Month: November 2012

Why the next bear market will hit home hard

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The boom within credit markets could last for another five years and will be a boon for stocks, but when it ends the fall will be much harder than when the last bear market hit, Brian Reynolds, chief market strategist of Rosenblatt Securities told CNBC Thursday.

Reynolds warned that the danger within credit booms was for companies to overleverage and the boom to turn into a bear market. The next one, he predicts, will be worse than the last.

“People always overdo it [leverage] while they’re doing it. It’s a positive for share prices. When this cycle ends we’re probably going to have more leverage and that means the next bear market will be worse than the last one. It’s great while it lasts but when the music stops it’s going to be really bad. While it goes on, stock prices are going to go up significantly in the next two to five years [but] when it ends you have to get out,” he said.

Despite this doom prediction Reynolds said the near apocalyptic ending for the credit market was still some way off.

“We’re now at an inflection point where leverage is going to start to creep up. Credit cycles always end and badly but given the demand from pensions and insurance companies that’s probably not going to happen for another two to five years,” he said.

Reynolds added that for CEOs of companies it would make sense to try and tap that unlimited flow of capital from debt markets while the going is good.

“Like the last boom in the credit markets where these pension funds buy all these bonds and that outs tons of reserves on your balance sheets. If I were a CEO I would just borrow the money at a very low interest rate and give it to the shareholders. While we’re in this boom it makes sense for companies to do this type of activity not just for dividends but also buy-backs,” Reynolds said.

The credit market has remained largely immune to talk of the potential dangers of the fiscal which Reynolds said were part of the political machinery and would ultimately benefit the stock market.

“In general the credit market hasn’t flinched at all with all this fiscal cliff talk. We saw equity markets have some jitters but credit investors are acting as if this fiscal cliff is not a problem at all. This is a politically created event subject to the whims of politicians. Like the summer of 2011 at the end of the day when the dust settles the credit market is going to be okay and that is going to lift stock prices back up,” Reynolds told CNBC.

The credit market is heavily weighted by institutional investors for whom it is a “buying opportunity” with retail investors only making up a small proportion of the total and Reynolds said it was just this small minority that was registering any concerns on the fiscal cliff.

“The main action is driven by our large institutions like pension funds and insurance companies. Every time there has been weakness from retail investors those large institutions have stepped up and bought more corporate bonds and that is putting a ton of cash on corporate balance sheets. If there is a panic and they don’t reach agreement on the fiscal cliff those companies will buy back their stock,” he said.

“We’ve done over USD 1.4 trillion worth of new corporate bonds this year and pension funds seem to have an insatiable demand for more. This credit boom is strong and it is like the one that lasted from ’03 to ’07 but this one will be much longer and more intense because the need of these pension funds is even greater,” he said.

-By CNBC’s Shai Ahmed, Follow her on Twitter @shaicnbc

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Silver lining in ‘fiscal cliff’? Stocks will become cheap

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As markets continue to wait with bated breath over the outcome of “fiscal cliff” talks, one fund manager said, the worst case scenario may not be so bad.

According to Mike Crofton, president and CEO of Philadelphia Trust Company, stock markets will most certainly tumble if the United States goes over the ‘cliff,’ and that could present a great opportunity for investors to scoop up stocks.

“If we went off the fiscal cliff, the market would respond in a very negative way and maybe lose about 8 percent. I would use that as an opportunity to buy stocks because going over the fiscal cliff creates a crisis and we always solve crises,” Crofton told CNBC Asia’s “Squawk Box“ on Friday.

He added: “I think that would be the best solution longer term. This posturing and postponing and give-and-take are just going to prolong the agony and make it a lot worse over the long run. I would welcome going over the fiscal cliff because I can get fully invested.”

The US Congress continues to be locked in talks about how to avert the “fiscal cliff” – a conundrum the economy will face in on January 1, when tax hikes and spending cuts worth $500 billion will kick in. It is widely feared that a tumble down this cliff will throw the US back into recession.

(Read more: What Is the ‘Fiscal Cliff’?)

Thursday’s negotiations appeared to show little progress toward a deal, with markets dipping briefly into negative territory in Thursday trade after House of Representatives Speaker John Boehner said on Thursday that talks with the White House had made “no substantive progress.”

