Month: July 2012

What does it take to feel wealthy?

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

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What would you need to feel wealthy?

The question of how much people need to feel rich has been studied for ages, and just about every study comes to a similar conclusion: people need twice their current net worth or income to feel wealth.

The findings are remarkably consistent, no matter the wealth or income level. People worth USD 10 million say they would require at least USD 20 million to feel wealthy, while those with an income of USD 40,000 a year inevitably say they would feel wealthy with USD 80,000.

A new study from Fidelity is largely consistent with this Doubling Up Wealth theory. Fidelity asked more than 1,000 millionaires how much they would need to feel wealthy.

While most of the millionaires felt wealthy (probably the wealthier ones), the ones who didn’t said they would need USD 5 million in investible assets. The average wealth of the group was USD 3 million.

An earlier study from Fidelity found that millionaires needed USD 7.5 million to feel wealthy. So maybe millionaires are downsizing their expectations for being rich. What’s more, more millionaires this year felt they were wealthy, even though their average net worth is slightly lower.

The study also gave us some broader details about today’s millionaires. It found that 86 percent are self-made, as opposed to inheriting their fortunes. (Though the term “self-made” has become controversial).

The average age of today’s millionaire is 61. So all those Silicon Valley whiz kids, celebrities and athletes are outliers. The real rich are old.

The top sources of wealth for the self-made millionaires were investments and capital appreciation; compensation and employee stock options or profit sharing. Self-made millionaires feel just as secure as the inherited rich, although inheritors were more likely to use financial advisors.

How much do you need to feel wealthy?

-By CNBC’s Robert Frank
Follow Robert Frank on Twitter: @robtfrank

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

QEs ‘are like morphine’: Former Treasury Official

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

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A third round of quantitative easing from the Federal Reserve would be good for stocks but not real growth, former Assistant Treasury Secretary Neel Kashkari told CNBC on Wednesday.

“We think QE3 would be good for the stock market, not necessarily for real economic growth. QEs are like morphine. It makes you feel better, makes the headlines look better, pushes up risk asset prices but doesn’t translate into real economic growth,” he said on “The Kudlow Report.”

Kashkari, who is managing director and head of global equities at Pimco, said that bold action from the Fed would boost markets now that most investors seem to think the global and US economies are slowing.

The former Treasury Department senior official also weighed in on remarks Secretary Tim Geithner earlier.

“What the economy needs now is a very substantial well designed program of support for economic growth, better incentive for private investment, stronger public investment over time and infrastructure in particular, a sustained program to improve training and education, significant targeted support for basic scientific research, things that are important to long-term competitiveness,” Geithner said in an interview with host Larry Kudlow at the “Delivering Alpha” conference. “But those things need to be tied to and done in a framework in a set of well designed, long-term fiscal responsibility.”

Kashkari disagreed with some of Geithner’s points.

“For 30 years, our economy borrowed to boost consumption, boost GDP growth,” he said. “That illusion is over. We need to transition away from borrowing to consume toward savings and investment. There is smart spending to be had. You know, repairing bridges and roads that are crumbling rather than high-speed trains to nowhere. Those are examples of smarter spending in my book.”

Kashkari continued to say that “smart spending” can help if directed toward making the US economy more competitive.

David Malpass, president of Encima Global, said that he did not believe QE3 would be good for markets.

“The reason is because stock market performance comes from earnings, and it’s very hard to tie QE3 to bigger earns or growth for the economy,” he said. “We have been doing this for two, three years. We are almost four years into a zero rate policy. The growth has been terrible. My view is that the zero percent interest rate policy from the Fed causes a credit rationing that’s been hurting small business and is actually contractionary.” TEXT

Questions? Comments, send your emails to: lkudlow@kudlow.com

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

Drought now burning pig farmers too

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

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The heat and drought across the Midwest is beginning to scorch livestock producers just as much as, if not more than, grain farmers.

