Asian Economy: New billionaire born in Asia every other day

The total wealth of billionaires surged to six trillion dollars last year, more than 17 percent than a year ago. Asian billionaires are outpacing their US counterparts for the first time, says research released by UBS on Thursday.

The surge is caused by an increase in Asia’s emerging billionaire class and growth in the materials, industrials, financial and technology sectors.

“On average, a new billionaire was created in Asia every two days, with the total number of Asian billionaires rising by almost a quarter to 637, compared to 563 in the US,” the report says.

Read more: New billionaire born in Asia every other day — RT Business News

Turkey's economy spiraling down as risk indicators growing for the country

Credit default swaps are a major indicator measuring country risks, denoting the insurance premium on money invested in a country’s government bonds. The higher the credit default swaps, the higher the country risk. spiralling

According to economic sources such as Reuters and Bloomberg, Turkey’s credit default swaps reached 250 in October, the second highest among emerging economies after Brazil with 266. South Africa is third, almost neck and neck with Turkey, followed by Russia, whose risk premium has been on the decline, falling to 218 in October.

Turkey’s risk premium has fluctuated over the years. When the global financial crisis erupted in 2008, for instance, it shot up to 321, while falling to 167 in 2010, when economic growth gathered steam. With the recent decline in economic growth, the risk premium has climbed up again, reaching the current level of 250.

Another widely monitored risk indicator is the grade a country receives from credit rating agencies. Two of the top three agencies watched by investors around the world — Standard and Poor’s and Moody’s — cut Turkey’s sovereign credit rating to non-investment grades in July and September respectively, infuriating Ankara and leaving Fitch as the only major agency that keeps Turkey on investment grade.

Downgraded ratings especially sway the movement of “hot money” or short-term investments in stock market shares and government bonds. These types of external funds have become quite important for Turkey, accounting for a portfolio investment stock of between $40 billion and $42 billion.

Pension funds, in particular, heed closely the assessments of credit rating agencies, pulling out from countries downgraded to non-investment level. And indeed, the Turkish Central Bank’s data points to net capital outflows in the wake of the latest downgrades.

The flight of foreign capital was then followed by the Turkish lira tumbling against the dollar. The greenback, which traded for 2.94 liras before the Moody’s move, has climbed up to 3.11 liras in the ensuing weeks, and seems unlikely to retreat from these levels. Given the country’s bulky external debt stock and the significant share of short-term debt it includes, the appreciation of the dollar on such a scale is not something the Turkish economy can easily digest.

 For indebted entities, a more expensive dollar means their debt has now increased in terms of the Turkish lira. And when it comes to imports, which amount to about $200 billion per year, the dollar’s appreciation means an increasing cost for imported inputs, including machinery and equipment, and thus a cost-push inflation.

In its 2017-19 medium-term economic program, the government tacitly estimates the average dollar-lira parity for 2016 at 2.95, but the trend has already surpassed its projection in the first 10 months of the year. The average parity stood at 2.93 in the first half of the year, while reaching 3.00 in the second half so far. A downward trend seems highly unlikely in November and December, meaning the average for the whole year would be no less than 3.00.

This, in turn, would equal to a yearly increase of nearly 10%, given that the average parity was 2.73 in 2015. According to the program, the government projects a consumer inflation rate of 7.5% for 2016, and if this materializes, the increase in the dollar-lira parity would exceed the inflation rate as well.

When it comes to economic growth, the program projects the rate at 3.2% for 2016 and 4.4% for 2017.

The target for next year depends largely on the inflow of foreign capital, something that the program itself admits by projecting that domestic savings would not exceed 13% or 14% of gross domestic product, meaning that the funds needed for investment could be secured only externally. And this brings up the key question: Will the expected inflow of capital materialize? How will Turkey attract foreign funds to stimulate growth while its risk premium is on the rise, coupled with a “non-investment” grade by credit rating agencies?

Turkey’s prevailing conditions and its prospects for 2017 signal heightening rather than easing risks. Economic vulnerabilities are growing, with only a 0.1% increase in investments this year. Atop the investment drought, net external demand falls short of leveraging growth, compounded by rapid declines in domestic demand, the result of growing political and geopolitical risks affecting consumers.

Swelling housing stocks have caused particular concern, leading the government to cut the value added tax on housing sales by 10 percentage points last month at the expense of losing budget revenues. Yet, the construction and housing sector — the driving force of the economy in recent years — appears headed to new bottlenecks in demand.

Rising geopolitical risks are an important factor driving the decline in domestic demand, the backbone of economic growth. Turkey's interventions in Syria and Iraq have painted the picture of a country at war, deterring both foreign tourists and investors. The turmoil in the Middle East and Ankara’s ongoing confrontation with Kurdish actors both at home and abroad represent a major component in the risk factor. The choice of a security-based policy rather than dialogue and negotiations on the Kurdish issue is, no doubt, pushing up the country risk.