(Read more: Obama’s ‘Fiscal Cliff’ Proposal: $1.6 Trillion in Tax Increases)

The indices however rebounded in late trade, with the Nasdaq Composite Index and SandP 500 both closing higher.

But Crofton warns against dipping into markets before there’s clarity on the “fiscal cliff”.

“It’s mindboggling to me. I think today’s market action was very curious. Today (Thursday), we learnt that they are really no closer to compromising now than they were before the (presidential) election,” he said.

“I’m not sure what’s behind it but it’s not something I think we should participate in. I think we should stay out of the markets here,” he added.

(Read more: Expect ‘Fiscal Cliff’ Sell-Off on Friday: Adami)

Is Ignorance About Fiscal Cliff Propping Up Spending?

Meanwhile, analysts point to worrying signs in consumers’ behavior, which suggest most Americans aren’t clear about the potential fallout of a “fiscal cliff” eventuality on their pockets.

The latest Conference Board report showed consumer confidence rose to a four-and-a-half-year high in November as consumers became more optimistic about the outlook for the economy.

The report seemed to contradict the latest growth data out of the the US, which showed consumer and business spending revised lower, even as the economy grew faster than initially projected rate of 2.7 percent in the third quarter, as restocking by businesses provided a boost.

Tom Porcelli, chief US economist with RBC Capital Markets in New York, told CNBC the mixed signals in consumer behavior showed that most Americans still do not know the impact of the “fiscal cliff” on their salaries next year. The firm conducted a survey and found that 60 percent have no inkling what the tax hikes and spending cuts in January would do, he added.

“This is the great dislocation taking place in the data right now,” Porcelli said. “And the one thing that we have to sort of consider is that perhaps ignorance is bliss…I think if they did understand, confidence numbers might not be rising as much as they have over the last month or two.”

(Read more: Do Americans Care About the ‘Fiscal Cliff’?)

The fact is, the economy continues to be weak and will remain so for the rest of the year, said Sam Chandan, president and chief economist of Chandan Economics, President and Chief Economist in Philadelphia. Much of this can be blamed on Congress’ failure to reach a deal, he added.

“I think there’s an extraordinary game of brinksmanship being played and unfortunately, that’s exerting a drag on the economy. That’s part of why we don’t see the economy growing at its potential rate,” he told CNBC Asia’s “Squawk Box” on Friday. “We don’t see investment, we don’t see hiring where it could be.”

Alastair Newton, senior political analyst with Nomura, however is confident that a disaster could be averted.

“I’m going to stick my neck out. I think there’s a 70 percent probability we get a deal before the end of the year and when I come back next year, you can tell me I’ve got it wrong,” he said.

–By CNBC’s Jean Chua.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Spain’s chances of recovery soon ‘remote’: OECD

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Spain is likely to remain in deep recession until the end of next year as “painfully high” unemployment and the need to shore up its banks weigh heavily on the economy, according to the Organisation for Economic Co-operation and Development (OECD).

The country was facing the prospect of becoming the next euro zone country to be bailed out by international creditors earlier this year. Market concerns have receded after the announcement of a new European Central Bank (ECB) bond-buying plan, and the Spanish government has been reluctant to ask for a bailout. Worries that Catalonia, Spain’s richest states, might break away have also receded after elections earlier this week.

(Read More: Spain Unemployment Hits Fresh Record at 25%)

“The prospect of an immediate recovery remains remote as deleveraging of the private sector still has a long way to go while the feedback loop between government finances and the banking sector remains strong, notwithstanding the loan of up to 100 billion euros from the euro area governments to recapitalize the banks,” the OECD warned in its report.

“This feedback loop must be broken.”

The OECD believes that recapitalizing the country’s “viable” banks and shutting down its “non-viable” banks, which are struggling after a property bubble burst, should be the first priority for the Spanish government. It warned that the stabilization provided by the ECB would only be “temporary.”

On Wednesday, the European Union gave the go-ahead for a major overhaul of four Spanish banks, including USD 48 billion in recapitalization funds and losses for bondholders.

(Read More: EU Approves Spain Bank Restructuring, Opens Door to Aid)

The OECD also urged that tax rises on property and consumer goods, which are supposed to be temporary, should be kept around for longer and that other taxes should be raised.

