Month: April 2013

Spain’s economic siesta continues

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

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Spain reported another quarter of economic decline on Tuesday, with the economy contracting 0.5 percent in the first quarter, compared to the previous three month period. Spain`s IBEX 35 (Mercado Continuo: .IBEX-ES) rose 0.77 percent in early trade as the numbers were in line with the Bank of Spain`s forecast.

On a year-on-year basis, the economy contracted by 2 percent.

Spain has experienced seven consecutive quarters of economic decline. The economy contracted by 0.8 percent in the fourth quarter of 2012.

On Tuesday, the Bank of Spain revised down its gross domestic product (GDP) forecast for the whole of 2013, from a contraction of 0.5 percent to a contraction of 1.3 percent.

The recession forced Spain to revise its public deficit target down to 6.3 percent of GDP from 4.5 percent this year. The budget minister, Cristobal Montoro, admitted last week that Spain would need two extra years to bring its budget deficit back within the EU limit of 3 percent of GDP.

Last week, the government announced a reform program aimed at promoting growth rather than austerity, in order to combat the recession and unemployment crisis. The jobless rate in Spain reached a record high of 27.2 percent in the first quarter and the country`s debt-to-GDP ratio has reached 84.2 percent.

Prime minister Mariano Rajoy said Spain would remain disciplined on spending but signaled that he would also look to stimulate growth by reviewing corporate taxes and labor reform.

The Deputy Prime Minister Soraya Saenz de Santamaria said on Friday that the Spanish economy would grow by 0.5 percent next year and by 0.9 percent in 2015. Javier Hernani, director general and chief financial officer of Bolsas y Mercados Espanoles (BME), the operator of the Spanish stock exchange, told CNBC he was confident that the Spanish economy would recover.

“The first steps are clearly in place, if you think of the situation in Spain last year, the stock market has rebounded more than 40 percent from the lowest point last July and the spread of the Spanish ten-year bond was around 700 basis points (bps) but I think in general terms there are some elements that financial stability in place.”

“Obviously the economy needs credit to flow back into [industrial] activity, back in the small and medium-sized businesses so let`s hope we`re able to reverse the situation in the near future,” he added.

Correction: An earlier version of this story incorrectly stated that Spain had experienced eight consecutive quarters of decline. Spain has, in fact, experienced seven consecutive quarters of decline.

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

Who cares about an ECB rate cut? Not the euro

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

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Talk of a rate cut usually sends a currency lower, so no wonder analysts are puzzled as the euro holds firm in the face of growing speculation that the European Central Bank will lower interest rates when it meets on Thursday.

The single currency hovered near USD1.31 on Tuesday, up 2.7 percent from more than four-month lows hit in early April, brushing off latest signs of weakness in the euro zone economy that analysts say support the case for a rate cut this week.

“We have now seen evidence of weaker consumer, business and investor confidence and if the central bank does not act now, they risk allowing the sour mood to slow growth even further,” Kathy Lien, managing director at BK Asset Management, said in a note. “Yet with a rate cut looming, many traders may be wondering why the euro refuses to fall. ”

Data on Monday showed that confidence in the euro zone`s economy fell for a second straight month in April and by more than expected, the latest sign of poor economic growth in the euro area.

According to Lien, one reason the euro may not be reacting to the rate-cut talk is that markets have already priced a quarter point reduction in rates and are holding out for more aggressive action from the central bank before they sell the single currency.

“The euro is trading like it wants more aggressive action from the ECB beyond a rate cut to break below USD 1.2950,” she said. “In other words, investors already expect the ECB to ease, so if they [policymakers] do not follow up with a bolder commitment, euro/dollar … could end up still trading above $1.30.”

(Read More: ECB Rate Cut Could Bring `Disappointment` )

The ECB`s key interest rate is 0.75 percent and the scope for further monetary easing via rate cuts is limited. This means the central bank may have to consider mulling other stimulus measures such as buying bonds, analysts say.

“We`re looking for a rate-cut this week, what is important is if there is any implementation of non-standard measures and this is what could impact the euro and trigger downward pressure,” Mitul Kotecha, head of global currency strategy at Credit Agricole, told CNBC`s “Capital Connection.”

Ray Attrill, co-head of currency strategy at National Australia Bank, in Sydney, gave another reason for the euro`s resilience: foreign demand for euro zone assets.

