TWO UPDATES for rumination by my ER interested in world business and economy. Maybe for Malaysia's leaders too IF they are capable oflearning from Others!:) -- YL, Desi fool of chic:( & knottyaSsusual:)
***1. From INVESTORS BUSINESS DAILY
Obama Cites Need For Financial Rules, 1 Year After Lehman
By Jed Graham – Mon Sep 14, 7:21 pm ET
President Obama used the anniversary of Lehman Bros.' demise to renew his call for sweeping regulatory reforms and deliver a stern rebuke to Wall Street.
"Instead of learning the lessons of Lehman and the crisis from which we're still recovering, they're choosing to ignore those lessons," Obama said Monday at Federal Hall in New York's financial district. "They do so not just at their own peril, but at our nation's."
While touting his administration's role in restoring "capital and confidence" to the financial sector, Obama made the case for the most far-reaching regulatory overhaul of the industry since the Great Depression.
"Normalcy cannot lead to complacency," he said.
The Obama administration's reform plan, released in June, included giving the Federal Reserve authority over systemically important financial institutions, expanding powers to wind down too-big-to-fail firms, boosting bank capital levels and creating a Consumer Financial Protection Agency.
Still No Consensus
The regulatory blueprint has met stiff resistance from the industry and various objections by regulators and lawmakers.
While Obama said he and Democratic banking panel chairmen still aim to pass legislation this year, analysts don't expect quick action.
"There are two problems," said Jaret Seiberg, a financial sector analyst at Concept Capital's Washington Research Group.
"There is a backlog of legislation that's higher up in the queue," said Seiberg, noting Obama's health care push as well as annual appropriations.
But the bigger issue is a lack of consensus.
"There's broad agreement on the need for financial reform but little agreement on the details," he said.
The Financial Services Roundtable on Monday voiced its opposition to Obama's proposal for a consumer financial protection agency.
"The better answer to consumer protection is to amend the charters of the existing prudential regulators, giving consumer protection parity with safety and soundness regulation," said Roundtable CEO Steve Bartlett.
Alex Pollock, resident fellow at the free market American Enterprise Institute, told the House banking panel in June that the worthy goal of "insuring clear, simple, straightforward, informative disclosures" for financial products like mortgages could be achieved without creating a new agency.
While there is broad philosophical agreement on the need for large financials -- including nonbank institutions -- to fail sometimes, Seiberg noted that a big question remains over how to finance this authority.
He said regulators could set higher leverage rules without legislation. He expects any overhaul passed before the 2010 midterm elections would be far narrower in scope than currently proposed.
Obama Eyes Political Boost
While Obama's regulatory plan remains unchanged since June, the political backdrop has evolved.
The summer, highlighted by town hall protests over Democratic health care plans, saw Obama's approval ratings fall near 50% as his honeymoon ended with independent voters.
Obama argued that his financial reforms would prevent future bailouts by putting "the cost of a firm's failures on those who own its stock and loaned it money."
He also defended his administration's decision Friday to slap duties of 35% on Chinese tires -- a victory for the United Steelworkers -- as a matter of enforcement, not protectionism.
But with the U.S. relying on China to help finance record deficits, Greg Valliere, chief political strategist at Soleil Securities, questioned the move.
"Do you really want to antagonize the Chinese by starting a trade fight?" Valliere asked.
He interprets the action as a pay-off to Big Labor, a key part of Obama's base that is losing most high-profile battles, including over a government insurance option.
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***2. From Business Times Singapore
Is the yuan about to go global?
The headquarter of China's Central Bank ,the People's Bank of China, in Beijing
October 8, 2008. — Reuters pic.
BEIJING, Sept 15 — With the rapid economic ascent of China in the new millennium, the explosion of the global crisis in 2008-09 and the consequent discrediting of the US and European financial models, as well as recent new policy initiatives adopted by Beijing towards its own currency, there have been growing debates and speculations on the future role of the yuan.
These have been further fuelled by senior officials of the People's Bank of China (PBOC), who have recently become increasingly vocal in world forums on the need for other economies to rely less on the US dollar as a reserve currency and trade settlement.
It is now commonly understood that for a currency to gain international stature, there must be strong demand by world traders, investors, and central bankers for the currency as, respectively, a medium of exchange for foreign trade settlement, a unit of account for denominating international financial transactions, and a store of value for central banks' foreign exchange reserves.
Economists generally agree that the three key economic pillars that are required to support the internationalisation of a currency are the size of an economy and its trade volume; the breadth, depth and liquidity of its capital markets; and the currency's stability and convertibility.
In terms of economic strength, with breakneck growth rates since the beginning of the 21st century, China managed to surpass the UK and Germany, respectively, in 2005 and 2007 to become the world's third largest economy.