Spaniards struggling under a 2013 austerity budget, which has already caused protests on the streets of its cities, will get cold comfort from the report.

(Read More: Spain’s ‘Vicious Circle’ Worsens)

Analysts have expressed concern about Spain’s ability to meet its deficit targets, mainly due to the underperformance of some of its regions.

“While we expect the central government to keep delivering on the front of fiscal consolidation, we remain of the view that it will be difficult for Spain to meet the overall general government budget deficit of 6.3 percent of GDP  announced for this year as we think that the Regions will likely miss their target of 1.5 percent of GDP by at least 0.5 [percentage point],” Fabio Fois, European economist at Barclays, wrote in a research note.

Related Links

Spain Unemployment Hits Fresh Record at 25%
EU Approves Spain Bank Restructuring, Opens Door to Aid
Spain’s ‘Vicious Circle’ Worsens as Moody’s Downgrades Regions

© 2012 CNBC.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Obama’s ‘fiscal cliff’ proposal: $1.6trn in tax increases

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The White House is seeking USD 1.6 trillion in tax increases up front, as well as USD 50 billion in additional stimulus spending, as part of any “fiscal cliff” deal, Republican aides said Thursday as talks aimed at averting the economy-rattling cliff turned testy.

President Barack Obama also wants a permanent increase in the federal debt ceiling, a one-year expansion of jobless benefits and an extension of the payroll tax credit, these aides said.

The latest proposals were presented by Treasury Secretary Timothy Geithner, who visited Capitol Hill Thursday to discuss the fiscal cliff with leaders of both parties.

After Geithner’s visit, Republican House Speaker John Boehner publicly lambasted the Obama administration, saying “the White House has to get serious.”

Boehner added, “No substantive progress has been made between the White House and the House” in the two weeks since Obama welcomed congressional leaders at the White House.

“I was hopeful we’d see a specific plan for cutting spending,” he said, but added that he “remained hopeful” a deal can be reached before the Dec. 31 deadline. “Jobs are on the line, the American economy is on the line, and this is a moment for adult leadership,” Boehner added.

The White House proposals are almost exactly what was in the president’s budget proposal last February, Republican aides said.

Democrats swiftly countered that any holdup was the fault of Republicans who refuse to accept Obama’s campaign-long call to raise tax rates on upper incomes.

At the White House, presidential press secretary Jay Carney said, “There can be no deal without rates on top earners going up.” Taking a confrontational, at times sarcastic tone, he said, “This should not be news to anyone on Capitol Hill. It is certainly not news to anyone in America who was not in a coma during the campaign season.”

With barely a month remaining until a year-end deadline, the hardening of positions seemed more likely to mark a transition into hard bargaining rather than signal an end to efforts to achieve a compromise on the first post-election challenge of divided government.

Boehner suggested as much when one reporter asked if his comments meant he was breaking off talks with the White House and congressional Democrats.

“No, no, no. Stop,” he quickly answered.

The plan calls for USD 1.6 trillion in new tax revenue over the coming decade, extending the 2 percentage point payroll tax deduction or something comparable to it and USD 50 billion in stimulus spending on infrastructure projects.

The White House seeks USD 960 billion over the coming decade by increasing tax rates and taxes on investment income on upper-bracket earners and $600 billion in additional taxes.

The only new spending cuts in the plan would come from administration proposals curbing health care programs by USD 400 billion over the coming decade and modest cuts from non-health programs like farm subsidies and cutting Postal Service costs and through higher fees on airline tickets.

The plan would also boost spending by extending unemployment benefits for the long-term jobless, deferring looming cuts to Medicare payments to physicians and helping homeowners refinance “underwater” mortgages.

Geithner also requested the equivalent of a permanent extension of the government’s borrowing ability to avoid wrangling over the issue as in last year’s summertime crisis over raising the so-called debt limit.

The measure would block USD 109 billion in automatic across-the-board spending cuts known as a sequester from striking the economy in January.

A senior Capitol Hill Democratic aide confirmed that the GOP description of the Geithner proposal is consistent with the latest Democratic position. The aide was not authorized to discuss the proposal publicly and would do so only on condition of anonymity.

