Ouch!: This Laiki Bank Account Shows the Startling Reality for a Cyprus Businessman
This is what an 85% haircut actually looks like:
Writes the owner:
Bank of Japan Policy is Doomed to Failure
The Bank of Japan (BOJ), Japan's central bank, bowed to government pressure this week by adopting a 2% inflation target and accepting responsibility for achieving that goal "as early as possible."
The BOJ announced today (Tuesday) that it will begin a program of "unlimited easing" beginning in January 2014 following the end of the central bank's current asset-purchasing program in December.
In a statement announcing the results of Tuesday's Monetary Policy Committee meeting, the Bank of Japan said it anticipates purchasing 10 trillion yen in Treasury notes and 3 trillion yen in Japanese government bonds (JGBs) each month beginning in January 2014.
The statement also indicated the central bank's balance sheet will expand by about 10 trillion yen by the end of 2014 as a result of the purchases. No further expansion of the BOJ balance sheet is anticipated thereafter.
Investing in 2013: Don't Ignore this Huge Shift in China
When looking for hot spots for investing in 2013, investors must consider this major trade shift happening in China.
You see, China is the world's largest consumer of grains. That's not surprising considering China's population is 1.3 billion, with an additional 8 million children born each year.
China historically has been largely self-sufficient in most grain categories, rarely importing products like corn and wheat.
But that is changing
China is becoming a net importer of grains.
As Rabobank (one of the largest lenders in global agribusiness) analyst Erin FitzPatrick told AgriMoney, "This is something that the market should be looking at."
Election in Japan: Will a New Government Revive Growth?
Following three-and-a-half years of government marked by scandal, incompetence and hesitation in the face of a natural disaster, voters in Sunday's election in Japan voted in a new party.
Japanese voters turned their backs on the Democratic Party of Japan (DPJ) and returned the Liberal Democratic Party (LDP) to power in a landslide victory.
The LDP, which ruled Japan continuously for more than 50 years, has been chastened by its time in opposition and returns to power with a renewed vigor and strengthened belief in its core values.
Sunday's election, which had been characterized as a referendum on the future of nuclear power in Japan, actually turned out to be a vote in favor of competence and experience in governing.
Voters handed the LDP/Komei coalition a veto-proof majority of 325 seats in the Lower House of the Diet.
Under Japan's parliamentary system, if a bill passed by the Lower House is rejected by the Upper House, it can be resubmitted to the Lower House and become law if approved by a two-thirds majority. That means even the most radical LDP policies can become law over the objections of the opposition.
That's a good thing because LDP president Shinzo Abe, who will be the next prime minister, has some pretty radical ideas for dealing with Japan's economic malaise.
Which One of These Losers Will Run Out of Money First?
After a surprisingly comfortable re-election, Venezuela has decided to stick with Hugo Chavez and all that comes with him.
That has prompted The Wall Street Journal and other pundits to forecast nothing less than economic doom for Venezuela in 2013.
But when it comes to poorly run South American countries, Cristina Fernandez de Kirchner is someone that could easily give Chavez a run for his money.
As Argentina's president, Fernandez de Kirchner is a master of economically inept policies in her own right.
So who will win this race to the bottom?
Let's examine which one of these losers will run out of money first, starting with Venezuela's Chavez.
After all, when it comes to wealth destruction, Chavez has had a pretty big head start. He was elected in 1998, while Fernandez's husband was first elected president in 2003 (she succeeded him as president in 2007; he died in 2009.)
What's more, the wealth destruction in Venezuela did not begin with Chavez. The Conference Board Total Economy Database shows that Venezuelan productivity was more than 20% lower in 1998 than it had been in 1970.
In fact, I did a study on the potential for Venezuelan corporate finance for a client bank back in 1990 and came to the conclusion that there was very little potential for it.
Other than the oil company PdVSA, there were very few corporations in Venezuela for which one could imagine doing corporate finance deals of any substance. There were a few local monopolies like the tobacco company, but essentially all business activity beyond the mom-and-pop store level centered round the oil sector.
That same thing was not true in Argentina.
This Buying Spree Dwarfs The One That Shook the World in the 80s
They're baaaaack. While the Chinese are busy grabbing all of the headlines, it's really the Japanese who are making the biggest moves.
So far this year, they've very quietly spent $101 billion on overseas acquisitions in a global buying spree that now dwarfs the one undertaken in the late 1980s and early 1990s according to Edward Jones of Dealogic.
S&P Capital IQ reports 45 deals with a value of $18.7 billion year-to-date involving a Japanese investor or buyer and U.S. assets alone. That's a 50% increase in the number of deals and a 64% increase in the valuation versus last year at this time.
To put this binge into perspective, not only is this the highest year on record, but it is on a pace that's three times the acquisition rate that had everybody quaking in their boots 30 years ago.
I think that's very telling on a couple of levels.
First, Japan's economy is faced with a triple disaster. When you add up private, corporate and government debt, it's nearly 500% of GDP according to numbers from Goldman Sachs earlier this year, which makes the Greeks look positively miserly. Even our own fiscal cliff pales in comparison.
Second, fully 25% of their population is going to die off by 2050, according to the Japanese Health Ministry, further exacerbating the near-complete shutdown in domestic demand that repeatedly plagues any attempt to jump-start the Japanese industrial machine.
And third, Japanese corporations themselves are struggling on every level. Decades of low and no growth have paralyzed even the best companies.
That's why so many Japanese companies are now turning their attention to global markets. They have to – it's the only way they're going to survive.
The Japanese Hunt For Growth
Japan's economy is not growing at 7% a year; instead it's fighting to maintain any kind of positive momentum whatsoever.