Goldman Sachs has projected that China will overtake the US to become the world's largest economy by 2027, should China manage to continue to grow at its current rate.
However, a large GDP is not necessarily equal to a wealthy or healthy economy. Despite its No 3 world ranking in absolute economic size, China remains far behind the other leading economies in terms of average per capita income.
In the long run, even though China's GDP per capita is projected to surge exponentially to US$49,650 (RM174,000) by 2050 from US$2,432 in 2007, it will still lag far behind that of the US (US$91,683) and many other developed and emerging economies, according to Goldman Sachs.
Furthermore, despite optimistic projections of China's future growth potential, its economy is still beset by numerous imbalances and risks in the medium term. These include, among various things, persistent and even widening regional economic disparity and rural-urban income inequality, rising social unrest and inter- ethnic conflicts, rampant corruption, and serious environmental degradation.
An eruption of any one of these, or a combination of several, 'fault lines' could put a sharp brake on the ascent of the Chinese economy and concomitantly propel the yuan on to an inordinately volatile trajectory.
In terms of trade volume as a share of the world total, China's ratio was 5.1 per cent in 2007, and had already overtaken Japan and the UK in 2004.
In the first half of 2009, the World Trade Organization (WTO) reported that China had surpassed Germany to become the second largest exporting nation in the world.
Accompanying the surging foreign trade is the expanding trade settlement by the yuan, which has already evolved into a major currency for cross-border trade settlement with neighbouring countries such as Vietnam, Cambodia, Russia and Mongolia. At the end of 2008, the Chinese government announced pilot programmes allowing Guangdong Province and Yangtze River Delta to use the yuan to settle trade deals with Hong Kong and Macao.
A similar arrangement has been proposed to allow Guangxi and Yunnan Provinces to use the yuan to settle trade accounts with selected Asean countries. Another recent and significant step is the announcement by the State Council that five trial cities — Shanghai, Guangzhou, Shenzhen, Zhuhai and Dongguan — are designated to spearhead international trade settlement in the yuan with overseas counterparties.
Moreover, in order to mitigate exchange-rate risks arising from trade settlement in the dollar, China has entered into bilateral currency-swap agreements with a number of trading partners.
Since last December, PBOC has signed a total of 650 billion yuan (RM333 billion) worth of currency-swap agreements with Hong Kong, South Korea, Indonesia, Malaysia, Argentina and Belarus. In addition, PBOC is still in talks with other central banks to ink additional swap agreements, and is likely to expand them to cover all of the country's trade with Asia, excluding Japan.
Such recent progress signals that the Chinese government is beginning to set the yuan on a liberalisation path, starting with a gentle push of the unit to raise its profile as a medium of exchange in its regional backyard.
Aside from innate economic strength, the home country of an international currency should offer open and sophisticated transaction venues where foreign dealers can trade a range of the currency-denominated financial products, while at the same time put in place regulatory and macroeconomic safeguards to minimise the unit's volatility and exchange-rate-related risk.
Compared to other more developed capital markets elsewhere, it is clear that China's capital markets are still at an early stage and may take one to two decades to develop into comparable breadth and depth. By global standards, China has lower equity and bond market capitalisations to GDP ratios relative to those of issuing countries of major currencies.
Furthermore, despite a banking sector as large as 9.1 per cent of total global bank assets, China's equity and bond market capitalisations make up only 5.9 per cent and 2.4 per cent of the world's equity and bond markets respectively, according to Deutsche Bank Research.
Second, due to regulatory barriers on access to China's capital markets, the latter's interaction with foreign markets and openness to the rest of the world are still very restricted. In terms of inward portfolio investments to China, the average amount between 2003 and 2007nrepresented a mere 0.7 per cent of total portfolio investments globally.
As at mid 2009, only 87 foreign financial entities were entitled to QFII (qualified foreign institutional investor) status, which allows them to trade A-shares on secondary markets with an aggregate limit of US$30 billion, or just 1-2 per cent of the Shanghai exchange's market capitalisation. Furthermore, the purchase of B-shares is also limited to a selected group of foreign institutional investors, and Hong Kong-listed H-shares are but a fraction of the two mainland markets.
Third, low efficiency, high transaction costs, weak supervisory and regulatory frameworks have been major constraints to the integration between China's capital markets and the international financial system.
As for equity issuance, China still practises a merit-based approval system in comparison to registration-based systems in most mature capital markets overseas. According to a comparison of financial transaction costs done by the China Securities Regulatory Commission (CSRC), the Shanghai and Shenzhen stock exchanges have an average basis point of 50 (20 as average commission and 30 as transaction fee), which is much higher than the average of 21 in most mature markets. As for bond transaction costs, China has an average basis point of 6.3, dwarfing 1.0 in the UK, South Korea, India and Singapore, 0.4 in the US and 0.5 in Japan.
