It was been quite a month since the last newsletter (just as well I was on extended travel schedule!) , culminating in the events of this past week with the announcement of the Euro rescue package. These are uncertain times with markets fluctuating frenetically between the "risk-on" and "risk-off" trade, and it is important during times like these to re-evaluate (and stay with) the "big picture" view on global markets and economies. Few investment greats do that better than Bill Gross and Mohammed El-Erian , co-CEOs of the world's largest and one of the most successful bond fund managers – PIMCO. They were both interviewed recently by Counselo Mack of Wealth Track , and I have summarised below the key points:
-US growth is likely to average 0 to 1% over the next 12 to 18 months. This is because of weak consumer demand (which is 65-70% of total growth) arising from real wages being unable to keep pace with the growth of profits and other metrics.
-The struggles in the Eurozone, being the biggest economic region in the world, has serious negative implications and has brought the world to the brink of a systemic crisis.
-Europe needs two things to begin resolving this crisis – a circuit breaker to stop the crisis from spreading further and a clear vision where the Eurozone is heading over the next 3 to 5 years.
-A circuit breaker for the banking sector requires three things: ECB to provide liquidity (which is happening), equity infusion into the banks via the EFSF and improvement of the asset quality of banks.
-Europe will eventually solve the crisis and thereby prevent a downward spiral , but that does not imply that the world will return to the "old normal" as there continue to be serious structural issues facing the developed world which will take a long time to resolve.
-A key structural issue facing the US according to Bill Gross is that "long term profits cannot ultimately grow unless they are partnered with near equal benefits for labour. If main street is unemployed and under-compensated, capital can only travel so far down the prosperity road".
-These type of structural issues, and their solutions or lack thereof, have an impact on markets as they influence growth, government yields and equity prices which discount growth potential.
-Policy actions are having a huge impact on markets today and given the lack of cohesion amongst policy makers the impact is largely negative. Policy actions are also distorting fundamentals making the investing process even more difficult.
-Unfortunately the policy options are limited going forward - for example, on the monetary front with interest rates already very low, the positive impact of further declines in rates is limited.
-Therefore the focus of policy needs to shift from monetary and fiscal solutions, which have worked well in the past, to develop structural solutions to regenerate the economy.
-It is not just about stimulating demand, it is focussing on: 1) reviving housing which is critical to the health of the economy, 2) addressing structural unemployment, 3) get credit flowing again to the small and medium-sized companies, and, 4) increasing investment in infrastructure.
-The current debate between the Republicans and Democrats on whether to reduce the deficit or not is important but it needs to be dealt with later as the immediate priority is for the government's balance sheet be substituted (in a productive way) for the private balance sheet because the private sector is unwilling to take risk.
-Growth is the best way to reduce the debt problem in the developed world but we are unlikely to see growth because of the structural impediments. This has huge implications for investment portfolios.
-Portfolios should be well diversified and weighted in high quality assets in the developed world (government guaranteed bonds like US mortgages, high grade corporate bonds, equities in corporations with good balance sheets), emerging market local currency and $ bonds, diversified currencies, and "tail risk hedge" assets which provide protection against disasters like gold.
Interesting views from two investment greats and very helpful in keeping focus on the "big picture" and not getting swayed by extreme market volatility. The key lesson learnt over the last few months is the critical importance of diversity of assets – in these uncertain times it is almost impossible to predict the short to medium term movement of various asset classes and constructing a portfolio with weightings in cash, longer dated developed world government and high quality corporate bonds, EM local currency and $ bonds, developed world high quality equities, EM equities, commodities and gold should be able to withstand (to a reasonable degree!) market volatility. It is equally important not to overreact to extreme market movements, but use them to perhaps lighten or increase exposure as opposed to panic driven buying high and selling low!
On the European rescue package – it is a step in the right direction and embodies the Angela Merkel "step-by-step" approach rather than the Sarkozy/Cameron "bazooka" approach. Therefore, expect more summits in the future in response to more crises, but also realise that European leaders have shown that they have the resolve to address them (temporarily) and prevent downward market spirals (which is likely to lessen the fear factor in markets). Eventually, they will need to resort to ECB funding to support government bond markets and finally a quasi fiscal union in the form of eurobond issuance. As the above note highlights, the developed world is destined for 1% economic growth for a long while, which when combined with financing costs of 5-6% (for Italy and Spain) on a large debt burden, is not a viable scenario over the medium term.
Honda Motor withdrew its annual earnings guidance in an unusual move on Monday due to uncertainties including currency markets and Thailand's floods just as it was starting to recover from the March earthquake and tsunami.
Honda has been hit the hardest of any of Japan's automakers by both disasters this year, recovering slowly from the supply disruption in northeast Japan and suffering direct damage at its Thai car factory in the Ayutthaya industrial estate.
For the July-September second quarter, Japan's third-biggest automaker posted a 68 percent drop in operating profit to 52.51 billion yen ($693 million) due mainly to a shortage of microchip controllers from quake-hit Renesas Electronics. That was worse than the consensus estimate of 63.5 billion yen in a Reuters survey of 13 analysts.
Net profit, which includes earnings in China, fell 55.5 percent to 60.43 billion yen, also hammered by a sharp rise in the yen.
Honda, also the world's top motorcycle maker, had previously forecast operating profit of 270 billion yen for the year to March 2012, half what it made last year and far below the consensus 360 billion yen.
The maker of the popular Civic and Accord models had been preparing to ramp up overall car production to 125 percent of pre-quake plans in the October-March second half to build up inventory that had fallen after the March 11 disaster.
News Highlights - Week of 17 - 21 October 2011
The People's Republic of China's (PRC) gross domestic product (GDP) grew 9.1% year-on-year (y-o-y) in 3Q11, down from 9.5% growth in 2Q11. This is the slowest quarterly GDP growth rate since 2009. The slowdown was due largely to weaker exports. Domestic demand held up relatively well, buoyed by strong industrial production and retail sales growth.
*The Bank of Thailand decided on 19 October to leave its policy rate unchanged at 3.5%. Bangko Sentral ng Pilipinas likewise kept its overnight borrowing and lending rates steady last week at 4.5% and 6.5%, respectively.
*Hong Kong, China's consumer price inflation (CPI) accelerated slightly in September to 5.8% y-o-y from 5.7% in August, after a cooling down from a 15-year high in July. Meanwhile, Malaysia's CPI slightly increased to 3.4% y-o-y in September from 3.3% in the previous month.
*In the PRC, the industrial production growth rate rose to 13.8% y-o-y in September from 13.5% in August, while retail sales grew 17.7% y-o-y in September from 17.0% in August. Meanwhile, department store sales in Japan declined for the third consecutive month in September.
*Remittances to the Philippines from overseas workers grew 11.1% y-o-y in August to reach US$1.7 billion. From January through August, cumulative remittances rose 6.9% y-o-y to reach US$13.0 billion.
*Last week, China National Petroleum Corporation (CPNC) priced CNH3 billion of bonds, which were issued through CNPC's offshore entity CNPC Golden Autumn. The Korea National Oil Corporation issued US$1.0 billion worth of 5-year bonds at a yield of 4.137%. The proceeds from the sale will be used to finance overseas oil projects. Malaysia's Khazanah Nasional Bhd. issued its first Islamic CNH bond amounting to CNH500 million through its special purpose vehicle, Danga Capital Bhd. The issue had a tenor of 3 years and was priced at 2.90%.
*The Philippine Bureau of the Treasury issued PHP110 billion worth of Retail Treasury Bonds (RTBs). Of the total amount, PHP54.97 billion were 10-year bonds and PHP55.12 billion were 15-year bonds. The 10- and 15-year RTBs have coupon rates of 5.75% and 6.25%, respectively.
*The PRC's Baosteel was given approval last week to issue CNH bonds in Hong Kong, China. Baosteel is the first non-financial entity from the mainland given approval to issue CNH bonds. Non-financial mainland entities were previously not allowed to issue CNH bond unless they were issued via an offshore vehicle or subsidiary. Meanwhile, Hong Kong, China's property developer Wharf Holdings plans to issue at least SGD100 million worth of bonds with tenors of 7 years and yield guidance at 4.3%-4.4%.
*Government bond yields fell last week for most tenors in the PRC, Indonesia, the Philippines and Thailand, while yields rose for all tenors in the Republic of Korea and Singapore and for most tenors in Malaysia and Viet Nam. Yield movements were mixed in Hong Kong, China. Yield spreads between 2- and 10- year maturities widened in Hong Kong, China; Indonesia; the Republic of Korea; Malaysia; and Singapore, while spreads narrowed in other emerging East Asian markets.
India is set to demand a review of provisions of capital gains taxation when it meets Mauritius in December second week to renegotiate the Double Tax Avoidance Agreement (DTAA) that was signed way back in 1983.
Under the DTAA, capital gains on sale of assets in India by companies registered in Mauritius can only be taxed in Mauritius. While short-term capital gains are taxed at 10 per cent in India, they are exempt in Mauritius. So, such companies escape paying taxes in both countries.
Revenue department officials claim that the treaty is being misused for round tripping. Here, an investor exploits the tax advantages offered by a country (zero capital gains tax in Mauritius) with which India has a DTAA, takes money out of India and finally brings it back disguised as foreign investment.
The officials, however, said Mauritius "may not agree with our proposals" without a fight.
The final agenda drawn by the revenue department is being vetted by the ministry of external affairs. The move comes amidst the flak the government has been drawing from all quarters including the civil society, Opposition political parties and the Supreme Court over its alleged inaction on curbing black money generation and bringing it back from bank accounts in foreign jurisdictions.
Earlier, India and Mauritius had agreed to review the operations of a Joint Working Group set up in 2006 to strengthen the mechanism for exchange of information under the India-Mauritius tax treaty, besides putting in place adequate safeguards to prevent misuse of the DTAA.
The renegotiation will seek provisions for past information and banking information, the sources added. The tax treaty between the two nations has facilitated huge foreign investment in the country. Many venture capitalists have structured investments in India, taking advantage of the benefits provided by the treaty.
It is to be noted that Mauritius tops the list of countries brining in foreign direct investment in India. According to the Department of Industrial Policy and Promotion, bulk of the FDI inflows into the country between April, 2000 and January, 2011 has happened via Mauritius-based companies. During this period, FDI from Mauritius stood at Rs 2,69,395 crore or 41 per cent of the total FDI inflows into India.
Earlier, Finance Minister Pranab Mukherjee had said India is constructively engaged with Mauritius to update the existing DTAA convention in line with international practices.
So far, as many as 81 tax treaties with foreign countries have been amended to enable better flow of financial information and 14 tax information exchange agreements signed.
Ballooning Natural Gas Supply-Demand Deficit to Fuel LNG Imports: ICRA
India's natural gas supply has been adversely impacted in 2011-12 due to fall in KG D6 production to 46.6 MMSCMD in H1 2011-12 from 55.9 MMSCMD in 2010-11. KG D6 production is likely to remain at subdued levels over the next couple of years, especially in comparison to the earlier anticipated production of 60-80 MMSCMD.
Regarding domestic gas production in the medium term, Mr. K. Ravichandran, Senior Vice-President and Co-Head, Corporate Sector Ratings, ICRA stated, "Domestic natural gas supplies are expected to increase to around 153 MMSCMD by 2014-15 from 143 MMSCMD in 2010-11. The current estimate is about 22% lower than our previous estimates of 195 MMSCMD primarily due to lower KG-D6 production and delays anticipated in commissioning of KG satellite fields."
On the demand front, despite the significantly high potential across several sectors, the realisable demand for natural gas will be a function of gas supplies in the market at reasonable price, the price competitiveness of gas as compared to alternative fuels, timely commissioning of the proposed transmission pipeline infrastructure, and regulatory initiatives in the power sector. ICRA believes that demand will increase from new customers once the bottlenecks in the trunk pipeline are cleared in the near to medium term. Overall, ICRA expects gas demand to rise to around 410 MMSCMD by 2019-20 from the actual consumption of around 177 MMSCMD in 2010-11.
Commenting on increasing domestic supply-demand gap, Mr. Ravichandran mentioned "India needs to secure additional supply of LNG on a long-term basis, especially in view of less-than-anticipated domestic supply and possible shortage of LNG after a couple of years. India's reliance on LNG is expected to increase further, which will pose significant risks in a scenario of tight LNG supply demand scenario, leading to low availability and high prices of spot LNG."
As regards gas allocation and pooling, an inter-ministerial committee has recently recommended i) preferential allotment of available domestic natural gas to core sectors, that is, fertiliser and power sectors, along with a certain amount reserved for the CGD/CNG sector, ii) cap on domestic gas allocation to certain other sectors and iii) inferred gas price to be used as benchmark for domestic gas pricing. The committee has not suggested any form of pooling at the all-India level across industries but the objective has been assumed to be served by indirect pooling at the end of consumers, with price-sensitive sectors (fertiliser/power/CGD) getting a higher share of cheaper domestic gas. ICRA believes that the policy recommendations, if accepted, will provide more clarity to gas usage mix and pricing, which in turn would help companies across industries to formulate their capital expenditure plans (capex) and future requirements of natural gas.
As R-LNG is an expensive fuel as compared to domestic gas and domestic/imported coal, it is critical for a power producer to tie-up domestic gas for a large share of fuel requirements. ICRA believes that the additional demand from power (around 32 MMSCMD by 2012-13) along with lower KG D6 production pose significant fuel supply risk for gas-based power producers over the medium term. Commenting on this, Mr. Ravichandran stated "If the recommendations of the recent Inter-Ministerial Committee are accepted and implemented by the GoI, the fuel supply risk might be partly mitigated as the new power plants could get domestic gas allocation to the extent of 60-70%". ICRA expects that levellised tariff for a new gas based power plant would be competitive in comparison to those based on imported coal, if R-LNG share as percentage of total gas requirement remains about 30-40%.
Regarding the credit outlook for ICRA-rated companies in the Indian downstream natural gas sector, most of them are in the process of implementing large capex programmes, considering that the sector is viewed to have good long-term demand prospects. While the large capex is a credit concern, track record of executing projects of a similar nature, comfortable capital structure, regulated returns and steady cash flows are the mitigating factors from the credit perspective.
" The prospect of a potential recession in both the United States and Europe has recently increased, driving a sharp reduction in global risk appetite. Traditionally, a slowdown in developed countries - and
a decline in risk appetite - have had an adverse impact on emerging economies and their asset values. However, in the aftermath of the 2008 global financial crisis, many emerging countries were able to recover from the economic slowdown more quickly than developed economies, with the advent of counter-cyclical fiscal and monetary policies, as well as a dramatic increase in global liquidity. Can this
scenario be repeated?
Authored by Bunt Ghosh, Head of Emerging Market Strategy and Risk, Anja Hochberg, Head of Investment Strategy for the CIO Office and Adrian Zürcher, Emerging Market and Equity Strategist for the CIO Office, the paper discusses how emerging markets - while not immune from a potential global slowdown - may again have the capacity to successfully respond to the current market environment with similar counter-cyclical measures"
Download the full paper at
If you can't access the same
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Nokia, The world's largest cellphone maker will unveil its first phones using Microsoft software on Wednesday, hoping they will kick-start a rescue of its ailing smartphone business.
Nokia is widely expected to launch two to three new models using the software, including the Searay which was first shown in a leaked video months ago and looks very similar to its current N9 handset.
The Finnish company, left in the dust by Apple and Google in the booming smartphone market, decided to ditch its aging Symbian platform in favor of Microsoft's software in a risky deal in February that spooked investors.
Nokia has not rushed with the new phones.
Nimbler rivals HTC, Fujitsu and Samsung Electronics have beaten it with models using the latest Windows software, Mango.
Nokia and Microsoft have said they would focus on close co-operation with operators to support the platform.
"Operators really want to have another company on the scene: they don't want Google and Apple to rule the mobile universe," said Magnus Jern, chief executive of Barcelona-based mobile app development firm Golden Gekko.
Analyst Carolina Milanesi from research firm Gartner said Nokia should price its first models below those of Samsung and HTC, and then market them heavily.
"Price is going to be the key — you need to give a bit of the carrot to consumers and developers," she said.
Nokia's market value has halved since February as investors are unsure whether it can ever regain the market share it has lost.
Its third-quarter results beat low expectations, sparking hopes that the company can survive a painful revamp, but smartphone sales still dropped 38 percent from a year ago.
Nokia said last week that its first Windows phone would reach selected markets this year, but declined to say whether more than one model would be launched this week.
With Microsoft software, Nokia hopes to gain the kind of attention Apple and Google have attracted from software developers that enrich their devices.
There are some initial positive signs.
"We are seeing Windows being acknowledged as platform No 3," said Golden Gekko's Jern, adding that Microsoft and Nokia, are subsidizing app development to kick-start the new platform.
"We are working on 10 applications of which five are paid by Nokia," Jern said.
Research firm Strategy Analytics expects Microsoft to double its share of the Western European smartphone market during 2012 to 12.3 percent, helped by the Nokia partnership.
The 12.3 percent forecast for Microsoft's software refers to its use across several mobile phone makers and compares with the much higher market share Nokia's Symbian platform alone previously enjoyed — it controlled 41 percent of the West European market as recently as the first half of 2010.
The annual Nokia World media and industry event in London on Wednesday includes speakers from the world's largest carriers: China Mobile, Vodafone, Orange and MTN.
Heineken maintain its Q4 outlook as company sees strong Q3 beer sell.
The judge presiding over the spot-fixing trial has instructed the jury at a London Court on Tuesday to accept that Mohammad Amir and agent Mazhar Majeed were involved in fixing.
Former Pakistan Test captain Salman Butt and fast bowler Mohammad Asif face charges of conspiracy to cheat, and conspiracy to obtain and accept corrupt payments, following a Lord's Test in August last year when they allegedly conspired with Majeed, Amir and other people unknown to bowl pre-planned no-balls. Butt and Asif deny the charges.
The comments came as the judge began his summary of the trial at Southwark Crown Court and were the first official guidance given to the jury on Amir and Majeed. However, the judge added that their apparent guilt should not bias the fate of Butt and Asif.
"You can proceed on the basis that Majeed and Amir were involved in the spot-fixing at Lord's, as all parties agree that is the case," Justice Cooke told the jury. "But don't be concerned at their absence."
"You should return true verdicts according to the evidence. Don't let sympathy enter your verdicts and don't speculate on what you might have heard outside of this courtroom. You should base your decision on the evidence alone and draw inferences, which I mean by drawing common sense conclusions."
Earlier, Butt's lawyer Ali Bajwa completed his closing arguments, stressing that it was possible for no-balls to have been fixed without the knowledge of his client.
He suggested there was a criminal conspiracy between Majeed and Amir and possibly Asif, but insisted that Butt played no part in any spot-fixing that might have occurred.
"The prosecution doesn't want the truth to get in the way of a jolly good theory but you have to go on evidence, not suspicion. Guess work cannot play a part in your deliberations," Bajwa said.
In his closing, Asif's lawyer Alexander Milne urged the jury to "follow the money" after police failed to find any marked cash from an undercover reporter in his client's room during initial police raids.
"Where did that 150,000 Pounds (that Majeed took from the undercover reporter) go?" Milne asked the jury. "It went to Mr Butt and Mr Amir. It's up to you members of the jury what conclusions you draw from that but none of that money went to Mr Asif.
"If Majeed was that keen to pay Mr Asif, he would have found a way. If you follow the money, you will find that it does not lead to Mr Asif," Milne added.
Bringing intellectual property protectionism to a new level of absurdity, someone has applied to trademark 'Occupy Wall Street.'
From The Smoking Gun: Citing the potential of “Occupy Wall Street” to become a “global brand,” a Long Island couple has filed to trademark the name of the amorphous organization responsible for the protests and encampments in lower Manhattan and other U.S. cities, The Smoking Gun has learned. In a U.S. Patent and Trademark Office (USPTO) application, Robert and Diane Maresca are seeking to trademark the phrase “Occupy Wall St.” so that they can place it on a wide variety of goods, including bumper stickers, shirts, beach bags, footwear, umbrellas, and hobo bags.
From The Smoking Gun: Citing the potential of “Occupy Wall Street” to become a “global brand,” a Long Island couple has filed to trademark the name of the amorphous organization responsible for the protests and encampments in lower Manhattan and other U.S. cities, The Smoking Gun has learned. In a U.S. Patent and Trademark Office (USPTO) application, Robert and Diane Maresca are seeking to trademark the phrase “Occupy Wall St.” so that they can place it on a wide variety of goods, including bumper stickers, shirts, beach bags, footwear, umbrellas, and hobo bags.
MF Global Holdings Inc ( NYSE : MF ) loose as much as 47% in tuesday's trading session as company announced a second quarter loss.
MF Global (NYSE: MF) opened at $3.31. Over the last 52 weeks the stock has ranged from a low of $3.48 to a high of $9.28. The stock dove after the company reported a loss for its second quarter. Option players also flocked to the stock and volume was 24.63 times normal with 22,879 contracts changing hands. More than 71% of Tuesday's volume was in puts. Technical indicators for the stock are and S&P does not currently have a STARS rating for MF. If you are looking for a hedged play on MF the stock seems like it could be a candidate for a December out-of-the-money bear-call credit spread above the 3 range
Amazon Inc ( NASDAQ: AMZN ) was down more than 4 % in regular trading session on Tuesday and loose as much as 15 % in after hours trade. Traders and Investors are betting that company's profit is deteriorating as company announced 73 % less profit in Q3 and issued a guidance below analysts' expectations. Stock was hit hard and close after hour session at $198.89, more than 12 % down after market close.
More bearish bets have been made on this online e commerce company and might see more down side as sentiment might worsen about this particular stock.
Below is the news release:
The earnings decline was far worse than Wall Street had expected from the e-commerce giant. That — along with a weak profitability forecast for the fourth quarter — sparked a sell-off in after-hours trading that pinched about 12% from the company’s stock, which had already slipped more than 4% in the regular session to close at $227.15.
Colin Sebastian of Robert W. Baird said the fact that Amazon’s missed Wall Street’s earnings target is not new, but noted that revenue results also came in slightly below analysts’ forecasts — a change from previous quarters.
“The lack of upside in revenue combined with guidance that looks pretty conservative is going to pressure the stock for the time being,” Sebastian said in an interview.
For the period ended Sept. 30, Amazon AMZN -12.44% reported net income of $63 million, or 14 cents a share, compared to net income of $231 million, or 51 cents a share, for the same period the previous year.
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Revenue jumped 44% to $10.88 billion.
Analysts were expecting earnings of 24 cents a share on revenue of $10.95 billion for the quarter, according to consensus forecasts from FactSet Research.
The company reported operating income of $79 million for the quarter, a drop of 70% from last year’s third quarter and well below Wall Street’s forecast of $149.7 million. That put operating margin for the period at a relatively anemic 0.7%. Operating expenses jumped by 48% for the quarter.
Amazon added about 8,100 workers during the quarter, which Sebastian noted as a significant growth in the company’s headcount, which now numbers 51,300 workers.
“This fast pace of growth is costing Amazon a lot of money,” Sebastian said. “No one is going to really challenge Amazon, but the pace of their growth may be in question. In this environment, at this multiple, that’s not good enough.”
The company said Tuesday that it is adding a total of 17 fulfillment centers this year, up two from its previously disclosed plan. Fulfillment expenses soared by 65% in the third quarter, with a 74% gain in expenses related to technology and content.
For the fourth-quarter, Amazon projected a revenue range of $16.45 billion to $18.65 billion, compared to Wall Street’s forecast of $18.15 billion.
“We don’t view these results as thesis-changing,” Citi analyst Mark Mahaney wrote in an email, noting that Amazon s spending “seems clearly elective/discretionary/offensive against very large market opportunities.”
But he added that “we are surprised that the Q4 revenue guide isn’t more robust.”
The profitability line for the fourth quarter is expected to come in between an operating loss of $200 million and operating earnings of $250 million, implying a targeted operating margin range of 1.3% at the top end of the forecast. Analysts had been expecting an operating margin of 2.7% for the period.
Amazon is planning to launch its new Kindle Fire tablet in the middle of the fourth quarter. Analysts generally expect the device to boost sales, but its low price tag of $199 has some concerned that it may pressure margins even more during the crucial holiday period.
Scott Devitt of Morgan Stanley says he currently expects Amazon to sell about 2.8 million units of the tablet in the fourth-quarter. “Short of material disruption of the business model in the seasonally strongest quarter of the year, we believe the guidance is light provided the sales impact of the Kindle Fire,” he wrote in a report Tuesday afternoon. ( Source: MarketWatch )
The next time you get your phone bill, check the total amount due. If it’s a little higher than usual, you may have fallen prey to an identity theft scam known as “cramming,” in which unauthorized fees are charged to a customer’s land line or cell phone account. The crammer gets away with it because the fees are usually too small to notice.
Those small charges can add up: Cramming costs Americans as much as $2 million a year, according to the U.S. Senate Committee on Commerce, Science and Transportation.
Crammers ply their trade through third-party billing. Carriers, including AT&T and Verizon Communications, allow users to charge third-party services to their phone bills, and they receive more than $1 billion a year to do so by third-party providers.
Scammers steal a telephone customer’s personal information, and then tell the carrier that they’ve provided a billable service to the victim. After giving the carrier the victim’s information, the charge is authorized. While the service may be nonexistent, the fraudulent charges are very real.
It’s not just individuals who need to be wary. Businesses are also popular targets for crammers, because their monthly bills are so complicated and the average office is too hectic an environment for every bill to receive close scrutiny.
“With today’s economy, where employees are often doing the job of two or more people, bills are not audited as closely as they may have been in the past,” according to Michael Bremmer, CEO of Telecomquotes.com. He notes that crammers often add fraudulent charges to a single business under multiple names and in varying amounts, thereby obscuring their identities and making it harder for auditors to detect.
Businesses and individuals alike can take actions to protect themselves from cramming. Susan Grant, director of consumer protection for the watchdog group Consumer Federation of America, recommends avoiding free trial offers, whose buy-now-pay-later structure is not always disclosed.
“The way that these offers are structured is that after the trial period is over, the charges begin,” she says. Grant also recommends that consumers simply take the time to closely examine their bills every month in order to detect third-party charges that they don’t recognize.
Of course, the most effective way to guard against cramming is to make sure it doesn’t happen in the first place. Customers can instruct their carriers to block all third-party charges on both cell phone and land line accounts, but even those who have found unauthorized charges on their bills can still take action.
“Contact both the third party company — as they provide their customer-service number on the invoice — and the local phone company which allowed the charges to be applied,” says Steve Reifel, president of business consulting firm Cost Containment Solutions. “Issue a formal complaint with the carrier, as they will remove from the invoice and block that company from issuing any further charges.”
Telephone customers who want to go further than their own carriers can also contact their elected representatives and tell them to pass legislation to end the practice of third-party billing. Contact information for all 540 members of the 112th Congress can be found at the "Contact Elected Officials" page of the USA.gov website.
News Highlights - Week of 10 - 14 October 2011
Last week the Philippines accepted a total of US$1.3 billion in a buyback of EUR- and US$-denominated bonds. In line with the buyback exercise, the government raised US$50 million through the reopening of its bonds maturing on 23 October 2034 with a coupon of 6.375%. The Bureau of the Treasury also launched its second retail treasury bond offering of the year. On the corporate front, Banco De Oro Unibank Inc. issued PHP6.5 billion worth of unsecured subordinated notes that qualify as Tier 2 capital. Finally, in response to the weakening global economy the Philippine government unveiled a PHP72.1 billion fiscal stimulus package to boost the country's growth through the first half of 2012.
*In the People's Republic of China (PRC), the Ministry of Railways sold CNY10 billion worth of 5-year bonds and CNY10 billion worth of 20-year bonds. These bonds qualify for the 50% reduction in the tax on interest income as recently announced by the National Development Reform Council. The Export-Import Bank of Korea issued KRW170 billion worth of 1-year zero-coupon bonds and Shinhan Bank issued KRW100 billion of 2-year bonds. In Malaysia, Kuala Lumpur Kepong sold MYR300 million worth of 5-year Islamic bonds, while TRIplc issued MYR240 million worth of medium-term notes in several tranches that were guaranteed by Danajamin Nasional.
*Bank Indonesia's Board of Governors cut the benchmark rate by 25 basis points to 6.50% in its meeting on 11 October. The Bank of Korea's Monetary Policy Committee decided to maintain its 7-day repurchase rate at 3.25% in its meeting on 13 October. The Monetary Authority of Singapore announced that it will continue with a policy of modest and gradual appreciation of the Singapore dollar, but will reduce the slope of the policy band to the prevailing level of the nominal effective exchange rate.
*Inflation in the PRC fell in September to 6.1% year-on-year (y-o-y) from 6.2% in August. Growth in the PRC's producer price index also eased to 6.5% y-o-y from 7.3% in August.