He pointed to a successful auction of Italian government bonds on Monday as a sign that foreign demand for peripheral euro zone bonds remains strong. The formation of a new Italian cabinet at the weekend meanwhile has ended two months of political deadlock and lifted sentiment in bond markets.

(Read More: Italy`s New Government Passes First Market Test )

“Also generally, we have a global investor community that is still underweight euro zone assets, so I think there is a bit of a chase for capital gains in the euro peripheral area,” Attrill said.

“This is probably bringing some capital inflow into the euro zone and that for the moment appears to be trumping the weakness in the numbers that is likely to force the ECB into some easing action,” he said.

– By CNBC.Com`s Dhara Ranasinghe; Follow her on Twitter @DharaCNBC

Copyright 2011 cnbc.com

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

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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

Bernanke Watch: Is he eyeing the exit?

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

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As the Federal Reserve meets this week, it`s nearly a given on Wall Street that Chairman Ben Bernanke will not be presiding over the Fed at this time next year.

But the question is: Who will take his seat? The widespread belief is that it will be Vice Chair Janet Yellen . If that`s true, will it be a seamless transfer of the policy baton? Bernanke has just six meetings left – his second term ends in January 2014.

Bernanke has not said whether he`s going to leave, but some Fed watchers say the latest signal came earlier this month when it was announced that he would not attend the annual Fed symposium in Jackson Hole this August. The conference, and most notably the Fed chairman`s speech, is seen as an important guide to policy, and Bernanke has used it himself to signal policy moves, such as quantitative easing . The Fed has said Bernanke has a personal conflict with the meeting date.

Bernanke also opened the door to speculation about his departure during the press briefing after last month`s Fed meeting. In response to questions, he did say he has spoken to President Obama but did not offer any specifics on whether he would like to stay on at the Fed. “I don`t think that I`m the only person in the world who can manage the exit,” he said, a reference to the unwinding of the Fed`s current easing policies.

(Read More: Possible Fed Successor Has Admirers and Foes )

Within the Obama administration, it is widely assumed that Bernanke wants to depart at the end of his term. But the Fed will not comment further beyond Bernanke`s public statements.

“I think he never really signaled that he`d stay,” said Mesirow Financial Chief Economist Diane Swonk. She and others say the likely successor is Yellen, who was named to the Fed by President Bill Clinton in 1994.

“I think she`s the No. 1 choice. She`s the one that`s got the most continuity. She`s got a great resume that supports it as well. She`s not necessarily more dovish than Bernanke,” Swonk said. Yellen, 66, famously swayed former Fed Chairman Alan Greenspan on the idea of an inflation buffer-that a low rate of inflation is a good thing, rather than zero inflation, Swonk said.

Yellen, who joined the Fed as president of the San Francisco branch, came from the University of California at Berkeley. She has been seen as a key part of the Fed`s dovish core, together with Bernanke and New York Fed President William Dudley.

No major policy changes are expected at this week`s two-day meeting, which ends Wednesday.

Other names that have surfaced as candidates include former Treasury Secretary Timothy Geithner , but he is not expected to want the job, and former Treasury Secretary Larry Summers, who is said to be interested in the chairmanship. Former Fed officials Donald Kohn; TIAA-CREF CEO Roger Ferguson; and Princeton economist Alan Blinder are all also viewed as potential candidates. Two current Fed possibilities are Dudley and Fed Gov. Jeremy Stein, but Yellen is viewed as the clear front-runner.

While many on Wall Street believe a transition is coming, there is concern that there could be uncertainty about policy direction, and that could ruffle markets.

“I think people would feel a little more secure, and it`s not just domestic investors but internationally. They`d feel a little more secure if the architect of the policy saw it through,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi.

Bernanke`s retirement may become official by around the time of Jackson Hole in late August. “The insiders wouldn`t be saying he`s leaving if Bernanke is telling them otherwise. It`s not a public announcement but it`s seeping out. One important thing about the current policy statement and the policy that`ll make the transition easier if it happens is that the Fed is operating on a rules-based approach. There won`t be a change in policy there,” said Tony Crescenzi, Pimco strategist and portfolio manager.