Take David Struthers, a hog farmer in Iowa. Besides pigs he also plants 1,000 acres of corn. That usually gives him enough to feed his herd and get a healthy pop in the corn market.

But not this year. Drought is taking a toll on his corn harvest. This year the 50,000 bushels he needs for his animals might amount to as much as two-thirds of his total crop.

In a normal year, Struthers Farms’ corn fields yield 180 to 185 bushels per acre, and the family farm operators feed just 35% to 45% of it to their hogs. But last year, the yield was 156 bushels per acre, and this year it could be even less.

“You have a bushel of grain, and you can choose to sell it on the market and it can go to ethanol or whatever, or you can choose to feed it to your animals,” Struthers said. In the drought, “you give up that opportunity.”

That has made Struthers, and many other hog producers, more aggressive about lightening up their herds, eliminating older animals and less prolific breeders. Struthers Farms brings 3,500 to 4,000 hogs to market a year.

“You can’t just not feed your animals. And you can’t just up and sell them because we only have markets for market-sized animals,” Struthers said. The heat not only suppresses crops but it makes it harder for hogs to gain weight.

“Based on the futures prices, we’re going to be selling livestock below the cost of production. Any time it costs you more to produce something, you’re losing money,” he said.

Struthers said he and other hog farmers added to their herds this year on the promise of cheap feed. The USDA had predicted a bumper crop of 14.7 billion bushels, planted on a record amount of acreage, but that was before the worst of the drought took hold, and it now expects 12.97 billion bushels, still higher than private forecasts.

The USDA forecast this week that just 31% of the corn crop is good to excellent, down from 63% just a month ago.

Cattle producers face similar challenges as hog producers, and some farmers are tearing down wilting corn and feeding the stalks to cattle as fill.

“The only people who can go in and out of this and recover more quickly are in poultry. If they can’t manage these prices right now, they can scale back, until corn prices come in,” said Ashley Gulke, an analyst with Gulke Group and a farmer.

“We recommended our clients put on hedges so they might be feeding cheaper corn. We’re hearing people are killing hogs off early because it’s not worth the money for the added weight gain. It costs too much and there’s not a payoff,” said Gulke.

After an initial glut of slaughtered hogs and cattle, meat prices are expected to rise in 2013.

CME August hogs futures were trading up nearly 3% at 92.60 cents Wednesday afternoon. Hogs made a year high of USD 96.15 on July 2. Live cattle futures also rose Wednesday, up more than 2.3%.

“As for the prices for hogs right now, we peaked about two weeks ago , and they’re dropping off. We normally see the price decline in the fall,” Struthers said. “In the last quarter of the year and in the first quarter of the new year, they start to step back up because of seasonal supply and demand issues traditionally.”

“The prices are still pretty good through those months but we traditionally don’t have a drought and USD 7.50 dollar corn. The prices don’t look that bad but you have to look at your input costs,” he said.

Gulke added the drought’s impact seems like it could be worse than 1988, the last year that so much of the Midwest was hit by severe drought and heat.

Struthers said that 1988 was his third year in the business. But that year was different. Corn prices were low going into 1988. “And hog prices were strong in 1986 and 1987 so we had some cushion,” he said.

“The drought we hope is a short-lived thing. The cattle people had it bad in Texas last year, and we came out pretty good in the Midwest, and this year is a different story. We’re hoping the rains will come,” he said. “…If we’re going to have drought next year, that would be a really big story.”

Follow Patti Domm on Twitter: @pattidomm

Questions? Comments? Email us at marketinsider@cnbc.com

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

Move over Bieber, Korean pop music goes global

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

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Indonesian Marcia Tianadi started listening to South Korean pop music last November after being introduced to the genre known as “K-pop” by a friend.

The 20-year-old finance student, who doesn’t understand the South Korean language, now listens to K-pop more than any other type of music including Western pop, which used to be her favorite.

Despite the release of English versions of several K-pop songs, Tianadi says she prefers the Korean version even though she doesn’t understand most of the lyrics.