Thursday’s negotiating sessions appeared to show little progress toward a deal, which would prevent more than USD 500 billion in automatic tax hikes and spending cuts from taking effect on January 1. It’s feared that a tumble down the “fiscal cliff” will throw the country back into recession.

_PAGEBREAK_

New York Fed President William Dudley highlighted the problems that lawmakers are causing for both hiring and the economy with each day they fail to strike a deal to avoid a pending fiscal crisis. Dudley warned that, if it is not addressed, the economic contraction is likely to be larger than normal because interest rates are so low.

Stocks declined after Boehner’s statement, but later rose.

(Read More: Stocks Rise in Choppy Trading on ‘Cliff’ Remarks.)

“I think unfortunately it seems pretty clear that the market is trading very much off the reading of the tea leaves on how these fiscal cliff negotiations are going,” said Eric Kuby, chief investment officer at North Star Investment Management in Chicago. “I think we’re hostage to this for the rest of the year.”

Top Senate Republican Mitch McConnell of Kentucky also offered a pessimistic take following his separate meeting with Geithner.

“To date, the administration has remained focused on raising taxes and attending campaign-style events, with no specific plans to protect Medicare and Social Security or reduce our national debt in a meaningful way,” McConnell said in a statement. “And today, they took a step backward, moving away from consensus and significantly closer to the cliff.”

President Obama and Boehner conferred by phone for 15 minutes Wednesday night, their first one-on-one discussion in five days, amid increasing anxiety that the White House and top Republicans are wasting time needed to negotiate a way out of the crisis.

Geithner met first with Reid, then headed to a session with Republican leaders of the House, including Boehner, Majority Leader Eric Cantor and House Budget Committee Chairman Paul Ryan, fresh off his Republican vice presidential campaign.

 — What Is the Fiscal Cliff

There has been little evident progress in negotiations between the two sides. Republicans complain that the White House is slow-walking the talks and has yet to provide specifics on how Obama would curb the rapid growth of benefit programs like Medicare and Medicaid.

“We have not seen any good-faith effort on the part of this administration to talk about the real problem that we’re trying to fix,” Cantor said.

Obama is mounting a public campaign to build support and leverage in the negotiations, appearing at the White House with middle-class taxpayers and launching a campaign on Twitter to bolster his position.

More on CNBC.com

Expect Market Sell-Off Friday
What GOP Wants to Hear
Blankfein: Deal Seems Reachable
Will Entitlement Reform Save US? 
Obama: Let’s Get a Deal Before Christmas

© 2012 CNBC.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Can the French afford to say Au Revoir to Mittal?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The row between Indian steel tycoon Lakshmi Mittal and the French government remains unresolved, at a difficult time for France.

Socialist President Francois Hollande is trying to push through reforms to help reinvigorate growth and stimulate the labor market. So far, he has proved to be rather less socialist than many in the market feared, and there has been cautious welcome for a high-profile competitiveness report and better-than-expected economic growth.

“It is in Hollande’s political interest to implement the unpopular reforms at the beginning of his mandate,” Gilles Moec, economist at Deutsche Bank, pointed out. “Hollande still has more than 4 full years for the positive impact of the reforms to materialize.”

Hollande is taking “steps in the right direction” according to Moec. However, the fallout from Mittal’s conglomerate ArcelorMittal’s decision to close blast furnaces in the country is proving hard to contain. Mittal famously threw one of the world’s most expensive weddings for his daughter in locations in France including the Palace of Versailles. But he may not be cracking open the champagne after meeting Hollande in Paris on Tuesday.

Arnaud Montebourg, Hollande’s industry minister, earlier in the week told the company – which employs 20,000 workers in France – to leave, despite an unemployment rate of over 10 percent that might lead a government to court businesses.

The planned hike in higher-rate tax to 75 percent has also been seen as an attack on wealth, and has already sent some of France’s best-known wealthy, including actor Gerard Depardieu, across the border to Belgium. France’s richest man, Bernard Arnault, the scion of the LVMH empire, has applied for Belgian citizenship.

Mayor of London Boris Johnson could barely contain his glee at Montebourg’s actions.

“The sans-culottes appear to have captured the government in Paris,” Johnson said as part of a meeting in India to encourage Indian investment in the UK. “I have no hesitation in saying here, ‘Venez à Londres, mes amis!’ (Come to London, my friends!)”

