no mass and therefore cannot have ''momentum'' in the scientific sense.
Small, regular gains can be easily stripped away by downward ''gaps'' in price; such as that experienced last week by investors in popular biotech stock Biota, which saw its stock fall sharply after investors were disappointed with the latest royalty payments relating to its anti-flu drug, Relenza.
It's important that we don't become complacent following a year of strong gains. And our team has many things on its worry list. One of those is a potential sovereign debt explosion. We saw wobbles in Dubai late last year and Greece is currently making plenty of headlines.
''The Greek debt crisis is now morphing into something much broader,'' wrote Mohamed El-Erian in the Financial Times recently.
El-Erian is chief executive and co-chief investment officer of Pimco, the world's largest bond investor. That alone would make his thoughts on the topic noteworthy. The fact that he is also a former deputy director of the International Monetary Fund (and was put forward as a potential managing director of the IMF in 2004) provides even more weight to his insights.
''Markets are now catching up to the reality of over-burdened public finances in the aftermath of the global financial crisis,'' El-Erian explained.
''These developments are of particular concern to countries with elevated debt levels and challenging maturity profiles for this debt. Indeed, absent some dramatic change in sentiment, they will need to worry not only about their ability to mobilise new funding from the private sector at reasonable cost, but also about keeping their existing creditors on board.''
He then stated his view of the likely next steps in this messy situation: ''As a result, credit downgrades will multiply. And once a package is approved for Greece, there will be questions as to whether similar packages can be secured for other vulnerable countries in the European Union.''
Eye-catching insight
Those comments are usefully succinct but not particularly out of the mainstream. What caught my eye in the same piece was the following insight:
''...the disorderly market moves of recent days will place even greater pressure on the balance sheets of Greek banks and their counterparties in Europe and elsewhere. The already material risks of disorderly bank deposit outflows and capital flights are increasing. The bottom line is simple yet consequential: the Greek debt crisis has morphed into something that is potentially more sinister for Europe and the global economy. What started out as a public finance issue is quickly turning into a banking problem too; and, what started out as a Greek issue has become a full-blown crisis for Europe.''
With substantial action from the European Union and the IMF, these ructions may prove a sideshow for Australian investors (as did last year's concerns about Dubai). But if El-Erian's fears prove well founded, we may be at the start of something much more serious.
The key point is that there are substantial risks in the global economy and it is foolish to ignore them. And, on a related note, over the past two years we've seen just how vulnerable our Aussie dollar can be to a loss of confidence.
Perhaps we're now firmly locked in to a Chinese ''growth miracle'' and our currency has found a new, permanently high plateau. But if that's not the case, now might prove an advantageous time to add some well-chosen international exposure to your portfolio.
This article contains general investment advice only (under AFSL 282288).
Greg Hoffman is research director of The Intelligent Investor
http://www.smh.com.au/business/why-you-should-worry-about-greece-20100503-u2s0.html
Wishing Greece Had Never Joined the Euro
Wishing Greece Had Never Joined the Euro
By DAN BILEFSKY
Published: May 4, 2010
ATHENS — It was a harbinger of things to come.
In April 1997, the Greek finance minister, Yannos Papantoniou, implored his European Union counterparts at a meeting in Brussels to print some of the future euro notes in Greek letters. But then a stern-faced Theodore Waigel, the German finance chief, weighed in.
Latin alphabet only, Mr. Waigel insisted. Besides, Mr. Papantoniou recalls Mr. Waigel saying, poor small Greece was in no position to make demands: “He said to me, ‘What makes you think you will ever be in the euro?”’
But Mr. Papantoniou, a Socialist who shepherded Greece’s entry into the euro zone, had the last word. “I replied that Greece would be in the euro and that a poor villager in Greece would never embrace the currency unless it looked Greek,” he said during an interview. “It was a matter of pride. I fought hard, and placed a bet with him then and there — and I won.”
Now, as Greece’s E.U. partners prepare to bail out the debt-ridden country — the first time that the 16-nation euro zone has needed to rescue one of its members — many critics, inside and outside the country, are wishing that Mr. Papantoniou had lost his bet.
Amid growing concern that the contagion could spread to countries along Europe’s southern tier and even infect the Continent’s banking system, Greece’s turbulent recent history suggests that the crisis is, in many ways, a peculiarly Greek tragedy. It is rooted in an ancient country’s epic profligacy and abetted by the hubris of European leaders whose desire for integration at any cost compelled them to allow political considerations to trump economic realities.
By many accounts, Europe’s current plight can be traced to 1981, when Greece, still emerging from the aftermath of a military dictatorship, rushed to join the European Community, 14 years ahead of the much-richer Austria, Finland and Sweden, and five years before Spain and Portugal.
At the time, President François Mitterrand of France opposed the bloc’s southward expansion, fearing that countries like Greece were not ready.
But those in favor of expansion carried the day, arguing that linking countries like Greece, Spain and Portugal to European structures was the best means to modernize their fragile democracies.
For the classically educated leaders of Europe, who viewed Greece as the cradle of democracy, tying the poor Balkan country to the geographically distant western Europe was, Mr. Papantoniou recalled, a “historic mission.”
During Greece’s first decade of membership, Europe’s generous subsidies helped catapult Greece out of its backwardness. By 1997, when European leaders prepared to inaugurate the single currency, some were praising Greece, which was enjoying steady economic growth of more than 3 percent under the Socialist government of Prime Minister Costas Simitis.
For Athens, Mr. Papantoniou recalled, joining the euro was a matter of pride and necessity in that it would stabilize the country’s economy by fending off predatory speculators while allowing Greece access to credit at low interest rates as part of the wealthy euro club.
“Once we were in line to join the euro, we started to transform from a Third World country to one that aspired to look more like Switzerland,” he said.
But Greece’s path to the euro was far from assured. Public opinion in Germany, scarred by the memory of wartime hyperinflation, was wary of giving up the Deutsch mark, and the German government insisted on tough conditions for those countries wanting to join.
In December 1996, the currency’s rules were toughened in a so-called Stability and Growth Pact, intended to fine members that persistently failed to conform. The unspoken intention was to raise the barrier for southern European countries, which were seen as having looser, more inflationary, economic policies.
Germany wanted the fines to be automatic, but other countries, led by France, put the onus of enforcement on E.U. political leaders. (No country, Greece included, has ever been fined even though the rules have been routinely broken by most countries in the euro zone.)
The euro was fundamentally a political creation, which meant that the rules could be bent when deciding whom to admit. So, the 11 countries that locked their currencies in January 1999 — the first stage in the creation of the euro — included Italy, Belgium, Spain and Portugal. Greece failed to join because of budgetary and inflationary woes.
The European Central Bank expressed concern about Greek finances as early as 2000, noting in a report that Greece’s total debt was far above the prescribed limit.
Still, Athens kept up the pressure to be admitted in time for the debut of euro notes and coins in 2002. Mr. Simitis, who had taught at a German university in the 1970s, adroitly lobbied German politicians and bankers, mindful of their resistance.
In the end, Greece joined a year earlier than expected, in January 2001. It had — on paper — sharply reduced its budget deficit. And, while it had not reduced debt sufficiently, it invoked the precedents of other countries, like Italy and Belgium, which had been allowed in despite breaching the limit. The political imperative of keeping the euro on track silenced critics.