In view of the increasing competitiveness among world financial markets, the current bureaucratic supervisory system in China needs to be reformed to a more professional framework by international standards, and transaction costs also need to be reduced substantially.
Nevertheless, some progressive steps have been initiated recently to add more breadth and depth to China's capital markets. These include regulators' latest announcements of plans to allow qualified foreign-invested firms to list on the Shanghai exchange next year, raise investment limit per QFII from US$800 million to US$1 billion, and approve foreign banks to issue yuan-denominated corporate bonds.
A commemorative bank note with a face value of 10 yuan to mark the Beijing Olympic Games. — Reuters picLikewise, in an unprecedented move, the Ministry of Finance said this month that in order to 'promote the yuan in neighbouring countries and improve the yuan's international status', it would help establish an offshore yuan bond market by starting to sell 6 billion yuan worth of yuan-denominated sovereign bonds in Hong Kong to foreign institutional
and retail investors.
Despite these encouraging moves, going forward, it will take some years before China's capital markets can successfully transit to a more open and mature stage. According to the development strategies published by CSRC in 2008, it is forecast to take roughly a decade for China to undergo 'the drive to maturity stage' and build up well developed capital markets by the end of 2020. This would render full yuan internationalisation unlikely before that timeline.
Apart from the aforementioned 'physical' factors fundamental to the internationalisation of a currency, other 'psychological' factors such as public confidence in the value of the currency also play a supporting role.
Empirically, the stability of a currency can be gauged by its home economy's inflation rate, which for China averaged a very low rate of 1.1 per cent per annum during 1998-2007.
A second way of assessing currency stability can be measured by the unit's exchange rate volatility, which can be calculated as the standard deviation of daily percentage change in the exchange rate against the International Monetary Fund's (IMF) Special Drawing Rights (SDRs).
Our calculation yields a score of 4.4 for the yuan during the same period — lower than those of the dollar (4.5), euro (5.4) and yen (8.2).
However, despite its low volatility, currently the yuan lacks the foremost prerequisite to become a global currency: free and full convertibility. While the yuan became convertible for trade transactions and conditionally for FDI (foreign direct investment) in 1994, it has been largely non-convertible for all portfolio capital transactions till now.
Nevertheless, recent policy initiatives taken by the government have demonstrated the likelihood of a faster pace towards capital account convertibility. According to Guo Shuqing, former head of the State Administration of Foreign Exchange, the yuan will be convertible by 2010 for about 70 per cent of the 43 capital transaction items under the IMF classification.
Looking ahead to the medium term, the yuan is likely to evolve into only a regional currency first. It is probably too optimistic to expect the yuan to become a global currency before 2020, for reasons analysed earlier. As such, China is in no position to challenge the pre-eminent role of the US dollar in the near future. In addition, out of concern for political, economic and social stability, the Chinese government has adopted an extremely cautious approach towards financial liberalisation.
Therefore, it is not a sure conclusion that the government would have the political will to push forward aggressive reforms in capital markets, even though it has recently shown some interest in using the yuan for trade settlement. Furthermore, politically, it is also not certain whether other countries would have the confidence to accept the yuan for various international uses — a currency issued by a country controlled by a communist party. — Business Times Singapore
****************************** 'Cos I work so heArt for my ER! ~~ TWO more updates, Sept 17, 2009:
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SYDNEY, Sept 16 — Asian shares swept to their highest levels in more than a year today after upbeat US economic news boosted riskier assets leveraged to global growth, while the dollar slipped to a one-year low. Commodities also benefited from the wave of optimism, with gold spiking to an 18-month high above US$1,020 (RM3,570) an ounce and crude oil briefly climbing above US$71 a barrel.
Most major Asian stock indexes posted gains of at least a per cent in the wake of yesterday’s strong reading on US retail sales, with exporting countries leading the way.
Hong Kong shares rose 2.6 per cent to a near 13-month closing high, while South Korea’s KOSPI climbed 1.8 per cent to a 15-month closing peak and Australia’s resource-packed S&P/ASX 200 index jumped 2.4 per cent to an 11-month high.
“The sentiment is phenomenal. Right across the board it’s green as a vegetable garden in spring,” said Michael Heffernan, senior client adviser and strategist, Austock Group in Sydney.
“It’s chalk and cheese compared to a year ago when there was no confidence. Now people are gradually getting confidence back. The sentiment and the ambience of the market is decidedly upbeat,” he said.
