Month: September 2013

Here comes the DC shutdown: What you need to know

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

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With the grownups in Congress apparently no longer in charge, the government appears headed for a politically engineered shutdown like a runaway train.

Also Read: What happens if Congress fails to reach compromise? 

Senate President Harry Reid, D-Nev., is expected to call for a Senate vote midday Monday on a law funding operations—without a controversial House to delay funding for the White House’s health insurance program, which starts enrolling uninsured on Tuesday.

That will leave it to House Speaker John Boehner, R-Ohio, to try to corral renegade members who for weeks have held the budget process hostage to demands that the health law be defunded or delayed.

 Barring a surprise reversal by holdout House Republicans, some government functions would cease while some would continue. Though each agency would manage the shutdown differently, it’s not the first time they’ve had to curtail operations for lack of funds: this would be the 18th such “shutdown” since 1976.

Even if a compromise is reached, House Republicans get an even bigger opportunity for mayhem in mid-October when the Treasury Department is expected to hit the limit of its borrowing authority.

Here’s what lies ahead as the fiscal follies in Washington deepen:

So this is no big deal if the government runs out of money?

The result is far from a complete “shutdown,” but the petty political bickering will inconvenience millions of constituents and inflict economic pain on thousands of businesses. The shortest “shutdowns” have lasted a day or less and the longest ran for three weeks. But the process wastes thousands of hours of time and untold dollars each time federal agencies and contractors have to go through it.

Why is this happening?

Congress is supposed to pass a budget every year—usually through multiple spending bills for various government agencies and functions—well before the end of the fiscal year, which ends Sept. 30. When the process breaks down—as it’s done frequently in the past decade—the only way to keep the government funded is through what’s called a Continuing Resolution.That measure is basically Congress’ way of saying: “Just keep spending what you’re spending for a few more weeks or months, and maybe we can pass a real budget by then.”

The current CR—signed into law in March after to resolve the “fiscal cliff” debacle—runs out on at midnight Monday.

So why can’t Congress just pass another one?

That question is better directed to the group of House Republicans who are insisting they won’t go along with a fresh CR unless it includes two key demands. In addition to delaying President Obama’s health care law, the House-passed CR would remove a tax on medical devices included in the healthcare plan to help pay for extending coverage to tens of millions of Americans without insurance. The House has already balked at “clean” Senate bill without another House vote. There’s barely time for it to reconsider after the expected Senate vote Monday—and no indication a compromise is coming.

What happens if they don’t pass the bill? Does the whole U.S. government come to a grinding halt?

No. Each department and agency responds differently, but “essential” workers stay on the job and “non-essential” workers go on furlough. (Departments now refer to these as “excepted” and “non-excepted” workers because if they’re “non-essential,” some people asked, why are we paying them?)

Each agency has made detailed contingency plans.

It’s a long list, but generally speaking, it’s business as usual for the most essential functions of government: Social Security checks go out, troops continue serving (though some may have to wait to get paid – the House bill has a provision to keep those checks flowing). NSA agents will keep snooping on phone calls,TSA screeners will keep screen bags at airports and air traffic controllers show up for work, along with food-safety inspectors, border patrol and federal prison guards, most FBI agents, doctors and nurses at VA and other federal hospitals, and any federalemergency and disaster relief workers. The Postal Service and Federal Reserve,which don’t rely on Congress for funding, aren’t affected

On the other hand, the disruption—even if the shutdown lasts only a few days—would be painful and widespread. Some benefits, like unemployment insurance and veterans’ benefits could be delayed or reduced. National parks, museums, and many passport offices would shut down; the SBA and FHA would stop guaranteeing new loan applications; farm subsidy checks stop flowing, IRS tax processing would slow down, among other headaches.

What a nightmare. Will the House protesters back down before the government runs out of money?

That question is better directed toward House Republican leaders—but it’s not clear they’re in charge of the process any more. Many Republicans are angry at their anti-Obamacare colleagues for digging in and ignoring the longer-term risk of political backlash against the party. During a similar standoff in 1995-96, the Republicans ultimately bore the brunt of the blame for a three week shutdown that started a week before Christmas.

What are the odds President Obama can negotiate a compromise to keep the government going?

If odds could be expressed in negative numbers, that still wouldn’t come close.

The White House likens House Republican holdouts to fiscal terrorists—and says it won’t negotiate under those circumstances.

“The Republicans have provided a laundry list of essentially ransom demands of things,” White House senior advisor Dan Pfeiffer told CNN last week. “They say: ‘Give us these things or we will blow up the economy.’ … What we’re not for is negotiating with people with a bomb strapped to their chest.”

But if Congress can’t control spending, isn’t it time for extreme measures like this?

In a word, no. In fact, after several rounds of tax increases and spending cuts, Congress has done a decent job controlling spending in the short-term. The federal deficit (the gap between what it collects in taxes and spends on programs) has fallen by a third in the last year and is expected to continue falling for at least the next few years.

On the other hand, Congress has done nothing to control the longer-term deficits that are coming if no changes are made in big entitlements like Social Security and Medicare. Those deficits are still several years away so there’s time to reform the tax code and fix Social Security. There’s also evidence that the rapid rise in Medicare costs is slowing, one of the main goals of the new health law.

In any case, the disruptive impact of shutting down the government and eventually getting it started againactually costs more money. An analysis of the last two shutdowns in 1995 and 19 found they wound up costing $2 billion in today’s dollars.

So if they compromise Monday, this whole thing is over, right?

Au contraire. House GOP budget protesters will now shift to the next battlefront: the vote to raise the Treasury’s debt ceiling. That standoff promises to be even worse – and could inflict much greater economic damage.

Unlike virtually every developed country on earth, the U.S.budget process requires a separate vote every time the Treasury Department reaches the limit of the borrowing authority authorized by Congress.

That provides the “fiscal terrorists” in the House with an even better opportunity for mayhem—because the spending freeze would be much more severe. The economic and financial damage also would be much worse if the Treasury is forced to stop paying investors and default on U.S. debt.

But isn’t that a way to control government spending?

No. The debt issued by the Treasury is used to pay for spending that Congress has already authorized for goods and services the government has already provided. It would be like trying to control your household spending by not paying a credit card charge for a meal you’ve already eaten.

Freezing the debt ceiling does nothing to better manage future spending or make government do more with less money. To do that, Congress needs to agree on a budget for the fiscal year that starts Tuesday. But there’s been little, if any, discussion about coming up with a real spending plan.

If anything, forcing the Treasury to default on its debt would only increase government spending because it would raise future borrowing costs. Just as deadbeat consumer who doesn’t pay legitimate credit card charges has to pay higher interest rates, investors in U.S. Treasuries would demand higher returns to offset the risk of Congress pulling this stunt again.

—By CNBC’s John W. Schoen. Follow him on Twitter@johnwschoen.

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

US crude may breach $100 on Iran progress

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

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US crude oil futures may break below USD 100 a barrel this week as Iran continues diplomatic overtures towards the West, according to CNBC’s latest market survey of traders, analysts and strategists.

Market uncertainty over the US budget impasse and the debt ceiling will likely hasten any move below triple digits, survey respondents said.

Iranian President Hassan Rouhani and US President Barack Obama spoke by telephone on Friday in the highest-level contact between the two countries in three decades, raising hopes of a breakthrough in Western efforts to prevent Iran from building a nuclear bomb, Reuters reported.

Rouhani seeks to lift international sanctions which have cut Iran’s crude oil exports by more than half since early 2012

“With Syria silent and Iran mellowing down” US crude futures may drop towards USD 95 before finding support, said Sankalp Shangari of Shangari Ventures, a Singapore-based commodities trading, advisory and debt raising firm.

(Read more: First top-level US-Iran talk since 1979)

Advancing diplomacy further, Iranian Foreign Minister Mohammad Javad Zarif joined nuclear talks with six world powers on the sidelines of the United Nations General Assembly last Thursday, taking a seat next to US Secretary of State John Kerry, according to Reuters, the first meeting between a top US diplomat and an Iranian foreign minister since a brief encounter in May 2007.

Despite the progress some traders warned that the oil market’s interpretations of the recent diplomatic events may be too optimistic.
“Iran’s language has certainly softened recently and Kerry’s meeting yesterday with his Iranian counterpart was historic,” said David Nevin, a London-based broker with XConnect Trading Ltd. “However, with the next round of nuclear talks scheduled for October 15-16 any return to the market for Iranian oil is still a long way off. To begin pricing in a return of Iranian oil to the market at this stage is jumping the gun.”

(Read more: US oil slumps as Washington shutdown looks more likely)

More than half of the respondents in CNBC’s latest poll of oil market sentiment (about 53 percent, or 10 out of 19) believe prices will fall this week, 26 percent (or 5 out of 19) say prices may gain and four out 19 – or 21 percent – expect prices to trade around current levels.

US crude for delivery in November fell in choppy trading on Friday, finishing the session down 16 cents to reach USD 102.87, Reuters reported. Brent crude oil for November slipped 58 cents to settle at USD 108.63 on Friday, and extended losses to almost USD 1 a barrel in post-settlement trading following Obama’s comments on Iran.

Brent’s fall capped the third straight week of losses for international benchmark, with prices dropping by about 7 percent since hitting a six-month high above USD 117 in early September.

Last week’s CNBC oil sentiment correctly predicted prices would decline.

(See: Oil focus returns to Syria, Iran at United Nations assembly)

“The focus currently seems to be more on the supply picture especially oil returning to the markets from Libya and Sudan,” said Vandana Hari, Editorial Director, Asia at Platts. “That, coupled with record-high Saudi output, the disappearance of the Syria premium, and cautious optimism over a diplomatic solution – no matter how distant – to the US and Iran nuclear stand-off, lend a bearish tone to the market.”

However, latest data from IG Markets shows its clients leaning marginally towards the bullish end of market expectations. It shows 53 percent of as much as 250 IG clients with open positions in US crude futures expect prices to climb while the remaining 47 percent are betting on price falls.

A deepening impasse over the US budget negotiations and fears of a looming government shutdown loom may add to volatility in the oil markets, traders said.

“Washington issues will dominate and I expect we will see many gyrations in all markets because of this,” said Mark Waggoner, president of Excel Futures, a commodities-trading firm based in Bend, Ore. “Oil should test USD 97.00.”

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

Along comes Italy, to spoil Europe’s market calm

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

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Just as you thought the crisis mode in Europe was over and markets seem to be enjoying confidence and stability, along comes another curve ball, served up by Italian politicians.

Center-right leader Silvio Berlusconi pulled his ministers out of the cabinet on Saturday, effectively bringing down the government of Prime Minister Enrico Letta and leaving the eurozone`s third-largest economy in chaos.

According to Nicholas Spiro, managing director of Spiro Sovereign Strategy, while markets have grown accustomed to “Italy`s dysfunctional politics,” there`s a sense that things are now spinning out of control, with potentially dangerous consequences for both Italy and the euro zone.

“(Saturday`s) resignations of the five ministers from Silvio Berlusconi`s Forza Italia party from the conflict-ridden government of Premier Enrico Letta sounds the death knell for the five-month-old `grand coalition,`” Spiro wrote in a note Sunday.

“Mr. Letta`s cabinet is unable to govern-indeed it`s questionable whether it ever did,” he said.

Italy, which is the world`s third-largest bond market, matters more than any other eurozone peripheral economy, Spiro noted.

“In the minds of investors, the euro zone crisis has always been about two countries: Italy and Spain,” he said. “If either one suffers a major crisis, markets are more likely to take fright.”

“The big difference now is that the (European Central Bank`s) bond-buying program continues to suppress Italian and Spanish borrowing costs, while markets have chosen to focus on signs of an economic recovery in the euro zone,” Spiro added.

On Sunday, Italy`s economy minister tried to play down the potential market impact of the latest developments, saying investors have already factored in the country`s political instability.

“The markets will take account of many things including the economic outlook which is clearly improving. … I hope that as of Monday this trust (by the markets) will be confirmed,” Fabrizio Saccomanni told financial daily Il Sole 24 Ore hours after a political crisis left the government paralyzed.

Indeed, some economists agree that Italy`s economy should remain shielded from any political dramas for now.

“The economic situation is so much better now than it was when Monti took over,” said Erik Nielsen, chief economist of UniCredit, referring to further sharp improvements in Italian consumer and business confidence in the past week.

“A good thing it is that so much balance sheet adjustment (fiscal and current accounts) and so many fundamental reforms took place these past two years, significantly reducing the need for urgent measures now,” he added.

According to Michael Ivanovitch, president of MSI Global, while it`s unlikely that Italy can avoid another election, he doesn`t see this as a threat to the euro, and maintains that the region remains an attractive investment destination.

“The euro is safe. The European Central Bank stands ready to provide emergency backstops and easy credit terms to support the incipient euro area recovery,” Ivanovitch wrote in a column for CNBC.com.

Still, analysts expect some market volatility as the Italian theatrics continues to play out in the coming weeks.

“The price that Mr. Letta`s government has paid for relying on the wavering support of Mr. Berlusconi`s increasingly populist and euro-sceptic party has been a heavy one: A loss of fiscal credibility and a further tarnishing of Italy`s image abroad,” said Spiro. “The whiff of further rating downgrades is in the air.”

–By CNBC`s Li Anne Wong. Follow her on Twitter @LiAnneCNBC

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

Building a Chinese Hollywood-easier said than done

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

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Hooray for Chinese Hollywood?

That`s the tune China`s richest man, Wang Jianlin, was tapping to last weekend, as he kicked off construction of a massive entertainment complex on China`s northeastern coast.

Featuring a star-studded red-carpet event attended by film mogul Harvey Weinstein and A-listers Leonardo DiCaprio, Nicole Kidman and John Travolta, the festivities formally announced a planned 2016 launch of the USD 8.2 billion Qingdao Oriental Movie Metropolis, a studio theme park set to showcase 20 film studios, eight hotels, two museums and a Chinese version of Los Angeles` iconic “Hollywood” sign.

For real estate mogul Wang, whose Wanda Group just acquired US cinema chain AMC Theatres last year, the adapted sign is not just an homage to Hollywood, but a statement on the global prominence that he envisions China`s film industry achieving.

In a speech, Wang pointed to the size and rapid growth of the Chinese market, saying that China is “the future of the development of the world film market.” He also touched on ambitions to “change the status quo of China`s lack of global film brands,” while counseling international players that “the first to cooperate with China will be the first to reap the benefits.”

Now, some are asking, can China build a global film industry with influence on par with Hollywood?

It`s possible, in theory, say analysts and industry insiders, but it will take more than a little time, talent and treasure, as well as trans-Pacific collaboration.

Greg Coote, a prominent industry financier and founder of Village Roadshow Pictures, said that attracting global talent, more than anything, is the key to becoming a global player.

“It`s not as simple as `If you build it, they will come,`” he said. “A studio is just a big tin shed with a bunch of special lighting in it. It doesn`t mean anything. What you need is talent to move out to China.”

Ben Mogil, an analyst at Stifel Nicolaus, agreed.

“The challenge would be attracting non-domestic talent,” said Mogil, who nonetheless noted that “Money overcomes a lot of things.”

While China has plenty of investment capital, monetary incentives for international film production companies, including production cost rebates, are an area that needs to be improved, said Coote.

“You have to make it worth their while,” he said. “In Australia, the government will cut you a 40 percent rebate. In Malaysia, it`s 30 percent. There are no incentives to go to China.”

But it`s about more than dollars and cents. Censorship is also a factor.

“How much does the political landscape impact the content that`s being produced?” asked David Bank, an equity research analyst at RBC Capital. “Hollywood is a pretty free market, so can you have success in content production without having an open and free media market?”

Another question, Bank says, is whether China, with its ongoing push to increase its “soft power” and disseminate its own culture, can make films that will resonate with international audiences.

“The global franchises that work are culturally neutral,” said Bank. “What culture does `Pirates of the Caribbean` touch on? What cultures do the `Batman` series and Marvel series touch on? These are culturally neutral.”

Townsend Buckles, an analyst at JPMorgan, also sees culture as an issue.

“The challenge is exporting some of the Chinese cultural elements that you would imagine would be part of some of these films, and making them broadly appealing to foreign audiences,” said Buckles. “I don`t think you`ve seen too many films step into that realm.”

Building a “new Hollywood” looks daunting from any angle, said Vasily Karasyov, a research analyst at Sterne Agee. Daunting doesn`t mean impossible, he said, but it will take time, at the very least.

“It`s like someone on an island in Florida somewhere saying we`re going to build a new Hong Kong,” said Karasyov. “It sounds difficult to achieve.”

-By CNBC`s Adam Molon.

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

Good news: UK firms opt for growth not cuts

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

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For the first time since 2011, expansion is a bigger priority for UK businesses than cost-cutting or stockpiling cash, according to a Deloitte survey published on Monday.

Under one-third of the 116 UK chief financial officers (CFOs) surveyed viewed reducing costs as a priority this quarter, and 40 percent said that introducing new products and expanding into new markets took precedence.

“A new mood of confidence pervades the third quarter CFO Survey. Chief Financial Officers see fewer risks in the global economy and greater opportunities for expansion. The defensive strategies of cost-cutting and cash accumulation that saw corporates through the global financial crisis are increasingly out of favor. The priority now is expansion and the balance-sheet cycle has turned decisively towards growth,” said Ian Stewart, chief economist at Deloitte.

A string of positive economic reports this summer have raised hopes that economic recovery in both the UK and mainland Europe is becoming more entrenched.

On Thursday, the UK`s Office for National Statistics reported the country`s economy grew 0.7 percent quarter-on-quarter between April and June, its fastest rate in three years. Plus, UK stock market debuts are at the highest volumes since 2007, signaling an improvement in funding conditions.

CFOs in the Deloitte survey cited growth in the U.K. as one of the main factors supporting investment in the coming 12 months, ahead of growth in emerging markets, the U.S. or Asia.

“CFOs have become markedly more positive on prospects for growth in the developed world.There`s greater confidence too, that the euro will hold together. Emerging markets are a vital source of demand but CFOs are also looking to Europe for expansion,” said Stewart.

Follow us on Twitter: @CNBCWorld

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

India braces for unprecedented ‘silver tsunami’

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

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With a median population age of around 27, India`s relatively young demographic is widely seen as an economic asset, giving the country an edge over its Asian peers, many of which are aging fast.

But analysts warn that it`s only a matter of time before South Asia`s most populous nation begins to grow old and the country is by many accounts unprepared for this statistical shift.

“There`s so much hype around India`s demographic dividend, given that 50 percent of the population is below 25 years old, that the sound of the impending `silver tsunami` is completely drowned out,” said Mathew Cherian, CEO of HelpAge India, the country`s largest and oldest not-for-profit organization for the elderly.

(Read more: India`s secret weapon: its young population )

India`s 60-and-over population is currently estimated at 100 million – equivalent to the size of the UK and Canadian populations combined – and projected to reach 240 million by 2050.

According to projections by the Census of India, the dependency ratio of India`s seniors will reach 19.7 percent by 2050, nearly triple that of 2001, putting the number of dependent seniors on par with the number of dependent children.

“The tipping point is closer than you think. If we don`t take action, India`s demographic dividend will soon be its demographic burden,” Cherian warned.

(Read more: Asia`s Pension Plans Face a Big Black Hole )

Cherian is no fear monger; India`s social security net has gaping holes. According to a Ministry of Finance Retirement Survey, only 20 million private sector employees and 26 million government employees are eligible for a pension – a fraction of India`s 450 million workers.

“Coupled with the social and cultural norm of Indian parents spending most of their savings on their children`s education and weddings, even the middle class doesn`t have retirement savings to speak of,” said John Thattil, COO of non-profit Ummeed and former Regional Director of HelpAge India.

Increasing prosperity in India in India has also proven to be a double-edged sword. While rising property prices have given deeper pockets to the 28 percent middle class and 6 percent elderly people, a massive population migration – from rural to urban areas, between cities, and from India to overseas – has brought about the accompanying trend of children living in far-off places and a crumbling traditional community network, leaving many of the aging demographic having to financially fend for themselves.

(Read more: A Housing Slump in India )

Majority of India`s urban-based seniors require various services ranging from money management and shopping services, to transportation and protection against crime. Medical services are required to help with dementia, diabetes, coronary and geriatric problems. Emotional support is also needed to help cope with loneliness and the loss of security.

Indeed, the need to provide more elderly facilities hasn`t been lost on entrepreneurs.

Sumer Datta, co-founder of Aamoksha One Eighty, the first private sector company to introduce western-style senior living in India, is setting up resort-style retirement homes in Kodaikanal and Kasauli – southern towns in India which have better weather and less pollution. Visitors to each home will enjoy facilities which include a club house, golf course, bar, a doctor in attendance and a customized diet.

(Read more: Smartphones struggle to connect with the elderly )

“We are introducing a complete lifestyle tailored to the needs of the elderly that will give them joy and happiness,” said Datta.

India`s largest healthcare group, Max India, is building a similar community in the northern city of Dehradun called Antara Senior Living. The company said it will deliver services on the seven dimensions of wellness – social, emotional, spiritual, physical, occupational, intellectual and environmental.

While these homes may add to a growing industry – Jones Lang LaSalle says India has about 20 privately-run, non-charitable senior living projects and 15 more in the offing – analysts say they pander only to the needs of the middle class who can afford the luxury and prices out 75 percent of the poor seniors living in rural areas.

Real change, according to Helpage India`s Cherian, can come only through policy changes and social protection for the aged.

(Read more: India`s Air the World`s Unhealthiest, Study Says )

The National Social Assistance Program (NSAP), which offers $5 a month pensions for senior citizens, reaches only 16.5 million of the 50 million seniors that would qualify. Government health insurance schemes cover only 5 percent of India`s seniors largely due to a lack of awareness of these schemes. Coverage problems are further compounded by the fact that most seniors do not have any form of identity cards and are thus unable to join such social schemes.

HelpAge is lobbying for discounted land sales for old age homes, universal pensions and health insurance backed by an awareness campaign to help the country`s elderly gain access to such benefits.

“The real agent of change can only be the government,” says Cherian. But in this case, it seems the main player in the game has gone missing.

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

Data, events aplenty for Asia markets this week

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

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It`s shaping up to be a busy week for Asian markets: a possible US government shutdown looms, central banks in Japan and Australia meet, a decision on a controversial rise in Japan`s sales tax is due and a snapshot of Chinese manufacturing activity is on the agenda.

Budget spending must be agreed by the US Congress before October 1 to prevent a government shutdown that could leave federal employees facing unpaid temporary leave. The prospects of the first shutdown in 17 years was looking more likely after US lawmakers failed to reach an agreement on budget funding over the weekend.

(Read more: US shutdown nears as house votes to delay health law )

“I think there is a good chance of the government shutting down, it has happened before,” Paul Bloxham, HSBC`s Chief Economist for Australia and New Zealand, told CNBC Asia`s “ Squawk Box .”

“But the bigger issue is the debt ceiling and that`s what markets are likely to focus on,” he added. The limit for US government borrowing must be extended in October so that the US Treasury can continue to borrow money and honor its sovereign debt obligations.

(Read more: Brawl in US Congress – should the world care? )

Key week in Japan

Wrangling in US Congress aside, this week sees a number of key events in Japan that should put Tokyo in the spotlight.

Prime Minister Shinzo Abe on Tuesday is expected to unveil his decision on whether to press ahead with a controversial rise in the consumption tax next year.

The closely-watched Tankan survey of Japanese business sentiment is scheduled for release on Tuesday, while the Bank of Japan concludes a two-day policy meeting on Friday.

If Japanese media reports are anything to go by, Abe is likely to say the sales-tax increase will go ahead and unveil economic stimulus to buffer the economy from any negative impact.

“With economic data continuing to point to robust growth, there is little reason to push through legislation averting the scheduled hike,” Frederic Neumann, co-head of Asian economics research at HSBC (London Stock Exchange: HSBA-GB), said in a note.

“Sticking to the plan should be a positive, demonstrating a willingness to rein in a glaring budget deficit over time. (Also) watch out for is a supplementary budget to help offset the drag from higher taxes,” he added.

(Read more: Japan`s Abe to rule on sales tax rise: Will he, won`t he? )

The Bank of Japan is not expected to make any significant changes to its monetary policy when it meets.

No change from RBA?

The Reserve Bank of Australia, meanwhile, is scheduled to hold a monetary policy meeting on Tuesday and is expected to keep its key interest rates steady at a record low of 2.50 percent.

Analysts said they would watch the central bank`s statement closely amid speculation that a cycle of monetary easing is nearing an end.

The final reading of the China HSBC purchasing managers index (PMI) for September, published on Monday, came in at 50.2. That was significantly below the flash estimate of 51.2, but a touch higher than the 50.1 reading for August.

The official PMI numbers are due out on Tuesday.

“The consensus forecast, a bounce to 51.6 from 51.0, would put [the official PMI] at its highest level since April 2012,” analysts at ING said in a research note.

Other Asian economic data due this week include the latest inflation numbers from South Korea, Indonesia, Thailand and the Philippines.

The Indian PMI data for September is also scheduled for release this week.

China starts an extended holiday period this week. National Day falls on Tuesday, October 1, which marks a week-long holiday known as Golden Week and is a key period for travel.

-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

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

Could Apple be going gold with its iPads too?

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

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Several leaked images on Friday have added to rumors that the release of the Apple iPad Mini 2 is just around the corner and that the new tablet will follow its iPhone sibling by being available in – yes, you guessed to – the color gold.
 
The images were published by the Chinese website DoNews and appear to suggest that the new device will also feature the same fingerprint scanning technology found on the newly released iPhone 5s. The new product could be set for launch on October 15, according to the website Techradar.

But that’s not all. Perennial product leaker Sonny Dickson expects that the iPad Mini 2 will be joined on launch day by the new iPad 5.

(Read More: iPhone fingerprint scanner claimed to be hacked)

The two new rumored devices will follow hot on the heels of the new iPhone models released to great fanfare last Friday. On Monday, Apple said Monday that sales for its new iPhone had set a record, with consumers snapping up 9 million smartphones within the first few days of its launch, prompting the company to hike its revenue guidance.

The tech giant said in a statement that the iPhone 5s and 5c’s sales were accompanied by more than 200 million downloads of the iOS 7 platform, Apple’s new iteration of its operating software.

(Read More: Apple’s still got it: New iPhones ring up record sales)

As a result, Apple said company revenue for the fourth fiscal quarter would be “near the high end” of its previous guidance of USD 34-37 billion. Gross margins would also check in near the top of its prior guidance of 36-37 percent. 

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Boom! Corporate debt bonanza sets a new record

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

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Corporate America took on a record amount of debt in the month of September as corporate Treasurers rushed to take advantage of a dip in rates and a receptive market.

Verizon (NYSE: VZ)`s biggest ever USD 49 billion offer helped drive the month`s investment grade offerings to an all-time high of USD 147.8 billion so far, besting the USD 133.9 billion of May, 2008, according to Informa Global Markets. But the offers picked up momentum as the month wore on, and particularly after the Fed surprised markets last week by leaving its USD 85 billion monthly bond buying program intact for now.

This week`s total so far is USD 34.3 billion in investment grade debt, and Tuesday alone accounted for USD 17 billion. There has been another USD 46 billion of high yield debt offered this month as well, as issuers planned to use proceeds for everything from acquisitions to share buybacks.

The 10-year Treasury yield averaged 2.64 percent and the average investment grade cash spread has been 154 basis points above Treasurys, while the average high yield spread has been 462 basis points, said Adrian Miller, director of fixed income strategy at GMP Securities.

The Fed`s continued easing and the concerns about Washington`s budget tussle put a bid in Treasurys that drove rates to a more attractive level for issuers, Miller said. There was pent-up demand from the summer months, normally slow but slower this year because of a jump in yields, he added. There was just USD 51 billion in investment grade deals in August.

“It`s all predicated on that bond market. With the 10-year closer to 3 percent, you had a lot of issuers sitting on the sidelines, uncertain which way to go,” he said. “At 2.70 (percent), give or take, the math is different and the calculus very much different.”

The market will resume its heavy focus on the Fed as soon as Congress resolves the continuing resolution to keep the government funded before Monday`s midnight deadline, he said. And then there`s the debt ceiling , which is expected to be hit in mid-October.

John Briggs, RBS head of cross asset strategy, said whether the trend of big issuance continues into October will depend in part on whether the stock market remains on an even keel.

“Appetite for corporate credit can tend to decline during times of equity market volatility,” he said. “Historically you get a post-summer, pre-October push no matter what rates are doing.”

He said October can be slow because of a typically volatile stock market but then issuance picks up in November again before dying down before the holidays in December.

Some of the issues Thursday were Ford Motor Credit and Credit Agricole, each with USD 1 billion offers. Wal-Mart (NYSE: WMT) offered USD 1.75 billion earlier in the week. There have been a good number of foreign issuers, including CNOOC and Korea Hydro Nuclear Power Co, issuing dollar-denominated bonds this week.

-By CNBC`s Patti Domm. Follow here on Twitter @pattidomm.

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

Stock strategies for the end of the world

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

Listen to the Article (6 Minutes)

In 17 years’ time, the world will be tapped out . So better get rich now, or at least face the apocalypse trying. A “perfect storm” of global resource shortages could send you into bunker mode and leave you with some massive Costco receipts and overstocked shelves. But you can’t make money from hoarding bottled water-at least not yet. You can, some investment professionals say, make money by investing in the coming apocalypse. It’s called resource efficiency investing. Instead of focusing on the world collapsing, these investors focus on the resource efficiency solutions that will avert disaster and be a generator of corporate profits. One such firm is Impax Asset Management, which invests across the globe in resource efficiency themes and companies. We recently spoke with Impax’s managing director of equities, Bruce Jenkyn-Jones, about portfolio strategies for the end of the world.

CNBC: How can you invest in scarcity?

Jenkyn-Jones: We turn that proposition on its head. We invest in optimization and resource efficiency as a solution to resource scarcity. There are plenty of opportunities to use resources more efficiently and minimize the impact on the environment, from energy to water, materials, rare earth metals, and food and agriculture. Think of the key resources and the limitations in meeting increasing global demand, and that’s where we think opportunities will arise. Our universe of investments falls quite neatly into related areas: including energy efficiency, renewable energy, cleanup, resource recovery and recycling, and the water value chain-from infrastructure to treatment and utilities.

Or take the food and agriculture value chain, and the opportunities born out of population growth coupled with those people wanting to eat more meat rather than vegetables. In food and agriculture we look for efficiency solutions, including reducing spoilage, efficient irrigation and logistics. There is no shortage of food ; it’s just that there is a lot of waste and the logistics are not in place to produce food where people need it most and that leads to opportunities in logistics, and packaging and preserving.

CNBC: If we have too much of anything, ironically, the case can be made that it’s too much of waste. How do you invest in waste?

Jenkyn-Jones: Waste, recycling and reusing resources we find can be extremely compelling. Resource scarcity arguments lead directly to an economic process that compels more focus on waste management, recycling and reuse. Handling of hazardous materials is not only difficult, but can be difficult to get permits to do, and even when the technology itself is not sophisticated, it’s a market where regulations create barriers to entry. Wherever there are requirements to drive a market-such as disposing of waste in a highly regulated way-it’s interesting to look for opportunities. We invest in companies involved in clinical waste, hospital waste, and waste coming from industrial facilities, including one of our investments Stericycle and Clean Harbors.

There is also the whole area of “end of life” reuse of materials, including in the vehicle market, and a company we have invested in called LKQ , which reuses and recycles auto parts. We’ve made a series of successful investments using this approach. There are companies building out franchises through acquisitions of regulated waste sites, getting into markets where they can put up barriers to entry, providing pricing power for a service that producers of waste have to have.

CNBC: If we aren’t running out of stuff-except in the most extreme examples-does this approach really work at a broad thematic level?

Jenkyn-Jones: Scarcity is intrinsically linked with economics, as I said, but take iron, where there is no shortage of the materials, economic opportunities that can be produced by increased use of the material. What we are saying is that use of resources and accelerating use of steel or plastics or oils or vehicle components, is an opportunity that fits into the larger theme, even if these are not absolute scarcity issues. It is usually cheaper to recycle a ton of metal than create a new one.

In a future where there are more people using more metals and plastics, the economic drivers of recycling become compelling-and that can include extracting value from metals in cars, like LKQ. I wouldn’t want to claim we’re running out of resources by and large, but in a global economy with a growing population and growing wealth, these recycling business models have a clear advantage.

CNBC: What’s an example of a real scarce resource that you can invest in?

Jenkyn-Jones: It’s water. But, even there, if we want to take the argument to the ultimate extreme, there is no shortage of water, it’s just that only 4 percent is fresh, and as demand for it continues to grow, we will be increasingly recycling it and desalinating all over the world. Currently, the economics of desalination work best in the Middle East.

Spending around desalination has been linked to government spending and there have been some impressive projects-including projects from Spain’s Abengoa-but the large-scale project business model reliant on government support is cyclical, and as a result we find it generally unattractive.

What you want to do is find a business supplying widgets or filters for the already constructed desalination plant and ongoing operating expense. Many of the global industrial conglomerates are involved here, including GE and Siemens. But it’s difficult to invest in a company of that scope or size and target one theme. We found an Israeli company that makes filters for water filtration and treatment plants, Amiad, and Xylem-which was a spinout of ITT, both pure plays for the water resource issue. Pall Corp., which is less of a water desalination pure play, does have a business of providing membranes to filter particles from water. The point is, where you want to be is in the reusable part/replacement parts point of the water value chain. What gets replaced are pumps and filters.

You can also find companies that own and operate existing plants and benefit from rising water prices, but government willingness to support growth of plants is still an issue. And infrastructure will be an investment opportunity. A recycling system to guarantee that Coke and PepsiCo have access to water in emerging markets like India is an example. VA Tech Wabag-spun out of Siemens-builds water infrastructure and water recycling solutions for international companies. Overall, the desalination area has not been as compelling an investment as you might have thought. Long term, though, it’s an area for growth we are watching carefully.

CNBC: How do you define resource efficiency investing?

Jenkyn-Jones: With what we are trying to achieve there is no one business that is consistent with this thesis, but the FTSE Environmental Opportunity Index Series [developed by FTSE in conjunction with Impax] is a good place to start. There are approximately 1,500 companies in the world that generate at least 20 percent of their revenue in resource efficiency, defined by FTSE as environmental markets and technologies-those 1,500 feeds into our stock-picking process. [FTSE also offers the Environmental Technology Index, which requires companies to generate at least 50 percent of their revenue from environmental markets and technologies.]

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