This comes after the government effectively bailed out Peugeot-Citroen, one of France’s best-known companies, which is part-owned by General Motors, after it threatened to close factories and sack 8,000 people earlier in the year. There is already a state-backed investment body in France, as in most of the G8 countries, which helps incentivize investment from global and French countries.

Still, French labor laws are notoriously rigid, with strong protection of employment going hand-in-hand with generous unemployment benefits, and one of the highest holiday counts in Europe.

“There’s a general consensus (in the UK and Europe) that we need to create more jobs,” Chuka Umunna, the UK’s shadow business secretary, told CNBC. “If you’re serious about resolving that, you can’t keep beating up people who bring those jobs, and that means you have to have fairness in your labor market. We have flexibility in the UK”

“You’ve got to be careful when you adapt an active government approach because it’s about knowing when not to intervene as well as when to intervene,” he added.

Moec warned that “more will be needed” to give France’s economy the positive shock it needs than the reforms pledged by Hollande – and predicted that, while the reforms will eventually deliver, the results will be “patchy” and “stop and go.”

By CNBC’s Catherine Boyle. Follow her on Twitter: @cboylecnbc

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Seems like fiscal cliff deal could be reachable: Blankfein

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Goldman Sachs CEO Lloyd Blankfein described President Barack Obama’s plan for Washington to reach an agreement on the “fiscal cliff” as detailed and “very credible.” However, he cautioned that marginal income tax rates may have to rise to seal a deal.

In an interview with CNBC after meetings between the president and several CEOs, Blankfein said, of course, it’s hard to tell if a deal will be reached but “if I were involved in a negotiation like this, and everybody was purporting to be where they are, I would say that an agreement was reachable.”

Blankfein said he thought concessions on both the revenue and entitlement sides would be necessary to reach a final deal to avert the fiscal cliff, when large spending cuts and tax increases are slated to take effect on Jan.1.

“Look, at the end of the day, the most important value is to get the economy moving forward,” Blankfein said. “That’s not going to happen if our budget deficit keeps widening.”

He added that the marginal income tax rate may have to rise in order to reach a deal.

“I would prefer as low of a marginal rate as possible because it’s the marginal rate that provides the incentive to do incremental work by people, but I’m not dogmatic – I wouldn’t go to the end for that,” he said.

But if we do not sort out the U.S. economy, Blankfein said people will fight over their slice of a shrinking wealth pie.

“I’m certainly not insisting, I don’t even desire higher rates,” he said. “I think they will be a drag if revenue goes up and rates goes up. But I think they will be a drag on the American economy if our budget deficit widens out forever, if we’re irresponsible and if government doesn’t work.”

When left with these “poor” choices, Blankfein said the compromise has to be in the middle and both sides have to give.

Blankfein was one of a group of corporate heads invited to the White House to discuss the looming fiscal cliff, which has resulted in a political tug of war between Republicans, Democrats and the White House.

Yahoo’s Marissa Mayer, Mutar Kent of Coca-Cola, Douglas Oberhelman of Caterpillar and Brian Roberts of Comcast, owner of NBCUniversal also traveled to Washington, DC, to meet with Obama.

Earlier in the day, Obama advocated for a “fair and balanced” approach to the crisis saying he hoped to reach a deal by Christmas and urged Congress to move now to prevent middle-class tax increases before the new year. Republican House Speaker John Boehner said he was willing to put revenues on the table only if they are accompanied by spending cuts.

• Complete Coverage of the Fiscal Cliff
  
• What Is the Fiscal Cliff?

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Why India struggles to deliver its growth potential

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India is going to deliver its third quarter growth numbers on Friday and expectations are running low as Asia`s third largest economy has had a disappointing year so far, with gross domestic product (GDP) growth languishing around 5.5 percent.

The world`s largest democracy, which boasts of a burgeoning domestic market coupled with a youthful population, has seen much better days – just two years ago it was growing at a robust 8-plus percent.

But today it`s faced with the prospect of being the first BRIC (Brazil, Russia, India, China) nation to have its credit ratings cut to junk as investors begin to lose faith in India`s growth story.

(Read more: Does IMF’s Dismal India Forecast Signal a Hard Landing?)

