US Federal Reserve Chairman, Ben Bernanke Calms US Economic And Market Nerves

Posted by IFS-Editor on March 27, 2012  |   Comments Off

It only took a few days of Wall Street experiencing some doubts after recent signs of economic recovery, for US Federal Reserve Chairman Ben Bernanke to calm nerves with a reassuring statement that Government policy would continue to support the recovery. Wall Street responded positively with markets jumping 1.23% overnight and the Dow Jones (US) closing at 13242.

Wall Street already seemed content enough to trade up on indications of strengthening momentum in the US economy, something most didn’t expect at the beginning of 2012. However Ben Bernanke has taken steps to reassure the market that the economic recovery will be supported.

At an address for the National Association for Business Economics Annual Conference in Washington last night, Mr Bernanke stated “A wide range of indicators suggests that the job market has been improving, which is a welcome development indeed” undoubtedly helped by the US Federal Reserve’s cheap and easy money policies.

The Fed has kept interest rates at 0% to 0.25% since December 2008, bought around US$2,300,000,000,000 worth of US Treasuries and pledged to keep the fed funds rate at “exceptionally low” levels “at least through late 2014″.

To alleviate any concerns that the economic recovery in the US may be short lived, Ben Bernanke also implied that another Quantitative Easing (QE), or printing new money to stimulate the economy and create jobs, is available.

“Conditions remain far from normal, as shown, for example, by the high level of long-term unemployment and the fact that jobs and hours worked remain well below pre-crisis peaks, even without adjusting for growth in the labour force. Moreover, we cannot yet be sure that the recent pace of improvement in the labour market will be sustained.”

What do we need? “Further significant improvements in the unemployment rate will likely require a more rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies.”

He argued that, “both cyclical and structural forces have doubtless contributed to the increase in long-term unemployment, the continued weakness in aggregate demand is likely the predominant factor”.

What do we need? “If this assessment is correct, then accommodative policies to support the economic recovery will help address this problem as well.”

However, “if this hypothesis is wrong and structural factors are in fact explaining much of the increase in long-term unemployment, then the scope for countercyclical policies to address this problem will be more limited.”

Furthermore, “it will become even more important to take the steps needed to ensure that workers are able to obtain the skills needed to meet the demands of our rapidly changing economy.”

And with these words, Ben Bernanke has laid out the groundwork for another QE if required. Although at this point, I don’t think we’re quite at that point yet where another QE is imminent.

The US economy is already picking up momentum and the virtuous cycle has started to spin, energising not only American consumers and businesses but also the rest of the global community.

For investors, it’s some continuing good news for risk assets and share markets to balance against the ongoing debt problems in Europe.

Grant

Economy not doing too badly: RBA

Posted by IFS-Editor on March 20, 2012  |   Comments Off

Reserve Bank governor Glenn Stevens says the economy is not doing too badly but further restructuring will be needed to boost productivity, something that is outside the scope of monetary policy.

Mr Stevens also cautioned that Europe’s debt problems were still a risk to the global economy, but remained upbeat on the outlook for China and the rest of Asia.

Speaking to a conference in Hong Kong, Mr Stevens noted that recent Australian data on gross domestic product (GDP) suggested the economy was running more slowly than expected. But other figures, such as business surveys, pointed to growth around the historical trend of 3.25 per cent to 3.5 per cent.

“Overall, recent economic performance in Australia is not too bad, particularly when compared, over a run of years, to a number of other advanced economies,” said Mr Stevens.

He saw scope for improvement through measures to boost productivity, rather than via lower interest rates.

“Monetary policy can play a role in supporting demand, to the extent that inflation performance provides scope to do so. But monetary policy cannot raise the economy’s trend rate of growth,” said Mr Stevens. “That lies in the realm of productivity-increasing behaviour.”

Neither could monetary policy relieve the pressure for restructuring in sectors hit by the high Australian dollar, such as manufacturing and tourism, he said.

The central bank has left rates steady at 4.25 per cent for its last two monthly policy meetings, having eased by half a percentage point over November and December 2011.

Earlier this month, Mr Stevens said rates were at the right level to deliver trend economic growth and contain inflation.

Since then, however, government data on GDP had shown the economy grew a sluggish 0.4 percent last quarter, half the pace that analysts had hoped for.

Mr Stevens said Australia had become a safe haven to foreign investors which were keeping bond yields down and making it cheaper for the government, and much of the private sector, to borrow.

“A greater flow of cheaper capital to a country is an advantage,” he said.

At the same time, this inflow of funds was adding to the upward pressure on the Australian dollar and making life harder for sectors struggling with foreign competition.

It was possible, he said, that the dampening impact of the high dollar could outweigh the expansionary effect of a lower cost of capital, at least for a time.

