IMF
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The IMF's Change on Capital Controls Adds Danger for Emerging Market Investors
The IMF is up to no good again.
On Monday they released a new report on international capital flows which relaxed its opposition to exchange controls.
By doing so, the IMF has now made emerging market investments more risky, especially for retail investors.
What's more, they likely imposed a major new cost on the global economy.
The irony is that the IMF is trying to solve a problem that was caused by foolish global monetary policies. Relaxing its opposition to capital controls is just more of the same.
Removing Federal Reserve Chairman Ben Bernanke and his world-wide sympathizers, and restoring a true free global capital market would work much better.
The IMF does correctly note that capital flows have vastly increased in recent years. That's where the initial problem comes from. It's the solution that's dangerous.
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The Markets or the Mattress: I Know Where My Money is Going
The next 1,000 points on the Dow Jones Industrial Average in either direction are going to be determined by what happens in two cities thousands of miles from our own shores...
Athens and Berlin.
What's more, the risks associated with Europe's redemption, or its failure, are more concentrated now than they were before the crisis began.
There are two reasons: a) Europe won't help itself and b) Wall Street may still have $1 trillion or more in exposure to European problems.
What makes me crazy right now is that European chatter is what's driving the markets.
Every sound bite from Europe is critical these days. Not because there is anything relevant in the political babbling from financial ministers tasked with fixing this mess, but rather that there is a cascade of events that could take us in either direction.
Fix this mess and the markets will take off for a 1,000 point gain that will leave anybody who is on the sidelines hopelessly behind.
Fail and the markets could tank.
It certainly fits the pattern established in recent months. News leaks suggesting solutions have brought on rallies, while negative leaks have caused a ripple effect that has quickly dumped stocks into the hopper.
Yet, it's not really the numbers that matter at the moment - even with the Fed rumored to be considering another $1 trillion stimulus and reports that the European Central Bank (ECB) and International Monetary Fund (IMF) may be seeking as much as $600 billion each.
No. The market swings we are seeing are all about confidence or, more specifically, the near complete lack thereof.
The Mattress vs. The Markets
A recent report from TrimTabs shows that checking and savings accounts attracted eight-times the money that stock, bond and mutual funds did from January to November 2011.
That is a whopping $889 billion that went under "the mattresses" versus only $109 billion that went into the markets.
In fact, CNBC is reporting that the pace of money headed for plain-Jane savings and checking accounts from September to November accelerated to nearly 13-times the average monthly flow rate of the preceding nine months from September to November.
What's significant about this is that the money has headed for the sidelines when the markets have rallied. Usually it's the other way around. Normally money floods into the markets when they move higher.
The other notable thing here is that, generally speaking, up days this year have had thinner volume than down days. This means that most investors just can't handle the swings. In other words, every time the markets dip, they're packing it in.
Pessimism is the Breeding Ground of Opportunity
Bottom line: Investors are making a gigantic mistake - especially those with a longer-term perspective.
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IMF Forecast: Can China Really Overtake the U.S. Economy by 2016?
According to the International Monetary Fund (IMF) "World Economic Outlook," China's output will surpass that of the United States in 2016 - only five years from now.
But don't worry. The IMF calculation is based on "purchasing power parity" (PPP), which does not reflect real money. It relies on projecting China's stellar growth rates five years into the future. And it relies on Chinese official statistics, which are more than a little questionable.
(In fact, after the media storm that resulted, the IMF apparently even soft-pedaled its prediction that China would leapfrog the United States in just five years; in a subsequent interview, an IMF spokesman reportedly said that, by non-PPP measures, the U.S. economy "will still be 70% larger by 2016." A recent World Bank forecast concluded that China could overtake the United States by 2030.)
This prediction - and the attention it continues to draw - serves a useful purpose, particularly if it's given the scrutiny that it deserves.
For global investors with China-based holdings, it reminds us of that country's long-term potential - and the fact that such potential is always tempered by near-term risk. For the rest of us, it reminds us that China's ascendance is inevitable - in fact, is already happening - and will be with us for a long time, even if that Asian giant isn't immediately going to overwhelm the rest of the world.
And for our elected leaders in Washington, the IMF report - false alarm or not - should serve as a wakeup call to attack and address the many problems that threaten this country's global leadership.
How long will it really take for China to overtake the U.S.? Read on ...
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IMF Warns of Slower Growth As Currency War Rages On
Meetings of the Group of Seven (G-7) countries in Washington this week could feature a clash of views that have sparked an international currency war even as the International Monetary Fund (IMF) warned that growth in developed economies is slowing.