Uncertainty surrounding government policies – despite recent reforms to attract foreign investment – a ballooning deficit, sky-high inflation and a currency that has slumped over the last year, have all added to India`s growth woes eroding investor confidence, said experts.

“The key factor that has led to the deceleration in GDP growth from above 8 percent levels to the last quarterly print of 5.5 percent is a near collapse in investments,” Rohini Malkani, economist at Citi, wrote in a report.

Growth in capital formation, or the transfer of savings from households and the government to businesses, has fallen from double-digits in the 2005 fiscal year to single-digits in 2011, according to Citi data.

Difficulties associated with acquiring land, lengthy approval processes for large projects and infrastructure bottlenecks, particularly in the area of power, have contributed to the slide in investment activity leading to poor growth.

The most optimistic view puts India`s GDP growth in the September quarter to 5.7 percent, while the most bearish expect growth to come in at 5 percent.

“The slowdown in India has been supply-led. There is a lack of basic infrastructure, roads, power, which are needed to meet the demands (of businesses) and allow the economy to grow as fast as it should,” added Leif Eskesen, chief economist, India and ASEAN at HSBC.

Unlike in the West, where a slump in consumption has contributed to slower economic growth, Eskesen said in India, there is not enough supply to meet demand.

“Demand in India is firm – consumption is growing because of stable demographics and more people entering into the middle income range,” he said, adding “manufacturers say they aren`t able to produce enough because there are power outages.”

At the end of July, India witnessed it`s biggest ever power outage which left more than half of India`s 1.2 billion population without power.

_PAGEBREAK_

Borrowing Costs

Robert Prior Wandesforde, head of India and Southeast Asia economics at Credit Suisse argues that the slowdown has also been associated with monetary tightening that took place over 2010-2011, when the Reserve Bank of India (RBI) lifted interest rates by 525 basis points.

At the current 8 percent, India`s benchmark interest rates are among the highest compared with other major economies. Despite growing calls for monetary easing, the central bank has kept rates on hold since April due to growing inflationary pressures.

“That combined with global weakness, and high oil prices – explains a vast bulk of the slowdown in growth,” said, Prior Wandesforde.

A weaker rupee combined with elevated oil prices, which have risen 30 percent over the last 24 months, has contributed to the widening of the current account deficit. Crude accounts for almost one-third of the country`s overall imports.

Can India Return to Days of 8%-Plus Growth?

Despite the negatives, India has the potential to return to robust growth given its strong consumption base, said economists. However, it may take 2-3 years, according to HSBC`s Eskesen, who forecasts India`s economy to grow 6.9 percent in fiscal year 2013-2014, and 7.9 percent the following year.

“If India continues with reform implementations, and they step them up after the elections in 2014, then by the end of the decade they could be at 9 percent,” he said, referring to the slew of government policy initiatives announced in September-October, including approving foreign investment in multi-brand retailing and aviation.

(Read more: India Declares, We’re Back in Business)

Prior Wandesforde, who sees India`s GDP rising to around 7 percent next year, agrees that the country will be able to achieve the high growth levels seen over most of the past decade.

“I think India can return to those levels – but I think it would require substantial easing of monetary conditions – the economy is more sensitive to interest rate changes than most think,” he said.

Credit Suisse forecasts the RBI will cut interest rates by 125 basis points next year, which Prior Wandesforde said will likely be sufficient in pushing growth above 7 percent in late-2013.

Credit Rating Risk

A failure to prop up growth, however, would place India at high risk of a credit rate downgrade, added Prior Wandesforde.

“Growth is very important here in the decision of ratings agencies. The reforms have bought the government a little bit more time, but another year of 5-5.5 percent growth would substantially increase risks of a downgrade,” he said.

Rahul Bajoria, economist at Barclays added that credit ratings agencies are unlikely to change their assigned ratings before the country`s budget which will be presented at the end of February next year.

“At this point, we don`t think anything will change. After March, the focus will increase on what`s happening on the credit rating side,” he said.

Moody`s on Tuesday reaffirmed its stable outlook for India`s Baa3 rating, citing its large, diverse economy and strong savings and investment rates. However, the credit ratings agency pointed to the “poor” social and physical infrastructure, a high government deficit and complex regulatory environment as constraints to the rating.