(Read More: Bernanke to Skip Jackson Hole Due to Scheduling Conflict )

Yellen`s critics say she may be too willing to let inflation climb while aiming policy at employment. She also would be taking the helm of the Fed when policies that were pursued by Bernanke are put to the test, as the massive amounts of Fed liquidity are unwound and interest rates rise. The Fed`s balance sheet has ballooned to about $3.2 trillion, and the Fed continues to purchase $85 billion in mortgages and Treasury securities each month.

“I don`t think the market`s prepared for this. I think this could be one of the events where we think it`s discounted but it`s not. This is a major deal, handing over the reins. It`s only happened twice in the last 30 years,” Rupkey said.

“Yellen has raised her visibility certainly. She`s doing a lot more papers. … But I`m not sure she`s on the radar for investors at large. I think nobody is really focusing on this right now. But to the chairman`s credit, he has kind of set up with Vice Chair Yellen as head of the communications subcommittee, they`ve set up something where policy really is on autopilot.”

Bernanke also has his critics, but many believe his strong background on the Great Depression made him especially well-suited to serve as Fed chairman during the financial crisis. Bernanke has overseen an increased openness in communications from the Fed, and the markets are now watching for the Fed`s targeted inflation rate of 2 percent and unemployment at 6.5 percent for signals when the Fed might stop easing.

“Bernanke`s been decisive when other policy makers have been inept, indecisive and dysfunctional. He`s been a source of stability and confidence to the extent the markets have built up confidence and are more stable because of his decisiveness and creative actions,” said Crescenzi.

(Read More: If I Were `Dictator,` QE Would End Now, Fed`s Lacker Says )

Bernanke came to the Fed chairmanship from the White House, where he was chairman of President George W. Bush `s Council of Economic Advisors until he became Fed chairman, when former Fed Chairman Alan Greenspan retired in 2006.

He previously was a Fed governor, and the chair of the Princeton economics department prior to that.

“He would be missed, but Janet Yellen, if she`s the Fed chair, has shown many leadership qualities and would likely carry the torch quite well. The market`s confident that the bench is deep and what Bernanke`s done has been institutionalized. The rules-based approach is institutionalized,” Crescenzi said.

Rupkey said Yellen helped push through the balancing of the Fed`s two mandates and the communication of them.

“Based on the interplay between the inflation goal and the full-employment goal, we can see for ourselves that the entire committee – or at least a few members – they are not going to raise rates until 2015,” Rupkey said. “Maybe this is a good time to shift the chairman because I can`t see a lot happening in Fed policy over the next couple of years.”

Jeffrey Kleintop, chief market strategist at LPL Financial, said he expects to see Yellen giving the keynote in Jackson Hole this year.

“I think it`s one of those things where Yellen will be the speaker. There will be a clear tip to the market that they`re on top of this, and they`re going to make the six months` transition smooth,” he said. “And Bernanke`s done when his term comes to an end. The market has so much faith in central banks right now. I think that could begin to shake confidence if they`re not sure who is in charge.”

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

Singapore faces choppy recovery: Central Bank

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

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Singapore`s economy should see a modest rebound this year, although uncertainty regarding the outlook for global growth means the recovery could be choppy, the country`s central bank said in a report published on Tuesday.

The Monetary Authority of Singapore (MAS) reiterated its outlook for the Singapore economy to grow 1-3 percent this year, supported by consumption and a pick-up in overseas demand for Singapore`s exports.

In its semi-annual economic review, the central bank added that several risks remained for the economy, which contracted 1.4 percent in the first quarter from the final quarter of last year.

“Critically, the expected recovery is contingent on relatively sanguine conditions in the advanced economies,” the MAS said. “This is not a foregone conclusion, as a severe negative shock in the developed countries would quickly reverberate through the global trade and financial channels.”

Concerns about the outlook for the global economy have risen in recent weeks, with the U.S. economy growing by less than expected in the first quarter of the year and China`s economic growth unexpectedly slowing.

The central bank said that a period of restructuring in Singapore`s economy also meant that companies would face pressure on their profit margins from higher costs stemming from wages and rents, and this could present a headwind.

(Read More: Singapore Firms Hit by Foreign Labor Laws )

“Given these continuing external and domestic challenges, growth in the Singapore economy may not take off in the same way that has characterized past upturns,” the MAS said.

