The initial idea of my Blog and its change. (will continue..)

  I started this Blog, as an experience of filtering news from the Web from traditional  news
companies online.
I've started to go to the Reports of Institutions, like the IMF, the World Bank the OECD, and official reports from some countries. Since the beginning I searched for economic debates, about new explanations
or reinterpretations of theoretical approaches of the solutions for the Depression of the 1930's by
economists  like John Maynard Keynes, Milton Friedman,and Hayek , e.g like Adair Turner,who is
one of the living economists, among others of the theorethical authors of the present accomadative monetary policies for economies in special circumstances.

  I will also bring to this blog debates of the relationship between debt and growth for countries
 or of urbanization as a means to fight poverty in developing countries,or
the new approach to the net Financial Assets of countries done by Helen Rey.

So things have changed from what I initially thought, and  I'am very glad that things have changed for
the better. Yes, I follow the international markets and the global macroeconomics developments,we
are in a very interdependent world. But I'am not a momentum market player,nor a program trader
even less a day trader. As Jim Rogers says I'am not  smart enough, maybe you can find in CNBC,
Bloomberg,CNN,etc the answers for the price movements of shares in a particular day an hour or a week. And maybe you like to be in front of your computer all day long, and listening to a Bloomberg
or CNBC show, and follow the market by the minute, and expecting Breaking news.

  As you will realise afterwards, my country has had all kind of experiences, in terms of testing all kind
of economic models,and political regimes,hyperinflation plus two terrorist groups the Sendero Luminoso The Shining Path and the MRTA(Movimiento Revolucionario Tupac Amaru). Who generated
a bloodshed between 1980 and 1992, and  traumatized  our country. We had them all!!!!

  I do know when stocks are cheap,imagine I live in small country with an open economy, where the
mining industry is very important, now even more, +60% of our exports are metals. And the mining
industry has always been and will be a cyclical industry. We are in a particular long term trend of
strong prices because of the Urbanization of China. But if China has a hard landing, it is very clear   for me that precious metals will go lower,and the prices of copper, lead and Zinc also.
 Peru has experienced all kind of economic models,free market, Cepal infant protected industry model, from 1968-75 there was a  military coup d'etat lead by Juan Velasco Alvarado and a leftist,nationalist, and extremely protectionist Goverment ensued.

China's turbulent interbank market

China’s spiking rates create winners and worriers

By John Foley

 

JUNE 14, 2013

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

"China’s biggest banks have thumbed their noses at the government. The Ministry of Finance sold just two-thirds of the 15 billion yuan ($2.5 billion) of bills it offered on June 14, according to Bloomberg. The failed auction is not a vote of no confidence, or a sign that interest rates are too low, but a reflection of reality: banks can get better returns lending to each other.

Tight liquidity has pushed up rates in China’s turbulent interbank market, creating winners, losers and worriers. The winners are banks with money to spare. The likes of China Construction Bank and Agricultural Bank of China can make a profit through interbank lending or bond repurchases. Together, those two activities made for a $31 trillion market in 2012. Rates for short-term transactions have almost doubled in recent days.

The losers are those who have to pay up or go without. For now, that includes the Ministry of Finance itself. The 3.8 percent yield on the 273-day bills it hoped to sell is unappealing when banks can charge each other almost 7 percent for overnight loans.  Many smaller local banks are strapped for funds and have no choice but to borrow.

Why have interbank rates risen so high? One reason is that there’s less money flowing in from exports – the central bank soaked up just $10 billion of foreign exchange in May, a quarter of the amount in April . As the end of the quarter nears, banks also scramble to dress up their balance sheets. Many have issued short-term wealth management products that mature close to key dates. Banks need liquidity to repay those products: it’s no coincidence that the 21-day bond repo rate began to spike in early June.

This is a short-term spike, not a systemic freeze. Nevertheless, the failed auction is a reminder that, even in a closed, state-controlled system, the unexpected can happen. That’s a worry for central bankers, who would have to step in if a bank got into trouble. It should also concern regulators, whose job it is to know where the counterparty risks sit in China’s increasingly complex financial system. As bank-to-bank rates rise, so must their disquiet".

Economic Debate: Helicopter Money as a Policy Option. Part 1

Introduction by Reichlin

Since the crisis central banks have implemented a variety of non-standard monetary policies aiming at stabilising nominal demand in the presence of major disruptions in financial markets. These policies had different intermediate objectives: market making, controlling long term interest rates or asset prices, support of credit via subsidies. They had a role in stabilising financial markets after the collapse of Lehman Brothers and the banking crisis which followed. Their effects on the real economy, however, are uncertain.¹

Notwithstanding this uncertainty the Bank of Japan has recently engaged in bold action, announcing that it will double the monetary base and its holding of government bonds in the next two years.

• Some think that quantitative easing will fuel the next financial bubble and that exiting will create financial instability (see Stein 2013).
• Others think that more should be done to sustain the real economy.