In April, Standard and Poor`s cut its credit rating outlook to negative. The lowered outlook jeopardizes India`s long-term rating of BBB-, which is the lowest investment grade rating. It assigned a one-in-three chance to an actual downgrade within the next 24 months.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Changing Middle-East dynamics a game changer for oil?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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A political crisis in Egypt heralds a new phase of instability in the Middle East that will keep worries about oil supplies from the region intact putting upward pressure on prices, commodities analysts said.

A controversial decree by Egypt’s President Mohamed Mursi has plunged the country into a crisis and ensured that tensions in the Middle East will remain firmly in focus just as last week’s ceasefire between Israel and Hamas ended eight days of fighting in the Gaza strip and bought some relief to investors.

On Wednesday, hundreds of protests in Egypt’s capital city, Cairo, gathered for a sixth day to demand Mursi revoke a decree that gives him excessive powers. Some hardline parties, meanwhile, are expected to hold protests on Saturday across the country to support Mursi, Reuters reported.

“The tensions in the Middle East should drive (oil) prices higher,” David McAlvany, CEO of McAlvany Financial Group, a precious-metal brokerage based in California, told CNBC Asia’s “Squawk Box.”

“What we’re seeing in Egypt is a long-term issue and a new stage of instability, one that goes beyond Egypt,” he said. “We used to have predictability in the Middle East with relationships that went back decades. We don’t have that anymore and that makes events even more volatile because you don’t know how key players will act.”

Brent crude futures closed lower on Wednesday for a third straight day at USD 109.51 a barrel, while US crude oil futures traded around $86.65 a barrel in early Asia trade Thursday.

Analysts said they are watching developments in Egypt as well as further violence in Syria closely for signs of growing risks to oil exports from the region, which supplies a third of the world’s oil.

“Oil production from Egypt is not that significant but developments there are watched closely because of fears about contagion and because of Egypt’s ability to control one of the major routes for oil, the Suez,” said Nick Trevethan, senior commodities strategist at ANZ Research.

Some commodities analysts expect concerns about the Middle East to help push US oil prices above USD 90 in the short-term, a 4 percent gain from current levels.

“We expect to see oil prices higher broadly with stronger gains in the first few months of next years, in part-related to political risk,” said Trevethan, adding that parliamentary elections in Israel, scheduled for January 22, would be watched closely by energy markets.

Growing Concern

In addition to Egypt and Syria, there were other sources of concern such as any renewed fighting between Israel and Hamas.

In a sign that growing concern about instability in the Middle East is now damaging sentiment more broadly, Alex Thursby, CEO, international and institutional banking at ANZ Bank, identified the Middle East as his biggest concern.

“Clearly if there is military action in the Middle East and it is aggressive, that puts the world in a difficult position and this would bring a lot of volatility and very quickly,” he told CNBC on Thursday.

Ric Spooner, chief market analyst at CMC Markets in Sydney, said he expected oil prices to remain in a tight range around USD 110 for Brent futures, with a moderate outlook for oil demand globally putting downward pressure on oil prices.

He added that oil markets have to price in a risk premium when it comes to the Middle East and so the key now was to see how developments unfold.

“There is that scenario where we could get large supplies of oil withdrawn from the market, so a risk premium regarding the Middle East is always built into the market,” he said. “Right now, I would be more concerned about the downside risks to oil prices, but if we get a significant escalation in the Middle East, the risk of oil prices moving up higher, quickly, is large.”

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Buffett expects ‘fiscal cliff’ fix, but not by Dec 31

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Warren Buffett expects Washington lawmakers will come up with a compromise on the “fiscal cliff,” but he’s not sure that will happen by the end of the year.

He doesn’t, however, think it will take several more months to come up with a fix and it won’t be the “end of the world” if a compromise comes shortly after the December 31 deadline.

Buffett appeared live on CNBC’s Squawk Box with long-time friend Carol Loomis to promote a book about him that she compiled from Fortune magazine articles over the years. (Read the CNBC Transcript of their entire appearance.)

Buffett didn’t outline a specific solution that he prefers, saying he could “go with any number of plans.” But he thinks the end result should have US revenues at 18.5 percent of GDP and expenditures at 21 percent.

Those levels would be “sustainable” because the ratio of the nation’s national debt to GDP wouldn’t increase, and might even fall over time, as economic growth makes up for the revenue gap.

