Category Archives: Financial

Provincial Finances Are Much Worse Than Reported

Oh, joy:

The official balance sheets of provinces across the country mask billions of dollars in debt related to a series of megaproject follies being pursued by provincial governments and government-owned power utilities. While their debt doesn’t officially appear on provincial balance sheets, taxpayers will be left footing the bill when the electricity rates needed to pay them off become so economically crippling and politically unpalatable that they will require a bailout.

A chorus of auditors general and ratings agencies have questioned this trend of masking liabilities, but have seen their warnings ignored by political leaders determined to bury the risk of pet megaprojects.


China Sells Off Shares

Paper tiger and all that:

Global equity markets fell sharply on Monday while gold and bonds rose after a 7-percent slide in Chinese shares, sparked by weak economic data, rekindled worries over global growth on the first day of trading in 2016.

Rising tensions in the Middle East also increased demand for safe-haven assets. Crude prices rose above $38 a barrel at one point as some speculated a breakdown in diplomatic ties between Saudi Arabia and Iran could result in oil supply restrictions.

But crude prices then retreated on worries that the weak Chinese data could portend slower global growth, which also hurt Wall Street and sent key indexes down more than 2 percent.

Emerging markets were especially hard-hit by the China data, with MSCI’s index (.MSCIEF) tumbling 3.4 percent, while its all-country world stock index fell 2.47 percent.

On Wall Street, the Dow Jones industrial average (.DJI) fell 423.4 points, or 2.43 percent, to 17,001.63. The S&P 500 (.SPX) slid 47.27 points, or 2.31 percent, to 1,996.67 and the Nasdaq Composite (.IXIC) lost 140.71 points, or 2.81 percent, to 4,866.70.

China’s yuan currency (CNH=D3)(CNY=) hit its lowest in more than four years after the central bank lowered its guidance rate and factory activity contracted for a 10th straight month in December, at a sharper pace than in November.

Stocks in Europe tumbled, with Germany’s DAX index (.GDAXI) closing down 4.28 percent and the pan-European FTSEurofirst 300 index (.FTEU3) falling 2.53 percent at 1,401.16.

The selloff in China triggered a circuit-breaker that suspended equities trading nationwide for the first time and put at risk months of regulatory work to restore market stability.


Russia Is Relying on the Chinese Yuan

Russian institutions, energy companies, and banks are increasingly switching over from the dollar to the Chinese yuan, according to The Moscow Times.

“Two state energy companies, gas producer Gazprom and its oil arm Gazprom Neft, said they would use more Chinese currency in trade, while Russia’s largest bank, Sberbank, has also promoted the use of the yuan,” The Moscow Times’ Peter Hobson writes.

“The Russian Central Bank said it was working to create a new funding instrument in yuan, and the Finance Ministry said it was considering issuing debt in the currency.”

Gazprom Neft announced that it began settling shipments of oil to China in yuan. And previously, the head of Gazprom, Alexey Miller, said in a TV interview that the company was negotiating with China to use yuan and rubles for gas deliveries via a planned pipeline in Western Siberia.

“Gazprom Neft’s swift embrace of the yuan was likely spurred by sanctions, not profits,” Alexei Devyatov, chief economist at UralSib Capital, told The Moscow Times.

Additionally, “Western banks work slower, with more restrictions, and it becomes simpler to move to the currency in which trade is being done,” Vladimir Pantyushin, senior strategist at the investment bank Sberbank CIB, told The Moscow Times.

In other words, Russia is looking to diversify away from the Western financial system after repeatedly being targeted by US sanctions.

When the paper tiger collapses, what will Russia do?


Turkey’s Erdogan says high interest rate ‘lobby’ guilty of treason

(Reuters) – Turkish President Tayyip Erdogan on Saturday said anyone opposing interest rates cuts was guilty of treason, piling more political pressure on the central bank.

Governor Erdem Basci on Friday dismissed rumors that Erdogan’s criticisms of the central bank for not cutting rates swiftly enough would force him to resign.

On Saturday, the president stepped up his rhetoric: “There is a very serous threat from the interest-rate lobby,” he told a news conference broadcast live on NTV.

“Anyone who defends this (high rates) is at the beck and call of the interest-rate lobby, this is treason against this nation.”

Erdogan’s criticisms of monetary policy are a concern to investors who fear the central bank could lose its independence, speculation that has helped push the lira to record lows.

The president believes current rates are impeding economic growth, which could dent his party’s support as it heads into a general election in June…

Note: This is part of Erdogan’s campaign against the Central Bank being independent and setting interest rates as it sees fit (originally done as part of the campaign to join the EU.  In the West, central banks set interest rates independent of politics).

Now a mysterious ‘lobby’ is said to be keeping interest rates high to affect the next election. Treason, of course.


Greece bailout talks collapse, Greece rejects EU bailout offer

Greece’s Finance Minister Yanis Varoufakis has said he is prepared for tough negotiations

Talks between Greece and European finance ministers have collapsed early after Greece rejected the EU’s bailout offer as ‘absurd’ and ‘unacceptable’.

They were meeting in Brussels to try and reach a new deal on Greece’s bailout, which it wants restructured.

The International Monetary Fund (IMF) and European Union (EU) say there should be no change to the conditions of the €240bn (£178bn) loan.

The Eurogroup head said there was still time for Greece to agree an extension…


Financial Times: How to fix high price of housing? Who needs a greenbelt? Limiting immigration not even mentioned

And did those feet in ancient time
Walk upon England’s mountains green:
And was the holy Lamb of God,
On England’s pleasant pastures seen! — William Blake, ~ 1808

How would one describe a market in which the value of the same commodity varied by more than 100 to one? “Hugely distorted” is the answer. Yet that is precisely the situation for land near England’s most prosperous urban centres…

…The core question…is what is to be done with the green belts around our cities. Supporters of the policy of “urban containment” argue that this is a small island whose countryside risks being concreted over.

In fact, the land in green belts alone is one and a half times greater than in all cities and towns together. Moreover, the towns are far “greener” than green belts. Gardens cover nearly half of the 10% of England that is urbanised, while the dominant use of land in green belts is intensive arable farming, which is mostly hideous and offers less biodiversity than urban parks and gardens. Nor do green belts offer much if any amenity to the bulk of the population that lives in the great cities. Their value goes to the small number of people who own houses inside them.

So what is to be done? The price mechanism should rule…We do need to stop constraining the growth of the places where people really want to live. It is untrue that the green belts are areas of outstanding amenity. They are rather sources of increasing misery, as an ever-larger population is crammed into an artificially limited space.

Perhaps not surprisingly, the op-ed attracted only 14 comments, of which few seemed concerned about the green belt per se. I noticed this one:

Why not flatten Martin Wolf’s house — which I’m assuming is in London — and replace it with a high rise block?
When they’ve replaced all the houses and gardens in London with high rise blocks, I’ll be very willing to cede some of the green belt.

(Martin Wolf is the author of the op-end).

I am not familiar with the green belt in the UK, of course. But we also have one in greater Vancouver. Since I no longer live there I do not know if similar proposals are afoot there too (the house prices in Vancouver are extremely high).


Greece Must Repay Debt, European Officials Say

Election results. Syriza has been forced to form a coalition with another small party that also opposes the austerity program.

The new Greek administration will have to repay the country’s debt, which is ultimately owed to taxpayers in the eurozone, even though talks on a debt maturity extension are possible, European officials said Monday.

Both European Central Bank executive board member Benoît Coeuré and Finnish Prime Minister Alexander Stubb said they wouldn’t write off any loans issued to Greece following the victory in elections on Sunday by radical left party Syriza, led by Alexis Tsipras…

…The European Union’s institutions are eager to talk and cooperate with Greece, he added.

Mr. Tsipras had staked his campaign on resistance to austerity measures that include budget cuts and tax increases demanded in return for a EUR240 billion ($269 billion) bailout.

Greece owes around EUR40 billion to France and EUR60 billion to Germany, Mr. Coeuré said. “The debt is owed to taxpayers, not speculators or financial markets, canceling that debt would be a EUR240 billion gift to Greece,” he said…

Continue reading


Iran to hike military spending despite lower oil prices, sanctions

Dec 7 (Reuters) – Iranian President Hassan Rouhani will hike military spending by more than a third in the next fiscal year despite presenting a “cautious, tight” budget to parliament on Sunday in response to falling oil prices and punishing sanctions arising from the country’s disputed nuclear programme.

Rouhani proposed a general budget of 8,400 trillion rials ($312.13 billion at the official exchange rate) for the Iranian fiscal year starting March 20, 2015. This includes the entire the sprawling public sector.

A smaller government budget, part of the larger general budget, was set at 2,200 trillion rials.

These are based on an oil price of $70, as opposed to $100 this year, Rouhani said. Oil has fallen some 40 percent since June to under $70 on Friday.

“The budget is drafted with a cautious eye to the oil prices,” Rouhani said in a speech to parliament broadcast live on state television. “The current situation demands a more subtle and realistic approach to (the) budget draft”…


Hamas second-richest terror group in world, Forbes says

Hamas is the second richest terror group in the world, with finances of around $1 billion, according to a report published by Forbes Israel this week listing the top 10 wealthiest terror groups.

The Palestinian Islamist organization, which rules the Gaza Strip and collects taxes and aid money, is second only to the Islamic State, which has some $2 billion dollars at its disposal.

Third on the list is the Revolutionary Armed Forces of Colombia—People’s Army, better known as FARC, with some $600 million, while Lebanon-based Hezbollah came out fourth with $500 million. The Taliban, with an estimated $400 million, rounds out the top five.

The report does not detail where the terror groups get their money from, but Hamas had been able to control imports into the Gaza Strip through a series of smuggling tunnels from Sinai before they were largely destroyed by Egypt’s army over the last two years.

The organization is also backed by international donors like Qatar who donate money to the Strip…


USA: $300,000 an hour: The cost of fighting ISIS

It’s been 96 days since the United States launched its first airstrikes against ISIS militants in Iraq; 50 since it expanded that campaign into Syria. And on each one of those days, the U.S. government has spent an average of roughly $8 million, or more than $300,000 an hour, on the operation against the Sunni Muslim extremist group, according to Pentagon officials.

That’s a trivial sum compared with the more than $200 million the U.S. pours each day into its 13-year war in Afghanistan (the National Priorities Project, which advocates for budget transparency, estimates that the U.S. has now spent more than $1.5 trillion on its wars in Iraq and Afghanistan, and against ISIS, since 2001). But the bean-counting matters, because the place values and line items offer clues to understanding the military offensive President Obama has committed the country to—and now asked Congress to bless.

On Tuesday, for instance, Defense News reported that most of the $5.6 billion in additional funding that Obama recently requested from Congress to fight ISIS will go toward training and equipping the Iraqi and Kurdish militaries, operating military aircraft over Syria and Iraq, and transporting troops and materiel through the region (last week, the White House doubled the number of American soldiers deployed to Iraq in an advisory role, authorizing as many as 3,100 troops). The administration, in other words, is betting billions on a military operation largely predicated on 1) pounding the Islamic State by air and 2) beefing up local forces that can challenge the group on the ground…