While Heffernan was referring to the Australian market, his sentiment seemed to be shared across the region.
The MSCI index of Asia-Pacific shares excluding Japan rose more than 2.5 per cent to levels not seen since last September. The regional benchmark is now up about 56 per cent for the year.
Investors even managed to look past a 1.1 per cent decline in the volatile Shanghai market, virtually the only market in the region to fall today.
Japan’s benchmark Nikkei added a more modest 0.5 per cent, restrained in part by uncertainty over the economic policies of the new government.
Yukio Hatoyama officially took over as prime minister today, ushering in an untested government to deal with a struggling economy and the problems of a fast-ageing population.
Hatoyama, whose Democratic Party thrashed the long-ruling Liberal Democratic Party in an election last month, faces pressure to make good on campaign promises to focus spending on consumers, cut waste and reduce bureaucratic control over policy. The Bank of Japan began a two-day policy meeting, but analysts weren’t holding their breath for the outcome given rates are already near zero and policymakers are reluctant to go any further with exceptional easing measures.
IT’S OVER
The gains for Asian stocks came courtesy of better US news.
US retail sales jumped 2.7 per cent in August, the fastest growth in 3-½ years, data showed yesterday.
Federal Reserve Chairman Ben Bernanke felt confident enough to declare the US recession “very likely over”, though he added that the recovery would be very slow.
The rise in sales added to expectations US economic growth would stage a sizable rebound in the third quarter, thanks in part to businesses rebuilding inventories to meet demand.
That in turn augured well for the exporting nations of Asia and their currencies, especially those of big commodity producers such as Australia.
“As the global recovery continues and risk diversification takes place we could see the US dollar stay under pressure for the next six months,” said Amber Rabinov, an economist in foreign exchange and international economics at ANZ in Sydney.
Measured against a basket of major currencies, the dollar slipped to another year low while the euro powered to a new 2009 high.
The dollar also eased to around 90.20 yen, partly on talk investors were using the US currency for carry trades.
Until recently, the low-yielding yen was the currency of choice for investors who borrow cheap to buy riskier assets or high-yielding currencies. But that has changed since 3-month US LIBOR rates fell below Japanese rates.
“We expect the dollar to test its recent lows on the yen, and probably fall as low as 87 yen as talk of it replacing the yen as a funding currency gathers momentum,” said Rabinov. — Reuters
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Wall Street rises on commodities, M&A
NEW YORK, Sept 16 — US stocks rose slightly today on gains in commodity prices and renewed merger and acquisition activity.
US industrial production rose for the second straight month in August, while higher gasoline costs pushed up consumer prices, reinforcing hopes a recovery was underway.
“It’s particularly encouraging to see the manufacturing sector of the economy recover,” said Hugh Johnson, chief investment officer of Johnson Illington Advisors in Albany, NY.
“It’s like all the other numbers we’ve seen in that they’ve been better than expected, and that’s what bull markets are all about.”
The Dow Jones industrial average gained 18.21 points, or 0.19 per cent, to 9,701.62. The Standard & Poor’s 500 Index rose 2.49 points, or 0.24 per cent, to 1,055.12. The Nasdaq Composite Index added 5.95 points, or 0.28 per cent, to 2,108.59.
The S&P hit a new high for the year shortly after the open, and is now up 56 per cent from the March 9 low.
Adobe Systems Inc said it plans to pay US$1.8 billion (RM6.3 billion) for fast-growing business software maker Omniture Inc as Adobe, the maker of Photoshop and Acrobat looks to turn around declining sales.
Adobe shares fell 6.6 per cent to US$33.26, while Omniture shares surged 26 per cent to US$21.82.
M&A activity is considered a positive sign for the economy as businesses display confidence in their capital positions and begin to spend.
Gold hit an 18-month high of US$1,020.50 an ounce and helped lift silver and platinum to multi-month peaks. Freeport McMoRan Copper & Gold Inc shares rose 1.5 per cent to US$72.37.
Genworth Financial Inc climbed 6 per cent to US$12.76 a day after it priced a common share offering.
Rogers Corp rose 7.7 per cent to US$29.09 after the maker of specialty materials for electronics and consumer markets raised its outlook, citing strong performance in its printed circuit materials and high performance foams segments.
Verizon Communications Inc capped gains on the Dow, down 2.6 per cent to US$30.20. UBS downgraded the stock to “neutral” from “buy,” saying the telecommunications company is likely to miss its outlook for 2009 earnings growth.
Corning Inc dropped 2.2 per cent to US$15.45 after it said it acquired all of the outstanding shares of Axygen Bioscience and its subsidiaries from American Capital Ltd for US$400 million. American Capital jumped 30 per cent to US$3.35. — Reuters
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