But should the recovery in Singapore become more entrenched, the financial sector could be among the first to pick-up, the central bank said, adding that a rise in trading activity in the local stock market was a positive sign.

“Notably, trading activity on the domestic bourse was buoyant in the first quarter of this year, with average daily turnover volumes surging by 158 percent quarter on quarter, the highest since the second quarter of 2009,” the MAS said.

“Further, IPO [initial public offering] volumes rose from $53 million in the fourth quarter of 2012 to $814 million in the first quarter of 2013 amid improved regional prospects,” the central bank said, referring to new listings.

(Read More: Asia`s IPO Market Just Got Its Buzz Back )

Singapore`s stock market, up about 1.7 percent so far this year, is trading at its highest level since early 2008.

Earlier this month, the central bank maintained its tight monetary policy and lowered its inflation forecast for the year.

(Read More: Singapore Sticks to Monetary Policy Despite GDP Contraction )

In the semi-annual review, the MAS repeated it forecasts for inflation at between 3 percent and 4 percent, this year, with core inflation forecast between 1.5 percent and 2.5 percent. A surge in rents and car prices has kept Singapore`s inflation rate high at around 4 percent for much of the past two years, even as the economy slowed.

“The overall CPI [Consumer Price Index] will be volatile mainly due to private road transport costs, which will continue to incorporate the effects of the recent motor vehicle policy measures,” the MAS said.

The cost of buying a Certificate of Entitlement needed by Singapore drivers wishing to buy a car has fallen since the start of the year following restrictions of car loans.

(Read More: By Making Cars Harder to Own, Singapore Cools Inflation )

– By CNBC.Com`s Dhara Ranasinghe; Follow her on Twitter @Dhara CNBC

Copyright 2011 cnbc.com

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

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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

Italy’s new government faces market test

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

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Italy`s new economy minister will present his economic plan to parliament on Monday, with Europe`s financial markets looking on carefully to see if the country`s political and economic reforms – on hold as Italy struggled to form a government – will be put back on track.

Fabrizio Saccomanni, the coalition government`s new economy minister, said in an interview on Sunday that he plans to cut taxes and public spending and lower borrowing costs.

The former deputy governor of Italy`s central bank told the Italian Newspaper, La Repubblica, on Sunday that he wanted to “restructure the state budget” to support companies and low-earners, while cutting some unproductive public spending to create resources needed to reduce taxes, Reuters reported.

He said it was important to instill confidence in Italy`s economy and proposed to do this by creating a “pact” with banks, consumers and businesses to boost lending, consumption and investments. He did not provide any more details on what such a “pact” could entail.

Saccomanni said that Italy`s borrowing costs , which have remained stable despite two months of political deadlock, could plummet. The interest rate differential between Italian 10-year bonds and the German benchmark could fall to 1 percentage point or less from the current 3 points, he said.

Saccomanni`s optimism will be tested on Monday as the Italian Treasury hopes to sell between 4.5 and 5.5 billion euros ($7.17 billion) of five and ten-year bonds on Monday morning. Ahead of the auction, the yield on Italy`s ten-year benchmark bond was 4.06 percent. In the last three months it has fallen 3.49 percent.

John Wraith, fixed income strategist of BofA Merrill Lynch Global Research, told CNBC that it was unlikely that Saccomanni could lower Italy`s borrowing costs by as much as he hoped.

“I think that`s stretching it a little bit. We`ve seen spreads come in an awfully long way in the last nine months or so, they could certainly go a little further still. There is some degree of optimism that Italy has managed to get through some of their political issues but we think we`re starting to run out of road now for some of these peripheral spreads,” Wraith told CNBC Europe`s “Squawk Box” on Monday.

A senior official from Moody`s credit rating agency told an Italian newspaper on Monday that it was not yet possible to exclude the possibility that Italy will have to ask for financial aid from the European Central Bank (ECB) and ESM (the European Stability Mechanism) in the future.

The official said that Moody`s would verify the Italian government`s ability to pursue reforms and the situation remains difficult. Moody`s gave the country a Baa2 rating last July on a negative watch.

Saccomanni is expected to announce an economic plan and growth agenda on Monday, after a cabinet headed by Prime Minister Enrico Letta was sworn in on Sunday. Letta is heading a coalition government of politicians and technocrats from both the left and right.