Buffett said the “fiscal cliff” is having no effect on his long-term investing decisions.

He repeated his call for a minimum tax rate for the ultrarich, saying the small minority that don’t pay any taxes at all are among the “moochers” Mitt Romney referred to in his “47 Percent” comments.

Buffett argues that many middle-class people are unfairly burdened with payroll taxes for Social Security and Medicare, calling it the “most regressive” tax.  They only apply to income under a cutoff just above $100,000 but generate $800 billion a year, one-third of U.S. revenue.

He rejected Joe Kernen’s suggestion that payroll taxes should not be part of the debate because they’re for an insurance system. With a laugh, he said, “Believe me, it’s a tax on income.”

RELATED LINKS

    Cap on Deductions Won’t Hurt My Giving “by a Penny”: Buffett
    CNBC Transcript: Warren Buffett on ‘Fiscal Cliff’ and Taxing the Rich
    BRK’s Biggest Holdings
    Buffett: Jamie Dimon Would Be ‘Terrific’ Treasury Secretary
    Warren Buffett’s $250K Difference of Opinion with Obama

© 2012 CNBC, Inc. All Rights Reserved

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

MegaFon gets low valuation in $1.7bn IPO

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Russian telecoms company Megafon’s London initial public offering (IPO) successfully raised USD 1.7 billion, despite concerns about corporate governance at the company, majority-owned by Russian internet tycoon Alisher Usmanov.

The listing priced at USD 20, the bottom of the USD 20-25 a share price range, and placed a market value on the entire company of USD 11.1 billion.

MegaFon, which provides wifi and data services, is backed by Usmanov, who controls its major shareholder Garsdale Services. The Russian businessman attracted some attention earlier this month when it emerged that his public relations company had been tweaking his Wikipedia entry and removing details of his past ahead of the listing.

The company has appointed UK businessman and ex-Minister Lord Myners as chairman ahead of the listing, and Usmanov, who is also known for his investment in Facebook, will appoint three out of its seven directors.

Listings from Russia and former Soviet countries known as the Commonwealth of Independent States (CIS) are still viewed with suspicion, particularly after the corporate governance row over Kazakh ENRC. Goldman Sachs, initially the lead bank on the MegaFon IPO, dropped out earlier in the process, which had rung some alarm bells in the City.

“The fundamental problem comes down to governance. People don’t have trust,” Anthony Fry, adviser to the board at Espirito Santo Investment Bank, told CNBC.

“They are making efforts to address those marketplace concerns with appointments like Lord Myners.”

“What’s interesting is that despite the fact that people were burnt with Russian IPOs before, they keep coming back for more,” he added. Megafon would have to see a hefty rise in earnings to justify investing if the company’s price-to-earnings ratio performed in a similar way to other Russian offerings, according to Fry.

The MegaFon listing appeared to have taken off well initially, despite only offering secondary shares, with sources telling CNBC Tuesday night that it had been oversubscribed.

“MegaFon are not necessarily any better or worse than others,” according to Alex Kazbegi, head of telecoms and transportation research at Renaissance Capital. “There’s no track record (as a public company), but the UK can either take this as a negative or give them the benefit of the doubt.”

Usmanov also has a history with London and New York listings through technology company Mail.ru, which could help address some concerns.

Existing investors, including subsidiary MegaFon Investment, are expected to use the proceeds to pay down debt, leaving a less leveraged business which could invest further in its data and internet services.

The IPO market in the UK has been shaky and relatively quiet this year, with a number of high-profile withdrawals and disappointing post-IPO performances, so success for MegaFon may help boost sentiment about London listings.

MegaFon’s real strength is in providing data services, but other providers are snapping at its heels, according to Kazbegi. It was the first Russian network provider to start rolling out 4G coverage, and had the biggest market share of mobile data revenue with 36.5 percent of the market in the second quarter of 2012.

MegaFon’s Russian focus could work both for and against it, Kazbegi argued.

“Given that some of the other publicly-listed companies have had not-so-good experiences with the CIS states, this is considered to be a plus,” he said.

“However, more diversification could also be a plus.”

Written by Catherine Boyle, CNBC. Twitter: @cboylecnbc.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow