Month: December 2012

Why Japan needs a ‘love thy neighbor’ policy

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

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While vowing to “stop the challenge” from China over the chain of islands in East China Sea, whose Japanese ownership is “non-negotiable,” Japan’s next Prime Minister Shinzo Abe in his first post-election press conference recognized that “China is an indispensable country for the Japanese economy to keep growing.”

As a result, he went on, “we need to use some wisdom so that political problems will not develop and affect economic issues.”

Beijing apparently thinks that Abe wants to square the circle.

Indeed, China claims the sovereignty of the archipelago, consisting of five islands and three reefs they call Diaoyu (Senkaku for the Japanese), as a matter of historical fact whose earliest record dates back to 1403 at the time of the Ming Dynasty. And ever since the territorial dispute erupted a few months ago, China had amply demonstrated that it would not de-link economic dealings with Japan from serious political problems in Sino-Japanese relations.

Japan has seen that already. In the first 11 months of this year, Chinese purchases of Japanese exports have been falling at an annual rate of more than 10 percent, and their decline has significantly accelerated in the last three months. Sales of Japanese cars in China were plunging in October and November at a rate of 48 percent. Japanese direct investments in China have virtually ground to a halt, and Japanese companies operating in China are complaining about increasing red tape and regulatory delays.

Japan’s Strong Recession Dynamics

It is not clear how this substantial weakening of Japan’s business in China can be stopped, let alone reversed, while the current standoff continues. But it is quite clear that declining sales to China are amplifying a broad-based downturn of the Japanese economy.

Recently published gross domestic product (GDP) numbers for the third quarter show that there was some life left only in public investments, a mere 4 percent of Japan’s aggregate demand. The key growth engines representing 90 percent of the economy – private consumption, residential investments, business investments and exports – were either nearly stagnant or in a free fall compared with the third quarter of last year.

(Read More: What Will Save Japan’s Economy?)

Japan’s deepening recession is under way. The most recent business survey, published in mid-December, finds that business sentiment continued to worsen during the fourth quarter as a result of falling exports, rising yen and flagging domestic demand.

This trend is unlikely to be turned around by an 880 billion yen package to help small businesses. Even the announced fiscal stimulus of 5-10 trillion yen (USD 59 billion to USD 119 billion) may not do much to prop up an export-oriented economy with structurally weak household consumption and residential investments.

(Read More: Global Growth Woes – Here Is Where the Blame Lies)

Pushing the Bank of Japan to print more money to weaken the yen and to raise inflation target to 2 percent has an equally uncertain policy outcome.

Assuming that the Bank of Japan agrees to manipulate and debase its currency – and that Japan’s trading partners acquiesce in such a move – an avalanche of yen liquidity could bring down the exchange rate. But to raise inflation from its present rate of -0.4 percent to 2 percent – and to keep it there – would require a sustained overheating of the Japanese economy, with strongly rising capacity utilization rates and demand pressures in labor and product markets.

(Read More: Is Bank of Japan Already Dancing to Abe’s Tune?)

That, too, might be possible, provided there is a fundamental change in the composition of Japan’s aggregate demand – a structural shift away from an export-driven economy to spending patterns dominated by domestic demand. How likely is that over any (politically) relevant policy horizon?

Economic Fallout of the Border Dispute with China

I have long argued that Japan should reduce its excessive dependence on exports, even though I understood that such a change might not seem compelling to Japanese policymakers. What is more difficult to understand though is the fact that Japan developed a veritable addiction to Chinese markets, despite thorny territorial issues and security concerns. Last year, Japanese exports to China accounted for one-fifth of its total exports, and more than one-third of its exports to Asia.

Japan will now find it very difficult to diversify export sales, and to reduce its dependence on such a huge volume of business, without serious damage to growth, employment and large segments of its industries.

And then there is a political deadlock: Mr. Abe says he wants to conduct “persistent dialogue” with China on issues – disputed islands – he considers “non-negotiable,” while Beijing wants these islands back as a matter of its sovereign rights.

There is not much room for dialogue there. Especially since the respective ownership claims are so strikingly different.

Writing in the French newspaper Le Monde on November 9, 2012, Ichiro Komatsu, Japan’s ambassador to France, says that Japan decided to “annex Senkaku (Diaoyu) islands to the national territory in January 1895, after its investigations since 1885 proved that these islands were terra nullius (land belonging to no one),” without any sign that they were administered by China’s Qing Dynasty. Historians would also say that Japan took possession of these islands after it defeated China in the first Sino-Japanese War from August 1, 1894 to April 17, 1895.