Second Greek Bailout Package Approved 2/3/12

Posted by IFS-Editor on March 5, 2012  |   Comments Off

European Union (EU) leaders met at their Council Head Quarters in Brussels on Friday 2 March 2012 and signed-off on the region’s fiscal compact and bailout package for Greece.

25 of the 27 heads of EU governments signed the “Treaty on Stability, Co-ordination & Governance in the Economic & Monetary Union” (TSCGEMU). The United Kingdom and the Czech Republic refused to sign as expected.

The treaty will now go to the individual member countries’ parliaments for ratification where there will be further debate about its pros and cons. However, the bigger problem is monitoring, implementing and enforcing the statutes of the treaty once it’s enforced.

It is also reported that EU leaders will now start focusing on growth, “European leaders sought to prevent two years of financial crisis turning into a full-blown economic meltdown on Friday by redirecting their emphasis from crushing austerity packages to policies to boost growth.”

There are no solid details on how they plan to go about this, other than talks of liberalisation and de-regulation. Given the poor track record of the European community in getting consensus and taking action, we do not believe this signals a turnaround of the European economy just yet. Although it does indicate a positive shift of focus.

The growth idea was already floated at the EU Summit held 30 January 2012. As reported by Reuters “EU leaders will hold a summit devoted to putting forward a growth strategy. But it will be largely about pledging labour market reforms, shifting taxation from labour to consumption and better targeting existing and unspent EU funds, with no new public money on the table.”

We are looking forward to some positive action taking place that will provide the evidence of “growth” that the market needs to restore complete confidence in the European economy.

This could take some time. In the meantime, we have identified some excellent investment opportunities presenting themselves in large profitable multinational companies that are domiciled in Europe, but receive large parts of their income from growth areas around the world. Fintech Private Portfolios provide access to these and other market leading investments across assets classes.

Grant

Eurozone ministers agree to Greece bailout deal

Posted by IFS-Editor on February 21, 2012  |   Comments Off

Greece has secured its crucial 230 billion euro bailout after a marathon session of talks that dragged into the early morning in Brussels, drawing a line under months of uncertainty about the deal.

The Greek government agreed to reduce national debt to nearly 121 per cent of GDP by 2020 in exchange for the 130 billion euro ($161 billion) rescue fund.

The European Commission, the European Central Bank and the International Monetary Fund will closely monitor government budget decisions as a condition of the deal.

And private creditors are expected to take losses of 53.5 per cent or more on the value of their bonds in a swap that will reduce Greece’s debts by around 100 billion euros ($124 billion).

They had previously agreed to a 50 per cent writedown.

Speaking after 13 hours of talks between Eurogroup members (eurozone finance ministers), the IMF and private creditors, Eurogroup chairman Jean-Claude Juncker said the agreement would “secure Greece’s future in the eurozone”.

“We have reached a far-reaching agreement on a new Greek program and private-sector involvement that will lead to a very significant debt reduction for Greece and pave the way towards a very significant amount of official financing from the European Financial Stability Facility to secure Greece’s future in the eurozone,” Mr Juncker, Luxembourg’s prime minister, said.

Mr Juncker also said the Greek government would introduce a new law guaranteeing debt repayments.

The euro jumped in Tokyo trade on news the deal had finally been sealed.

The IMF had said it could not help finance the bailout if Greek debt was not cut to 120 per cent of GDP.

European Central Bank chief Mario Draghi welcomed the accord.

“It is a very good agreement and I welcome the commitments of the Greek government to restoring growth and stability,” Mr Draghi said.

But he said implementation of the agreement must be “rightly monitored” – several eurozone nations have called for a near-permanent team of officials to supervise the Greek government.

While the agreement puts the country on a more stable financial footing and keeps it inside the 17-country eurozone, a turnaround could nevertheless take as long as a decade.

The bleak outlook and harsh austerity measures brought thousands of Greeks on to the streets in violent protests in which teargas was fired and buildings burned and looted.

Sceptics question whether a new Greek government will stick to the deeply unpopular program after elections due in April.

And figures released last week showed the Greek economy shrank 7 per cent year-on-year in the last quarter of 2011, much more than expected, with further austerity measures likely to deepen the recession.

Reuters/AFP

Shorten considers raising contribution caps from $25k to $35k for all individuals over age 50

Posted by IFS-Editor on February 20, 2012  |   Comments Off

Speaking at the Self Managed Super Fund Professionals Association (SPAA) national conference on Friday 17 February 2012, Minister Shorten reaffirmed his position to increase contribution caps from $25,000 to $50,000 for balances under $500,000. That said, he also acknowledged SPAA’s submission to raise contribution caps from $25,000 to $35,000 for all individuals over 50 years old was something to consider.

Grant

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