“At the time there were clear indications that the Greeks were forging the data, especially data on deficits to make their public finance situation look more benign than it really was,” said Jürgen von Hagen, professor of economics at the University of Bonn. “But European governments did not want to pay attention. For political reasons they wanted Greece in.”
The laxity with regard to fiscal discipline extended to the biggest players in the euro club. In 2002, 2003 and 2004 even Germany and France breached the deficit rules, setting a dangerous precedent.
By 2004, it was clear that Greek economic data was faulty. The Union opened its first investigation into Greece’s deficit. But despite evidence compiled by Eurostat, the Union’s official statistics agency, that Athens had fudged the numbers, Union officials made clear that ejecting Greece from the euro zone was not an option.
Mr. Papantoniou, the former finance minister, blamed the discrepancy in the deficit figures on a change of accounting rules under the center-right government of Kostas Karamanlis, who came to power after the Socialists were ousted in March 2004 and altered the way military spending had been calculated.
“It’s a big lie that the Greeks falsified the statistics,” Mr. Papantoniou said.
Tommaso Padoa-Schioppa, a former executive board member of the E.C.B., recalled that after questions arose about the accuracy of Greek financial data, many countries shot down attempts to strengthen Eurostat’s oversight powers
“The fact is that an opportunity was lost at the time,” he said. “Greece is to blame for its poor management of public finance and competitiveness. But the peers have to be blamed for not doing their job sufficiently well.”
But even apart from the statistics debacle, Greece’s economy soon lurched from bad to worse. Mr. Karamanlis went on a spending spree to prepare for the 2004 Summer Olympics; the increased security costs imposed after the September 11 terrorist attacks in 2001 pushed the price tag even higher.
More broadly, said Yiannis Stournaras, a leading economist and former advisor to the ruling Socialist Party, Greece treated entry into the euro as an invitation to party.
“Instead of cutting the deficit and liberalizing the economy,” he said, “the country continued to spend.”
Governments on the left and the right failed to overhaul a bloated public sector that critics have compared with a Soviet-style system.
“Now we are paying the price for the fact that we lived above our means, with amazing profligacy, and failed to reduce the role of the state,” Mr. Papantoniou said. “Some might say we should have done more.”
Additional reporting was contributed by Stelios Bouras in Athens, Stephen Castle in Brussels and Jack Ewing in Frankfurt.
http://www.nytimes.com/2010/05/05/business/global/05iht-greece.html?ref=business
By DAN BILEFSKY
Published: May 4, 2010
ATHENS — It was a harbinger of things to come.
In April 1997, the Greek finance minister, Yannos Papantoniou, implored his European Union counterparts at a meeting in Brussels to print some of the future euro notes in Greek letters. But then a stern-faced Theodore Waigel, the German finance chief, weighed in.
Latin alphabet only, Mr. Waigel insisted. Besides, Mr. Papantoniou recalls Mr. Waigel saying, poor small Greece was in no position to make demands: “He said to me, ‘What makes you think you will ever be in the euro?”’
But Mr. Papantoniou, a Socialist who shepherded Greece’s entry into the euro zone, had the last word. “I replied that Greece would be in the euro and that a poor villager in Greece would never embrace the currency unless it looked Greek,” he said during an interview. “It was a matter of pride. I fought hard, and placed a bet with him then and there — and I won.”
Now, as Greece’s E.U. partners prepare to bail out the debt-ridden country — the first time that the 16-nation euro zone has needed to rescue one of its members — many critics, inside and outside the country, are wishing that Mr. Papantoniou had lost his bet.
Amid growing concern that the contagion could spread to countries along Europe’s southern tier and even infect the Continent’s banking system, Greece’s turbulent recent history suggests that the crisis is, in many ways, a peculiarly Greek tragedy. It is rooted in an ancient country’s epic profligacy and abetted by the hubris of European leaders whose desire for integration at any cost compelled them to allow political considerations to trump economic realities.
By many accounts, Europe’s current plight can be traced to 1981, when Greece, still emerging from the aftermath of a military dictatorship, rushed to join the European Community, 14 years ahead of the much-richer Austria, Finland and Sweden, and five years before Spain and Portugal.
At the time, President François Mitterrand of France opposed the bloc’s southward expansion, fearing that countries like Greece were not ready.
But those in favor of expansion carried the day, arguing that linking countries like Greece, Spain and Portugal to European structures was the best means to modernize their fragile democracies.
For the classically educated leaders of Europe, who viewed Greece as the cradle of democracy, tying the poor Balkan country to the geographically distant western Europe was, Mr. Papantoniou recalled, a “historic mission.”
During Greece’s first decade of membership, Europe’s generous subsidies helped catapult Greece out of its backwardness. By 1997, when European leaders prepared to inaugurate the single currency, some were praising Greece, which was enjoying steady economic growth of more than 3 percent under the Socialist government of Prime Minister Costas Simitis.
For Athens, Mr. Papantoniou recalled, joining the euro was a matter of pride and necessity in that it would stabilize the country’s economy by fending off predatory speculators while allowing Greece access to credit at low interest rates as part of the wealthy euro club.
“Once we were in line to join the euro, we started to transform from a Third World country to one that aspired to look more like Switzerland,” he said.
But Greece’s path to the euro was far from assured. Public opinion in Germany, scarred by the memory of wartime hyperinflation, was wary of giving up the Deutsch mark, and the German government insisted on tough conditions for those countries wanting to join.
- Budget deficits were supposed to be less than 3 percent of gross domestic product,
- debt was not to exceed 60 percent of G.D.P. and
- inflation could not top 3 percent.
In December 1996, the currency’s rules were toughened in a so-called Stability and Growth Pact, intended to fine members that persistently failed to conform. The unspoken intention was to raise the barrier for southern European countries, which were seen as having looser, more inflationary, economic policies.
Germany wanted the fines to be automatic, but other countries, led by France, put the onus of enforcement on E.U. political leaders. (No country, Greece included, has ever been fined even though the rules have been routinely broken by most countries in the euro zone.)
The euro was fundamentally a political creation, which meant that the rules could be bent when deciding whom to admit. So, the 11 countries that locked their currencies in January 1999 — the first stage in the creation of the euro — included Italy, Belgium, Spain and Portugal. Greece failed to join because of budgetary and inflationary woes.
The European Central Bank expressed concern about Greek finances as early as 2000, noting in a report that Greece’s total debt was far above the prescribed limit.
Still, Athens kept up the pressure to be admitted in time for the debut of euro notes and coins in 2002. Mr. Simitis, who had taught at a German university in the 1970s, adroitly lobbied German politicians and bankers, mindful of their resistance.
In the end, Greece joined a year earlier than expected, in January 2001. It had — on paper — sharply reduced its budget deficit. And, while it had not reduced debt sufficiently, it invoked the precedents of other countries, like Italy and Belgium, which had been allowed in despite breaching the limit. The political imperative of keeping the euro on track silenced critics.
“At the time there were clear indications that the Greeks were forging the data, especially data on deficits to make their public finance situation look more benign than it really was,” said Jürgen von Hagen, professor of economics at the University of Bonn. “But European governments did not want to pay attention. For political reasons they wanted Greece in.”
The laxity with regard to fiscal discipline extended to the biggest players in the euro club. In 2002, 2003 and 2004 even Germany and France breached the deficit rules, setting a dangerous precedent.