During the ceremony, an unemployed man shot two police officers outside his office. When arrested, the man said he had wanted to attack politicians rather than the officers.

The government now has to win to confidence votes in parliament on Monday and is expected to do so, ending two months of political deadlock. The apparent political stability has translated into a bounce for Italian market confidence as the Italian FTSE MIB stock index is expected to open up 179 points at 16,744.

On analyst told CNBC that the composition of the government was not surprising and said that the head of the center-right bloc, Silvio Berlusconi, whose party deputy Angelino Alfano has become deputy prime minister, could try to usurp the fragile coalition.

“The composition [of the government] is pretty much what we were expecting. We always knew there would be a technocrat at the economy ministry – that was never not going to happen. A senior Berlusconi figure was always going to be deputy prime minister and interior minister [as well]. There are no great surprises here,” David Lea, a senior European analyst at consultancy ControlRisks, told CNBC.

“I`m pretty sure there will be a snap election at some point. If you asked me whether this government would last until the end of 2014 I`d say probably not. In fact I`d bet slightly earlier than that.”

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

Has the dollar-yen topped out already?

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

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A 2 percent rise in the yen`s value since Friday has some currency analysts calling a top on dollar-yen, just days after the currency pair looked poised to break through the key 100-barrier.

Bets to sell the yen appear to be off the table for now following Friday`s weaker-than-expected U.S. economic growth numbers and uneventful Bank of Japan meeting.

The yen rose to 97.33 per dollar on Monday, its strongest level against the dollar in more than a week and well off a four-year low hit just shy of 100 earlier this month.

“In the near term, dollar-yen is looking a bit vulnerable,” said Sean Callow, senior currency strategist at Westpac bank, who forecasts the yen to strengthen to 96 per dollar over the next month and to 93 by December. A move to 93 would imply a gain of more than 4 percent for the yen from current levels.

The Bank of Japan on Friday reiterated that it would pump $1.4 trillion into the economy to revive growth and end deflation. But doubts from central bank members over whether the BOJ can meet its inflation target of 2 percent in two years prompted some yen buying.

Data showing the U.S. economy grew by an annual rate of 2.5 percent in the first quarter, down on expectations of 3 percent growth, provided traders with another reason to sell the dollar and buy the battered yen.

According to Callow, two factors could now drive further yen gains: broad weakness in the dollar following softer U.S. data and the continued selling of foreign bonds by Japanese domestic investors.

“The latest data from the Ministry of Finance has shown that but for all of one week since January, Japanese investors have been net sellers of foreign bonds. Until they stop doing that, we could see continued strength in the yen,” said Callow.

Japanese Prime Minister Shinzo Abe`s pledge to turn the world`s third largest economy around, partly through aggressive monetary easing, has knocked more than 20 percent off the yen`s value against the dollar since November.

However, the weakening trend has slowed in recent weeks as the dollar failed to push above the key 100 dollar level, having flirted with the barrier on several occasions. Analysts say that options barriers may be a reason why the 100-level appears out of reach for now.

Watch Those Speculators

“For the time-being yen weakness is reliant on foreign traders and hedge funds shorting the yen. If we see hedge funds start to take profits that could also drive further strength in the currency,” said Westpac`s Callow.

Craig Chan, head of FX strategy, Asia ex-Japan at Japanese investment bank Nomura, said it was too early to call a top on the dollar-yen pair. He forecast the yen to weaken to 100 against the dollar this quarter and reach 102 by December.

“We are still on an upward trajectory on dollar-yen, and I still expect the yen to break the 100 barrier,” he said. “The recent (yen) strength is just a reaction to the Bank of Japan meeting where nothing new happened.”

With an important election coming up in July, Chan expects Prime Minister Shinzo Abe will strive to keep market sentiment strong by making sure the aggressive monetary policy action he has promised is put into action, a move that points to further yen weakness, he said.

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

The economy may stink, but the market doesn’t care

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

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Another lackluster quarter of economic growth is likely to have the same impact on the market as its predecessors-which is to say, not much.

Despite a prolonged period of weak improvement in gross domestic product, stocks have continued on a progressive, albeit bumpy, ride higher.

The 136 percent stock market surge over the past four years has come despite the weakest recovery since the Great Depression, and more recently signs that those expecting a period of stronger growth will be disappointed.