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The Chinese are not denying that these islands were taken away from them by Japan, but Beijing has historical records, including Japanese maps from 1785, showing that these islands had always belonged to China. Earlier this month, China also sent to the U.N. a geological survey showing that “the continental shelf in the East China Sea is the natural prolongation of China’s land territory.”

Clearly, this is a tough territorial dispute where the “persistent dialogue” Mr. Abe is promising seems unlikely to produce a solution acceptable to Beijing and Tokyo.

Putin, Black Belt Judoka, Wants “Hikiwake”

Japan also has real estate issues with South Korea and Russia.

Problems with Russia involve significant economic consequences, but they are far less serious than the Japan’s standoff with China, where a trade volume of USD 340 billion is at stake.

Referring to an 1855 agreement on trade and borders, Japan wants Russia to return four South Kuril Islands (which Tokyo calls Northern Territories) the Red Army took toward the end of WWII. Moscow has been administering these islands ever since, and maintains that they are part of its sovereign territory.

The result is that Russia and Japan never signed a peace agreement following WWII, because Japan poses the return of the four islands as a condition for such an agreement and for closer economic and political relations with Russia.

Mr. Putin wants to break the deadlock. In an interview he gave to Asahi Shimbun on March 2, 2012, he said that Russia and Japan should divide these four islands, and, with a score of 2:2, it would be just like a draw (“hikiwake”) in a judo contest. He also promised that he would summon Russian and Japanese experts to a negotiating table and give them the martial arts command “hajime” (begin). True to his word, he apparently did that because there is now a Russian-Japanese working group studying the issue.

Here is also an interesting aside. In the same interview Mr. Putin mentioned that it took Russia and China 40 years to settle territorial problems along their 4000-kilometer border. Talking about that long and difficult process, he said that the more the Sino-Russian ties grew stronger, the easier it became to find solutions to seemingly intractable frontier questions. And a message to Japan: this year, he went on, the Sino-Russian trade is expected to hit $100 billion, while trade with Japan is still hardly more than one-third of that.

Love Thy Neighbor

Japan’s problems with South Korea are even more complex. Not only are there territorial disputes over the Takeshima (Dokdo for Koreans) Islands in the Sea of Japan, but there are also Mr. Abe statements denying that Korean and other Asian women were forced into sexual slavery during WWII.

Similarly, South Korea, and some other countries in the region, take a dim view of Mr. Abe’s stated belief that the Japanese military aggression in WWII was not a crime. A promised military buildup and a change of Japan’s pacifist constitution are also being closely watched by Japan’s neighbors.

South Korea’s President-elect, Park Geun-hye, has reacted already. In her first major post-election speech she pledged to work for “greater reconciliation, cooperation and peace in North East Asia based on correct perception of history.” Clearly, Mr. Abe’s rumored move toward a more conciliatory approach to the island dispute would be well received in Seoul. That would also provide a friendlier setting for his presence at Ms. Park’s inauguration on February 25.

(Read More: Can South Korea’s New President Keep ‘KOSPI’ Pledge?)

Investors are fully aware that Japan’s tensions with its neighbors have an important economic dimension. Japan’s economic interests would therefore be best served by calming things down, starting with China, and seeking an acceptable modus vivendi with countries involved in its territorial disputes and perceived as presenting longer-term security threats.

Investment climate for Japanese assets would also improve if Mr. Abe wasted no time on belligerent rhetoric. His priority is to show that he has an effective plan to fix the economy – which he does not have at the moment – and that his diplomacy with China can bring that huge market back on stream for Japanese industries. Mr. Abe’s first major electoral test is less than seven months away. On July 11, 2013 voters will go to the polls to elect the upper house of the Japanese parliament.

Michael Ivanovitch is president of MSI Global, a New York-based economic research company. He also served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York and taught economics at Columbia

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

Fed, ECB balance sheets ‘abnormal’: Trichet

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

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Ballooning central bank balance sheets across the US, Europe, the UK and Japan are “profoundly abnormal”, according to Jean-Claude Trichet, the former president of the European Central Bank.

“If you look at the increase in the size of balance sheets since the crisis erupted in 2007, you see the same order of magnitude: at least 12 percent of gross domestic product… You see something which is profoundly abnormal in the UK, Japan, Europe, and the US,” Trichet told CNBC on Friday.