By 2004, it was clear that Greek economic data was faulty. The Union opened its first investigation into Greece’s deficit. But despite evidence compiled by Eurostat, the Union’s official statistics agency, that Athens had fudged the numbers, Union officials made clear that ejecting Greece from the euro zone was not an option.
Mr. Papantoniou, the former finance minister, blamed the discrepancy in the deficit figures on a change of accounting rules under the center-right government of Kostas Karamanlis, who came to power after the Socialists were ousted in March 2004 and altered the way military spending had been calculated.
“It’s a big lie that the Greeks falsified the statistics,” Mr. Papantoniou said.
Tommaso Padoa-Schioppa, a former executive board member of the E.C.B., recalled that after questions arose about the accuracy of Greek financial data, many countries shot down attempts to strengthen Eurostat’s oversight powers
“The fact is that an opportunity was lost at the time,” he said. “Greece is to blame for its poor management of public finance and competitiveness. But the peers have to be blamed for not doing their job sufficiently well.”
But even apart from the statistics debacle, Greece’s economy soon lurched from bad to worse. Mr. Karamanlis went on a spending spree to prepare for the 2004 Summer Olympics; the increased security costs imposed after the September 11 terrorist attacks in 2001 pushed the price tag even higher.
More broadly, said Yiannis Stournaras, a leading economist and former advisor to the ruling Socialist Party, Greece treated entry into the euro as an invitation to party.
“Instead of cutting the deficit and liberalizing the economy,” he said, “the country continued to spend.”
Governments on the left and the right failed to overhaul a bloated public sector that critics have compared with a Soviet-style system.
“Now we are paying the price for the fact that we lived above our means, with amazing profligacy, and failed to reduce the role of the state,” Mr. Papantoniou said. “Some might say we should have done more.”
Additional reporting was contributed by Stelios Bouras in Athens, Stephen Castle in Brussels and Jack Ewing in Frankfurt.
http://www.nytimes.com/2010/05/05/business/global/05iht-greece.html?ref=business
Wall Street Indexes Close Down More Than 2%
May 4, 2010
Wall Street Indexes Close Down More Than 2%
By CHRISTINE HAUSER
The euro fell sharply on Tuesday and major indexes in Europe and the United States tumbled as the sovereign debt crisis in Europe and the risk of contagion continued to hang over the market.
At the close, the Dow Jones industrial average was 225.06 points, or 2.02 percent, lower at 10,926.77. The Standard & Poor’s 500-stock index fell 28.66 points, or 2.38 percent, to 1,173.60, while the Nasdaq dropped 74.49 points, or 2.98 percent, to 2,424.25.
The last time the Dow closed lower than that was on April 7, when it fell 72.47 points to 10,897.52
In London, the FTSE 100 declined 2.56 percent or 142.18 points, while the DAX in Frankfurt fell 160.06 points to 2.6 percent. In Paris, the CAC-40 dropped 139.17 points or 3.64 percent.
Although the 15 other countries in the euro zone and the International Monetary Fund had agreed to give Greece 110 billion euros ($144 billion) in aid over three years, traders said the austerity plan remained a hard sell. Hundreds of Greek demonstrators took to the streets on Tuesday to rail against tough new austerity measures aimed at helping the debt-ridden country stave off economic disaster.
One lingering question is whether the $144 billion is enough to settle Greece’s problems and keep them from spreading.
Investors were also watching Spain and Portugal, which have both had their debt downgraded in the last week. Greek government debt fell Tuesday, with the yield on the 10-year benchmark bond rising 36 basis points to 8.8 percent. In a sign of spreading nervousness, Portuguese and Spain bond yields also rose Tuesday.
“If there are real sovereign debt risks in Spain that is an issue for all multinational banks,” said Uri Landesman, president of Platinum Partners.
“What is going on in Europe is eventually going to result in defaults,” said Jeffrey Saut, the chief investment strategist for Raymond James. “They Band-Aided over the situation, and I think it is going to be very bad for the European banking complex.”
All of that has hurt the euro, which slipped 1.35 percent on Tuesday against dollar, trading at $1.3019. At one point, the euro slipped below $1.30.
“The impact of the potential contagion will continue to weigh on the euro in the near term,” Moody’s chief international economist, Ruth Stroppiana, said. “If the Greece situation does spread to Portugal, Spain and elsewhere in the euro zone then the euro would continue to fall. But the situation is still a very serious one.”
Kevin Chau, a currency analyst with IDEAglobal, said the euro could go to $1.25 by the end of the summer, and that others have put it at $1.20.
“I think that it will continue to go down because the problems over in Europe and the structure of the euro is being questioned,” Mr. Chau said. “The European members’ will to make the euro work and this whole unity work, is being questioned because of what is going on with Greece.”
The European debt crisis dominated Wall Street. Traders paid little attention to the latest economic reports, which both topped expectations. The Commerce Department said that orders to factories rose 1.3 percent in March, and the National Association of Realtors said its index of sales agreements for previously occupied homes rose a stronger-than-expected 5.3 percent in March.
M. Jake Dollarhide, chief executive of Longbow Asset Management, said the economy was one part of a “three-pronged monster” stirring up concern; the others being the unresolved Greek debt issue and a fear of terrorism that stemmed from the discovery over the weekend of a car bomb in Times Square.
“The third prong is just the fact that we have not achieved economic resurgence up to a level that makes people feel comfortable,” Mr. Dollarhide said. “There are a lot of pressures, a lot of anxiety.”
In the past several market days, the declines in the market have been followed by recoveries. But investors were not seeing today’s lows as buying opportunities so far, he said.
Traders have also moved beyond the earnings season,which was highlighted by a string of stronger-than-expected results.
“Earnings season is pretty much in the rearview mirror,” Mr. Saut said, “so you haven’t got that to prop you up right now.”
Materials, industrials and information technology sectors were lower. FMC Corp. ended down less than 1 percent at $64.02. The Dow Chemical Co. closed $2.11 lower at $29.31.
Financials were going to remain a concern, Mr. Landesman said, given the prospect of financial regulation and the accusations of trading fraud against Goldman Sachs. Shares of Goldman Sachs and most other major banks were lower Tuesday. Goldman Sachs closed 5 cents down at $149.45 and Citigroup Inc was lower by 15 cents at $4.26.
Information technology stocks were among the most actively traded. Intel ended 70 cents down at $22.56 and Microsoft was down 73 cents at $30.13.
“Technology has had such a big run-up with Apple, and Nasdaq is under a lot of pressure today,” Mr. Dollarhide said. Shares of Apple closed at $258.68, down 2.8 percent, while Dell Inc. was down 4.4 percent at $15.66 and Google ended 4.57 percent lower at $506.37.
And energy shares slipped. Britain’s main index was dragged down by BP and concerns about the costs that the oil company will face from the spill in the Gulf of Mexico. BP shares closed down 2.95 percent in London.
“The worst thing is when you can’t really size a risk or a problem,” Mr. Landesman said.
On Wall Street, Exxon Mobil declined $1.37 to $66.47 and Chevron dropped about $2.07 to $80.76.
Mr. Saut said that he believed Wall Street was predisposed to the declines.