She is one of millions of K-pop fans around the world who aren’t letting a language barrier stand in the way of consuming what is becoming a major global powerhouse in the music scene.

With their synthesized bubble-gum pop sound, flashy outfits and video art, K-pop groups such as Girls’ Generation, Big Bang and 2NE1 are carefully-selected, slickly-produced acts that can feature as many as 17 members.

These “manufactured” girl and boy bands are creating a frenzy among their young fans by selling out concerts within minutes worldwide, breaking through billboard music charts and even being featured on postage stamps in Korea.

The industry’s revenues hit about USD 3.4 billion in 2011, according to the Korea Creative Content Agency (KOCCA), a government group that promotes the country’s cultural initiatives. K-pop’s exports also rose to USD 180 million last year – jumping 112% compared to 2010. Exports have been growing on an average annual rate of nearly 80% since 2007.

Sun Jung, Research Fellow at National University of Singapore (NUS), who’s been studying the emergence of Korean culture in Asia since 2003, says it’s no surprise the K-pop phenomenon is growing so rapidly globally, because social media has made the music more accessible.

“People can share, distribute and consume foreign pop cultures much more easily these days,” Jung said. “It’s very significant how Korean language K-pop is popular somewhere like South America and European countries. Internet and social media technology kind of enhance those flows.”

Online social networks are the biggest medium that K-pop fans around the world use to follow their favorite bands. According to a report by YouTube, K-Pop video clips were viewed nearly 2.3 billion times in 235 countries in 2011. The views have jumped three-fold since 2010.

K-pop fan Daren Ng, 26, says he first discovered the genre on YouTube four years ago and then started downloading the music and attending concerts.

Ng, who’s Singaporean and doesn’t speak Korean, says watching the videos online makes it easier to understand the songs.

“Sometimes it’s the rhythm that’s nice and sometimes you watch the video and it makes sense,” Ng said. “Sometimes there are translations, also they’ve got captions.”

Seoul based Sean Yang, CEO of music service provider Soribada which started distributing K-pop to iTunes and Amazon three years ago, says demand for the music really started picking up last year.

“If you look at the past six months, K-pop sales in iTunes have tripled,” Yang said. “We’re seeing very rapid growth recently.”

K-pop’s similarities to American pop, hip hop, RandB and European electronic music genres makes it more appealing to Western audiences as the bands start to target global audiences, according to NUS’s Jung.

“It actually is rooted in the Western pop genre, but at the same time the Korean pop industry brought that Western pop element into Korea and localized and made it something unique by mixing it with other elements,” she said.

The executive manager of one of South Korea’s biggest K-pop production companies, who wished to remain anonymous, says producers try to recruit international artists to broaden their fan base.

“There’s a Thai guy in 2PM, he’s really popular in Thailand. We have other nationalities practicing on the road,” the former musician said. “Lately we’ve been recording in English, Korean and Japanese for them, we really try to release one for every market.”

Thai native Tan Somboonsub, 31, who’s been following Korean television dramas and music for the past 10 years, says the K-pop sound has transformed in the past decade.

“The rhythm, the sound – there’s a lot more sound engineering involved,” Somboonsub, who performs K-pop songs, said.

Dance routines by groups like nine-member Girls’ Generation, is also a big hit among fans. Somboonsub says she’s visited Seoul to watch the weekend “street dance” by thousands to choreographed K-pop songs. Internationally, dance studios in Singapore for example offer classes that teach K-pop moves.

On the economic front, K-pop’s growth abroad is proving to live up to South Korea’s reputation as a top global exporter.

Choon Keun Lee, General Director at KOCCA says K-pop exports are having a positive effect in increasing the overall exports of consumer goods.

“It has been researched that for every USD 100 of K-Pop exports, there was an average increase of USD 395 worth of I.T. goods such as cell phones or electronics that were being exported,” Lee said.

“K-Pop is becoming an iconic representation of Korea, along with mobile phones and Internet technology.”

