With China set to overtake Japan as the world’s second largest economy in 2010, the Chinese consumer could also dethrone Japan in another key category in the next few years, according to a new report by Credit Suisse.
In its first Global Wealth Report, Credit Suisse predicts that total household wealth in China could more than double to $35 trillion by 2015 from $16.5 trillion at the moment. China currently is third in terms of the total share of global wealth after the U.S. and Japan, at $54.6 trillion and $21 trillion respectively, and is 35% ahead of France, the wealthiest European country.
A decade ago, China stood at seventh place in the global share of wealth. In the same period, Japan’s wealth only rose by 5%, largely because its adult population growth grew at a negligible 3% while equities and house prices have stagnated.
China has the largest proportion of what Credit Suisse calls the ‘middle segment’, or individuals with $10,000 to $100,000, or 60% of the global total of 1.05 billion people. This group comprises 23.5% of the global population and holds 16.5% of total wealth.
Giles Keating, global head of research for Credit Suisse’s private bank, said that it is this group which will be key in “reshaping the global economy” in the future, particularly as wealthier consumers in emerging markets shift from food to discretionary items.
For example, while food made up 34% of Chinese consumption in 2005, that number is expected to fall to 25% in 2015. Naturally, spending on health care, recreation and transportation is only going to increase.
“China’s investment rate as a percentage of gross domestic product is still at around 40%, which allows for very rapid capital accumulation,” said Keating at a media briefing in Hong Kong.
In contrast, the top 10 countries by level of total household debt are all developed Western economies, with the exception of Japan which is second after the U.S. South Korea has the largest total household debt out of Asian emerging markets at $830 billion, which is 6% of the U.S. level of $13.97 trillion.
China to Overtake Japan in Global Wealth Rankings? - China Real Time Report - WSJ
MAIN SPONSOR
Sunday, October 10, 2010
WTAPS x Vans Syndicate: SK8-MID & Authentic
Vans take influence from their previous collections with the release of the SK8MID and Authentic in new styles. The Authentic has been inspired by Doc Martins, with signature colorways and leather that automatically brings that style to mind. Vans take their classic high-top and adds elements from the W)taps collaboration to create a sueded style with spider web graphics. Look for both styles to be released this November.
Source: Grind Magazine, East Fashion Collective
Bank of America Halts Foreclosures in All States
 |
| Foreclosureblues.wordpress.com |
WASHINGTON (AP) -- Bank of America on Friday halted foreclosures on homes across the country so it could review paperwork in tens of thousands of cases for flaws, expanding a crisis at a perilous time for the housing market.
The move came as PNC Financial Services became the fourth major bank to announce that it would stop foreclosures in at least some states. It added to growing concerns that mortgage lenders have been evicting homeowners despite flawed court papers.
Bank of America, the largest U.S. bank, had said a week earlier it would stop foreclosures in the 23 states where the process must be approved by a judge. Ally Financial's GMAC Mortgage unit and JPMorgan Chase had announced similar plans.
Bank of America's nationwide halt will apply to homes that the bank is taking back itself and those for which it has transferred the papers to mortgage buyers Fannie Mae and Freddie Mac.
The bank said it had not found any widespread problems in the foreclosure process, but "We'll go back and check our work one more time," CEO Brian Moynihan told the National Press Club in Washington.
A Bank of America spokesman acknowledged that the bank acted in response to pressure from state attorneys general and other public officials inquiring about the accuracy of foreclosure documents.
"We feel the need to address that and demonstrate that our process is accurate," said the spokesman, Dan Frahm.
A document obtained last week by The Associated Press showed a Bank of America official acknowledging in a legal proceeding that she signed thousands of foreclosure documents a month and typically did not read them. The official, Renee Hertzler, said in a February deposition that she signed up to 8,000 such documents a month.
The bank said it would take a few weeks to tackle the problem. It did not say how many foreclosure cases would be affected but estimated the figure would be in the tens of thousands.