Its executives are struggling to cope with highly competitive markets that move faster and more decisively than they are prepared to accept. According to McKinsey, productivity per worker is one of the lowest of any developed country.
In short, the Japanese economy is vulnerable rather than in a position of strength.
This changes the game significantly and gives the Japanese a new sense of urgency. Japanese companies literally have no alternative. Almost every market they've dominated for years is failing.
Investing in Japan: Is There Light at the End of the Tunnel?
Most people have given up on investing in Japan.
With an aging population and far too much government debt, the conventional wisdom is that Japan will never again see the vigorous economic growth it once enjoyed.
The earthquake and tsunami of March 2011 only reinforced this view. However, that tragic episode did have another side.
It showed the resilience and discipline of Japanese society.
There was almost no looting, for example — and recent economic data suggest that the Japanese economy is not as dead as it seemed.
First quarter Japanese gross domestic product (GDP) came in at an annual growth rate of 4.1% –far higher than the United States, Canada, Australia, or anywhere in the Eurozone.
Given that Japan has been in perpetual near-recession for 21 years, with no surges of productivity like the U.S. enjoyed in the late 1990s, it's really not a bad performance.
You can also see Japan's true strength from its exchange rate, which is currently 79 yen to the dollar, up from around 120 five years ago. That makes visiting Tokyo very expensive.
However, it's also sign of a highly competitive economy.
Investing in Japan: What You Need to Know
It's notable that observers in the United States, a country which perpetually runs payment deficits of $500 billion-$600 billion annually, sneer at the economies of Japan and Germany, which are almost always in surplus.
Before 1995, I lived in another economy that was similar. Britain ran deficits much like the U.S. does.
So believe me when I tell you, deficits are not exactly a sign of superior economic health.
Investing in Mongolia: Is It Time to Buy the World's Fastest Growing Economy?
It is the world's fastest growing economy. It also may be the world's best kept secret.
Yet it is true. Mongolia is growing twice as fast as China and it's a market most investors know little about.
While Chinese GDP is forecast to grow by 7.5% in 2012, the Mongolian economy is set to grow at a blistering pace of 14.9%.
That's down a bit from 2011-but not by much.
According to official statistics, the Mongolian economy grew 17.3% in 2011.
Taking the two together, Mongolia would have the world's fastest growth rate, beating Qatar and Libya over the same two-year time frame.
So is there a way a regular guy can make money out of all this growth?
Or to the larger question: Is the Mongolian market where we should be putting our hard-earned savings?
Investing In Mongolia
To start, it's not all good news when it comes to investing in Mongolia. There is some bad economic news that comes along with the good.
The Greek Bailout, the CDS Market, and the End of the World
A not-so-funny thing happened on the way to the latest Greek bailout.
The terms and conditions of the bond swap Greece agreed to before getting another handout constitutes a theoretical default – but not a technical default.
That's not funny to CDS holders.
Greece hasn't defaulted (so far), but some of the buyers of credit default swaps, basically insurance policies that pay off if there is a default, claim the terms and conditions of the bond swap constitutes a "credit event" or default.
If it is, they want to get paid.
While on the surface this looks like a fight over the definition of a default, underneath the technicalities, the future of credit default swaps and credit markets is at stake.
In other words, the ongoing Greek tragedy is really becoming a global tragedy of epic proportions.
The Next Act in the Greek Bailout?
Here's the long and short of it.
Should We Be Worried About Iran?
If the Iranian government makes good on its recent threats to stop oil shipments through the Strait of Hormuz, oil prices would shoot up $20 to $30 a barrel within hours and the price of gasoline in the United States would rise by $1 a gallon.
Such a steep spike in crude oil prices would plunge the United States and Europe back into recession, said Money Morning Global Energy Strategist Dr. Kent Moors.
Iran just concluded a 10-day military exercise intended to prove to the West that it can choke off the flow of Persian Gulf oil whenever it wants.
The world's fourth-biggest oil producer is unhappy with fresh U.S. financial sanctions that will make it harder to sell its oil, which accounts for half of the government's revenue.
"Tehran is making a renewed political point here. The message is – we can close this anytime we want to," said Moors, who has studied Iran for more than a decade. "The oil markets are essentially ignoring the likelihood at the moment, but any increase in tensions will increase risk assessment and thereby pricing."
One reason the markets haven't reacted much to Iran's latest rhetoric is that although it has threatened to close the Strait of Hormuz many times over the past 20 years, it has never followed through on the threat.
But a fresh wave of Western sanctions could hurt Iran's economy enough to make Tehran much less cautious.
The latest sanctions, signed into law by U.S. President Barack Obama on Saturday, will make it far more difficult for refiners to buy crude oil from Iran. And looming on the horizon is further action by the European Union (EU), which next month will consider an embargo of Iranian oil.
"The present United Nations, U.S. and EU sanctions have already had a significant toll," said Moors. "They have effectively prevented Iranian access to main international banking networks. Iran now has to use inefficient exchange mechanisms."
Because international oil trade is conducted in U.S. dollars, Moors said, Iran must have a convenient way to convert U.S. dollars into its home currency or other currencies it needs, such as euros.
Pushed to the Brink
The impact of the sanctions combined with internal political instability has driven Iran to turn up the volume on its rhetoric.
"Tehran has limited options remaining," Moors said, noting Iran has historically used verbal attacks on the West to distract its population from the country's problems. "The Iranian economy is seriously weakening, the political division among the ayatollahs is increasing, and unrest is rising."
Analysts worry an Iranian government that feels cornered would be more prone to dangerous risk-taking in its dealings with the West. So while totally shutting down the Strait of Hormuz isn't likely, Iran could still escalate a confrontation beyond mere talk.