The European Union (EU) on Thursday defended its sweeping hedge-fund reform proposals against criticism from the United States and Britain.
British Prime Minister Gordon Brown met with French President Nicolas Sarkozy Friday in hopes of compromising on the proposed regulation.
Many EU countries are determined to change the hedge fund industry, which is often murky. The use of derivatives, such as credit-default swaps have been linked to the downfall of Lehman Bros. and exacerbating Greece's sovereign debt difficulties.
Germany: The "Must-Invest" Economy
If you're a U.S. investor, you can't be happy about the prospects for your portfolio. After all, you're mostly trapped in an economy with a gigantic and dangerous financial-services sector, a central bank that can't stop itself from printing money and a government that overspends wildly.
But there is an answer: You should consider allocating some of that "at-risk" capital to a country that has none of those problems - Germany.
Germany has a banking system, of course, but that banking system is not the overgrown financial-services monster that we have here in the United States (or, for that matter, in Great Britain). It's impossible to get a subprime mortgage in Germany: Even now - and even after mortgage levels have crept up in recent years - the average down payment for the purchase of a new home in this key Eurozone nation is 50%. As a result, the homeownership rate in Germany is only 43%, the lowest rate in the European Union.
That's actually healthy; far less of Germany's capital is tied up in unproductive housing and the savings rate is correspondingly higher. (Let's face it, most Americans don't accumulate 50% of the cost of a house in savings over their lifetimes - unless forced to do so in a company pension scheme).
To find out how to profit from Germany's promise, read on...
Greece Cutting Back to Court EU Favor
Greece unveiled its third austerity plan Wednesday and was met with praise from the European Union (EU), European Central Bank (ECB), and the International Monetary Fund (IMF), but hostility from the Greek public.
The plan consists of spending cuts and tax increases that will cut the budget deficit by $6.5 billion, and help Greece to reduce its current deficit to 8.7% of gross domestic product (GDP) from 12.7%.
"This was a necessary decision. It was not a matter of choice," said Greece's Prime Minister George Papandreou. "It was a matter of survival for our country, allowing it to breathe and break free from the clutches of speculative forces."
Did Hedge Funds Conspire to Devalue the Euro?
The Department of Justice is investigating whether several prominent hedge funds conspired to drive down the value of the euro as the Greek debt crisis left the currency vulnerable to sophisticated trading methods employing credit default swaps and other derivatives.
Likewise, the European Commission yesterday (Wednesday) said it would examine trades in sovereign credit-default swaps (CDS) related to the Greek crisis, which has driven the euro lower and prompted officials to warn hedge funds against trying to profit from the region's debt crisis.
The Justice Department's antitrust division "has opened an investigation into agreements among various hedge funds that trade euro contracts," including contracts to trade euros in the "cash or the derivatives market," a person familiar with the letter told The Wall Street Journal.
Billonaire Investor George Soros Questions the Euro's Future
In an editorial penned for the Financial Times, billionaire investing icon George Soros said that while Greece could be salvaged by a makeshift financial-rescue package, bigger problems lie ahead for the euro.
According to weekend news reports, Germany's finance ministry has sketched out a plan under which countries using the euro currency will provide between $27 billion and $33.7 billion (20 billion and 25 billion euros) in aid for Greece, which is teetering on the brink of default.
Soros says that "a makeshift assistance should be enough for Greece," but warns that the growing threats posed by other debt-laden, euro-member countries - particularly Spain, Italy, Portugal and Ireland - could prove overwhelming.
Europe-China Connection Could Rattle Stocks
I was watching the Asia Edge show on Bloomberg television Wednesday night when the lovely and smart Susan Li broke in breathlessly on her guest with news about China's consumer inflation numbers. Inflation was reported up just a touch in January, which was considered good news because if it was higher it would have made Chinese banking authorities more anxious to clamp down on interest rates and if it was lower it would have raised the awful specter of deflation.
The Shanghai stock market ended a fraction higher, so it was a bit anticlimactic. But the key thing to know is that the Chinese market still appears to be in a downtrend and that bodes ill for the rest of the emerging markets. The 50-day moving average of iShares FTSE/Xinhua China 25 Index (NYSE: FXI) has turned emphatically negative, as has the slightly longer 100-day average. The index fund also is already beneath its 200-day average, which tends to distinguish bull cycles from bear cycles.
Read more about the Europe-China connection...
As Greece's Woes Demonstrate, the Fuse Has Been Lit on the Global Debt Bomb
The big story in the international markets so far in the New Year has been the increasing shakiness of a number of countries' government bonds, with Greece right now being the most troubled of all.
Since U.S. investors tend to avoid foreign government bonds, many will dismiss this as an irrelevant development.
That's a mistake. The reality is that the international implications of this bond-market problem are serious for the world's stock markets, as well as for the global economy as a whole.
The fuse has been lit on a global debt bomb. And Greece has quickly become a poster child for the explosion that's all but certain to occur.
To find out all about the "Global Debt Bomb," read on...
Will Greece Default on its Debt, and Take the Eurozone Down with It?
As the European Commission holds its regular monthly meeting in Brussels this week, ministers find themselves debating what to do about the Greek debt crisis — the biggest credibility test the Eurozone has faced since the single currency was created.
The question is whether the 16 countries that share the European Union's (EU) currency can force a rogue member with a weak economy to take drastic measures to cut its budget deficit without calling in the International Monetary Fund (IMF) or sparking social unrest.
Still in the depths of recession, Greece is plagued by a spending deficit that rose to 12.7% of gross domestic product (GDP) last year, far in excess of the 3% ceiling permitted to countries in the union. It's also saddled with debt amounting to 113% of GDP, which prompted Moody's Corp. (NYSE: MCO) to downgrade its debt to A2 from A1 on December 22.
Why You Should Mark January 13 on Your Calendar
Next Wednesday, Jan. 13, won't be just another hump day. It's a key date for regulators in both the United States and Europe who are preparing to launch the largest overhaul of global financial regulation since The Great Depression.
On that day, at least two seminal events are scheduled to take place:
- The U.S. Congress' Financial Crisis Inquiry Commission (FCIC) - the ten-member commission appointed with goal of investigating the causes of the financial crisis - will begin its first public hearing.
- And the European Parliament will hold a confirmation hearing for Michel Barnier - the French politician who has been appointed to oversee the regulation of the European Union's (EU) financial services sector.