IMF Agrees To Shove Head Deep In Sand, Will Lower Eurobank Capital Needs
When all else fails, change the rules, and shove your head even deeper in the sand:
IMF has agreed to substantially lower initially estimate for European bank sector capital needs according to Eurozone sources• Private sector expected to meet bank recapitalisation needs, according to Eurozone sources• Eurozone has no plans for public support for banks over and above money in bailouts for Greece, Ireland and Portugal according to Eurozone sources• "We have discussed this with the IMF in detail and the IMF has agreed that this initial figure will be revised downwards and the revision will be quite substantial," a euro zone official participating in the talks said.
Of course, this won't change anything about the fact that Eurobanks are insolvent, that the ECB is undercapitalized, that the Greek bailout is falling apart. But what matters is that the IMF, or the world's former bailout, and now completely irrelevant, organization courtesy of China, will allow banks to proceed far further undercapitalized than prudent, until it has to bail out not one, but all, and at the same time. As a reminder, the IMF expected a need of $200 billion, which the eurocrats say is goign to be far lower... Even as Goldman's report, first released on Zero Hedge, said that the full amount will be 5 times bigger, or $1 trillion. As much as Goldman is blasted left and right, they at least know how to use that HP12C. Which is far more than we can say about the idiots from Luxembourg.
More from Reuters:
Euro zone governments have no plans to inject any further capital into banks over and above the money earmarked for the financial sector in the emergency loan programmes to Greece, Ireland and Portugal, sources said.
Euro zone officials discussed the issue of banking sector recapitalisation on Monday and Tuesday as part of the preparations for the informal meeting of European Union finance ministers in Poland on Sept. 16.
The issue has returned to the table after the IMF called for additional capital to boost the European banking sector, estimating the extra need at 200 billion euros in a draft version of an unpublished report leaked to the press.
"We have discussed this with the IMF in detail and the IMF has agreed that this initial figure will be revised downwards and the revision will be quite substantial," a euro zone official participating in the talks said."
There is a need for additional capital in the European banking system but the magnitude of the required recapitalisation is nowhere near the initial number of the IMF," the official said.
Euro zone officials estimate banks have in total already raised some 50 billion euros in additional capital in the run up to the European bank stress tests in July and now had between six and nine months to further increase it where necessary."
In all likelihood it will be private capital that will be raised. For public money, we have no plans of a large scale or any banking recapitalisation programme over and above the contingency reserve for the financial sector in the three programmes that we are currently running," the official said.
The capital needs could also be solved through mergers and acquisitions. Only at the end of the six to nine months, if the identified banks will have failed to have sufficient capital, would governments step in with public money, a second euro zone official said.
The euro zone has earmarked 10 billion euros to help banks in Greece, 35 billion for Ireland and 12 billion for Portugal under the euro zone bailout programs
Mela Sciences Inc ( NASDAQ: MELA ) got approval from European Union about its Melafind device to detect Melanoma in early stages. Company has been waiting since long to get approval from USFDA. After being approved from Europe and get CE mark to use the device in European countries, probability of getting quick USFDA approval higher as company is all set to market the device in USA and Europe. Traders and investors might taking positions before the final pop in the stock price, due to positive response from USFDA. Small investors might consider taking small positions in the stock to get healthy returns before it might run away.
Our Call: Initiate a buy positions for investment purpose to get maximum returns from it.
Wikileaks Discloses The Reason(s) Behind China's Shadow Gold Buying Spree
via (title unknown) by Tyler Durden on 9/3/11
Wondering why gold at $1850 is cheap, or why gold at double that price will also be cheap, or frankly at any price? Because, as the following leaked cable explains, gold is, to China at least, nothing but the opportunity cost of destroying the dollar's reserve status. Putting that into dollar terms is, therefore, impractical at best, and illogical at worst. We have a suspicion that the following cable from the US embassy in China is about to go not viral but very much global, and prompt all those mutual fund managers who are on the golden sidelines to dip a toe in the 24 karat pool. The only thing that matters from China's perspective is that "suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency.
China's increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB." Now, what would happen if mutual and pension funds
finally comprehend they are massively underinvested in the one asset which China is without a trace of doubt massively accumulating behind the scenes is nothing short of a worldwide scramble, not so much for paper, but every last ounce of physical gold...
From Wikileaks:
3. CHINA'S GOLD RESERVES
"China increases its gold reserves in order to kill two birds with one stone"
"The China Radio International sponsored newspaper World News Journal (Shijie Xinwenbao)(04/28): "According to China's National Foreign Exchanges Administration China 's gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the U.S. and European countries.
The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold's function as an international reserve currency. They don't want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency.
China's increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB."
Perhaps now is a good time to remind readers what will happen if and when America's always behind the curve mutual and pension fund managers finally comprehend that they are massively underinvested in the one best performing asset class.
From The Driver for Gold You're Not Watching (via Casey Research)
You already know the basic reasons for owning gold – currency protection, inflation hedge, store of value, calamity insurance – many of which are becoming clichés even in mainstream articles. Throw in the supply and demand imbalance, and you've got the basic arguments for why one should hold gold for the foreseeable future.
All of these factors remain very bullish, in spite of gold's 450% rise over the past 10 years. No, it's not too late to buy, especially if you don't own a meaningful amount; and yes, I'm convinced the price is headed much higher, regardless of the corrections we'll inevitably see. Each of the aforementioned catalysts will force gold's price higher and higher in the years ahead, especially the currency issues.
But there's another driver of the price that escapes many gold watchers and certainly the mainstream media. And I'm convinced that once this sleeping giant wakes, it could ignite the gold market like nothing we've ever seen.
The fund management industry handles the bulk of the world's wealth. These institutions include insurance companies, hedge funds, mutual funds, sovereign wealth funds, etc. But the elephant in the room is pension funds. These are institutions that provide retirement income, both public and private.
Global pension assets are estimated to be – drum roll, please –
$31.1 trillion. No, that is not a misprint. It is more than twice the size of last year's GDP in the U.S. ($14.7 trillion).
We know a few hedge fund managers have invested in gold, like John Paulson, David Einhorn, Jean-Marie Eveillard. There are close to twenty mutual funds devoted to gold and precious metals. Lots of gold and silver bugs have been buying.
So, what about pension funds?
According to estimates by Shayne McGuire in his new book,
Hard Money; Taking Gold to a Higher Investment Level, the typical pension fund holds about 0.15% of its assets in gold. He estimates another 0.15% is devoted to gold mining stocks, giving us a total of 0.30% – that is, less than one third of one percent of assets committed to the gold sector.
Shayne is head of global research at the Teacher Retirement System of Texas. He bases his estimate on the fact that commodities represent about 3% of the total assets in the average pension fund. And of that 3%, about 5% is devoted to gold. It is, by any account, a negligible portion of a fund's asset allocation.
Now here's the fun part. Let's say fund managers as a group realize that bonds, equities, and real estate have become poor or risky investments and so decide to increase their allocation to the gold market. If they doubled their exposure to gold and gold stocks – which would still represent only 0.6% of their total assets – it would amount to $93.3 billion in new purchases.
How much is that? The assets of GLD total $55.2 billion, so this amount of money is 1.7 times bigger than the largest gold ETF. SLV, the largest silver ETF, has net assets of $9.3 billion, a mere one-tenth of that extra allocation.
The market cap of the entire sector of gold stocks (producers only) is about $234 billion. The gold industry would see a 40% increase in new money to the sector. Its market cap would double if pension institutions allocated just 1.2% of their assets to it.
But what if currency issues spiral out of control? What if bonds wither and die? What if real estate takes ten years to recover? What if inflation becomes a rabid dog like it has every other time in history when governments have diluted their currency to this degree? If these funds allocate just 5% of their assets to gold – which would amount to $1.5 trillion – it would overwhelm the system and rocket prices skyward.
And let's not forget that this is only one class of institution. Insurance companies have about $18.7 trillion in assets. Hedge funds manage approximately $1.7 trillion. Sovereign wealth funds control $3.8 trillion. Then there are mutual funds, ETFs, private equity funds, and private wealth funds. Throw in millions of retail investors like you and me and Joe Sixpack and Jiao Sixpack, and we're looking in the rear view mirror at $100 trillion.
I don't know if pension funds will devote that much money to this sector or not. What I do know is that sovereign debt risks are far from over, the U.S. dollar and other currencies will lose considerably more value against gold, interest rates will most certainly rise in the years ahead, and inflation is just getting started. These forces are in place and building, and if there's a paradigm shift in how these managers view gold, look out!
I thought of titling this piece, "Why $5,000 Gold May Be Too Low." Because once fund managers enter the gold market in mass, this tiny sector will light on fire with blazing speed.
My advice is to not just hope you can jump in once these drivers hit the gas, but to claim your seat during the relative calm of this month's level prices
An ET Wealthanalysis of nearly 1,200 firms reveals that the companies which provide regular dividends also offer higher capital appreciation for investors.
Investors love high-dividend stocks because they fulfil two basic needs. These stocks provide a regular income and are relatively less volatile than other scrips. The dividend yield acts as a safety cushion that prevents the scrip from going into a free-fall. However, these are not the only reasons you should consider the dividend yield stocks. ET Wealthanalysed nearly 1,200 listed companies and found that in the past three years, the companies that have paid regular dividends have also offered high capital appreciation to investors.
The dividend discount model says that the price of a stock is the present value of the future dividends discounted at an appropriate rate. If the discount rate is constant, an increased stream of dividends will lead to a higher value, and vice versa. In other words, the companies that boost their dividend payment are likely to outperform the stocks that have contracting dividends. This implies that the stocks that pay dividends are not only a good source of regular income, but are also better wealth creators than other stocks and investment avenues.
To test this theory, we analysed 1,183 companies and studied their dividend payment patterns for the past three financial years. The stocks that had not paid any dividend in the past three years were excluded from the analysis. This left us with 586 stocks. Next, we categorised these stocks into two groups. The first included companies that had consistently increased their dividends in the past three years. The second group comprised firms which had either reduced their dividends or where the payout had remained stagnant in the past three years.
The importance of dividend payout was clear when we analysed the price performance of these two groups between 31 March 2009 and 29 July 2011. In the first group, the stock prices of the companies that had increased the dividend payment had appreciated by 286% on an average. The share prices in the second group, which included companies with falling or stagnant dividends, had risen by 129% on average. During the same period, the Sensex, which also included companies that had not paid any dividend, rose by 87.44%. All these returns are in absolute terms.
This underlines the market's perception of dividend payout. Both groups contained dividend paying stocks, but the first group generated more than twice the returns delivered by the second group. Also, both managed to outperform the broader market. Whether they increase or decrease the dividend payout, the stocks that give a regular income will be able to outperform the general market substantially.
Does this mean that dividend stocks always outperform other stocks? Says Sudhakar Shanbhag, chief investment officer, Kotak Mahindra Old Mutual Life Insurance: "When the dividend yield is higher than the risk-free interest yield, these stocks will outperform. Also, in a volatile or bearish market, the company's fundamentals will hold these stocks in good stead." The yield of the benchmark government bond is considered a proxy for the risk-free rate. In India, the 10-year government bond yield has averaged 8.1% in the past year.
However, people should not invest in such stocks blindly because some companies tend to pay dividends just to soothe their shareholders. So, investment in such firms may not be fruitful in the long run. Says Shanbhag: "The best way to look for such anomalies is by checking whether the dividends are from the current cash profits."
This helps separate the chaff from the grain. The dividend should have been paid from the company's operating profit. It makes little sense to distribute cash to shareholders when the company isn't making any.
We also analysed the dividend payments according to sectors (see graphic). So, which were the most generous dividend payers and which were the most niggardly? The IT industry was the most generous, with its dividend payments increasing by over 2,318 crore in 2010-11 compared with 2009-10. Banks came next with an increase of 2,158 crore, followed by the pharma industry. The tobacco industry made the unkindest cut, reducing its dividend by 351 crore.
We have identified five fundamentally sound dividend paying companies that can make for good, stable investments. All five are established players in their respective sectors and are included in the S&P CNX Nifty. The share prices of these stocks have been hammered down due to the global crisis. This only makes them more attractive for the long-term investor. Among these five stocks, Bajaj Auto tops with its 100% dividend growth in 2010-11 over the previous year.
Tata Motors
India's largest automobile manufacturer designs, manufactures, assembles and finances automobiles of all shapes and sizes. In the April-June quarter of 2011-12, Tata Motors' consolidated revenue grew 24.1% y-o-y to 33,570 crore. JLR's volume grew by 4.9% y-o-y to 62,090 vehicles. The prices in the commercial vehicles as well as passenger vehicles segments rose by approximately 2% in the beginning of the quarter. The company's JLR segment is likely to perform well due to large investments in research and development (R&D), and savvy product segmentation. The demand from China and other emerging markets will remain firm even if the demand from developed markets slips (due to concerns over recession). The stock presents a good buying opportunity.
ICICI Bank
The financial powerhouse and its subsidiaries offer a wide range of services, including commercial banking, retail banking, project and corporate finance, life and general insurance, venture capital and private equity, investment banking and broking services. The bank reported robust results for the first quarter of 2011-12, with net profit growing by 29.8% y-o-y to 1,332 crore. The asset quality is continuously improving at both the delinquency and recovery level. Its net interest income grew 21% y-o-y, supported by a steady loan growth. Looking at the consolidated results that include the performance of subsidiaries, its consolidated net profit grew 52.8% y-o-y and 6.3% q-o-q led by a strong core performance in banking, life insurance and general insurance. The stock is an attractive buy.
Bajaj Auto
This two- and three-wheeler manufacturer is wellknown for its R&D, product development, engineering and low-cost manufacturing skills. In the first quarter of 2011-12, its net revenue grew 23% y-o-y to 4,780 crore. The volume grew 17.7% y-o-y to 1.09 million units, driven by a 16% y-o-y growth in motorcycles and a 30% y-o-y growth in threewheelers. The company has increased its stake in Austria's KTM Power Sports AG to 39.26% and might consider taking it up to 49%. Moreover, the increasing penetration in rural markets and replacement demand from urban markets makes the industry dynamics favourable. At the current price, the stock is available at a good valuation.
Dr Reddy's Laboratories
This global pharma company has proven research capabilities and presence across the value chain. It conducts research in diabetes, obesity, cardiovascular diseases, anti-infective products and inflammation. The company reported higher-than-expected results in the April-June quarter of 2011-12, with its overall net profit growing by 25.1% y-o-y to 262 crore. The company has entered into strategic alliances with GSK and Valent Pharma that will assist in its longterm growth. At its current price, the stock presents an attractive investment opportunity.
Larsen & Toubro
India's largest engineering and construction company posted an impressive first quarter results, with its revenue up by 21% y-o-y to 9,480 crore. Its net profit increased by 12% y-o-y to 740 crore. Its order book includes large orders like the 1,200 crore Hyderabad Metro, 1,700 crore for the four-laning of National Highway 14 between Beawar and Pindwara, in Rajasthan, and a 1,400 crore power plant for PPN. L&T is fundamentally the strongest company in the industry and makes for a good buy at current levels.
News Highlights - Week of 26 August - 2 September 2011
Gross domestic product (GDP) growth in the Philippines fell to 3.4% year-on-year (y-o-y) in 2Q11-the fourth straight quarter of slowing growth. The 2Q11 data brought the country's GDP growth in 1H11 to 4.0% y-o-y following 4.6% growth in 1Q11. The slowdown in GDP growth was due to faltering global demand that curbed exports and investments. Despite the global slowdown, the Philippine economy benefited from a robust rebound in the agriculture sector; the sustained, albeit slowing, performance of the manufacturing sector; and balanced growth in the services sector. On the demand side, consumer spending also boosted GDP with growth of 5.4% y-o-y in 2Q11.
*Japan's industrial production rose 0.6% in July from the previous month, the slowest monthly growth rate since March. In the Republic of Korea, industrial output in July grew at the slowest pace in 10 months, 3.8% y-o-y, as annual growth rates in manufacturing and producers' shipments fell. In Viet Nam, industrial production surged 5.8% y-o-y and 4.3% month-on-month (m-o-m).
*Retail sales in Hong Kong, China grew 29.1% y-o-y to HKD35.2 billion in July on account of robust local consumption and tourist spending. In Viet Nam, the total value of retail sales of goods and services increased 22.2% to VND1,224 trillion (USD59.7 billion) in the first 8 months of the year.
*Consumer price inflation for the Republic of Korea accelerated to 5.3% y-o-y in August, the highest level in 3 years, mainly triggered by a sharp increase in food prices. In Thailand, consumer price inflation in August rose to 4.3% y-o-y, the highest level since September 2008, spurred by escalating food costs.
*The Republic of Korea's trade surplus plunged to USD821 million in August from USD6.3 billion in the previous month, amid strong import growth and only modest export growth. In Thailand, the current account surplus widened to USD3.6 billion in July from USD2.5 billion in June, as the trade surplus for the month increased to USD2.7 billion from USD1.9 billion in the previous month.
*The People's Bank of China (PBOC) announced its plan to include the margin deposits of commercial banks-the deposit paid by clients to secure the issuance of banker's acceptance and letters of credit-as part of the reserve requirement in order to mop up excessive liquidity. Meanwhile, the State Bank of Viet Nam issued its decision, effective 1 September, to increase foreign currency reserve requirement ratios for demand deposits and time deposits.
*Last week, notable bond issuances from the People's Republic of China included commerical paper from Sinohydro Group (CNY1 billion), Shaanxi Regional Electric Power (CNY1 billion), and Metallurgical Corporation of China (CNY3 billion). In the Republic of Korea, steel producer Posco priced a KRW500 billion 5-year bond at a coupon rate of 3.99%. In Thailand, Glow Energy Public Company Ltd. issued a 10-year bond worth THB5.6 billion with a 5.0% coupon.
*Government bond yields fell last week for all tenors in Viet Nam and for most tenors in the Republic of Korea, Malaysia, the Philippines and Singapore. Yields rose for all tenors in the PRC and for most tenors in Thailand. Yield movements were mixed in Hong Kong, China; and were mostly unchanged in Indonesia. Yield spreads between 2- and 10- year maturities widened in the Philippines and Thailand, while spreads narrowed in most other emerging East Asian markets.
Michael Lewis gets skewered on his Vanity Fair piece on Germany, by Scott Locklin:
Michael Lewis is the preeminent financial journalist of our age. In many ways, Michael Lewis is the
only financial journalist of our age. No other author on finance is so widely read. His articles are widely taken as something like the conventional wisdom. This is a great tragedy, as, despite the fact that Michael Lewis is unarguably a great writer, he's a terrible journalist. Reading a Michael Lewis article on finance is much like watching the evening news. It gives you the impression that you're well informed, but in reality, you've been deceived by noise.
The entire piece is a good read, and reveals that:
• Germany didn't have a financial crisis,• Lewis is overboard on the turd thing. Without revealing the source, the funniest comment I heard was that his kid is getting potty trained, which makes him overexposed to poop. I don't find that hard to believe :)• Lewis didn't talk about how Germany managed to not get wet when it was raining all over the world. Yeah, that's true. For the stories don't tell you enough.• Lewis' Iceland piece left out the villains. (Read)• There is a toilet museum in Delhi!◦ He wrote, in 2007, about how the "growing derivatives markets" brought stability to the economic systemThe Sarbanes-Oxley Act sticks a wrench in the American market for initial public offerings, and the capital-raising business simply removes itself to London and Hong Kong. Thailand installs capital controls and the markets force it to reverse its policy, virtually overnight -- again with nary a ripple. The Brazilian real is now less volatile than the Swiss franc; Botswana's debt is now more highly rated than Italy's. Oil prices double, the U.S. housing market tanks -- no matter what happens, financial markets adjust quickly and without hysteria. …
There are obviously a few things to worry about just now in the world, but the inability of traders to find a sensible price for the spread between European junk and European Treasuries isn't one of them.
◦ Uh oh.◦ Janet Tavakoli totally kills him for that, saying he mangled facts in his eagerness to create a story. Janet was one of those that predicted the crisis and maintains, with strong evidence, that wall street banks behaved recklessly, and knowingly frauded customers.
I've felt for a while since that Vanity Fair article that Lewis held something back. There were obviously enough juicy tidbits to work with – with Deutsche Bank being one of the major players in the worldwide crisis, with German banks levered
more than 50 to 1 (which implies that a 2% drop in asset values will wipe them out) and consequently, with their banking system allowing them to lie and borrow against collateral that, in other less blind countries, would classify as toilet paper. No, they have indeed not had a financial crisis, but they are like a pig that keeps getting fatter and looks healthier until…that day.
The drama of Europe will have to be written. I will look forward to books by Roger Lowenstein, Niall Ferguson, Frank Partnoy and yes, even Michael Lewis. Because to piece the story together, you have to read more than one book, and read more than one web site. Of the lot, I would (now) give Lewis the least importance. He is entertaining, but indeed has dropped in my mind after the above articles. I'll read his books, but won't expect to get the full story.
(Note: I have recommended his book "
Panic" on the right sidebar of this blog. It consists of writing from a number of authors, not just Lewis. I still think his other books are good reads.)
Read the full article at
"The size of local currency bond markets in emerging East Asia continued to expand in the first half of this year, rising to USD5.5 trillion at the end of June, 2.4% higher in local currency terms than at the end of March, and 7.7% more than at the end of June 2010. The overall emerging East Asian market's growth was driven by corporate bonds, which grew by 4.4% quarter-on-quarter. The PRC's corporate bond market grew at a more rapid pace of 6.3% in the same period and is now the region's largest corporate bond market."
Read the full report - http://asianbondsonline.adb.org/documents/abm_sep_2011.pdf?src=newsletter&id=Vd7k9wdkOhnXujvrtQLVzHQl3Ygf9j
Read the news release - http://asianbondsonline.adb.org/documents/abm_news_release_sep_2011.pdf?src=newsletter&id=Vd7k9wdkOhnXujvrtQLVzHQl3Ygf9j
Read past issues - http://asianbondsonline.adb.org/regional/abm.php?src=newsletter&id=Vd7k9wdkOhnXujvrtQLVzHQl3Ygf9j
Read the full report - http://asianbondsonline.adb.org/documents/abm_sep_2011.pdf?src=newsletter&id=Vd7k9wdkOhnXujvrtQLVzHQl3Ygf9j
Read the news release - http://asianbondsonline.adb.org/documents/abm_news_release_sep_2011.pdf?src=newsletter&id=Vd7k9wdkOhnXujvrtQLVzHQl3Ygf9j
Read past issues - http://asianbondsonline.adb.org/regional/abm.php?src=newsletter&id=Vd7k9wdkOhnXujvrtQLVzHQl3Ygf9j