*Singapore's economy expanded 5.9% y-o-y in 3Q11, according to advance estimates released last week by the Ministry of Trade and Industry. Meanwhile, Malaysia's industrial production index rose 3.0% y-o-y in August following a revised 0.5% y-o-y decline in July. Also, manufacturing sales posted 10.8% y-o-y growth in August compared with revised 9.5% growth in July.
*The PRC posted a trade surplus of US$14.5 billion in September, the smallest since May, due to weakening demand from developed economies. Export growth fell to 17.1% y-o-y in September from 24.5% in August. In the Philippines, exports fell 15.1% y-o-y to US$4.1 billion in August, the steepest decline since September 2009.
*The M3 money supply in the Philippines grew 9.4% y-o-y to PHP4.3 trillion in August. Liquidity was fueled by the expansion of net foreign assets at a pace of 21.7% y-o-y on sustained inflows from overseas Filipino remittances and portfolio and direct investments.
*Government bond yields fell for all tenors in Indonesia and for most tenors in the PRC, the Republic of Korea, Malaysia, the Philippines, Singapore, Thailand, and Viet Nam. The yield spread between the 2-year and 10-year maturities narrowed for most emerging East Asian markets while it widened for Hong Kong, China; Malaysia, and Thailand.
The U.S. State Department on Thursday said it could not confirm that former Libyan leader Muammar Gaddafi has been captured and wounded in both legs.
Muammer Gaddafi "We've seen the media reports but can't confirm them," State Department spokeswoman Beth Gosselin told Reuters. Reuters reported that the deposed Libyan leader had been captured and wounded in both legs, citing National Transitional Council official Abdel Majid. "He's captured. He's wounded in both legs... He's been taken away by ambulance," the senior NTC military official told Reuters by telephone.
Gaddafi was captured and wounded near his hometown of Sirte at dawn on Thursday as he tried to flee in a convoy which NATO warplanes attacked, Majid said. The senior NTC military official told Reuters by telephone that the head of Gaddafi's armed forces Abu Bakr Younus Jabr had been killed during the capture of the Libyan ex-leader.
Muammer Gaddafi "We've seen the media reports but can't confirm them," State Department spokeswoman Beth Gosselin told Reuters. Reuters reported that the deposed Libyan leader had been captured and wounded in both legs, citing National Transitional Council official Abdel Majid. "He's captured. He's wounded in both legs... He's been taken away by ambulance," the senior NTC military official told Reuters by telephone.
Gaddafi was captured and wounded near his hometown of Sirte at dawn on Thursday as he tried to flee in a convoy which NATO warplanes attacked, Majid said. The senior NTC military official told Reuters by telephone that the head of Gaddafi's armed forces Abu Bakr Younus Jabr had been killed during the capture of the Libyan ex-leader.
Debt Champions
In the past (Q4) quarter, AAPL increased its cash, short and long-term investments from $76.2 billion to $81.6 billion (which, however, skeptics will point out was only half the cash growth rate from Q2 to Q3). In 2011 alone, the company that Steve Jobs built generated $22 billion in total cash. Ironically, that is precisely how much the company's market cap is lower by in the after hours session. If AAPL is unsure what to do with all that cash, which would make it the world's biggest hedge fund, it could hire all the stock experts on Twitter, and become the best funded trading operation in the world, which would naturally be buying its own stock all day long (and, if it were to hire a few JPM/BofA/MS traders, buy CDS on itself). Alas, for the CDS plan to work, it would need to issue some debt: the company is still completely debt free.
Everyone has heard of the Big Mac [7]Index, the Misery Index [8], even
the Shoe Thrower [9]Index. But the Book Cooking Index? This latest
addition to the compendium of oddly named yet extremely fascinating
"indices" is based around the statistical irregularity known as
Benford's law, according to which within sets of numbers that span
orders of magnitude, the distribution of first digits is strikingly
regular: numbers beginning in 1 occur about 30% of the time, those
beginning in 2 about 18% of the time, falling to roughly 5% of the
time for the number 9. Specifically, as noted by the keenly observant
Jialan Wang of Washington University in St. Louis, "there are more
numbers in the universe that begin with the digit 1 than 2, or 3, or
4, or 5, or 6, or 7, or 8, or 9. And more numbers that begin with 2
than 3, or 4, and so on. This relationship holds for the lengths of
rivers, the populations of cities, molecular weights of chemicals, and
any number of other categories." The most curious application of this
law resides in the field of corporate fraud, "because deviations from
the law can indicate that a company's books have been manipulated."
Here is where things get interesting for fraudulent corporate America:
the inquisitive Wang "downloaded quarterly accounting data for all
firms in Compustat, the most widely-used dataset in corporate finance
that contains data on over 20,000 firms from SEC filings" and "used a
standard set of 43 variables that comprise the basic components of
corporate balance sheets and income statements." Her results were, in
a word, startling.
Summary:
International Financial Reporting Standards (IFRS) provide the basis
for financial reporting to the capital markets in an increasing number
of countries around the world. Over 100 countries either use or are
adopting IFRS. Those companies already on IFRS have their own
challenges as the pace of standard- setting from the International
Accounting Standards Board (IASB) has been intense in recent years
with a constant flow of changes for companies to keep up with.
One of the major challenges of any reporting framework is how best to
implement it in the context of a specific company or industry. IFRS is
a principles based framework and short on industry guidance. PwC looks
at how IFRS is applied in practice by oil and gas companies. This
publication identifies the issues that are unique to the oil and gas
companies industry and includes a number of real life examples to
demonstrate how companies are responding to the various accounting
challenges along the value chain.
Of course, it is not just IFRS that are constantly evolving but also
the operational issues faced by oil and gas companies with the heavy
demand for capital and risks faced by the industry driving more
cooperative working relationships.
We look at some of main developments in this context with a selection
of reporting topics that are of most practical relevance to oil and
gas companies' activities. The new standards on joint arrangements,
consolidated financial statements and disclosure of interests in other
entities will be of particular interest to companies in the oil and
gas sector.
The debate about specific guidance for exploration, evaluation,
development and production of oil and gas continues. This publication
does not describe all IFRSs applicable to oil and gas entities but
focuses on those areas that are of most interest to companies in the
sector.
The ever-changing landscape means that management should conduct
further research and seek specific advice before acting on any of the
more complex matters raised. PwC has a deep level of insight into and
commitment to helping companies in the sector report effectively. For
more information or assistance, please do not hesitate to contact your
local office or one of our specialist oil and gas partners
Scam 2.0: $40bn of black money may have come back to India
On Tuesday, Bihar Chief Minister Nitish Kumar flagged off Lal Krishna Advani's Jan Chetna Yatra, one of whose aims to is pressure the government to act against corruption and bring back the black money stashed abroad.
Here's a thought: Maybe Advani can take a break and chat up some smart cookies in Mumbai during his yatra. It seems some of the black money has already come back and is nesting in our own backyard. It is sloshing about in the stock markets and bank accounts.
Here's the stunner: The amounts involved could be as large as USD 40-45 billion and this is money that came back just in one year, 2010-11.
Three analysts from Kotak Securites have probably struck paydirt in unearthing a scam that will be bigger than the 2G, Commonwealth and multiple illegal mining scams put together.
Howzatt?
Well, the trio—Sanjeev Prasad, Sunita Baldawa and Amit Kumar—have been poring over our export numbers and foreign investor inflows and have proved that it just does not add up. And if it does, maybe all the fuss kicked up about Swiss banks and illegal funds abroad has sent black money scurrying back to home base.
India, it seems, is the ultimate safe haven for Indians' black wealth.
Of course, Messrs Prasad, Baldawa and Kumar do not put it quite that way. This is what they say in a research report dated 10 October:
"Our study of exports data of major engineering companies (including automobiles and metals) shows that the increase in their exports does not reconcile with the steep increase in official exports data. In fact, the gap is quite substantial."
How substantial? The official export data shows 79% year-on-year export growth in 2010-11. Exports by engineering companies in the BSE 500 (the cream of India Inc) show just 11% growth. If you want to know the difference in dollars, the engineering export jump accounts for USD 30 bn (up from USD 38 billion to USd 68 billion). The figures for the BSE 500 show a jump of just Rs 61 billion (rupees, not dollars). Converted at the rate of USD 1= Rs 44, this is just USD 1.38 billion.
Where did the rest of the $28-and-odd billion come from?
From itsy-bitsy small engineering companies that are not in the BSE 500? Or was so much of illegal ore mined and sent by the Reddy brothers and their ilk in Goa, Odisha, Karnataka, and Jharkhand?
Or, as the Kotak trio suggest, could be it all be overinvoiced exports? The report says:
"Some reports have alleged that some individuals may have been compelled to bring back funds through the official route by simply overinvoicing exports or even resorting to fraudulent exports thanks to (1) increased international scrutiny of unaccounted funds in bank accounts in Switzerland and other financial centres, and (2) heightened debate in India about action against unaccounted overseas wealth."
The Kotak report offers two "egregious" examples as exhibits A and B in its effort to show that something's clearly wrong. In 2010-11, exports of metals and metal products soared from $13 bn to $ 29 bn. But figures for 22 such companies in the BSE 500 show a growth of just Rs 37 bn (yes, rupees again, not dollars). This growth is less than $1 bn. So how did overall exports of metal and metal products rise $16 bn?
Egregious example B relates to "copper articles" whose exports grew by a whopping four times or more from Rs 8,500 crore to Rs 36,700 crore. How did this miracle happen in a metal India is not known to export normally? China apparently bought a whole lot of it.
So there is a strong possibility of there being a China angle to the skulduggery as well. Are the Chinese in cahoots with Indian black money vendors? Is China an alternative safe haven for Indian crooks?
The second route used by the black moneymongers is possibly the foreign institutional investment (FII) route. The Three Kotak Musketeers have smelt a rat here, too.
According to them, 2010-11 foreign investor flows added up to $22 billion, according to official figures. But a cross-check with international sources like exchange-traded funds and EPFR Global (which tracks $ 15 trillion in global investment flows) shows that not more than $4.5 billion came to India. Though it is obvious that EPFR data is not 100 percent foolproof, since its sometimes excludes sovereign and private equity funds, the gap of $17.5 billion is simple too huge to be explained by normal data omissions.
Drawing a cautious conclusion, the Kotak trio calls for better disclosures by FIIs in view of the implications for India's foreign exchange reserves and balance-of-payments. "More extensive disclosures could well counter any potential concerns that flows could be camouflaging (1) hot money/illicit, unaccounted or black money from overseas accounts of resident Indians, and (2) high levels of proprietary positions of global investment banks, and (3) round-tripped money from Indian companies."
Put another way, there is a strong possibility that hot money has flowed back into India as things have gotten hotter abroad. In recent months, the Swiss authorities have signed deals with UK and Germany to levy a tax on accounts held by UK and German nationals. In India, the finance ministry has been waffling about double-tax treaties and ruling out amnesty schemes when they could have done the same deal with the Swiss banks. At worst, we would at least have got some additional revenues.
Firstpost has reported on how there is the growing possibility of international whistleblowers publishing lists of Indans with accounts in Swiss banks, which could unmask many politicians, film stars, and even cricketers.
Firstpost has also published several reports on black money, and reported on how the Indian economy had suddenly become an export tiger by showing huge leaps in exports to China, Hong Kong and the Middle East, among other places. In 2011-12, we have seen 53 percent growth in exports (April-August), with July alone showing a spectacular 81 percent.
The unreality of these figures has been clear for some time now, and Commerce Secretary Rahul Khullar has been predicting a slowdown for a few months now. In August, he said he expected a slowing of exports "with almost immediate effect" and that India "would be lucky" to achieve 20 percent export growth in 2011-12, The Financial Express reported.
Far from scripting a huge export success story, the government is working on policies to assist exporters.
Quite clearly, officials know something about the export boom that the official figures do not tell.
Looks like the Kotak Trio have done what the finance ministry could not: find out where the money is. It is here – at least a huge chunk of it.
A probe has been sought into changes in the contract for import of LNG from Qatar by a firm headed by the Petroleum Secretary, which resulted in gas prices jumping four-fold and entails an additional outgo of USD 55.5 billion (Rs 2.5 lakh crore) for users.
Petronet shares had plunged in excess of 2% today.
Member of Parliament from Gujarat Mukesh B Gadhvi has written to Prime Minister Manmohan Singh seeking a probe into how Petronet LNG (PLL) agreed to a USD 12.66 per million British thermal units price for 7.5 million tonnes of liquefied natural gas (LNG) imported from RasGas of Qatar, instead of the previously agreed USD 3.04 per mmBtu.
Stating that the additional expenditure of Rs 2.5 lakh crore involved in the hike was more than the figure floating in the case of the 2G scam, Gadhvi said this happened when the Petroleum Secretary was the Chairman of PLL and the chairman/directors of four leading oil PSUs were members of the company board.
"Instead of protecting the country's interests, these authorities have played role in benefiting RasGas," he added.
In 1999, in response to a tender, RasGas had offered to sell LNG to PLL at USD 2.53 per mmBtu at a crude oil price of USD 20 per barrel.
The LNG price was to rise or fall by 2 cents per mmBtu in tandem with every dollar movement in oil price. At a USD 100 a barrel oil rate, the LNG price was to be USD 4.13 per mmBtu.
But strangely, an unsolicited offer from RasGas pricing LNG in a band of USD 16-24 per barrel oil price (USD 2.01 per mmBtu to USD 3.04 per mmBtu gas price) was accepted by PLL.
Further, in 2003, Petronet renegotiated the price and agreed to having a fixed price at USD 20 per barrel of oil (USD 2.53 per mmBtu) for five years from 2004-2009 and indexation with actual crude prices thereafter, he wrote.
This led to the price going up by USD 1 per year for five years from 2009, and from January, 2014, it would be USD 12.66 per mmBtu at an oil price of USD 100 per barrel.
Had Petronet not changed the contract, the price of LNG from Qatar would have been USD 3.04 per mmBtu for 25 years.
But now, users will have to pay USD 12.66 per mmBtu for 15 years, beginning 2014.
The extra amount to be paid will be USD 3.7 billion a year and USD 55.5 billion (about Rs 2.5 lakh crore) over 15 years.
Gadhvi, a Member of the Parliamentary Standing Committee on Petroleum and Natural Gas, had previously demanded that joint ventures run by public sector firms like Petronet should be brought under the audit purview of the CAG.
"The public is entitled to expect a very high standard from the government," he wrote, seeking an enquiry, possibly by the CBI, into the whole issue.
News Highlights - Week of 3 - 7 October 2011
Consumer price inflation in Indonesia eased to 4.6% year-on-year (y-o-y) in September as food prices declined. In the Republic of Korea, inflation eased to 4.3% y-o-y in September from 5.3% in August. Consumer price inflation in Thailand also fell in September to 4.0% y-o-y from 4.3% in the previous month due to a slowdown in rising energy prices and transport costs. Meanwhile, inflation in the Philippines inched up to 4.8% y-o-y in September from 4.7% in August.
*The People's Republic of China's (PRC) purchasing managers' index (PMI) for services rebounded to 59.3 in September from 57.3 in August, indicating a recovery in the services sector. In contrast, Singapore's manufacturing activity contracted for the third straight month in September, with the PMI at 48.3 in September.
*Indonesia's export growth eased to 37.1% y-o-y in August for total exports of USD18.8 billion after posting revised 39.5% annual growth in July. Indonesia's imports rose 23.7% y-o-y to USD15.1 billion in August, following revised 28.4% growth in the previous month. The trade surplus in August was USD3.8 billion. Malaysia's merchandise exports posted 10.9% growth in August, higher than the 7.1% export growth rate for July. Meanwhile, imports grew 6.9% y-o-y in August.
*Bank Indonesia (BI) issued new regulations governing export proceeds and foreign debt withdrawals. Under the new policy, exporters will be required to transfer their proceeds from offshore banks into domestic banks within 3 months of the date posted on the Export Declaration Form. Another new BI regulation requires debtors to conduct their foreign borrowing through domestic banks.
*Net foreign investment outflows from the Republic of Korea's LCY bond market were KRW2.5 billion in September. Net inflows in August totaled KRW134.0 billion. The largest net bond investment inflows in September came from Thailand (KRW726.5 billion), the US (KRW619.3 billion), Malaysia (KRW603.8 billion), and the PRC (KRW 400.3 billion).
*Thailand plans to begin targeting headline inflation instead of core inflation to attain greater flexibility in conducting monetary policy.
*The State Bank of Viet Nam raised its refinancing rate, one of its three policy rates, by 100 basis points to 15% effective today. The move is the fifth increase in the refinancing rate for the year.
*In Hong Kong, China, Sinotrans Shipping Inc. priced 3-year CNH bonds with a coupon of 3.3%. In Malaysia, Midciti Resources, which co-owns the Petronas Towers, sold MYR880 million worth of Islamic medium-term notes. The multi-tranche issuance include MYR280 million worth of 3-year notes with a 3.533% annual return, MYR270 million of 5-year notes at 3.919%, MYR240 million of 7-year notes at 4.07%, and MYR90 million of 10-year notes at 4.25%.
*Government bond yields fell last week for all tenors in the Republic of Korea and Thailand; and for most tenors in Hong Kong, China; and Malaysia, while yields rose for most tenors in Indonesia, the Philippines, Singapore and Viet Nam. The PRC market was closed due to the national holiday. Yield spread between 2- and 10- maturities widened only in Malaysia, while spreads narrowed in other emerging East Asian markets except for the PRC.