By CNBC’s Rajeshni Naidu-Ghelani

Copyright 2011 cnbc.com

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

3 Mins Read

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

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

Why Fed can’t save economy, or markets ‘on its own’

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

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While some Washington leaders demanded Tuesday that the Federal Reserve come through with more stimulus, the reality could be that it has run out of ways it can help.

Fed Chairman Ben Bernanke gave his annual address to Congress on Tuesday and encouraged lawmakers to resolve their fiscal differences.

Instead, he faced challenges from some – in particular New York Democrat Charles Schumer – who want more central bank action. Schumer called the Fed “the only game in town” because of Washington gridlock and urged Bernanke to “get to work.”

But with the Fed already holding interest rates near zero, American corporations and banks awash in cash and the central bank`s balance sheet near $3 trillion, the Capitol Hill stalemate over deficit reduction looms as the economy`s much bigger obstacle.

“Nothing is being done to promote the real economy and that`s the real issue,” Mohamed El-Erian, CEO at bond giant Pimco, told CNBC`s “Squawk Box” program. “I feel sorry for Bernanke because the data is telling him he should be more active but there`s a recognition that his policies are less effective.”

Investors have thus been forced to face a twin threat – 1), that the Fed may not enact a third round of asset purchases known as quantitative easing, and 2) that even if it does, the move likely will provide no more than temporary relief to the wavering economy.

“This is really important for the markets,” El-Erian said. “The market should not bet on an outcome that the Fed cannot deliver on its own.”

Yet there were traders Tuesday, ignoring a decent round of morning earnings reports and a blowout surge in sentiment from the National Home Builders Association.

The stock market surged at the open then plunged as soon as Bernanke stepped to the microphone to deliver what used to be called the Fed chairman`s “Humphrey Hawkins” address. Bernanke`s remarks contained more concern about economic growth, particularly in housing and employment, but nary a word about more Fed intervention.

The market turned higher heading into the afternoon, helped by Bernanke`s later comments that some traders thought suggested more stimulus.

“We liken it to drug therapy, where clients are put into remission,” says Quincy Krosby, chief market strategist at Prudential Annuities in Newark, N.J. “But people know that at some point your body starts to reject the therapy and you`re always hoping there`s another drug and another innovation that keeps you going until they find a cure.”

The trouble is, there`s only so much chemotherapy and radiation a body can take.

“Bernanke has talked about the stock market as the transmission mechanism for monetary policy. It helps breed confidence and confidence breeds more confidence,” Krosby says. “But the stock market is up. So this is where the dilemma is…because he knows that there are structural elements that are still impeding growth.”

More maddening for QE opponents is that the data generally is hinting at an economy that is showing some signs of growth but continually running into political roadblocks impeding the way.

All of that excess liquidity in the economy also could lead to inflation, which would be exacerbated by more QE.

“The question in my mind is, is he not stepping up with another program in any quick fashion because they`re starting to wonder if it`s going to have any impact? Alternatively, are they not stepping up because when they look at the data they think, `It`s not that bad,`?” says Jim Paulsen, chief market strategist at Wells Capital Management in Minneapolis. “Maybe it`s some of both. But does anyone need any more excess bank reserves?”

In the meantime, sentiment about the economy and its burgeoning debt and deficit problems continues to worsen.

The U.S. has seen a 50% increase in national debt over the past several years and the budget deficit is near USD 1.2 trillion, but growth for the most recent quarter is at just 1.9%.

Bank of America Merrill Lynch, spurred by Monday`s dismal retail sales report, cut its second quarter growth outlook to 1.1% – barely above a recession level and bracing for fallout from inaction in Washington.

“It`s up to financial leaders to take some bold action. That’s why Bernanke is continuing to stress the importance of dealing with the fiscal cliff by the end of the year,” says Michelle Meyer, BofA’s senior US economist. “Given the election, given how partisan politics has become, it`s likely to be pretty difficult, quite a challenge, to get some really concrete action, which is why it comes back to the Fed.”