No matter, though, as investor-riding a wave of Federal Reserve liquidity and sentiment that the U.S. remains a safer store of money than its troubled global competitors-keep buying despite the slow economy.

“There`s just this disconnect from reality,” said Kathy Boyle, president of Chapin Hill Advisors. “The high-frequency funds are just controlling this market. Anyone who`s rational thinks this market is overvalued and things are slowing down.”

Yet a quarter that brought such lackluster growth-2.5 percent against expectations of 3 percent-saw the stock market surge 9 percent.

Friday`s letdown had little effect either way, with major averages treading water around midday.

The GDP report came amid a backdrop of a so-so earnings season in which influential Dow Jones Industrial Average components Caterpillar and AT and T reported substantial slowness in their business.

“The major industrials are telling you things are not good,” Boyle said. “China is in slowdown, Europe is in crisis. But la la la, we`re still going to trade the market.”

One of the main drivers behind the trading mentality has been the Fed and its $85 billion a month in asset purchases.

In addition to the basic liquidity, it`s also fueled a belief that even if conditions don`t improve dramatically, they`ll be enough money around to keep equity prices floating.

“The fundamentals are improving as a result of the QE,” John Stoltzfus, chief market strategist at Oppenheimer said, in reference to the Fed`s quantitative easing program, currently in its third cycle. “The glass remains more than half-full.”

Stoltzfus points to improvements in the housing market that he said will lift the broader economy.

Yet those gains are happening against a backdrop of lower government spending accompanying the mandated sequester cuts that helped depress the GDP number.

At the same time, consumer spending, one of the biggest components of first-quarter growth, may not be able to be sustained considering the personal savings rate tumbled to 2.6 percent.

Jim Paulsen, chief market strategist at Wells Capital Management, believes the market may be expecting a compromise in Washington that could mitigate the sequester effects and give the economy a lift.

“The pain`s going to get too big,” he said. “Our public policy is we don`t do anything until we get an emergency and then we get together.”

Absent changes in fiscal policy, the Fed will keep using its monetary tools, which will last as long as the market decides it can ignore some bigger economic questions.

“I don`t know who`s buying here. The volume is not healthy,” Boyle said. “How much more can the market shrug off?”

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

What are asian entrepreneurs afraid of?

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

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Asia appears to be in a sweet spot: it is home to some of the world`s largest economies, has a stable growth outlook, a burgeoning middle class and many cities where low taxes and fewer regulations make it easy to do business. Yet this does not seem to be enough to tickle an entrepreneurial spirit.

And that is because Asians are scared of failing, experts told CNBC, adding that this fear of failure is the biggest obstacle in the path of Asia`s entrepreneurs and the one thing that separates them from their U.S. peers.

“There are huge numbers of graduates in Asia and that`s fine. But entrepreneurs – individuals that have a like mindset and are prepared to take a risk to start a business?, I`m not sure about that,” said Mykolas Rambus, the CEO of Wealth-X, a research firm that tracks the ultra-wealthy.

“The price of failure in the U.S. is that you learn from your mistakes and try again – banks can be accepting of that, the community can be accepting of that, your family can be accepting of that,” Rambus adds. “I don`t see that being the case in Asia. Failure is branded that way permanently.”

Some well-known examples of businessmen in the U.S. who met with failure well before they met with success include Walt Disney, whose first animation company went bankrupt. Harvard drop-out Bill Gates and Microsoft co-founder Paul Allen met with failure in their first venture, a business called Traf-O-Data. They went on to create the tech giant.

But while failure in the U.S. is seen as something to learn from, in Asia failure is frowned upon and experts say this mindset is holding back entrepreneurship in a region where a growing consumer class and bright economic prospects point to strong opportunities for risk-takers.

They add that finding a stable job and rising through the ranks of well-established companies are still more widely acknowledged as a sign of success than risk taking to start a new venture.

“Why is the American Dream so crucial to the success of America? It`s still a place where ideas flourish and where you`re rewarded for your hard work and not judged based on your color or race or religion,” said Liew Kee Sin, CEO of SP Setia, one of Malaysia`s leading property developers and who has been credited with the company`s success.

“We`re not there yet but we`re working towards that. Hopefully more entrepreneurs in this part of the world can show that this is the way to go,” he said.