Senate Majority Leader Harry Reid, whose state of Nevada has been among the hardest hit by foreclosures since the recession began, and who is in a difficult fight for re-election, applauded the bank "for doing the right thing by suspending actions on foreclosures while this investigation runs its course."
Sen. Christopher Dodd, D-Conn, the chairman of the Senate Banking Committee, said he would hold a hearing on the issue next month.
The decision should help Bank of America manage its image during a dicey time for the industry, said Michael Robinson, a crisis communications expert with Levick Strategic Communications. Banks have been the target of widespread public anger since the financial meltdown."All the other banks are going to end up there anyway, either because they're going to be forced, or by political pressure," he said. "Americans, otherwise known as customers and voters, aren't over the economic crisis. You don't want to become a political pinata."
IMF gathering fails to tackle threat of currency war
Last week, the International Monetary Fund (IMF) expressed its concern for a currency war.
The Fund said if Governments across the world use exchange rates as a policy weapon, there could be a serious risk to global economic recovery.
However, this weekend’s IMF and World Bank annual meeting in Washington saw the currency issue unresolved.
Some Governments have been accused of manipulating their currencies in order to boost exports.
China, in particular, has been under pressure to revalue its currency, the yuan. The US continues to express dissatisfaction that China is keeping the value of the yuan low to help its exporters at the expense of overseas competitors.
This weekend, officials from the IMF have said that if China let its currency appreciate, Chinese imports would become more expensive, therefore triggering demand for US goods.
Currently, the US is faced with rising unemployment despite strong economic growth. This has sparked fears of a “jobless recovery” which could result in political and social unrest, the IMF said.
In the meantime, the Bank of Japan last week adopted an unexpected move and cut interest rates to almost zero.
This led to a fall in the value of the yen against the US dollar. Japan has been concerned that a strong yen is damaging for its economy.
A stronger yen has meant demand for exports has weakened. The Bank recently took action to weaken the currency – it was the first time in six years that such action had been taken.
Meanwhile, Brazil has threatened intervention to weaken its currency – the real, while there have been a series of interventions by central banks in South Korea, Switzerland and Taiwan to make their currencies cheaper.
Speaking of the currency “frictions”, the IMF Committee’s chairman, Youssef Boutros-Ghali, said the IMF should play a major part in addressing currency issues.
G20 finance ministers and central bank governors are scheduled to meet in South Korea later this month, before a leaders summit in Seoul on November 11th and 12th.
Thursday, October 7, 2010
IMF Says Nearly $4 trillion of Bank Debt Will Need to be Rolled Over in the Next 24 Months
More taxpayer money needed to prop up banks …
More taxpayer support is needed to ensure global financial stability despite the billions already pledged, the International Monetary Fund has warned, as banks remain the “achilles heel” of the economic recovery. [...]
Lenders across Europe and the US are facing a $4 trillion refinancing hurdle in the coming 24 months and many still need to recapitalise, the Washington-based organisation said in its Global Financial Stability Report. Governments will have to inject fresh equity into banks – particularly in Spain, Germany and the US – as well as prop up their funding structures by extending emergency support. [...]
Although banks have recognized all but $550bn of the $2.2 trillion of bad debts the IMF estimates needed to be written off between 2007 and 2010, they are still facing a looming funding shock that will need state support. “Nearly $4 trillion of bank debt will need to be rolled over in the next 24 months,” the report says. [...] (UK Telegraph)
I don’t know about you but I am pretty much up to my eyeballs in despise for banks and financial institutions. They created the mess in the first place, destroyed the economy, and those who struggle to get by are forced to keep rescuing them.
Fed is banking on phony wealth effect
The Federal Reserve is committed to enticing Americans into doing once again what worked out so badly in the last decade: spending the phony paper gains engineered by overly loose monetary policy.
That, at least, is the very strong impression given by a speech by Brian Sack, the markets chief of the New York Federal Reserve, a man whose job it will be to implement the second round of large-scale quantitative easing coming after the elections in November.
A round of speeches from key Fed officials has given the clear view that, faced with deteriorating conditions and trapped by the lower bound of zero in its monetary policy, the Fed is preparing to once again buy up large amounts of Treasuries, perhaps even more than the government is issuing on an ongoing basis, in an attempt to drive down market interest rates and stimulate the economy.
Will that do any good, given that people generally do not want to borrow and the banking system is impaired?
“Balance sheet policy can still lower longer-term borrowing costs for many households and businesses, and it adds to household wealth by keeping asset prices higher than they otherwise would be,” Sack said in a speech in Newport Beach, California on Monday.
“It seems highly unlikely that the economy is completely insensitive to borrowing costs and wealth, or to other changes in broad financial conditions.”
So, there you have it: pump up asset prices and hope that people spend some of the ephemeral gains. The idea that people will spend more if their houses and other assets rise in value is called the wealth effect, but this policy creates only pretend wealth.
In fact, many people in the U.S. now face diminished retirements and generally straitened circumstances precisely because they mistook the rising prices of their house and Internet stocks for wealth and spent or borrowed against it. Is the U.S. actually so desperate for economic activity that this is the best it can do? Apparently so.
“When will these guys ever learn that maybe, just maybe, these Fed policies aimed at targeting asset prices at levels above their intrinsic values is probably not in the best interests of the nation?” Dave Rosenberg, chief economist and strategist at Gluskin, Sheff wrote in a note to clients.
CALLING DR RICARDO
So, now that the strategy is clear the question is will it work? So far, the promise of QE seems to be affecting the term premium in debt markets, reducing longer-term funding costs, and stock market traders also seem to think it will be good for equities.
The reality of QE when it arrives may be a bit different: debt markets are less dislocated than last time and so the value of the balm will be less, while stocks are far more richly priced.
A more interesting question is how households and businesses react to the paper wealth if the Fed is successful in creating it. Businesses may use their newly rich equity prices to go and buy other businesses, especially ones with actual resources attached, such as mining companies. They will be less interested in investing in new production unless they see strong signs from households that they are interested in buying more again.
For households, you have to wonder if there is a sort of Ricardian equivalence that applies to manufactured asset price inflation caused by QE or otherwise loose monetary policy. Ricardian equivalence is the controversial idea that consumers realise the fiscal constraints of their governments and will, for example, not spend a tax rebate if they know it means a tax rise down the road. Would they similarly not spend asset gains they see as false?
Clearly this idea did not apply to the interplay of policy, asset prices and consumption in the last decade. People spent some of the paper wealth that was created by loose policy under Alan Greenspan. That, however, was before they were burned by the housing crash, and Greenspan had the good sense to effectively conceal his experiment from his subjects. Now that the Federal Reserve has come out and said it is trying to ramp up asset markets, the feel-good factor from a rising stock market may be lacking.
If QE will work it will work as the big gun in the currency war, driving down the value of the dollar. In doing that, though, the Federal Reserve takes considerable risks; that investors lose confidence in the dollar and in the U.S.’s commitment to its lasting value, and that they react by pulling back from dollar investments. This cannot be good for U.S. consumption, other than it might cause people to buy things now rather than later in diminished dollars.
Perhaps the real beneficiaries of QE will be commodities, or, whisper it not, gold.
Stop! The Old Economic Story Is NOT Over
Bond king Bill Gross recently said, “Prosperity and overconsumption was driven by asset inflation that in turn was leverage and interest rate correlated.” Although Bill says “was driven by,” current US Federal Reserve and Bank of Japan policy continues to create asset inflation (e.g., stock market returns since March 2009, huge debt supply, 0% interest rates, etc.). (Hat Tip: Hedgeye)
So, the question remains: when will the old economic story end so we can finally build an economy based on organic economic activity?