The conflict represents a fundamental disagreement about how to sustain the global economic recovery among countries that prefer flexible exchange rates like the United States, and others that are resisting calls to allow its currency to appreciate, like China.
A renewed push for easier monetary policy came as the IMF warned growth in advanced economies is falling short of its forecasts.
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Crude Oil Prices Tumble as IEA Warns Economic Woes Could Stunt Demand
Oil prices yesterday (Wednesday) fell below $80 a barrel after the International Energy Agency (IEA) warned that demand could be curtailed if global economic growth is weaker than expected.
The warning came even as the IEA, an energy adviser to 28 industrialized countries, slightly increased forecasts for global crude demand for this year and 2011.
However, those projections were based on revisions to historical oil-demand data and on forecasts issued by the International Monetary Fund (IMF) nearly four weeks ago. Since that time, economic news in the United has become gloomier.
The U.S. Federal Reserve said after its policy meeting on Tuesday that the pace of economic recovery had slowed in recent months and was expected to be "more modest in the near term" than previously thought.
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The Case for the Yuan: Why China's Currency Isn't the Problem Policymakers Make it Out to Be
By allowing the yuan to appreciate, China at least temporarily placated foreign trade partners that had expressed concern about the currency's value. However, the decision has done little to quell criticism from many U.S. policymakers and trade groups who are angry that the Obama administration refuses to brand China a "currency manipulator."
Still, while the yuan does need to appreciate, critics in the United States should remember that the dollar too is flawed, and that the uneven relationship between the two currencies has often worked to America's advantage.
Treasury Secretary Timothy Geithner has thrice declined to tag China as a currency manipulator in his biannual report to Congress. Geithner even delayed the release of the most recent report to give China more time to adjust its policy. That move paid off in June when just days ahead of the Group of 20 (G20) leaders' summit in Toronto, Beijing announced that it would allow the yuan to appreciate against the dollar. Since then, the currency has risen about 1% against the greenback.
Geithner, who made two visits to China in the spring for closed-door talks with top officials on the issue, called the policy shift a "significant step" in his report, but said the yuan remains "undervalued."
What matters now is "how far and how fast the renminbi [or yuan] appreciates," Geithner said, adding that the United States "will closely and regularly monitor the appreciation" of the currency.
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Uncertainty Undermining the Global Economic Recovery
The International Monetary Fund (IMF) said yesterday (Thursday) that the global economic recovery is losing steam because uncertainty in financial markets is keeping businesses and consumers from investing in future growth.
In a revision to its World Economic Outlook released yesterday in Hong Kong, the IMF said worldwide economic expansion will decline to 4.3% next year from 2010's 4.6% pace. The forecast for 2010 was revised upwards by 0.4 percentage points to reflect faster-than-anticipated growth earlier this year.
However, "downside risks have risen sharply," the IMF warned, referring to European governments' debt problems and volatility in financial markets.
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Six Ways to Invest in Korea – Asia's Can't-Miss Market
With the U.S recovery looking a bit iffy after last week's unemployment report, Japan and Britain battling huge budget problems and Europe in trouble because of the Greek debt crisis, investors have quite naturally shifted their focus to Asia.
But even there the pickings seem a bit slim. Asian stalwarts China and India show signs of overheating (India more so than China). Taiwan and Singapore - both excellent markets - seem pretty fully valued right now.
That leaves us with one Asian market whose economy is enjoying well-balanced growth, whose government is a model of competence and efficiency and whose stock market is surprisingly reasonably valued.
I'm talking about South Korea.
To discover the five essential Korea profit plays, please read on... -
China Boosts Treasury Holdings as European Debt Contagion Sparks Investor Shift to U.S. Securities
China increased its purchases of U.S. Treasuries for the first time in six months in March as concerns about European debt contagion sparked an influx of foreign investments into dollar-denominated securities.
China's holdings of U.S. Treasury securities rose by 2% to $895.2 billion, the first increase since last September, as the Asian juggernaut cemented its position as the top holder of U.S. government debt, according to the monthly Treasury International Capital report, known as TIC. The boost follows net sales of $11.5 billion in February.
Japan, the second largest holder of Treasuries, also was a net buyer in March, lifting its portfolio holdings to $784.9 billion, from $768.5 billion in February.
China's purchases were reflective of a deluge of foreign investment in U.S. debt securities as concerns about a European debt contagion and a rebounding U.S. economy sparked greater interest in purchasing U.S. corporate debt.