Liew`s ability to read the market and get the company to invest in large tracks of land long before the property market boomed is seen as a reason for the company`s success.

Change the Way You Think

According to experts the fear of failure in Asia is stronger than in other parts of the world mostly because of traditional family expectations, with parents encouraging children to follow a predictable career path such as becoming a lawyer or engineer, while children feel pressured to meet that expectation.

Attitudes towards risk-taking also varied across the region, said experts, with fear of failure stronger in traditionally conservative countries such as Japan, Taiwan and Singapore and less pronounced in countries such as India, which has strong roots in entrepreneurship.

“Why have Indian entrepreneurs been so successful? I think part of the reason is because the downside risk is not as strong as for a Japanese entrepreneur in terms of family, structure and so on,” said Rambus of Wealth-X.

What`s required in Asia is a mentality shift, says Damien Duhamel, managing partner for Asia-Pacific at Singapore-based marketing consultancy firm Solidiance.

“Singapore is risk-averse traditionally, a lot of Singaporean entrepreneurs are not necessarily Singaporean born and bred,” Duhamel said, adding that a good case in point is TWG, a popular luxury Tea brand, founded by two expatriates who decided to take a risk in the city state six years ago.

Co-founder Taha Bouqdib uprooted his family from Paris to move to Singapore to set up the luxury tea brand with business partner Manoj Murjani who is of Indian origin and was living in Singapore at the time. TWG is now regarded as one of the world`s finest tea brands.

Wealth-X`s Rambus agrees that attitudes towards failure in Asia need to change.

“What makes a successful entrepreneur? It`s failure. Have you heard that expression `fail often and fail quickly`, that`s what drives entrepreneurism,” he said.

Signs of Change?

Duhamel of Solidiance said there are some positive signs. Universities in Singapore, for example, were encouraging programs that help students take a year off and develop their own business.

“Fifteen years ago entrepreneurs in Asia were viewed as outcasts from society. This is because peer pressure in Asia is stronger than in Europe – there is greater pressure to get married, stay put, and buy a house and a car. It was not the norm to take a year off, go travelling etc,” said Duhamel. “The younger crowd does seem happier to stick its neck out [now].”

The growth of the internet and some success stories are all positive for helping that shift in attitudes towards risk-taking, analysts said.

Even Japan, viewed as one of the most risk-averse countries in Asia when it comes to new start-ups, is showing signs of change.

In 2004, Yusaka Maezawa, member of a Japanese punk band, founded online fashion outlet Zozotown which started with offering clothes from 17 shops and has since become a mega site that now houses more than 1,500 brands.

According to industry journals, the website at the time was completely unique in Japan and became an overnight success among young, internet-savvy Japanese consumers. And at age 37, Maezawa ranks number 42 on Forbes` list of Japan`s 50 richest individuals, with a net worth of about $740 million.

Ultimately, success as an entrepreneur depends not on where you were born but the DNA you were born with, says SP Setia`s Liew.

“The DNA of an entrepreneur is the same, whether they`re in Malaysia or the U.S. They can take a risk and they have an ability to read the market,” he added.

– Follow CNBC.Com`s Dhara Ranasinghe on Twitter: @DharaCNBC

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

Central banks should own stocks: Jim O’Neill

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

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As the Bank of Japan ramps up its monetary stimulus to include buying equities, Jim O`Neill, chairman of Goldman Sachs (NYSE: GS) Asset Management, said it makes sense for central banks to own stocks. O`Neill spoke with CNBC at the Goldman Sachs Growth Markets Summit in New York.

After a survey by RBS was published earlier this month that showed a greater appetite for central banks to invest in equities , “I don`t think people should worry about that,” said O`Neill. He added that many sovereign wealth funds are tied to central banks and are already investing in stocks.

Earlier this month, the Bank of Japan promised to pump $1.4 trillion into the economy in less than two years to combat deflation through open-ended asset purchases. The central bank said on April 4 that it will more than double investments in equity exchange-traded funds by the end of 2014. The Bank currently holds ¥1.4 trillion ($14.1 billion) in ETFs with a target of ¥3.5 trillion ($35.3 billion) in 2014.

“Frankly, it makes a huge amount of sense in a world of floating exchange rates and such incredible opportunity, why should central banks keep so much money in very short term, liquid things when they`re not going to ever need it?” O`Neill said. “To help their future returns for their citizens, why would they not invest in equity?”

