OECD: Japan,U.S. and U.K. more difficult to cut debt,without damaging long term GDP rate growth

Of all the many countries that need to cut their debt, Japan, the U.S. and the U.K. will find it most difficult to avoid damaging their longer-term growth prospects and increasing inequality, the Organization for Economic Cooperation and Development said Tuesday.

In a paper by its economists, the OECD said that of its 34 members, the three have the largest combination of spending cuts and tax hikes to make if they are to reduce government debt to 60% of gross domestic product by 2060.The OECD concluded that some countries won't need any extra fiscal consolidation, including Denmark, Estonia, Germany, South Korea, Norway and Switzerland. Another group-comprised of 16 countries that include Australia, Italy, the Netherlands, Spain and Sweden-can reach the 2060 goal using measures that are least harmful to growth and equality. A group of six countries-including France, Greece and Ireland-can reach the 2060 goal without too much use of harmful measures.
But Japan, the U.S. and the U.K. will have to make much greater use of more harmful measures, because the scale of the cuts needed and the positions they start from make it difficult to reach the goal with less harmful measures.

In Japan, the OECD said increases in personal income and sales taxes are likely to play a big part in meeting the 2060 target, while the government can also charge more for the services it provides. Cuts to health spending and public sector investment may also contribute.

Source: WSJ

China stresses cooperation with India, Pakistan and Mongolia

Chinese Foreign Minister Wang Yi said Tuesday that China will advance its mutual cooperation with India, Pakistan and Mongolia.

Wang spoke about the cooperation while meeting separately with his counterparts from those countries. 

During his meeting with Indian Foreign Minister Salman Khurshid, Wang said the visit to India recently made by Chinese Premier Li Keqiang laid out the strategic plan for the two countries' relations. 

Wang said the two nations should combine China's strategy to develop its western region with India's Look East policy, which would promote the integration of Asia and link the markets of China and India, as well as East Asia and South Asia through the Bangladesh-China-India-Myanmar economic corridor program.

Khurshid said Li's visit was fruitful and laid the foundation for further development of the two countries' relationship. China and India should strengthen all kinds of bilateral mechanisms, actively back pragmatic cooperation, and remain coordinated on important international and regional issues, he said.

China's PMI for Non Manufacturing Sector

The purchasing managers index (PMI) for China's non-manufacturing sector stood at 53.9 percent in June, down from 54.3 percent for May, according to official data released on Wednesday.

A PMI reading above 50 percent indicates expansion, while a reading below 50 percent indicates contraction.

The statistics were released by the National Bureau of Statistics and the China Federation of Logistics and Purchasing.

Summit of Gas Exporting Countries

Heads of some of the world's top producers of gas have called for joint measures to uphold the fundamental role of long-term gas contracts and support gas pricing based on oil products indexation, a latest move to fend off pressure from the European Union and North America.

In his opening speech at the 2nd summit of Gas Exporting Countries Forum (GECF) on Tuesday, Russian President Vladimir Putin said the development of the gas market had been increasing supplies on the spot market for gas.

Meanwhile, it was "not a reason to reject long-term contracts, or take-or-pay principles," Putin said.

"Our priority is to provide stable deliveries to global markets in the long-term perspective," he added

President Putin also was opposed to EU's Third Energy Package which requires the separation of

 of companies' generation and sale operations from their transmission networks.

Venezuelan President Nicolas Maduro, urged the participants to further "evolve and unite."

He suggested the member countries work as OPEC rather than a loose consultative body.

The GECF groups Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, Libya, Nigeria, Oman, Qatar, Russia, Trinidad and Tobago, United Arab Emirates and Venezuela, with Kazakhstan, Iraq, the Netherlands and Norway as observers.

In a declaration released on Monday, the countries said they would commit to fostering the consistent growth of natural gas usage, promoting the expansion of natural gas utilization in different sectors, and encouraging the GECF dialogue with all market players and stakeholders.

The two-day summit came as the "shale revolution" in North America had been changing the geography of gas supplies and increasing competition between gas and coal energy sources.

Meanwhile, Sergei Chizhov, head of the Russian Gas Union said,  "that Russia might not follow the trend in the nearest future, but would focus on the diversification of liquefied natural gas (LNG) export.

He did not rule out GECF's future expansion as new gas exporting countries were emerging. Meanwhile, he believed the organization would probably function in a consultative way rather than a cartel.

Source: Xinhua

Asian Investors eye U.S. Commercial Real State

Asian investors are buying U.S. commercial real estate at a record pace, pushing real-estate values higher and helping get stalled projects off the ground.

Equity investments in the U.S. from Singapore, South Korea and China are already at all-time highs this year, for a combined total of $5.2 billion through mid-June, according to data from Real Capital Analytics. 

The forces behind the surge vary. Some Asian pension funds are expanding and accumulating assets as they prepare to support aging populations; state-run funds are scouring the world for diversification and stability; and some Asian countries, including China, also are liberalizing rules about investment abroad.

Singapore, the No. 1 Asian investor in U.S. property this year, has invested about $1.9 billion as of mid-June. That is more than the cumulative total that the city-state has invested in the U.S. over the past decade, Real Capital data show.

China has invested more than $1.5 billion in 2013, compared with $300 million in 2012, according to Real Capital. Last year, the China Insurance Regulatory Commission paved the way for more deals by relaxing the rules for some big insurers to invest in certain types of overseas property.

Source: WSJ

Strong Selling of U.S. inflation protected bonds

Investors have been dumping U.S. inflation-protected bonds at the fastest pace since the 2008 financial crisis, as inflation fears cool off.

Amid a broad selloff in most bond markets, investors pulled $7.3 billion of cash from funds that invest in Treasury inflation-protected securities, or TIPS, in the second quarter through June 26, surpassing the previous record quarterly outflow of $3.6 billion investors pulled out during the fourth quarter of 2008, according to the latest data from fund tracker Lipper.

Prices of inflation-protected securities also fell sharply in recent weeks.

TIPS have been one of the most popular tools for investors to hedge against rising prices because their value rises along with higher inflation. Investors had worried the Federal Reserve’s aggressive monetary stimulus for the economy would spark runaway price increases.

The pullback is also a blow to the U.S. Treasury, which had ramped up its sales of TIPS in recent years to borrow at ultracheap levels to help fund U.S. spending.
Source: WSJ

Fed New Plan for higher capital requirements for US largest Banks

WASHINGTON—The U.S. Federal Reserve on Tuesday outlined a multipronged plan to place the nation’s largest banks under stricter capital requirements to guard the financial system from risks posed by “too big to fail” companies.

Fed officials said they hope to act in the coming months on four proposals aimed at the eight largest U.S. firms considered “systemically important” to the global economy, including Goldman Sachs Group Inc., Bank of America Corp. and J.P. Morgan Chase & Co.

Fed governor Daniel Tarullo, the agency’s point man on regulation, said regulators could soon propose a higher leverage ratio, which is expected to fall between 5% and 6%, for the largest banks. This capital measure gauges equity against total assets and is favored by some regulators as a measure of a bank’s ability to withstand stress. The Federal Deposit Insurance Corp. said it will consider the leverage proposal early next week.

Regulators are also working on: a requirement that these banks hold a minimum amount of long-term debt, a separate charge based on a firm’s reliance on volatile forms of short-term funding, and a special surcharge agreed upon by international regulators.

Source: WSJ

Precious Metals Quotes

Gold Price Futures      3 months       US$ 1,242.46

Silver Prices                3 months       US$     19.34

10 billion dollar outflow from Pimco in June

The turbulent second quarter left a big scar on bond king Bill Gross: a record quarterly loss for his bond fund and clients fleeing in droves.

Investors yanked nearly $10 billion in June out of Pacific Investment Management Co.'s $268 billion Total Return Bond Fund (PTTRX) run by Mr. Gross, according to fund tracker Morningstar. The outflow was the biggest cash outflow from the world's biggest bond fund since Morningstar started tracking the fund's flow in 1993.

The outflow came as Mr. Gross's bond fund handed investors a loss of 3.6% in total return basis for the second quarter of the year, the biggest quarterly loss since its inception in 1987, according to data from fund trackers Morningstar and Lipper.

EU retreats from financial transaction tax

A top European Union official signaled a fresh retreat on Europe’s controversial financial-transactions tax Tuesday, saying the EU’s executive arm could live with a watered-down version of the proposal.

The concession is the latest in a series of setbacks for a proposal that has been fiercely opposed by the financial industry and some EU member states. Last week, the European Commission admitted the tax would be delayed by at least six months, as the 11 participating countries continue to squabble over key questions, including the scope of the levy.

Source: WSJ

History and its influence to Different Economic Approaches.The European Experience.

Excerpts

"It is increasingly popular to think of Europe in binary terms. French President François Hollande is constantly flirting with the idea of building a new Latin bloc, in which Spain and Italy would join France in the struggle against fiscal austerity. In this vision, Latin superiority consists in a more expansive view of the state’s capacity to secure incomes and create wealth, and less of the “Protestant” obsession with the individual’s work.
The modern tendency to regard economic differences in terms of religion was stimulated by Max Weber’s reflections on the Protestant work ethic. But that interpretation is clearly unsatisfactory, and cannot account for the dynamism of the deeply Catholic world of Renaissance Italy and Flanders.

A better way to understand economic differences is to view them as a reflection of alternative institutional and constitutional arrangements. In Europe, that difference stems from two revolutions, one peaceful and wealth-enhancing (1688 in England), and the other violent and destructive (1789 in France).
In the late seventeenth century, in the wake of Britain’s Glorious Revolution, when Britain revolted against the spendthrift and autocratic Stuart dynasty, the British government that was formed after William and Mary assumed the throne adopted a new approach to debt. Voting budgets in parliament – a representative institution – ensured that the people as a whole were liable for the obligations incurred by their government.
The result was a dramatic reduction in the British state’s borrowing costs and the emergence of a well-functioning capital market, which caused private borrowing costs to fall as well.
The alternative model to British constitutionalism was ancien régime France. Official bankruptcy, a regular occurrence, required prolonging maturities on state debt and reducing interest payments. But this solution raised the cost of new borrowing, so France began to consider the British model. The problem was that the imitation was imperfect.

After the conclusion of the American War of Independence, instead of returning to the old model of default, which had been applied as recently as 1770, the French elite did everything it could to avoid that outcome. Fearing that the system was fragile, the government opened its coffers in 1787, bailing out private investors who had lost in an immense speculative scheme to corner shares in a reorganized East India Company.

 But there was an immediate problem: the existing tax system had reached its limits, and no more revenue could be raised without ending time-honored privileges and immunities. In the end, the only viable course was massive confiscation – the creation of biens nationaux as the basis for the issuance of state debt. But that measure, instead of restoring financial calm, led to an escalation of expectations regarding what the state could and should do, and exacerbated social tension.

Adherence to the principle of non-default produced the French Revolution, the lesson being that political systems will collapse if they take on too much debt and try to pay at any cost. The situation was the reverse of Britain. In France, there was no adequately functioning market that differentiated among risks.
But the French Revolution also produced a powerful and attractive myth of social transformation. Far from discrediting the flawed approach to debt management, the “nation,” which succeeded absolutist monarchy as the basis of political authority, remained wedded to statist solutions".