Adair Turner has recently put a different option on the table (Turner 2013): “helicopter money” or permanent money creation. This is an idea that was discussed in the thirties in the US as a response to the great recession (see Friedman 1948 and Simon 1936) and more recently by Bernanke in relation to the zero lower bound problem in Japan (Bernanke 2003). As Bernanke has suggested it can be implemented via transfers to households and businesses via a tax cut coupled with incremental purchases of government debt, so that the tax cut is in effect financed by money creation.

Although the idea has been around a long time it is a taboo today. Non-standard monetarypolicies in response to the recent crisis have all led to an increase in the size of central banks’ balance sheets but in the recent experience no central bank, including the Bank of Japan, has purposefully increased the monetary base and committed to keep this additional money in circulation permanently. The idea, however, gets some support from academia.

In his 2012 Jackson Hole speech Michael Woodford suggested a version of flexible inflation targeting whereby the central bank commits future monetary policy to a permanently higher nominal target (such as the path of nominal GDP) and discussed various tools within that framework, including permanent increases in the monetary base via fiscal transfers (Woodford 2012).

In a situation of persistently weak economic conditions it makes sense to consider all options including tools that have stayed long in the closet.
The following is a summary of the questions posed by Reichlin and the answers by Turner and Woodford.

Question one : Adair, can you explain why, in your view, helicopter money is an option for monetary policy that is relevant to today?

‘Helicopter money’ – by which we mean overt money finance of increased fiscal deficits – may in some circumstances be the only certain way to stimulate nominal demand, and may carry with it less risk to future financial stability than the unconventional monetary policies currently being deployed.

The crucial first question is: do we want more nominal demand? The answer should be yes if (i) we are confident that some of the increase will take the form of increased real output or (ii) if some increase in the inflation rate is in itself desirable. These conditions seem likely to apply in some developed economies today, with nominal GDP growth rates very low, depressed by private sector deleveraging in the aftermath of the financial crisis. And if these conditions do not pertain, we should not be trying to stimulate nominal GDP by any means.

So let’s assume that increased nominal GDP growth is desirable. The problem is that other levers may be ineffective or have adverse side effects. Monetary policy, in both its conventional and unconventional forms, may be ‘pushing on a string’. Reducing policy interest rates to the zero bound fails to stimulate credit supply and demand in a ‘balance sheet recession’ in which the private sector is deleveraging. Cutting long-term interest rates by quantitative easing may be equally ineffective. And very low interest rates, sustained for many years, will encourage a search for yield, hence financial innovation and carry trades, which create risks to financial stability.

Fiscal stimulus, in its conventional funded form, financed by bond issues, may be more effective. Fiscal multipliers may be high when central banks are committed to keeping interest rates low for the foreseeable future. But with public debt levels already high and rising, concerns about future debt sustainability may create ‘Ricardian equivalence’ effects with households and companies aware that tax cuts today will have to be offset by tax rises later.

In this specific environment  – ‘helicopter money’ – should be regarded as an available option. Ben Bernanke proposed this for Japan in 2003. If Japan had used it then, it would now have some mix of a higher real GDP level, a higher price level, and lower public debt to GDP.

Question 2: Mike, what in your view are the potential effects of this policy on the economy as compared to traditional quantitative easing and how do you relate it to your framework of targeting the path of nominal GDP?

It is possible for exactly the same equilibrium to be supported by a policy of either sort. On the one hand (traditional quantitative easing), one might increase the monetary base through a purchase of government bonds by the central bank, and commit to maintain the monetary base permanently at the higher level. On the other (‘helicopter money’), one might print new base money to finance a transfer to the public, and commit never to retire the newly issued money. Suppose that in either case, the path of government purchases is the same, and taxes are raised to the extent necessary to finance those purchases and to service the outstanding government debt, after transfers of the central bank’s seignorage income to the Treasury. Assuming the same size of permanent increase in the monetary base, the perfect foresightequilibrium is the same in both cases. Note that the fiscal consequences of the two policies are actually the same. Under the quantitative easing policy, the central bank acquires assets, but it rebates the interest paid on the government bonds back to the Treasury, so that the budgets of all parties are the same as if no government bonds were actually acquired, as is explicitly the case with helicopter money.

The effects could be different if, in practice, the consequences for future policy were not perceived the same way by the public. Under quantitative easing, people might not expect the increase in the monetary base to be permanent – after all, it was not in the case of Japan’s quantitative easing policy in the period 2001-2006, and US and UK policymakers insist that the expansions of those central banks’ balance sheets won’t be permanent, either – and in that case, there is no reason for demand to increase. Perhaps in the case of helicopter money, it would be more likely that the intention to maintain a permanently higher monetary base would be believed. Also, in this case, the fact people get an immediate transfer should lead them to believe that they can afford to spend more, even if they don’t think about or understand the consequences of the change for future conditions, which is not true in the case of quantitative easing.

But while I grant this advantage of Adair’s proposal, I believe that one could achieve a similar effect, with equally little need to rely upon people having sophisticated expectations, through a bond-financed fiscal transfer, combined with a commitment by the central bank to a nominal GDP target path (the one that would involve the same long-run path for base money as the other two policies). The perfect foresight equilibrium would be exactly the same in this case as well; and as in the case of helicopter money, the fact that people get an immediate transfer would make the policy simulative even if many households fail to understand the consequences of the policy for future conditions, or are financially constrained. Yet this alternative would not involve the central bank in making transfers to private parties, and so would preserve the traditional separation between monetary and fiscal policy.

1 For quantitative evidence on the macroeconomic effects for the US see, amomgst others, Khrishnamurthy and Vissing-Jorgensen, 2011. On ECB non-standard policies, see Lenza, Pill and Reichlin, 2010 and Giannone, Lenza, Pill and Reichlin, 2012.

Source: Naked Capitalism, May 2013.

Japan News

Japan highlights role of nuclear power in economic growth strategy

Kyodo -- Jun 14

The Japanese government made clear that nuclear power will continue to play a key role in meeting energy demand as it vowed in its economic growth strategy endorsed Friday to push for the restart of idled reactors.

Once reactors clear a set of new safety requirements that will be introduced soon in the wake of the 2011 Fukushima Daiichi nuclear power plant disaster, the government will "move ahead with" their resumption and "work to win the approval and cooperation" of local governments hosting the facilities, the strategy said.The new regulations are expected to take effect in July, setting the stage for reactors, most of which are now offline, to undergo the Nuclear Regulation Authority's safety assessments.

G-8 leaders set to unite against tax avoidance

Jiji Press -- Jun 16

The leaders of the Group of Eight major countries are expected to unite in tackling tax avoidance by multinational firms at their summit in Lough Erne, a lakeside resort in Northern Ireland, for two days from Monday, sources have said.

The G-8 leaders are seen agreeing to draw up new rules, through the Organization for Economic Cooperation and Development, to rein in tax avoidance although it is expected to take two or three years to come up with specific measures, the sources said.

Source: 

IMF conclusions of the Mission to the United States of America Part I

1. The U.S. recovery has remained tepid over the past year, but underlying fundamentals have been gradually improving. The modest growth rate of 2.2 percent in 2012 reflected legacy effects from the financial crisis, fiscal deficit reduction, a weak external environment, and temporary effects of extreme weather-related events. These headwinds notwithstanding, the nature of the recovery appears to be changing. In particular, house prices and construction activity have rebounded, household balance sheets have strengthened, labor market conditions have improved, and corporate profitability and balance sheets remain strong, especially for large firms. With the sizeable output gap and well-anchored inflation expectations keeping inflation subdued, the Fed appropriately continued to add monetary policy accommodation over the past year by increasing its asset purchases and linking the path of short-term rates to quantitative measures of economic performance, thus helping to maintain long-term rates at exceptionally low levels.

2. However, growth is expected to slow to 1.9 percent this year owing to an excessively rapid pace of fiscal deficit reduction, before accelerating to 2.7 percent next year. 
    The general government deficit will decline by over 2½ percent, subtracting between 1¼–1¾ percentage points from growth in 2013, the debt ceiling will be raised without any disruption to the U.S. and the global economy, and the Fed will continue asset purchases until the end of this year. The unemployment rate is projected to remain around 7½ percent throughout 2013. Employment growth is projected to pick up late this year and in 2014, fostered by an acceleration of output growth. With labor force participation projected to recover somewhat in 2014 as discouraged workers return to the labor force, the unemployment rate is projected to decrease (on average) to 7.2 percent next year. 
   Given the wide output gap, inflation is expected to remain relatively subdued over this year and the next. As the legacy of the financial crisis wanes further, private domestic demand is expected to continue recovering, but weak growth in a number of trading partners is projected to weigh on export growth.

3. Risks to the outlook appear modestly tilted to the downside.

• A stronger impact of fiscal consolidation, a weaker external environment, and higher structural unemployment are the main downside risks.
While private consumption has so far weathered relatively well both higher tax rates and the spending cuts from the “sequester”, both measures might prove to be a stronger headwind to consumer demand over the next few quarters. A slower pace of recovery may in turn delay the normalization of labor market conditions and reduce long-term growth.
External demand may also be held back by a slower pick-up in global economic activity reflecting lower growth in a number of emerging market economies.

"Markets can stay irrational longer than you can stay solvent" John Maynard Keynes

   When there is too much complacency in the  markets, it is always very wise,to ask yourself , what would it happen, if any unexpected negative event suddenly appears?

    The Black Swan scenario, can appear with the burst of the bubble in the bond market,sooner than
later. If the economy of the US keeps improving there will be a return to more normal interest rates,so
in this process there will be periods of high volatility, and significant corrections in the markets
unless Central banks keep for a longer period of time, their accomodative monetary policies.

  The other dangerous scenario is what is happening in Japan with its Abenomics.
   Before the aggressive monetary stimulus announced by the Central Bank of Japan.
  "This country was paying 21% of government revenue on interest payments to support a 236% debt-to-GDP ratio. With annual spending twice as high as its revenue, the government is running a deficit of $455 billion a year and adding to its $11.2 trillion debt. This is all before the monetary stimulus programs announced recently by its central bank.
   The announcement by the Bank of Japan to buy 7.5 trillion yen (about $75 billion) in bonds per month and double the monetary base during the next two years is exponentially higher than anything the country has tried in the past two decades. If you think U.S. Federal Reserve Chairman Ben Bernanke and the Fed's $85 billion monthly purchases is extreme, consider that Japan's economy is a third the size of the United States' and that its growth has stalled in the past decade.

So the bank wants to increase inflation to 2% from its current negative rate of 1% deflation. If they are even partially successful, interest rates on the government bonds could jump. If inflation increases to 1% and the rate on the 10-year bond increased to just 1.5%, the government would need to pay out 65% of revenues just to service the interest.

Kyle Bass of Hayman Advisors recently told Barron's that a debt crisis that will rival Argentina's 2001 collapse is "the most obvious scenario of my adult life. The question is when."

Why should investors care about a country that represents less than 10% of global growth? To put Japan's importance in perspective, Greece's economy is less than one-twentieth of Japan's -- and brought the market to its knees last year.

Like the 10-year Treasury note, Japan's government bond has been used by the market to evaluate risk for more than 30 years. A collapse in this market could send shock waves across markets worldwide". (1)

  While in the short term Japan's stock market has rallied up to 80% in yen terms in six months,
anticipating the election of Prime Minister Shinzo Abe,this rally has had a major correction last week
but even counting with it,the Nikkei index is still up 44%, while the exchange US$ dollar/yen was
in the range of 80-83 since July to November 2012 and now it is at 94.
 How long will this rally last, it is difficult to say but surely it is going to end badly,given their 
236%debt/GDP ratio, the magnitude of this stymulus, and the level of present interest rates.


The third event that could affect global markets, is a hard landing of the chinese economy,which 
would affect sharply the growth rate of the global economy.

(1)Street Authority.
     The next country to collapse isn't in Europe

      Joseph Houge

Private foreigners sold US$ 30 billion long-term treasury bonds in April

''Private foreign investors sold a net $30.8 billion in long-term Treasury bond and notes, the largest selloff on record, the U.S. Treasury said Friday in its monthly report on cross-border capital flows.

They weren't alone. Foreign official holders of long-term U.S. debt sold out of $23.7 billion, the highest outflow since November 2008 at the height of the financial crisis.

Foreign official investors also exited from of short-term dollar debt, selling a net $30.1 billion in Treasury bills and other liabilities.

U.S. latest data has shown a steady recovery of the economy,making  intense discussions among Federal's Reserve officials of earlier tapering off its  buying of treasury debt and mortgaged-backed securities''.

Source WSJ

Slower growth for oil by train shipping

"The spread between Bakken crude at the pipeline hub of Clearbrook, Minnesota and benchmark Light Louisiana Sweet fell from nearly $30 in early March to a then-record low of around $13 in May. Analysts estimate it costs $12 a barrel for the rail journey, about three times more than via pipelines.

This week the spread has dropped to just $6 a barrel after an outage at a Canada sands production unit.

As price spreads for moving sweet North Dakota or Canadian crude to premium markets on the GulfCoast slump to their lowest since early 2011, companies are shifting more oil back through pipelines rather than using costlier railcars.

The number of railcars loaded with crude or refined fuel per week in the United States has dropped by about 5 percent since reaching a record 14,500 tank cars during May, according to Reuters calculations based on data from the Association of American Railroads released on Thursday.

At 13,664 cars through June 8, the latest week's loadings are still up 28 percent from a year ago, equivalent to about 1.4 million bpd. With crude oil estimated to make up about half of all such shipments, that's about a tenth of U.S. production. Weekly AAR data do not distinguish between crude and refined fuels.

Still, the annual growth rate is much slower than the 50 percent surge since the start of the year. In the first quarter alone, crude oil shipments jumped by 166 percent to the equivalent of 760,000 bpd, AAR said last month. Since early 2011, traffic has been growing mostly steadily every week".

It is too soon to tell that it is the beginning of a bust. Time will tell.

When interest rates are low,Real State becomes a safe haven.

''The London, Hong Kong, Sydney and New York real estate markets are hot, fuelled by low interest rates and demand by foreign investors looking for safe places to park their cash — or quick returns from flipping properties in markets where prices seem to only be going up''.

New York and London were the top contenders in the Association of Foreign Investors in Real State’s (AFIRE) 2013 survey, with the United States and United Kingdom providing the best opportunities for capital appreciation. What’s more, the US, UK and Australian markets were ranked as having the most stable and secure real estate investments, with China ranked as one of the top emerging markets''.

“Global property is a safe haven” amid political and economic uncertainty, said Gráinne Gilmore, head of residential research at London-based Knight Frank. “You can touch and see your assets.”

''But as foreign investors pile in, owning has become an expensive proposition for local residents, even as some local governments — worried about overheated housing markets — take measures to cool prices. That presents a host of questions for people who simply want to live in the city where they work, from how long the price run-up will last to whether they should buy, rent or sell to the highest bidder.

In these four cities, among others, the inventory of homes for sale has failed to keep up with demand. Local residents bid for what they can find but, especially at the high end of the market, they find themselves competing with all-cash offers from foreign investors who are more concerned about their portfolio than about living someplace''.
  The problem comes when Central Bankers keep pumping money
to their economies, for a very long period of time. This policy always produces distortions in the prices of asset classes, where money is allocated unevenly, not all asset prices rise at the same time.

Source: BBC

The market is telling we won't wait for official increase of interest rates.

"Federal Reserve officials have been trying to convince investors for weeks not to overreact when the central bank starts to tap its $85 billion-per-month bond-buying program. An adjustment in the program won’t mean that it will end all at once, officials say, and even more importantly it won’t mean that the Fed is anywhere near raising short-term interest rates.

Investors aren’t listening.

A wide range of indicators suggest that investors are starting to think the Fed might start raising short-term interest rates — now near zero — sooner than previously thought. Until recently many market indicators suggested investors expected the first rate increases in mid-2015, but now these indicators indicate investors think it could be sooner".

Source: WSJ

Urbanization,the road to reduce poverty in developing countries. IMF-World Bank Report.

"Urbanization helps pull people out of poverty and advances progress towards the Millennium Development Goals (MDGs), but, if not managed well, can also lead to burgeoning growth of slums, pollution, and crime, says the Global Monitoring Report (GMR) 2013, released  by the World Bank and International Monetary Fund (IMF)''.

''Urbanization has been a major force behind poverty reduction and progress towards other MDGs. With over 80 percent of global goods and services produced in cities, countries with relatively higher levels of urbanization, such as China, and many others in East Asia and Latin America, have played a major role in lowering extreme poverty[1] worldwide. In contrast, the two least urbanized regions, South Asia and Sub-Saharan Africa, have significantly higher rates of poverty and continue to lag behind on most MDGs''.

"Urban infant mortality rates range from 8-9 percentage points lower than the rural rates in Latin America and Central Asia; to 10-16 percentage points in the Middle East and North Africa, South Asia, and Sub-Saharan Africa and highest in East Asia (21 percentage points)".

“The rural-urban divide is quite evident, said Kaushik Basu, the World Bank’s Chief Economist and Senior Vice President for Development Economics. “But this does not mean unfettered urbanization is a cure-all – the urban poor in many places urgently need better services as well as infrastructure that will keep them connected to schools, jobs and decent health care.”
"Progress has been stellar on reducing extreme poverty, providing access to safe drinking water and eliminating gender disparity in primary education, with these targets already achieved several years ahead of the MDGs deadline.
Large cities and smaller towns are fast becoming home to the world’s largest slums[2], with Asia home to 61 percent of the world’s 828 million slum dwellers, Africa 25.5 percent and Latin America 13.4 percent. The developing world’s urban centers are expected to burgeon, drawing 96 percent of the additional 1.4 billion people by 2030. To cope with urban growth, a coordinated package of essential infrastructure and services is needed. Only by meeting essential needs related to transportation, housing, water and sanitation as well as education and healthcare can cities avoid becoming hubs of poverty and squalor, the report says".
"At the same time, stepped up efforts are also needed to improve development in rural areas, where 76 percent of the developing world’s 1.2 billion poor live, with inadequate access to the basic amenities defined by the MDGs.
Urbanization does matter. However, in order to harness the economic and social benefits of urbanization, policy-makers must plan for efficient land-use, match population densities with the required needs for transport, housing and other infrastructure, and arrange the financing needed for such urban development programs,” said Jos Verbeek, Lead Economist at the World Bank and lead author of the GMR".

World Bank, April 2013

Barrick's Nightmare, Pascua Lama Gold project in Chile

''Barrick will complete Pascua Lama Chile's Enviromental Requirements by December 2014,to
revive its US 8.5 billion Gold and Silver project''.

''The Pascua Lama project is situated immediately next to glaciers and on permanently frozen land and is therefore especially problematic. Roads enabling mine access have already had significant impact on glaciers and dust generated by stripping activities for the open pit have covered large glaciated areas leading to a work stoppage in late 2012.

The Pascua Lama development was originally budgeted at $3.3B - $3.6B. After a review in 2011 capex estimates were revised to $4.7B - $5.0B. The latest price tag estimated by Barrick during discussion  Q2/2012 results on July 26 2012 was approaching $8B. In the aftermath of publication of Q2/2012 results Barrick's market capitalisation lost roughly 10% of ground when compared to Goldcorp. The timing of the most recent suspension at Pascua Lama coincided with a historic drop in gold spot price in the first half of April. Barrick's market capitalisation was reduced roughly 15% further than Goldcorp's during this period which we assume was directly attributable to the Pascua Lama suspension order.
Goldcorp has recently taken the number one ranking of the largest gold miner by market capitalisation from Barrick Gold. Many would argue that the Pascua Lama disaster was to blame for this shift in positions.
 Repeated delays and ongoing court proceedings impact on capital expenditure and cause cost explosions. It was calculated that a further delay of the Pascua Lama project by one year would reduce the NPV of the project by 27% or $1.54 per share''. 

Source AP and Seeking Alpha

IMF Regional Economic Report

Asia and Pacific region Date: April 2013 Growth in the Asia-Pacific region shows signs of improving as extreme risks emanating from advanced economies have receded and domestic demand remains resilient, supported by relatively easy financial conditions and robust labor markets. A small and gradual pick-up in growth to over 5.75 percent is projected in the course of 2013. Risks to the outlook from within the region, such as rising financial imbalances and asset prices in some economies, are coming clearer into focus. Although Asia's banking and corporate sectors have solid buffers, monetary policymakers should stand ready to respond early and decisively to shifting risks, and macroprudential measures will also have a role to play. In many Asian economies, some fiscal consolidation could also rebuild the space needed to respond to future shocks and preempt potential overheating pressures from capital inflows. In particular, there is a growing need to make tax and spending policies more efficient. To sustain high growth rates and alleviate the "middle-income trap" across Emerging Asia, the policy agenda will vary by jurisdiction but will also often include strengthening infrastructure investment and reforming goods and labor markets.

Middle East and Central Asia region Date: May 2013 Two years after the onset of the arab Spring, many countries in the Middle East and North Africa continue to undergo complex political, social, and economic transitions. Economic performance across the region was mixed in 2012: although most oil-exporting countries grew at healthy rates, economic growth remained sluggish in the oil importers. In 2013, these differences are expected to narrow because of a scaling-back of hydrocarbon production among oil exporters and a mild economic recovery among oil importers. For the countries in the Caucasus and Central Asia region, the near-term outlook remains broadly favorable, reflecting high oil prices for the oil and gas exporters and strong non-oil commodity prices and robust remittances in the oil and gas importers. Risks to this favorable outlook could stem from still-subdued world demand, domestic political uncertainties, and geopolitical risks in the region. Policymakers, particularly in the oil-importing countries, should take advantage of the favorable outlook to re-establish fiscal policy buffers that were eroded in the aftermath of the global crisis.

Sub-Saharan Africa region Date: May 2013 Growth remained strong in the region in 2012, with regional GDP rates increasing in most countries (excluding Nigeria and South Africa). Projections point to a moderate, broad-based acceleration in growth to around 5½ percent in 2013¬14, reflecting a gradually strengthening global economy and robust domestic demand. Investment in export-oriented sectors remains an important economic driver, and an agriculture rebound in drought-affected areas will also help growth. Uncertainties in the global economy are the main risk to the regional outlook, but plausible adverse shocks would likely not have a large effect on the region’s overall performance.

Western Hemisphere region Date: May 2013 Growth in Latin America is set to pick up to about 3½ percent in 2013, broadly in line with potential. The region continues to benefit from favorable external financing conditions and relatively high commodity prices, but these tailwinds are unlikely to last forever. The key challenges for policymakers today are preserving macroeconomic and financial stability, and building strong foundations for sustained growth in the future. More prudent fiscal policy would help ease pressure on capacity constraints, mitigate the widening of current account deficits, and prepare the economies better to deal with adverse external shocks. Exchange rate flexibility and prudential measures should continue to be used to discourage speculative capital flows. Sustaining strong output growth will require structural reforms to raise productivity growth

Nikkei Enters Bear Market

''Markets across Asia suffered another bruising day as investors scrambled for the exits, with Japanese stocks falling over 6% and into a bear market, and heavy losses in China and across Southeast Asia. Declines continued in U.S. stock futures and in Europe.

The selloff has gripped global markets all week, fueled by uncertainty over the direction of the Federal Reserve's monetary policy and signs of cooling growth in emerging economies. The mounting worries are sending cash to traditional safe haven assets of Treasuries, the yen and Japanese government bonds while finance ministers and central banks across the region are taking steps to calm markets''.

''Core benchmark indexes in Europe were all down more than 1%. The yield on the 10-year Italian government bond fell after fairly solid Italian bond-auction results, but stocks maintained losses.

The most dramatic move was in Japan, with the Nikkei Stock Average falling 6.4% to 12445.38 and putting it 21.9% down from the intraday peak reached on May 23, the day Japan's 6-month rally turned south and begun three weeks of wild trading''.

SOURCE: WSJ

World Bank cuts Global Growth Outlook

Excerpts.

"The World Bank cut its global growth forecast for this year after emerging markets from China to Brazil slowed more than projected, while budget cuts and slumping investor confidence deepened Europe’s contraction".

"The world economy will expand 2.2 percent, less than a January forecast for 2.4 percent growth and slower than last year’s 2.3 percent, the bank said in a report released today in Washington. It lowered its prediction for developing economies and sees the euro region’s gross domestic product shrinking 0.6 percent. In contrast, forecasts were raised for the U.S. and Japan, which was helped by fiscal and monetary stimulus".

"Debate among U.S. policy makers over when and how to dial back the Federal Reserve’s $85 billion-a-month program of asset purchases has shaken financial markets in developing nations. More than $2.5 trillion has been erased from the value of global equities since Fed Chairman Ben  Bernanke said May 22 that the Fed could scale back stimulus efforts if the employment outlook shows “sustainable improvement.”

''The withdrawal of accommodative policy may have consequences in the longer run as interest rates in developing countries rise more than in their industrial counterparts, slowing investment and growth, according to the report".

''Developing countries collectively were forecast by the World Bank to expand 5.1 percent, less than the 5.5 percent estimated in January.

China’s growth outlook was cut to 7.7 percent from 8.4 percent, according to the World Bank’s report. The 6.1 percent forecast for India was reduced to 5.7 percent and Brazil’s was lowered to 2.9 percent from 3.4 percent.

The effects could be neutralized if growth picks up in Europe or Japan, which the bank now sees expanding 1.4 percent this year from 0.8 percent in its January forecasts, he said".

Source: Bloomberg 

Meredith Whitney: Booming States in the U.S. 2013.

 Excerpts

"Whitney, the author of The Fate of the States, also downplayed the role of historic low interest rates in the more recent uptick in the U.S. housing market.

"I don't think the mortgage market is responding to low [interest] rates anymore," she says. "Very few first-time buyers [are] going out with a mortgage and buying [a] home. There's no correlation there that once was between mortgage rates and home purchasing [in the U.S.]"

If anything, she adds, "low interest rate are killing [U.S.] retirees; people living on a fixed income are really struggling."

''Interestingly, Whitney forecasts a bright and prosperous future for resource-rich states in the U.S. - North Dakota, Nebraska, Texas, Wyoming, among others - and the Canadian province of Alberta''.

These American states, which she refers to as the "new geography of American prosperity," hadn't experienced a housing crisis as severe as the rest of the country.

"Those states have agrarian roots [and] are used to major booms and busts and have managed themselves much more conservatively on a fiscal basis," she says. "And because of that they [entered] into the [recent] bust with a lot more dry powder."

"These states are rich in resources and businesses are making long-term investments," she says. "Businesses are building new facilities in these states and are making 30-year investments. It's not coincidental that [these states] have unemployment rates that are half that of Nevada and California."
This, adds Whitney, has ripple effect which draws greater inflows of skilled people, creates new jobs, prompts infrastructural developments, all of which ultimately provide a boost to housing markets''

Source: Howard Green Interview to Meredith Whitney in bnn.ca

Urbanization Plan under revision in China. Fiscal revamp and ''hukou'' reforms are an imperative duty

"Premier Li Keqiang has rejected an urbanization proposal drafted by theNational Development and Reform Commission (NDRC), seeking changes to put more emphasis on economic reform, according to the sources, who are familiar with the matter".

State-owned China Development Bank recently pledged to lend 150 billion yuan ($24.47 billion) to southeastern Fujian province to support its urbanization and channel 30 billion yuan into urban projects in central Anhui province, according to Chinese media.

“The urbanization plan could be delayed. Top leaders have seen potential risks if the program cannot be kept on the right path,” said an economist at a top think-tank which advises the cabinet.

China plans to spend some 40 trillion yuan ($6.5 trillion) to bring 400 million people to its cities over the next decade as leaders such as Li try to sustain economic growth that slowed to a 13-year low of 7.8 percent in 2012.

 ''China is still dealing with the side effects of its 4 trillion yuan stimulus package launched in 2008 to counter the global financial crisis, which left local governments with a 10.7 trillion dollar according to Government sources and sent real state prices speculatively higher''.

To fund the urbanization plan, local governments would issue long-term bonds. 

But a fiscal revamp is needed because local governments don’t have a steady flow of tax revenues to back the issuance of bonds. Under China’s tax structure, in place since 1994, the central government gets most receipts; while local governments do the spending,and their only source of revenues are land sales.

 ''Beijing needs to overhaul its land and tax codes as well as free up the rigid residency registration, or “hukou”, system to give migrant workers access to education, health and other services where they work, experts have said. Li wanted more detail on these sorts of reforms in the plan'', the sources said.

“The focus of the urbanization drive should be land and hukou reforms. It’s doomed if China continues to rely on local government spending to support urbanization,” said Yi Xianrong, senior economist at the Chinese Academy of Social Sciences (CASS), a leading government think-tank in Beijing.

''China’s housing inflation accelerated to its fastest pace in April in two years, despite stricter measures by Beijing to calm a frothy real estate market.

Li Yining, the premier’s former teacher at Peking University, recently said Chinese banks could be dragged into another spending binge that could spark a financial crisis.

But Premier Li is unlikely to backpedal on the urbanisation drive, with his interest in the issue seen as far back as the early 1990s when he wrote a doctoral thesis on the subject. One of his key arguments was to reform the hukou system''.

Source: Reuters May 2013

Central Bank Governor of Israel Stanley Fisher: Higher U.S Bond yields will stop higher currencies for emerging markets.