For individual investors, O`Neill said that “it`s a great time to own equities,” because the equity risk premium over the risk free rate – a major factor in the widely used capital asset pricing model – is “still so high,” despite many fears in the market. “There are many different parts of the world, despite the rally, where I think that is still the case.”

O`Neill is best known for coining the “BRIC” acronym in 2001 , which points to Brazil, Russia, India and China as the emerging markets to drive growth through the middle of the 21st century.

O`Neill also said the economic landscape is shifting for China as it becomes an increasingly important export market for U.S. companies, who are set to be major beneficiaries.

“It`s all about the quality of growth as opposed to quantity. We are in the really early stages – deliberately done – where (China) is prepared to slow growth and shift away to more domestic driven consumption of a more sustainable and better quality,” he said. “In this interim phase it`s probably going to continue to surprise some people. It`s fantastically important.”

O`Neill predicts that China will become the second-largest export market for the United States by 2020, overtaking Mexico. “The evidence is shifting that more and more U.S. companies are benefitting from the growth of their consumer,” he said.

– Reuters contributed to this report.

– By CNBC`s Paul Toscano. Follow him on Twitter and get the latest stories from “Squawk on the Street” @ToscanoPaul

Disclaimer

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

Call this market surge the anti-austerity rally

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

Listen to the Article (6 Minutes)

When it comes to the stock market, austerity is so nine days ago.

That marked the date when a University of Massachusetts graduate student attacked landmark research from economists Carmen Reinhart and Kenneth Rogoff. The Harvard pair found that when national debt hits 90 percent compared to the size of the economy, it has led to slower growth.

(Read More: `Walking Dead`? TheAusterity Zombies Fight Back! )

For at least three years, the Reinhart-Rogoff work had served as the bible for deficit hawks and the bane of those who feel the best way out of an economic slowdown is through lots of government spending.

UMass maverick Thomas Herndon, though, found that the research omitted important data and was therefore invalid.

(Read More: The Fuss Over Austerity Fuzzy Math Is Overblown )

While the merits of high debt loads will be debated for as long as there are the proverbial two-handed economists (“on the other hand…”), stock market investors seem to have made up their minds.

Since the day the Reinhart and Rogoff rejoinder made news, the Standard and Poor`s 500 (INDEX: .SPX) has rebounded off a 3 percent slide, reclaiming nearly all the losses it suffered at the beginning of what has been a mediocre earnings season.

Market veteran Art Cashin, the director of floor operations at UBS, in his morning note Thursday suggested the bounce be called the “Reinhart/Rogoff Rebuttal Rally.”

“As the rebuttal made headlines, markets rallied- especially in Europe-as cries that austerity had seen its day came from leader after leader,” Cashin said. “Was it really the rebuttal that moved markets? We may never be able to prove it conclusively but the timing seems like a perfect fit.”

It`s true that the market is no shrinking violet when it comes to government debt.

In fact, it has thrived as the U.S. and other governments have amped up debt loads. The Federal Reserve has been complicit in the run-up by buying more than $3 trillion of U.S. notes alone.

Worries of asset bubbles and inflation wait for another day.

As Washington has run up consistent trillion-dollar-plus deficits that are only now beginning to recede, the SandP 500 has rallied nearly 140 percent.

(Read More: US Has `Natural Ingredients` for Growth: Goldman Exec )

In Europe, some of the hottest equity markets are in the countries that have the highest debt loads.

Greece, which essentially started the sovereign debt crisis, has seen its market climb about 7 percent in 2013 and 43 percent over the past year. Spain is up just 4 percent this year, but has surged 22 percent in the 12-month period.

As for actual economic growth, though: not so much.

Greece`s economy actually contracted 14 percent during its rip-roaring debt years, when its load compared to gross domestic product grew 50 percent from 2008-12, according to Trading Economics.

(Read More: Why Italy Is a Safer Bet Than Spain )

Spain`s debt doubled in the same period as its economy tumbled due to a housing market crash, but its GDP grew only incrementally.

In the U.S., public debt as a percentage of GDP has grown nearly 50 percent but GDP is up just 8 percent, the slowest recovery since the Great Depression.

But while the actual economic benefits of big debt loads are highly debatable, the effect on stocks is pretty clear.

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