By Harold James

China's Growth and Premier Li Keqiang Targets

"Everyone is talking about China’s economic slowdown. Last year, Chinese GDP growth reached a 13-year low, and no upturn is in sight. But, as Premier Li Keqiang seems to recognize, this trend could actually be beneficial, spurring the structural reforms that China needs to achieve its longer-term goal of more balanced and stable GDP growth.
The World Bank cut its 2013 economic growth forecast for China from 8.4% to 7.7%. Moreover,latest  data show that Chinese banks increased their lending by only about ¥667 billion ($108 billion) in May – a roughly ¥125 billion decline from the same period last year.
But simply lending more would not improve the situation. Given that outstanding loans already amount to nearly double China’s GDP – a result of the country’s massive stimulus since 2008 – new loans are largely being used to pay off old debts, rather than for investment in the real economy
But the willingness of China’s new leadership to initiate another round of growth-securing stimulus depends on what rate of GDP growth Li can tolerate. With China’s leaders having offered no indication that they will change current monetary policy, some economists have estimated that Li will not act until GDP growth falls below 7%
The reason for Li’s inaction emerged in early June, when Chinese President Xi Jinping told his American counterpart, Barack Obama, that China had deliberately revised its growth target downward, to 7.5%, in order to pursue structural reforms aimed at supporting stable and sustained economic development.

The view that Li will tolerate slower growth only above a particular threshold is based on the belief that GDP growth below 8% would hurt economic development more than it helped, and lead to social instability. And, indeed, if unemployment pressure had become as acute today as it was in the 1990’s, the prolonged economic slowdown would undoubtedly have precipitated government intervention.

But, over the last decade, structural changes to China’s economy have caused unemployment pressure to decline significantly – a trend that can be corroborated by across-the-board wage increases. Now, the setting is very favorable to build the stronger, more stable economy that Li wants – and that China needs".

By  Zhang Jun
Professor of Economics and Director of the China Center for Economic Studies at Fudan University, Shanghai.

WSJ March 2013. Preparing for an Interest Rise

Back in March 2013 the WSJ published and article, where they stated that  large money managers like Blackrock,TCW Group Inc.and Pacific Investing Management Co. at that time they were already
preparing for an interest hike, because they thought that the Fed couldn't keep interest rates so low
for a longer period of time. They were worried that when the interest rate hike came, the ascent would be quick and steep. So rather than taking a guess when it will come,they were taking pre-emptive moves making investments that would pay off in an scenario of higher interest rates.

The moves included buying debt with floating interest rates that rise as overall rates climb, as well as interest-rate swaps and inflation-protected bonds that will also increase in value.

Other investors were hedging against potential bond losses by making bearish bets on U.S. Treasury bonds through derivatives that gain when rates rise. As rates rise, prices of bonds fall.

Because rates are so low now, many investors are worried that even a small rise could be particularly painful for anyone holding Treasurys.

Precious Metals Quotes

 Gold Futures 3 Months             US$    1,246.13
 
 Silver Futures 3 Months            US$        19.41

China's Poverty relief Campaign

Chinese Vice Premier Wang Yang called for more specific and effective measures in the country's poverty relief campaign on Friday.

Wang made the remarks at a meeting held by the poverty relief leading group under the State Council, China's cabinet.

"The pertinence and effectiveness of the poverty relief work should be boosted, with resolute efforts to grasp the real situations, accurately locate relief targets and map out plans for every village and household," Wang said.

He stressed tourism, the cultivation of animals and plants with local characteristics, vocational training, labor force transfers as well as infrastructure improvements, among other aspects, for the relief plan.

Urging the mobilization of resources across the country, Wang called for increasing financial input, strengthening relief fund management and letting the market play a bigger role.

Bond Quotes

  Goverment Bonds                                                   Price Change     Yield

U.S. 2 Year			1/32	0.347
U.S. 5 Year			-1/32	1.386
U.S. 10 Year			-1/32	2.486
U.S. 30 Year			6/32	3.471
Germany 2 Year			2/32	0.181
Germany 10 Year			7/32	1.703
Italy 2 Year			3/32	2.145
Italy 10 Year			12/32	4.387
Japan 2 Year			0/32	0.148
Japan 10 Year			-3/32	0.900
Spain 2 Year			3/32	2.054
Spain 10 Year			8/32	4.563
U.K. 2 Year			1/32	0.369
U.K. 10 Year			11/32	2.377

Marc Faber Thoughts

"American economists’ high esteem of consumption as the motor of economic growth has a long tradition dating back to the early 20th century. The continuous drive to boost consumption has led to Affluenza, an All-Consuming Epidemic, which is accompanied by an unprecedented array of escalating imbalances: ever-declining personal savings; a large fiscal and current account deficit; exploding government and consumer debts; and, a protracted shortfall in business fixed investment, employment and available real incomes. The current mantra of “selling” emerging markets and “buying” the US is likely to disappoint even if the US stock market continues to outperform. After all, the out performance may arise from US equities declining less than emerging stock markets. In this context, I should like to point out that the late May/June sell-off has been extremely benign by historical standards and that far more downside volatility is likely to occur in the months ahead".

Jefferies: Gold have been crushed.But carnage has not ended.

According to Jefferies they have been bearish on gold minining stocks for a long time. And despite declines ranging from 30 to 56% this year,there is a further downside to go.

They have also are lowering the price target for gold to US$ 1,250 from 1,500, and downgraded and reduced the price targets for the Gold Majors: ABX to US$ 14 from 15.25;  GG to US$ 19 from 25.47

KGC US$ 3.75 from 5.10 and NEM from US$ 18 to 30.18.

  And they sound very bearish for the Gold Major Companies,as the price of gold declines further, gold will fall below the cost of production for these companies, resulting in years of negative cash flow.

"In conclusion, while we’d like to believe the carnage in the group is over, we don’t. With short reserve lives, rising costs, rising political risks and a stagnant commodity price, we believe an argument could be made that gold equities should trade at valuation discounts to other resource equities. Instead, they continue to garner valuation premiums. In our opinion, that continues to make the risk/reward for the North American gold group unattractive".

Source: BusinessInsider

Gulf Arab Banks in better shape than pre-crises levels

Across the Gulf region, most conventional lenders and Islamic banks cleaned up their balance sheets from the debris of the financial crisis and switched to the expansion gear.

According to the corporate banking benchmarking report published by advisory firm Boston Consulting Group (BCG) earlier on Friday, the Gulf Cooperation Council (GCC) banks' corporate banking divisions are at peak levels in terms of revenues and net profits. "They even crossed the pre-crisis levels seen in 2008," said the analysis.

Local lenders in the six GCC countries, including Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates (UAE) and Oman, benefitted from relative political stability at home, capital outflows in turmoil-struck Arab nations such as Egypt or Syria, and ongoing high oil prices which gained 15.34 percent per barrel in U.S. crude over the last 12 months.

TAILWINDS FOR GROWTH

Thanks to these tailwinds, GCC lenders expand at home and abroad as an announcement in recent months. Net profits of GCC banks increased in the first quarter by 7 percent year on year to hit 4.6 billion U.S. dollars amid a rise in loan activity and rising deposit volumes.

The UAE topped the first quarter ranking with profits edging up by 18.7 percent, followed by their counterparts in Qatar, Saudi Arabia and Kuwait, where net income increased year on year by 7.3 percent, 2.6 percent and 2.4 percent, respectively.

In Saudi Arabia, the biggest GCC country, lending increased in the first four months by nearly 5.5 percent to 1.05 trillion Saudi riyal (283.5 million U.S. dollars), the Saudi Gazette reported in June.

Source : Xinhua

Yuan to become a global currency, a long term goal

It may take another 15 years before the yuan becomes a truly global currency as China needs to loosen restrictions on capital accounts and unify exchange rates for both on- and offshore markets, experts told the Lujiazui Forum yesterday.

"The internationalization of the yuan is a gradually developing and maturing process," said Li Lihui, chairman of the Bank of China. "We expect it to take 15 years for the yuan to become one of the world's major settlement and reserve currencies."

True globalization of the yuan will come after five stages - lifting the proportion of yuan trade-settlement in China's foreign trade, lifting the proportion of yuan payments in the global clearing system, expanding cross-border investment in yuan, becoming the reserve currency in Asia, and expanding the offshore yuan market.