“I am happy to see these rises in Treasury yields because we’ve been dealing with capital inflows which are not particularly wanted.”
''The Bank of Israel last month cut interest rates twice by a cumulative 0.5 percentage point to 1.25 percent in a bid to moderate the strengthening of the shekel, and also announced the purchase of $2.1 billion in foreign currency by the year’s end. The shekel has jumped 7 percent in the past year''.
“If you have a current account which is fundamentally in balance, which ours is, then when our rates are significantly above foreign rates, we have to deal with foreign inflows,” Fischer said yesterday''
"As speculation the Federal Reserve may lower its bond-buying,  yields on 10-year Treasury bonds reached 2.29 percent on June 11, the highest since April 2012 and up from a record 1.38 percent in July. JPMorgan Chase & Co.’s Emerging Markets Currency Index has fallen 4 percent in the past month as investors pull money out of developing nation bond funds".

''Fischer earned a reputation as a trailblazer as the first central banker to cut rates in 2008 at the start of the global economic crisis, and the first to raise rates the following year in response to signs of financial recovery. He also bought up foreign currency in unprecedented amounts to drive down the value of the shekel and boost exports, more than doubling reserves''.

King Ross cancelled Gold Project in Ecuador

  After two years of conversations and disagreement on Ecuador taxation( they wanted a 70% income taxation),  King Ross decided to cancel its project of Frutas del Norte Gold Mine.

  Source: bnn.ca

Risks of prolonged monetary accommodative policies. IMF Report.

Rising stability Risks of Accommodative Monetary Policies

''The use of unconventional monetary policies in
advanced economies continues to provide essential support
to aggregate demand. These policies

are generating a substantial rebalancing of private 

investor portfolios toward riskier assets, as intended.
However, a prolonged period of extraordinary
monetary accommodation could push portfolio
rebalancing and risk appetite to the point of creating
significant adverse side effects. While the net benefits
of unconventional policies remain highly favorable
today, these side effects must be closely monitored
and controlled''.


''the favorable funding environment for emerging market
economies might breed complacency about growing
challenges to domestic financial stability. Valuations
have not yet reached stretched levels (except in a few
hot spots), but sensitivity to higher global interest
rates and market volatility has increased across asset
classes, including in emerging market economies. A
prolonged period of continued monetary accommodation will increase vulnerabilities and sensitivity to a rise in rates''.

''Acute short-term stability risks have declined in the
euro area on the back of strong policy action. Prices
and liquidity conditions in sovereign, bank, and
corporate debt markets have improved dramatically,
and issuance has soared. However, medium-term
risks remain, reflecting a weak economic outlook,
persistent fragmentation, and structural challenges.
Some banks in the euro area periphery remain
challenged by deleveraging pressures, still-elevated
funding costs, deteriorating asset quality, and weak
profits.
 Corporations in the periphery are directly
affected by bank deleveraging, cyclical headwinds,
and their own debt overhangs. Against this backdrop
more work needs to be done in the short term to
improve bank and capital market functioning, while
moving steadily toward a full-fledged banking union.
Policy actions have greatly reduced nearterm perceptions of tail risk''.

Excerpts from the IMF GFSR, April 2013 

EXPECT HIGH VOLATILITY,TURMOILS IN THE BOND AND STOCK MARKETS,IN THE PROCESS OF NORMALIZATION OF INTEREST RATES

''The rolling back of the U.S. Federal Reserve's massive quantitative easing program could be a major issue for all economies, according to former World Bank President Robert Zoellick. "[Fed] tapering is a big issue. I think for all economies - U.S., Europe, China, Southeast Asia - the fundamentals still go back to structural reforms," Robert Zoellick,  told CNBC Asia's "Squawk Box" on Tuesday.
He added that "The question will be as the Fed eventually moves away from the monetary easing policies, what will be the effect of the [withdrawal of the wall of money that's moved around the world?"

 See previous article on this Blog, End of easy money will put pressure on Latin American Currencies.
 Time to adjust portfolios?

The global economy is “in the early stages of the recovery of the equity culture and perhaps the end of a 30-year growing love affair” with bonds, Jim O’Neill said earlier in an interview on Bloomberg Television’s “On The Move” with Mark Barton.
''The Federal Reserve is buying $85 billion of Treasuries and mortgage securities each month to support the world’s largest economy by putting downward pressure on borrowing costs. Speculation the central bank may taper its debt purchases in the coming months may damp demand for emerging-market bonds, as well as U.S. debt, said O’Neill''.

“It’s all part of this big normalization that’s going to happen,” O’Neill said in an interview in London today. “In the process, there could be quite ugly days.”

''The benchmark 10-year Treasury yield rose four basis points, or 0.04 percentage point, to 2.25 percent at 6:14 a.m. New York time. It touched 2.26 percent, the highest since April 2012 and up from a record-low 1.38 percent on July 25".

Ten-year yields, which were last above 4 percent in April 2010, may reach that level “not next week, but in the next couple of years if the U.S. is getting back to normality,” O’Neill said.

Source CNBC, Bloomberg.