The Fed’s worst nightmare, though, looms.

What if Bernanke does greenlight QE3, only to find that the action does little to spur growth? The Fed’s most recent measure – Operation Twist, in which it bought short-term debt and sold longer-dated securities in a nearly equal amount – did little to assuage fears of another recession.

“The Fed is in a much weaker position than it publicly admits and most investors believe,” Charles Biderman, CEO at market data firm TrimTabs, wrote in his weekly analysis. “With interest rates already at rock-bottom levels, all the Fed can do now is try to create a `wealth effect` from artificially high asset prices, which is an extremely weak and indirect way to stimulate the economy.”

Biderman predicts the future could be dour, even with more easing.

“If the Fed announces QE3, will it have even less of an impact than Operation Twist?” he said. “If so, we think the SandP 500 is vulnerable to a retracement all the way back down to the March 2009 lows.”

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

No time for hero trades in ‘nemesis’ market: BlackRock

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

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The world’s largest investment manager is warning that the global economy faces increased odds of slipping into stagnation dominated by anemic growth and big “risk-on/risk-off” market gyrations.

BlackRock, which has over three and half trillion dollars under management, says the end of 2012 will be all about “policy, policy and policy” and is warning it does not “expect a sudden outbreak of statesmanship in Europe or the US”.

The bi-annual investment review, which brings together BlackRock’s 50 top portfolio managers, has looked at a number of possible scenarios and found that the worst case scenario has a 15-20% chance of occurring.

“The chances of a “Nemesis” scenario — marked by global recession, social upheaval and steep losses across asset classes — are downgraded slightly to 15 -20 percent — “still much higher than we would like it to be,” said the BlackRock investment Institute.

In order to avoid this outcome, BlackRock says policymakers must successfully “address fiscal imbalances and spur growth”

“A big question is whether policymakers can tame Nemesis, the vengeful Greek goddess after whom the global recession scenario is named,” said BlackRock.

“If policymakers successfully address fiscal imbalances and spur growth, we can put Nemesis back where she belongs: in the Greek mythology books.”

“If not, scary myths could become reality,” said BlackRock, which is warning the chances of stagflation are now far higher than it expected earlier this year.

RELATED LINKS

    IMF Downgrades Global Economic Forecast
    US Needs to Deal With ‘Fiscal Cliff’ Soon: IMF’s Lagarde
    China Still Faces Grim Trade Outlook: Minister

“The euro zone’s ongoing debt struggle and the markets’ unwillingness to accept potential solutions, and slowing growth across the world have increased the odds of ‘Stagnation’,” said BlackRock’s Investment Institute which notes European policy makers are at least realizing “that the banking system is the region’s Achilles heel” and showing a willingness to fix it.

It is not all about the euro zone though, and BlackRock says fear over the impact of the so-called fiscal cliff and uncertainty over higher taxation and spending cuts is leading to CEOs putting hiring and investment plans on “ice”.

Any investors thinking of betting big on a positive outcome to the euro crisis should think twice before doing so, according to BlackRock.

“We like to see clear signposts before wading in. This is no time for hero trades,” it said.

These clear signposts would be confirmation that the euro zone can fix its wobbly banking system and outline a credible plan for fiscal union, strong U.S. growth and avoidance of the fiscal cliff and a visible “payoff of China’s efforts to restart growth”.

So how do we trade these tricky times? BlackRock says: go defensive and focus on income, look at stocks of firms with strong cash flow and a track record of paying good dividends. Long-term it likes oil and gas and advises investors to look at emerging market sovereign bonds.

“High-yield bonds and mortgage securities look good because of their limited supply and safety cushion in case of yield rises.”

© 2012 CNBC.com

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

3 Mins Read

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

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

How close are we to new great depression?

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

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The risk of a new depression – a sustained, severe recession – has struck fear into the heart of markets and driven monetary policy in developed economies since the current financial crisis began.

“We’re in a very unfortunate position to be here,” Richard Duncan, author of The New Depression, warned on CNBC’s “Squawk Box Europe” Monday.

“When we broke the link between money and gold, this removed all constraints on credit creation. This explosion of credit created the world we live in, but it now seems that credit cannot expand any further because the private sector is incapable of repaying the debt it has already, and if credit begins to contract, there’s a very real danger that we will collapse into a new Great Depression,” he argued.

“If this credit bubble pops, the depression could be so severe that I don’t think our civilization could survive it.”

The explosion in cheap credit has been widely blamed for the global financial crisis, but the debate about how to fix the problem continues.

In the past few years, central banks including the US Federal Reserve , the European Central Bank and the Bank of England have pumped liquidity into their financial systems through a number of ways, including quantitative easing and the ECB’s long-term refinancing operation (LTRO).

“We could keep deferring the depression, but that could just encourage the bad guys. If you do this, you possibly do more harm than good,” Roger Nightingale, economist and strategist at RND Associates, told CNBC Monday.

“You can defer, but not prevent.”

Nightingale argued that previous credit booms, for example in Japan in the 1980s, have led to sustained recessions.

“When you throw money into the system at a rate much in excess of the requirements of the real economy, you’re trying to get people to borrow and spend, but the good guys out there won’t because they’re too cautious. It’s the bad guys who come in, the malefactors,” he said.

“When the central banks realize what is going on and raise interest rates, it flings the world economy into depression.”

The ideas of Milton Friedman, the Nobel Prize-winning economist who argued that monetary policy should constantly expand, informed some of the Fed’s response to the crisis.

“Policymakers really believe that if we allow credit to contract, we will reach a new Depression,” Duncan said.

“The increase in government debt is making total debt grow, otherwise we would already have collapsed in to a debt-deflation death spiral. This creates great perils, but also tremendous opportunities.”

Duncan argues that governments in the developed world should borrow “massive” amounts of money at the current low interest rates to invest in new technologies like renewable energy and genetic engineering.

“Even if this is wasted, at least we could enjoy this civilization for another ten years before it collapses,” he said.

His views counter those of economists who believe that governments should focus on cutting their debt, particularly where repayments on that debt are threatening to reach unsustainable levels, like in Greece.

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

Asian sovereign bonds: Alternative safe bets?

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

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As economies of the United States and Europe sputter and investors shun equities because of their volatility, Asian sovereign bonds are increasingly gaining favor as an alternative safe haven.

Investors have continued to put money into Asian sovereign bonds this year as weak data from developed economies and the prospect of a Greek exit from the euro zone sparked a stampede from risk assets such as commodities, stocks, and foreign exchange.

According to data from US research company EPFR Global, funds focused on Asian emerging-market bonds attracted USD 14.4 billion in the first quarter of this year, compared with USD 1.9 billion in the year-earlier period.

“We have been below consensus with respect to the growth outlooks of both the US and China and as the data deteriorates and the market adjusts its expectations, this is likely to support bond market performance over the third quarter at least,” Kenneth Akintewe, Portfolio Manager with Aberdeen Asset Management, told CNBC.

The average yield for example on a representative local currency benchmark like the HSBC Asian Local Currency Bond Index is almost 4-5% on average which, in comparison to yields in developed markets that are facing fiscal crises, is reasonably attractive, Akintewe said. And these yields will continue to be a draw because of the strong financial positions of most governments in the region, he added.

Indonesia, for example, has public debt of less than a quarter of GDP, and a much lower reliance on European exports. Yet, its 10-year rupiah bonds yield about 6.05% compared to 1.445% on equivalent US Treasurys.

The Philippines is also a surprise refuge. The government has amassed USD 76 billion of foreign reserves, or about six times its short-term external debt, according to the latest data available from the central bank. About 95% of its debt holders are still domestic investors, who buy the Philippine peso bonds that pay about 4% more than US Treasurys.

Ratings agency Standard & Poor’s also raised the country’s credit rating this month, taking it one step away from an investment-grade economy.

Nicholas Ferres, Director of Asset Allocation at EastSpring Investments, likes South Korean and Vietnamese sovereign bonds, and calls the latter “one of the more interesting bonds within Asia and the emerging markets”. Vietnamese 10-year bonds are yielding 10%.

“The yield (carry) is attractive, the currency has depreciated about 32% over the past few years and inflation appears to be moderating from a high level,” Ferres said. “Vietnam has suffered from excessive credit growth and high inflation over the past few years which has put pressure on the external position and the currency. But the fundamentals should improve looking forward.”

Aberdeen favors local currency bonds in Malaysia, Thailand, Philippines and South Korea.

Asian bonds are also attractive for their relatively lower default rates versus global average. According to Moody’s, the default rate for Asian bonds – including corporate issues – over the last 10 years is only 0.8% versus 1.8% for the global average. In fact, no Asian investment grade bond has defaulted since 1999.

In Asia, the only sovereign bonds with AAA ratings are those issued by Singapore, Hong Kong and Australia. The next most highly-rated ones are New Zealand, Chinese, Taiwanese and Japanese paper, followed by South Korean, Malaysian and Thai bonds. 

Ratings is just one way to assess risk however, Aberdeen’s Akintewe said. Investors will have to look at more than the individual sovereign issuers and analyse the merits of their investments.

Ferres of EastSpring agrees, and adds ratings are not really relevant in his assessment of the investments, but only if the yield, and hence, premium for credit risk, provides enough compensation.

“Markets will price deteriorating or improving fundamentals ahead of the agencies,” he said. “The question is whether the improvement or deterioration is already priced in the local yields and/or currencies.”

– By CNBC’s Jean Chua.
© 2012 CNBC.com

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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

Bernanke heads to the hill: ‘Only one bullet left’

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

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Those expecting new revelations as to where Federal Reserve policy is heading when chairman Ben Bernanke delivers his semiannual monetary policy report to Congress Tuesday may come away disappointed.

With the US economy languishing and job creation anemic, Fed watchers and investors alike will be keen to hear what it will take for the central bank to ease monetary policy further in an effort to spur economic growth.

“Investors will be looking for signs that (Bernanke) is considering more QE,” Lawrence Creatura, portfolio manager at Federated Investors said.

QE refers to quantitative easing where the Fed buys bonds outright in order to inject more money into the economy and bolster growth.

“I think he has been doing an excellent job of speaking softly and carrying a big stick and that strategy has worked well for him,” Creatura said. “The fact that he has the ability to do (QE3) will keep investors hopeful. The Fed only has one bullet left in the gun and incremental rounds of QE are less effective…so being able to have the same effect verbally is valuable.”

But others don’t expect Bernanke to reveal too much tomorrow or when he testifies again on Wednesday.

John Brynjolfsson, Armored Wolf CIO, told CNBC’s “Fast Money Halftime Report” that the “market seems to be pricing in an announcement by Bernanke tomorrow and I simply don’t expect that to happen.”

Nonetheless, Brynjolfsson expects another round of quantitative easing later in the year before the election.

There is speculation that Bernanke will discuss more Fed asset purchases during his speech at the annual central bank confab in Jackson Hole in late August.

Tomorrow’s June reports on industrial production and consumer prices will give additional clues as to the state of the overall economy.

Earnings announcement will also be coming fast and thick tomorrow. Coca-Cola, Goldman Sachs, Johnson & Johnson and Mattel report before the opening bell. Intel, Yahoo and CSX will report after the close.

“Earnings are somewhat exceeding expectations so far early in the quarter, but that’s also based on expectations which are extremely low.” David Fleisher, president of Firstrust Financial Resources, told CNBC’s “Street Signs” on Monday.

(JeeYeon Park contributed to this report).
© 2012 CNBC.com

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