“We are set up for a correction,” he said. “We are into a buying stampede.”
http://www.nytimes.com/2010/05/05/business/05markets.html?src=me&ref=business
Wall Street Indexes Close Down More Than 2%
By CHRISTINE HAUSER
The euro fell sharply on Tuesday and major indexes in Europe and the United States tumbled as the sovereign debt crisis in Europe and the risk of contagion continued to hang over the market.
At the close, the Dow Jones industrial average was 225.06 points, or 2.02 percent, lower at 10,926.77. The Standard & Poor’s 500-stock index fell 28.66 points, or 2.38 percent, to 1,173.60, while the Nasdaq dropped 74.49 points, or 2.98 percent, to 2,424.25.
The last time the Dow closed lower than that was on April 7, when it fell 72.47 points to 10,897.52
In London, the FTSE 100 declined 2.56 percent or 142.18 points, while the DAX in Frankfurt fell 160.06 points to 2.6 percent. In Paris, the CAC-40 dropped 139.17 points or 3.64 percent.
Although the 15 other countries in the euro zone and the International Monetary Fund had agreed to give Greece 110 billion euros ($144 billion) in aid over three years, traders said the austerity plan remained a hard sell. Hundreds of Greek demonstrators took to the streets on Tuesday to rail against tough new austerity measures aimed at helping the debt-ridden country stave off economic disaster.
One lingering question is whether the $144 billion is enough to settle Greece’s problems and keep them from spreading.
Investors were also watching Spain and Portugal, which have both had their debt downgraded in the last week. Greek government debt fell Tuesday, with the yield on the 10-year benchmark bond rising 36 basis points to 8.8 percent. In a sign of spreading nervousness, Portuguese and Spain bond yields also rose Tuesday.
“If there are real sovereign debt risks in Spain that is an issue for all multinational banks,” said Uri Landesman, president of Platinum Partners.
“What is going on in Europe is eventually going to result in defaults,” said Jeffrey Saut, the chief investment strategist for Raymond James. “They Band-Aided over the situation, and I think it is going to be very bad for the European banking complex.”
All of that has hurt the euro, which slipped 1.35 percent on Tuesday against dollar, trading at $1.3019. At one point, the euro slipped below $1.30.
“The impact of the potential contagion will continue to weigh on the euro in the near term,” Moody’s chief international economist, Ruth Stroppiana, said. “If the Greece situation does spread to Portugal, Spain and elsewhere in the euro zone then the euro would continue to fall. But the situation is still a very serious one.”
“I think that it will continue to go down because the problems over in Europe and the structure of the euro is being questioned,” Mr. Chau said. “The European members’ will to make the euro work and this whole unity work, is being questioned because of what is going on with Greece.”
The European debt crisis dominated Wall Street. Traders paid little attention to the latest economic reports, which both topped expectations. The Commerce Department said that orders to factories rose 1.3 percent in March, and the National Association of Realtors said its index of sales agreements for previously occupied homes rose a stronger-than-expected 5.3 percent in March.
M. Jake Dollarhide, chief executive of Longbow Asset Management, said the economy was one part of a “three-pronged monster” stirring up concern; the others being the unresolved Greek debt issue and a fear of terrorism that stemmed from the discovery over the weekend of a car bomb in Times Square.
“The third prong is just the fact that we have not achieved economic resurgence up to a level that makes people feel comfortable,” Mr. Dollarhide said. “There are a lot of pressures, a lot of anxiety.”
In the past several market days, the declines in the market have been followed by recoveries. But investors were not seeing today’s lows as buying opportunities so far, he said.
Traders have also moved beyond the earnings season,which was highlighted by a string of stronger-than-expected results.
“Earnings season is pretty much in the rearview mirror,” Mr. Saut said, “so you haven’t got that to prop you up right now.”
Materials, industrials and information technology sectors were lower. FMC Corp. ended down less than 1 percent at $64.02. The Dow Chemical Co. closed $2.11 lower at $29.31.
Financials were going to remain a concern, Mr. Landesman said, given the prospect of financial regulation and the accusations of trading fraud against Goldman Sachs. Shares of Goldman Sachs and most other major banks were lower Tuesday. Goldman Sachs closed 5 cents down at $149.45 and Citigroup Inc was lower by 15 cents at $4.26.
Information technology stocks were among the most actively traded. Intel ended 70 cents down at $22.56 and Microsoft was down 73 cents at $30.13.
“Technology has had such a big run-up with Apple, and Nasdaq is under a lot of pressure today,” Mr. Dollarhide said. Shares of Apple closed at $258.68, down 2.8 percent, while Dell Inc. was down 4.4 percent at $15.66 and Google ended 4.57 percent lower at $506.37.
And energy shares slipped. Britain’s main index was dragged down by BP and concerns about the costs that the oil company will face from the spill in the Gulf of Mexico. BP shares closed down 2.95 percent in London.
“The worst thing is when you can’t really size a risk or a problem,” Mr. Landesman said.
On Wall Street, Exxon Mobil declined $1.37 to $66.47 and Chevron dropped about $2.07 to $80.76.
Mr. Saut said that he believed Wall Street was predisposed to the declines.
“We are set up for a correction,” he said. “We are into a buying stampede.”
http://www.nytimes.com/2010/05/05/business/05markets.html?src=me&ref=business
From Buffett, Thought-Out Support for Goldman
By ANDREW ROSS SORKIN
Published: May 3, 2010
Published: May 3, 2010
That was the question so manyBerkshire Hathaway shareholders, some in disbelief, kept asking here over the weekend, after Mr. Buffett offered his full-throated support of Goldman and its chief executive, Lloyd C. Blankfein, as they fight a civil fraud suit brought by regulators.
Yet by the end of Berkshire’s annual meeting, at least some of the 40,000 shareholders in attendance who had been skeptical of Goldman had come to the same conclusion: Mr. Buffett may actually be right.
“I don’t have a problem with the Abacus transaction at all, and I think I understand it better than most,” Mr. Buffett declared with nonchalance late Sunday afternoon, referring to the mortgage derivatives deal at the center of the lawsuit. He had just finished playing Ping-Pong with Ariel Hsing, a top-ranked 14-year-old junior table tennis player. (He lost 2 to 1.)
His comments echoed the strong view he had offered just the day before: “For the life of me, I don’t see whether it makes any difference whether it was John Paulson on the other side of the deal, or whether it was Goldman Sachs on the other side of the deal, or whether it was Berkshire Hathaway on the other side of the deal,” Mr. Buffett said.
Have we all been thinking about this the wrong way?
Mr. Buffett’s view — conventional, perhaps, on Wall Street but contrarian on that mythical place called Main Street that Mr. Buffett usually occupies — is worth considering for at least one reason: No one else of prominence has spoken out so publicly in support of Goldman. In his trademark way, he made a plain-spoken case that makes sense.
Cynics might regard Mr. Buffett’s statements as predictably self-serving. After all, his company owns about $5 billion in preferred stock in Goldman. What’s more, ever since he made a big investment in Goldman during the thick of the financial crisis, his priceless reputation has been hitched to the firm.
But remember that he has been a consistent and unapologetic critic of Wall Street, especially in the wake of the financial crisis. And besides, his stake in Goldman is more a loan than an investment, so he’ll no doubt be paid no matter what happens with the Abacus suit.