Recently, Black Swan thinker Nassim Nicholas Taleb said, “The Fed won’t exist in 25 years.” Then, MarketWatch columnist Paul Farrell followed with a more imminent vision:
“Wall Street banks control the Federal Reserve system, it’s their personal piggy bank. They’ve already done so much damage, yet have more control than ever. Warning: That’s a set-up. They will eventually destroy capitalism, democracy, and the dollar’s global reserve-currency status. They will self-destruct before 2035 … maybe as early as 2012 … most likely by 2020.”
However, destroying the Fed is not necessarily as valuable as simply forcing the Fed to do their government mandated job. (See “Has the Federal Reserve Failed?“)
Contrarian talking heads love to speak in extremes. It makes for entertaining and engaging television. But never forget: governments exist to maintain order in a world biased toward chaos. Therefore, most likely we will always have some governing body overseeing the economy. If the Federal Reserve implodes, there will be another as fast as we had a Department of Homeland Security after 9/11.
So, don’t get too caught up in the sexy stories about bringing down the big bad Fed. Instead, focus more on the reality that the old economic story continues and you need to protect your portfolio in the real world.
Wednesday, October 6, 2010
Goldman Sachs: Economy may be “fairly bad” next 6-9 months
The American economy may be “fairly bad” for the next six to nine months, says Goldman Sachs, and that may be the best-case scenario. The other option is “very bad.” GS says that the chances of another outright recession are still low but cannot be discounted:
“We see two main scenarios,” analysts led by Jan Hatzius, the New York-based chief U.S. economist at the company, wrote in an e-mail to clients. “A fairly bad one in which the economy grows at a 1 1/2 percent to 2 percent rate through the middle of next year and the unemployment rate rises moderately to 10 percent, and a very bad one in which the economy returns to an outright recession.”
The Federal Reserve will probably move to spur growth as soon as its next meeting on Nov. 2-3, Hatzius said. Expectations for central bank action have already led to lower interest rates, higher stock prices and a weaker dollar, according to Goldman, one of the 18 primary dealers that are required to bid at government debt sales.
Fed Chairman Ben S. Bernanke and his fellow policy makers are debating whether to increase Treasury purchases to spur the U.S. economy by keeping borrowing costs low. U.S. five-year yields dropped to a record 1.1755 percent today amid signs the recovery is losing momentum.
The “fairly bad” outlook for slow growth and rising unemployment without a recession will probably be the one that occurs, the e-mail said.
The government will release its estimation of Q3 GDP growth at the end of the month (October 29th), which will give an indication of where we’re heading. However, the determinative factors are all in front of us. Congress has to take action on the scheduled tax hikes to determine whether to postpone them another year or two, and which tax bracket rates to extend, if any. Bloomberg doesn’t report whether GS factored in tax rate changes into its formula, or whether it assumed no changes would be made at all. It’s more likely that they simply kept their eyes on the massive uncertainties created by the Obama administration and Congress and just assumed that would continue into next year.
Clearly, though, GS doesn’t see any hope of solid growth in the next three quarters, and neither does anyone outside the West Wing. Extending middle-class tax rates alone won’t produce any upward momentum; it will just continue the status quo. Extending the top rates for at least a year or two might actually have a positive impact, as those with capital to invest will have a short window in which to do it and claim some income at lower tax rates. Obama has insisted that he will oppose those extensions, but has yet to threaten a veto if Congress defies him on the issue.
In fact, it’s difficult to understand why Obama didn’t agree to a one-year, across-the-board extension. It would have kicked the can down the road only another 12 months, but would have relieved the short-term uncertainty that plagues the capital markets today. It would have given Democrats a boost at the polls in the midterms with moderates and independents, and probably created a real stimulus to the economy, although likely small in scale. For the kind of growth needed to restore employment to its previous levels, we need long-term certainty on tax rates and regulation, but it might have been enough for Democrats to salvage a few marginal seats in the midterms this November.
If Congress hikes taxes on the higher bracket through deliberate inaction, though, I’d expect the second scenario to become a lot more likely, as Peter Ferrara argues in his upcoming Encounter Broadside treatise, President Obama’s Tax Piracy.
Subscribe to:
Posts (Atom)