In sum, the policies that manage the Turkish economy, already relegated to the “non-investment” league, are bound to heighten rather than lower the risk factors in the coming period. And a meaningful rate hike by the US Federal Reserve in December would intensify the flight of foreign capital from Turkey, further escalating the risks.

Read more: Risk indicators growing for Turkish economy

European Banking System: High Time for Europe to Shed its “Universal Banking Model” - by Paul Goldschmidt

Contradictions in the European banking sector are reaching a breaking point:

On the one hand, banks are loudly complaining about the difficulties of ensuring an adequate level of profitability. Bankers are also strongly resisting new requirements to reinforce their capital position.

On the other hand, many politicians and regulators are anxious to impose such measures. For all their past complicity with bankers, politicians in particular want to avoid future “taxpayer” funded bail-outs of financial institutions.

Enter the ECB. Its strategy to cope with the prevailing low growth environment is to pursue policies that are meant to encourage loans to the “real economy.” So far these measures have met with limited success.

Indeed, the combination of negative interest rates and the ECB’s recourse to quantitative easing on a massive scale, seems to yield outcomes that inhibit in part the smooth transmission of monetary policy.

Negative interest rates make deposit taking unprofitable, while “charging” customers for the service is strongly resisted, putting additional pressure on lending margins. Meanwhile, increasing QE drives interest rates down further, which creates new difficulties for pension funds and insurers, etc.

The universal banking model may have been adapted to the European scene prior to the introduction of the single currency because each national market was too small to sustain independent investment banks.

Within the framework of European Monetary Union (EMU), aiming at creating a “reserve currency” capable of competing with the US dollar, it is high time to recognize the fundamental “conflict of interest” imbedded within the “universal bank” structure:

Universal banks must constantly choose between either intermediating between “borrowers” and “depositors,” while retaining the credit risk on its own books (i.e., commercial bank loans) or between “issuers” and “investors” where the credit risk is passed on to the latter (i.e., capital market funding).

The potential for conflict is exacerbated when the “issuer” is also a “borrower” from the bank, or when the bank has an in house “asset management” arm. This problem was already recognized in the USA after the crash of 1929 and the depression of the 1930’s.

It lead to the separation of commercial and investment banking activities (Glass Steagall Act) as well as specific legislation to protect investors (Securities and Exchange Act).

This created the foundations on which the spectacular growth of the U.S. capital markets as distinct from its commercial banking sector was able to flourish. The separation created a sufficiently broad base for both sectors to operate profitably.

It is also true that the United States deviated from its previously virtuous path under the progressive “deregulation” of U.S. markets, initiated in the late 1970’s, including the repeal of the Glass Steagall Act (1998).

This triggered a chain of events which led to the uncontrolled expansion of the financial sector culminating in the crisis of 2007/8. 

Read more: High Time for Europe to Shed its “Universal Banking Model” - The Globalist

Global Economy: Economic Recession in 2017 -

Next year, we will see a recession.

I’m calling it.

Why? Well … there are just too many events unfolding this year that will set the stage for a recession, including a corporate earnings recession, a growth-stunting Brexit vote and a U.S. presidential election unlike any we have ever experienced.

Any one of these events could be the direct catalyst for next year’s recession, or it could be one of the many other reasons not listed.

While I can’t predict the exact catalyst for the event, I do know that I’m not the only one expecting the worst.

In fact, according to a recent report, companies are preparing for a recession as well … and you should be doing the same.

In the latest durable goods advance estimate for June, orders tumbled 4% versus expectations of a 1.7% decline. Durable goods orders represent orders for products that last typically for at least three years, like appliances, office equipment, motor vehicles and turbines.

Earlier this month, I explained how declining durable goods orders mean that the Federal Reserve’s hands are tied, and that interest rates are not going higher by any meaningful degree for at least another decade.

This remains true, but you also have to be prepared for the inevitable — a recession.

Your takeaway here is simple: Prepare for a recession-like investment environment.

That means you want to own safe-haven stocks — think gold-related stocks, utilities or telecommunication companies, bonds and even some blue-chip stocks.

But the main thing you want to consider, if you haven’t already, is to find a strategy for profiting from declining stocks.

Depending on how you manage your money, this can be easy to do. If you are managing your own portfolio, a long-term put option on the SPDR S&P 500 ETF (NYSE Arca: SPY) (expiration in 2018 would be ideal) is a simple way to profit from a recession and decline in stocks.

If, instead, you have an adviser who manages your portfolio, tell them you want more bearish exposure, assuming you have little at the moment. It’s your money, and they will listen and help you prepare for the imminent recession.

They should be able to put your investment in some simple bear funds that benefit from a market fall, or they might also consider buying an inverse ETF that returns the opposite of the underlying equity.
Just keep in mind that these positions are used as protection to hedge your portfolio from a crash.

The further we get into 2017 without the expected stock market crash, tilt your portfolio more and more to positions that will rise when the crash hits.

A crash is coming. It’s just a matter of when, not if.

Read more: conomic Recession in 2017 - ValueWalk