But on the facts of the Securities and Exchange Commission’s civil fraud case against Goldman, Mr. Buffett — he was questioned on this topic over the weekend by shareholders and a panel of three journalists, including me — was resolute. (He did not directly address reports that the Justice Department was conducting a criminal inquiry into Goldman’s mortgage deals, but his positive view of the firm is obvious.)
To him, investors should make their investment decisions based on the quality of the securities, not on who helped put them together or who else was betting for or against them. He suggested those factors were irrelevant.
“I don’t care if John Paulson is shorting these bonds. I’m going to have no worries that he has superior knowledge,” he said, adding: “It’s our job to assess the credit.” The assets are the assets. The math either works or it doesn’t.
In its suit, the S.E.C. has accused Goldman of not disclosing that the Abacus instrument was devised in part by a short-seller, John Paulson, who stood to gain by betting against it.
IKB, one of the buyers, and ACA, which acted as the selection agent and insured the transaction, said they didn’t know Mr. Paulson was on the other side of the deal and had influenced which mortgages were chosen. Together, IKB and ACA lost nearly $1 billion in the deal.
Mr. Buffett, who has always approached investing as a dispassionate exercise based on his reading of the numbers, said IKB and ACA had all the relevant facts that any investor would need. They were able to see all the mortgages, which were referenced in full, and yet they made what turned out to be a very bad bet.
“It’s a little hard for me to get terribly sympathetic,” he said. When he makes his investments for Berkshire, he said, “we are in the business of making our own decisions. They do not owe us a divulgence of their position.”
On Sunday, Mr. Buffett said that the case against Goldman seemed to be based only on hindsight.
“It’s very strange to say, at the end of the transaction, that if the other guy is smarter than you, that you have been defrauded,” he said. “It seems to me that that’s what they are saying.”
Indeed, many securities lawyers have said from the start that the case against Goldman might be hard for the S.E.C. to win, for many of the reasons spelled out by Mr. Buffett in his defense of Goldman.
One Berkshire shareholder who has been a regular in Omaha is Bill Ackman, an outspoken hedge fund manager who has made a career of railing against bad corporate practices. He spent years, for example, trying to get people to pay attention to the failures of the rating agencies before the crisis became full-blown.
In recent days, he has gone even further than Mr. Buffett in his defense of Goldman, suggesting it would have been unethical for the firm to disclose Mr. Paulson’s position in the Abacus deal. He says that Goldman, as the market maker, had a duty to protect the identity of both sides of the transaction.
He agrees with Mr. Buffett that as an investor, he would not have considered it necessary to know that Mr. Paulson had helped select the securities.
If that is really the case, it makes you question all of the outrage being directed at Goldman over this transaction. “The country wants to hang somebody,” one Berkshire board member told me.
With so many easy targets of the financial crisis — Fannie Mae, Freddie Mac, A.I.G., Bear Stearns, Lehman Brothers — it does seem odd that the government, and the public, has chosen to vilify one of only a couple of firms that made fewer mistakes than the rest.
Still, the chorus of Goldman opponents has become so loud that, predictably, some people have called for Mr. Blankfein’s head.
On that subject, Charles Munger, Mr. Buffett’s vocal sidekick and vice chairman, put it bluntly: “There are plenty of C.E.O.’s I’d like to see gone in America. Lloyd Blankfein isn’t one of them.”
http://www.nytimes.com/2010/05/04/business/04sorkin.html?src=me&ref=business
http://www.nytimes.com/2010/05/04/business/04sorkin.html?src=me&ref=business
The euro also tumbled to a one-year low
The euro also tumbled to a one-year low as concerns about the sovereign debt crisis in Europe dominated the markets.
May 3, 2010
In Greek Debt Crisis, a Window to the German Psyche
By KATRIN BENNHOLD
PARIS — A few weeks after Lehman Brothers went bankrupt and the world plunged into a financial crisis, Chancellor Angela Merkel of Germany offered some common-sense advice to reckless bankers, indebted consumers and profligate governments.
“One should simply have asked a Swabian housewife,” Mrs. Merkel said during an address to fellow Christian Democrats in December 2008 in the southwest German region of Swabia, hub of the Protestant work ethic. “She would have told us her worldly wisdom: in the long run, you can’t live beyond your means.”
Now, as Europe struggles to avoid its own Lehman experience — saving Greece and thus the euro — the episode says much about the Germans.
Led by France, European neighbors have been pressing for months for Germany, which has the Continent’s biggest economy, to throw its financial weight behind a bailout package and a new system of economic governance for the euro zone. In the process, a reluctant Berlin has been called irresponsible, selfish and even un-European.
But if France wants Germany to be more European, Germany wants Europe to be more Swabian. To bring Europe to a compromise required a deal between Mrs. Merkel and a Frenchman, Dominique Strauss-Kahn of the International Monetary Fund, who met in Berlin last week to pull Greece and the euro zone back from the brink.
The Greek episode has heated up the long culture clash between the European Union’s traditional drivers: federal Germany with its Prussian attachment to rules and an instinctive frugality rooted in past economic traumas, and republican France with its tradition of state intervention and a more Mediterranean attitude toward public debt.
Paris and Berlin have had many disagreements in the postwar world, but few are as deep-rooted as those on economic governance, said John C. Kornblum, a former United States ambassador to Germany.
“This comes from the gut, it’s emotional,” said Mr. Kornblum, who as assistant secretary of state for Europe in the 1990s watched successive French and German leaders spar over how to govern the future single currency.
If there is no political structure in place to safeguard the euro — a weakness exposed in the current debt crisis — Mr. Kornblum said it was because Germany and France could never agree on one. “There are profound philosophical differences between the two sides,” he said.
These differences are in many ways personified by Mrs. Merkel, daughter of a Lutheran pastor, and two flamboyant Frenchmen: President Nicolas Sarkozy, a conservative, and Mr. Strauss-Kahn, a Socialist.
Mr. Sarkozy and Mr. Strauss-Kahn are rivals and may even run against each other in the 2012 presidential election. But they share a belief in state intervention that unites most of the French political elite.
Mr. Sarkozy, a Gaullist whose millionaire friends and taste for expensive brands have not gone unnoticed across the Rhine, first roused German suspicions as finance minister in 2004 when he prevented a takeover by Siemens of Alstom, the French maker of trains.
As president, he allowed the budget deficit to rise above the 3 percent euro zone limit even before the economic crisis erupted, and he repeatedly criticized the European Central Bank’s interest rate policy.
Mr. Strauss-Kahn, a native of Alsace who speaks German, has been called “Mr. Euro” in France and is credited with steering his country into the euro zone as finance minister in 1997. In Germany, he is also remembered for serving under President Jacques Chirac, a staunch advocate of a political counterweight to the European Central Bank.
So when the two men independently revived calls for an “economic government” of the 16 countries that share the euro, resistance in Germany was instinctive.
In a country where many lost their savings twice in the 20th century — once to hyperinflation in 1923 and again to currency reform after World War II — central bank independence and budgetary discipline have become part of the German narrative.
Fear of inflation and broad-based aversion to debt also help to explain a striking divergence in the perception of Germany’s wealth at home and abroad. At 3.3 percent of gross domestic product, Germany’s budget deficit is low by crisis standards and frequently cited as a justification to appeal to Berlin for solidarity with poorer countries.
In contrast, the French budget deficit has widened to 7.5 percent of G.D.P. But Germans, who have absorbed East Germany and face a declining population, do not feel rich.
“Germans fear going bankrupt themselves,” said Mr. Kornblum, now a consultant in Berlin.
Jean-Pierre Jouyet, a former minister of European affairs who now leads the French stock market regulator, said: “The fundamental difference between France and Germany is that, for the French, budgetary, financial and currency stability is a means to an end. For the Germans it is an end in itself.”
Mrs. Merkel, a physicist raised in communist East Germany, has a hard-working, parsimonious lifestyle and an analytical, somewhat bland personality that in many ways reflect the national value system, said Gerd Langguth, author of a 2005 biography of her.
While Mr. Sarkozy resides in the majestic Élysée Palace and has an army of staff members, Mrs. Merkel still lives in the central Berlin apartment she occupied before her election in 2005 and has been seen doing her own shopping.
There are limits to national stereotyping. Mrs. Merkel’s more outgoing predecessor, Gerhard Schröder, made common cause with the French in breaking the euro zone’s budgetary limit.
And no German could have defended the legacy of the Bundesbank more vigorously than the president of the European Central Bank, Jean-Claude Trichet, referred to by some in Paris as “that Frenchman in Frankfurt.”
But understanding the radically different contexts in which German and French positions are honed is crucial as Europe’s two foremost powers grapple with the crisis, said Jean Pisani-Ferry, director of Bruegel, a research institute based in Brussels.
“Ultimately this is about whether Germany is ready to lead,” he said. “And leading means compromising, rather than only insisting on red lines.”
http://www.nytimes.com/2010/05/04/business/global/04iht-euro.html?src=me&ref=business
May 3, 2010
In Greek Debt Crisis, a Window to the German Psyche
By KATRIN BENNHOLD
PARIS — A few weeks after Lehman Brothers went bankrupt and the world plunged into a financial crisis, Chancellor Angela Merkel of Germany offered some common-sense advice to reckless bankers, indebted consumers and profligate governments.
“One should simply have asked a Swabian housewife,” Mrs. Merkel said during an address to fellow Christian Democrats in December 2008 in the southwest German region of Swabia, hub of the Protestant work ethic. “She would have told us her worldly wisdom: in the long run, you can’t live beyond your means.”
Now, as Europe struggles to avoid its own Lehman experience — saving Greece and thus the euro — the episode says much about the Germans.
Led by France, European neighbors have been pressing for months for Germany, which has the Continent’s biggest economy, to throw its financial weight behind a bailout package and a new system of economic governance for the euro zone. In the process, a reluctant Berlin has been called irresponsible, selfish and even un-European.
But if France wants Germany to be more European, Germany wants Europe to be more Swabian. To bring Europe to a compromise required a deal between Mrs. Merkel and a Frenchman, Dominique Strauss-Kahn of the International Monetary Fund, who met in Berlin last week to pull Greece and the euro zone back from the brink.
The Greek episode has heated up the long culture clash between the European Union’s traditional drivers: federal Germany with its Prussian attachment to rules and an instinctive frugality rooted in past economic traumas, and republican France with its tradition of state intervention and a more Mediterranean attitude toward public debt.
Paris and Berlin have had many disagreements in the postwar world, but few are as deep-rooted as those on economic governance, said John C. Kornblum, a former United States ambassador to Germany.
“This comes from the gut, it’s emotional,” said Mr. Kornblum, who as assistant secretary of state for Europe in the 1990s watched successive French and German leaders spar over how to govern the future single currency.
If there is no political structure in place to safeguard the euro — a weakness exposed in the current debt crisis — Mr. Kornblum said it was because Germany and France could never agree on one. “There are profound philosophical differences between the two sides,” he said.
These differences are in many ways personified by Mrs. Merkel, daughter of a Lutheran pastor, and two flamboyant Frenchmen: President Nicolas Sarkozy, a conservative, and Mr. Strauss-Kahn, a Socialist.
Mr. Sarkozy and Mr. Strauss-Kahn are rivals and may even run against each other in the 2012 presidential election. But they share a belief in state intervention that unites most of the French political elite.
Mr. Sarkozy, a Gaullist whose millionaire friends and taste for expensive brands have not gone unnoticed across the Rhine, first roused German suspicions as finance minister in 2004 when he prevented a takeover by Siemens of Alstom, the French maker of trains.
As president, he allowed the budget deficit to rise above the 3 percent euro zone limit even before the economic crisis erupted, and he repeatedly criticized the European Central Bank’s interest rate policy.
Mr. Strauss-Kahn, a native of Alsace who speaks German, has been called “Mr. Euro” in France and is credited with steering his country into the euro zone as finance minister in 1997. In Germany, he is also remembered for serving under President Jacques Chirac, a staunch advocate of a political counterweight to the European Central Bank.
So when the two men independently revived calls for an “economic government” of the 16 countries that share the euro, resistance in Germany was instinctive.
In a country where many lost their savings twice in the 20th century — once to hyperinflation in 1923 and again to currency reform after World War II — central bank independence and budgetary discipline have become part of the German narrative.
Fear of inflation and broad-based aversion to debt also help to explain a striking divergence in the perception of Germany’s wealth at home and abroad. At 3.3 percent of gross domestic product, Germany’s budget deficit is low by crisis standards and frequently cited as a justification to appeal to Berlin for solidarity with poorer countries.
In contrast, the French budget deficit has widened to 7.5 percent of G.D.P. But Germans, who have absorbed East Germany and face a declining population, do not feel rich.
“Germans fear going bankrupt themselves,” said Mr. Kornblum, now a consultant in Berlin.
Jean-Pierre Jouyet, a former minister of European affairs who now leads the French stock market regulator, said: “The fundamental difference between France and Germany is that, for the French, budgetary, financial and currency stability is a means to an end. For the Germans it is an end in itself.”
Mrs. Merkel, a physicist raised in communist East Germany, has a hard-working, parsimonious lifestyle and an analytical, somewhat bland personality that in many ways reflect the national value system, said Gerd Langguth, author of a 2005 biography of her.
While Mr. Sarkozy resides in the majestic Élysée Palace and has an army of staff members, Mrs. Merkel still lives in the central Berlin apartment she occupied before her election in 2005 and has been seen doing her own shopping.
There are limits to national stereotyping. Mrs. Merkel’s more outgoing predecessor, Gerhard Schröder, made common cause with the French in breaking the euro zone’s budgetary limit.
And no German could have defended the legacy of the Bundesbank more vigorously than the president of the European Central Bank, Jean-Claude Trichet, referred to by some in Paris as “that Frenchman in Frankfurt.”
But understanding the radically different contexts in which German and French positions are honed is crucial as Europe’s two foremost powers grapple with the crisis, said Jean Pisani-Ferry, director of Bruegel, a research institute based in Brussels.
“Ultimately this is about whether Germany is ready to lead,” he said. “And leading means compromising, rather than only insisting on red lines.”
http://www.nytimes.com/2010/05/04/business/global/04iht-euro.html?src=me&ref=business
Tuesday, 4 May 2010
Latexx more than doubles net profit to RM21m in 1Q
3.5.2010
KUALA LUMPUR: LATEXX PARTNERS BHD [] more than doubled its net profit to RM20.72 million for the first quarter ended March 31, 2010 (1QFY10) from RM9.14 million a year earlier on the back of capacity expansion, aggressive marketing strategy and overall cost savings.
Revenue surged 79.4% to RM126.17 million from RM70.32 million, while earnings per share rose to 10.52 sen from 4.7 sen. It declared a tax exempt interim dividend of 2.5 sen per share.
In notes accompanying the results on Monday, May 3, Latexx said at pre-tax level, its profit was 37.2% higher at RM23.25 million compared with RM16.95 million recorded in the preceding quarter.
It said despite the increase in raw material prices and the weakening US dollar, the increase in the group’s profit was due principally to increased sales volume and improved overall efficiency achieved giving rise to lower overheads, operational and supervision costs.
Latexx is confident that growth in FY10 will be sustained along with the world’s growing appetite for medical gloves in the health sector.
“The strategy of increasing capacity and switching to a better mix of products coupled with more aggressive marketing efforts by penetrating into new markets will contribute to sustainable profitability,” it said.
The company said an additional plant next to existing facilities had been completed and the commissioning of the remaining production lines was in progress. It expects to boost production capacity to nine billion pieces of gloves per year by 2011.
Latexx said following its joint-venture agreement (JVA) with Netherlands-based Budev BV, its unit Total Glove Company Sdn Bhd had entered into a licensing agreement with Budev for the exclusive right to use their TECHNOLOGY [] for the treatment of latex examination and surgical gloves to lower protein and allergen to non-detectable levels to prevent allergic reactions.
The JVA and licensing agreement would enable Latexx to embark on a new phase of technology and enhance its product range, and would also allow the group to reinforce its competitive edge in the global market through innovative production methods to produce high quality gloves for its customers, it said.
http://www.theedgemalaysia.com/business-news/165213-latexx-more-than-doubles-net-profit-to-rm21m-in-1q.html
Comment: Will Latexx be able to achieve MR 100 million net profit for this financial year????
KUALA LUMPUR: LATEXX PARTNERS BHD [] more than doubled its net profit to RM20.72 million for the first quarter ended March 31, 2010 (1QFY10) from RM9.14 million a year earlier on the back of capacity expansion, aggressive marketing strategy and overall cost savings.
Revenue surged 79.4% to RM126.17 million from RM70.32 million, while earnings per share rose to 10.52 sen from 4.7 sen. It declared a tax exempt interim dividend of 2.5 sen per share.
In notes accompanying the results on Monday, May 3, Latexx said at pre-tax level, its profit was 37.2% higher at RM23.25 million compared with RM16.95 million recorded in the preceding quarter.
It said despite the increase in raw material prices and the weakening US dollar, the increase in the group’s profit was due principally to increased sales volume and improved overall efficiency achieved giving rise to lower overheads, operational and supervision costs.
Latexx is confident that growth in FY10 will be sustained along with the world’s growing appetite for medical gloves in the health sector.
“The strategy of increasing capacity and switching to a better mix of products coupled with more aggressive marketing efforts by penetrating into new markets will contribute to sustainable profitability,” it said.
The company said an additional plant next to existing facilities had been completed and the commissioning of the remaining production lines was in progress. It expects to boost production capacity to nine billion pieces of gloves per year by 2011.
Latexx said following its joint-venture agreement (JVA) with Netherlands-based Budev BV, its unit Total Glove Company Sdn Bhd had entered into a licensing agreement with Budev for the exclusive right to use their TECHNOLOGY [] for the treatment of latex examination and surgical gloves to lower protein and allergen to non-detectable levels to prevent allergic reactions.
The JVA and licensing agreement would enable Latexx to embark on a new phase of technology and enhance its product range, and would also allow the group to reinforce its competitive edge in the global market through innovative production methods to produce high quality gloves for its customers, it said.
http://www.theedgemalaysia.com/business-news/165213-latexx-more-than-doubles-net-profit-to-rm21m-in-1q.html
Comment: Will Latexx be able to achieve MR 100 million net profit for this financial year????
LPI Capital at record high after Kenanga initiates coverage with buy call
KUALA LUMPUR: LPI CAPITAL BHD [] surged Monday, May 3 after Kenanga Research initiated coverage on the stock with a buy recommendation at RM15.04 and target price RM16.80.
http://www.theedgemalaysia.com/business-news/165189-lpi-capital-at-record-high-after-kenanga-initiates-coverage-with-buy-call.html
http://www.theedgemalaysia.com/business-news/165189-lpi-capital-at-record-high-after-kenanga-initiates-coverage-with-buy-call.html
A quick look at Hing Yiap (4.5.2010)
PROFILE BRIEF
The principal activities of the Company are those of property and investment holding, textile knitting and the manufacture of garments. The principal activities of the subsidiaries are Retailing and Distribution of the ANTIONI, B.U.M. EQUIPMENT, BONTTON, DIESEL and VANITY FAIR brand of ready-made sports and casual wear and related accessories; Operator of speciality stores known as BUMCITY; and Wholesaling of ready-made garments and fabrics.
Hing Yiap Group Berhad Company
Business Description:
Hing Yiap Group Berhad Formerly known as Hing Yiap Knitting Industries Berhad. The Group's principal activities are wholesaling, retailing and distributing ready-made sports and casual wear, women intimate apparel and related accessories. Other activities include textile knitting and manufacturing garments. It also operates as a property and an investment holding company. Operations are carried out in Malaysia.
Wright Quality Rating: LBC1
A quick look at Hing Yiap (4.5.2010)
http://spreadsheets.google.com/pub?key=tsNT3xhHVKW3w4UCexYEeHw&output=html
Comment:
Will need to examine its past performances in depth. During the recent global financial crisis, its earnings went down to almost nil in Q3 and Q4 of last financial year. However, the earnings for the latest 2 quarters had been good.
Since this stock is outside my area of competence, will avoid being entangled with it. However, will keep track of it. There are other stocks with better quality and durable competitive advantage to invest in.
The principal activities of the Company are those of property and investment holding, textile knitting and the manufacture of garments. The principal activities of the subsidiaries are Retailing and Distribution of the ANTIONI, B.U.M. EQUIPMENT, BONTTON, DIESEL and VANITY FAIR brand of ready-made sports and casual wear and related accessories; Operator of speciality stores known as BUMCITY; and Wholesaling of ready-made garments and fabrics.
Hing Yiap Group Berhad Company
Business Description:
Hing Yiap Group Berhad Formerly known as Hing Yiap Knitting Industries Berhad. The Group's principal activities are wholesaling, retailing and distributing ready-made sports and casual wear, women intimate apparel and related accessories. Other activities include textile knitting and manufacturing garments. It also operates as a property and an investment holding company. Operations are carried out in Malaysia.
Wright Quality Rating: LBC1
A quick look at Hing Yiap (4.5.2010)
http://spreadsheets.google.com/pub?key=tsNT3xhHVKW3w4UCexYEeHw&output=html
Comment:
Will need to examine its past performances in depth. During the recent global financial crisis, its earnings went down to almost nil in Q3 and Q4 of last financial year. However, the earnings for the latest 2 quarters had been good.
Since this stock is outside my area of competence, will avoid being entangled with it. However, will keep track of it. There are other stocks with better quality and durable competitive advantage to invest in.
A quick look at KNM (4.5.2010)
A quick look at KNM (4.5.2010)
http://spreadsheets.google.com/pub?key=tcCGJ_jnIm-UI-eucHCcPlA&output=html
KNM Group expects to perform better this year
PROCESS equipment manufacturer KNM Group Bhd (7164)expects to perform better this year on lower tax rates and higher exploration and production activities.
"We recently spoke to the management of KNM following the breakdown of its proposed takeover offer. We believe that investors have overlooked the business aspect in the last few months after the takeover news first broke off back in February 2010," wrote HWANGDBS Vickers Research Sdn Bhd (HDBSVR) analyst Lee Wee Keat in a note to clients yesterday.
KNM's substantial shareholder and group managing director Lee Swee Eng had recently aborted his proposed offer via Bluefire Capital Group to buy KNM's entire business at RM0.90 per share.
Last year was a bad year for KNM as oil majors held back spending in view of low and volatile oil prices.
"We understand that KNM managed to secure only RM1.5 billion worth of jobs last year, and capacity utilisation was only 65 per cent compared with 80 per cent in 2008.
"(Profit) margins for the jobs secured were also slimmer as intense competition over the modest number of jobs available led competitors to cut prices," he said.
Lee expects margins for the next few quarters to remain sluggish as the company completes jobs secured last year. He estimated that the average completion ranges from 15 to 18 months per project.
"We gather that margins have improved since, but have yet to recover to previous levels."
Lee also said concerns over KNM's orderbook replenishment persists.
"KNM has a RM2.4 billion orderbook, with RM400 million of new contracts secured thus far. This is slow, but we foresee a rise in exploration and production activities in the second half of this year to trigger contract flows."
The group currently has a RM11 billion tender book comprising jobs mostly in the Middle East and Europe.
However, Lee has cut his new wins assumption for KNM to RM1.7 billion from RM1.8 billion previously for the financial year ended December 31 2010 (FY10), based on current tender book and historical hit rate of 15 per cent.
KNM's FY09 audited net profit stood at RM260.6 million after adjusting for the tax incentive, which was granted by the Finance Ministry on April 7 2010 to its subsidiary KNM Process Systems Sdn Bhd for the acquisition of Borsig.
Totalling RM1.4 billion, the tax incentive will apply for a period of four years from 2009.
"We expect a lower tax rate going forward as local operations will be spared from paying taxes. Also, there was no impairment charge for Borsig. Borsig contributed about 45 per cent of total FY09 earnings," said Lee.
The research firms has upgraded KNM to "hold" from "fully valued", but lowered its target price to RM0.60 from RM0.65.
"We expect some overhang in the share price given the EPF's recent heavy selling, but at the current price level, we believe that most of the negatives have been priced in. KNM has also started to buy back its shares.
"We believe KNM's strong RM571.7 million cash balance should support more buyback on share price weakness," said Lee.
Read more: KNM Group expects to perform better this year
http://www.btimes.com.my/Current_News/BTIMES/articles/03knm/Article/index_html#ixzz0mvpKFNdB
A quick look at Integrax (4.5.2010)
Integrax Berhad Company
Business Description:
Integrax Berhad. The Group's principal activities are owning and operating 2 port facilities, Lumut Maritime Terminal (port facility for dry and liquid bulk, break bulk and containers) and Lekir Bulk Terminal (port facility for dry and liquid bulk) comprising Lumut Port. Other activities include providing tuggage services, and extracting and smelting mineral ore. Operations are carried out in Malaysia.
Wright Quality Rating: LAD0
A quick look at Integrax (4.5.2010)
http://spreadsheets.google.com/pub?key=t8WcTpUdhaSg_cm5MvKQYLQ&output=html
30/04/2010
PROPOSED FINAL DIVIDEND
The Board of Directors of Integrax is pleased to recommend a final dividend of 3% less Malaysian income tax for the financial year ended 31 December 2009, subject to the approval of the Company's shareholders at the forthcoming Twenty-Fourth Annual General Meeting to be convened.
Business Description:
Integrax Berhad. The Group's principal activities are owning and operating 2 port facilities, Lumut Maritime Terminal (port facility for dry and liquid bulk, break bulk and containers) and Lekir Bulk Terminal (port facility for dry and liquid bulk) comprising Lumut Port. Other activities include providing tuggage services, and extracting and smelting mineral ore. Operations are carried out in Malaysia.
Wright Quality Rating: LAD0
A quick look at Integrax (4.5.2010)
http://spreadsheets.google.com/pub?key=t8WcTpUdhaSg_cm5MvKQYLQ&output=html
30/04/2010
PROPOSED FINAL DIVIDEND
The Board of Directors of Integrax is pleased to recommend a final dividend of 3% less Malaysian income tax for the financial year ended 31 December 2009, subject to the approval of the Company's shareholders at the forthcoming Twenty-Fourth Annual General Meeting to be convened.
Monday, 3 May 2010
A quick look at Genting Berhad (3.5.2010)
Genting Berhad Company
Business Description:
Genting Berhad. The Group's principal activities are operating hotel, gaming and entertainment, tours and travel related services. Other activities include generation and supply of electric power, oil palm plantations, palm oil milling, construction, property development and management, oil and gas exploration, sale of crude oil and investment holding. Operations of the Group are carried out in Malaysia, Asia Pacific, Europe and other countries.
Wright Quality Rating: ACD0
A quick look at Genting Berhad (3.5.2010)
http://spreadsheets.google.com/pub?key=tn_N2jnN3rN857OjJ3soAyA&output=html
Business Description:
Genting Berhad. The Group's principal activities are operating hotel, gaming and entertainment, tours and travel related services. Other activities include generation and supply of electric power, oil palm plantations, palm oil milling, construction, property development and management, oil and gas exploration, sale of crude oil and investment holding. Operations of the Group are carried out in Malaysia, Asia Pacific, Europe and other countries.
Wright Quality Rating: ACD0
A quick look at Genting Berhad (3.5.2010)
http://spreadsheets.google.com/pub?key=tn_N2jnN3rN857OjJ3soAyA&output=html
Warren Buffett's Investment Secret
Asked whether he has an investment secret, he says simply: "Pragmatism."
Warren Buffett's wonderful world of investing
Warren Buffett's wonderful world of investing
A quick look at Daibochi (3.5.2010)
Daibochi Plastic and Packaging Industry Berhad
Business Description:
Daibochi Plastic and Packaging Industry Berhad. The Group's principal activity is manufacturing and printing flexible packaging materials. Other activity includes developing land into residential and commercial buildings. The Group principally operates in Malaysia.
Wright Quality Rating: LBC1
A quick look at Daibochi (3.5.2010)
http://spreadsheets.google.com/pub?key=tiRMwQJfZ-5eKyfTy1bPXWw&output=html
Comment:
Not a great stock.
A gruesome stock.
Business Description:
Daibochi Plastic and Packaging Industry Berhad. The Group's principal activity is manufacturing and printing flexible packaging materials. Other activity includes developing land into residential and commercial buildings. The Group principally operates in Malaysia.
Wright Quality Rating: LBC1
A quick look at Daibochi (3.5.2010)
http://spreadsheets.google.com/pub?key=tiRMwQJfZ-5eKyfTy1bPXWw&output=html
Comment:
Not a great stock.
A gruesome stock.
A quick look at Latexx (3.5.2010)
A quick look at Latexx (3.5.2010)
http://spreadsheets.google.com/pub?key=tECNeQDUY1U6NYZKZZlixQQ&output=html
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