According to its own data, the Bank of England’s balance sheet topped 20 percent of annual gross domestic product (GDP) in the first quarter of 2012, and was roughly four times larger than at the start of 2007.

In the same period, the Federal Reserve‘s balance sheet reached more than three times its pre-crisis size and neared 20 percent of GDP, while the European Central Bank (ECB)’s balance sheet topped 30 percent of euro zone GDP.

“I expect we will not remain eternally in the present situation. This situation is not the new normal that is acceptable,” said Trichet.

“It takes time and effort and also a lot of strong messages coming from the constituencies of central banks.”

Much of the expansion of the Federal Reserve and Bank of England balance sheets has been driven by their purchases of government bonds.

(Read More: Quantitative Easing Explained)

Meanwhile the ECB’s balance sheet has been inflated by its long term refinancing operations (LTROs) to banks.

(Read More: LTRO Explained)

UK Exit Won’t Hurt EU

Trichet also told CNBC that the European Union would be unharmed if the UK chose to exit.

“It is a problem for the UK; it is not necessarily a problem for the Euro,” he said.

“Let us not forget that even without the UK, the population of the euro area is already more numerous than the US… On top of that, you have a number of countries that are eager to enter. In particular, the biggest is Poland, which is the biggest country in central and eastern Europe.”

(View More: The Cost of EU Membership for Croatia)

Pressure has been mounting on UK Prime Minister David Cameron to hold a public referendum on EU membership. Eighty-one members of his own party voted in favour of a referendum in November last year. Cameron has also appeared to be distancing himself and the UK from the rest of the European Union during recent budget, bank supervision and policing discussions.

(Read More: Brixit Looming? UK Looks Sidelined With Veto Threats)

Trichet was critical of the referendum calls however.

“I thought a referendum was a Napoleonic concept not fitting with representative democracy the UK invented,” he said. “My own experience is that the UK does not lose sight of her own interests, and puts her own interests first.”

Others have also argued that a British exit from the European Union – or a “Brixit” as it has become known – would not benefit the country.

There might be in some people’ minds some benefit in the short-term, but in the long-term I’ not sure it’ positive,” Societe Generale CEO Frederic Oudea told CNBC on Wednesday. “So I hope the U.K. will resist this temptation.”

“Of course if you belong to a group, club or team you need to agree and comply with the rules; that is the trade-off,” he added.

– By CNBC’ Katy Barnato

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

Majority of rich want to tax themselves more: Poll

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

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House Republicans are opposing tax increases on anyone – whether it’s Americans making USD 250,000 or USD 1 million or more a year.

But a new survey shows that they might be opposing the very people they claim to protect.

American Express Publishing and The Harrison Group found that 67 percent of the top one percent of American earners support higher income taxes. Their support has grown since the election. This summer, 62 percent of them supported higher taxes.

(Read more: Why ‘Plan B’ Would Actually Raise Taxes on Low Earners)

Some might say the rich are hoping to tax people richer – or poorer — than themselves. The top one percent consist of people making more than USD 450,000 a year. But the survey clearly shows most One Percenters favor taxing themselves. More than half say that they support taxing those making USD 500,000 or more.

That’s up from 51 percent in the second quarter.

“There is an absolute willingness for the vast majority of the One Percent to take a tax increase,” said Jim Taylor, Vice Chairman Harrison Group. “What the Republicans think is not necessarily what their constituents think.”

Granted, the one percent is not happy about paying higher taxes. The American Express/Harrison poll shows that 64 percent say they carry an “unfair tax burden in the amount of money I pay in taxes.” This number is higher for Republicans and lower for Democrats.

(Read more: Super-Rich: Tax Us When We’re Dead)

Nearly three quarters of them are “extremely or very concerned about their taxes going up.” Other recent surveys show that the wealthy support higher taxes as part of a balanced solution to the government debt problem that includes spending cuts.

Still, a majority support for tax increases on themselves, presumably for the sake of the broader economy. Taylor said that for many of the wealthy, the possible reduction in asset values stemming from problems in Washington far outweigh the potential reduction in their income.

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

Here are the stocks Wall Street was talking about

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

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Find out what Wall Street analysts had to say about Apple, Research In Motion, Bank of America and DaVita in this CNBC.com Stock Blog Roundup.

Apple shares have seen intense selling pressure since hitting USD 705 in September as investors fret about its gross margin and the long-term growth opportunities in the smartphone market.

But Mike Walkley, an analyst at Canaccord Genuity, told CNBC there are still growth opportunities for the iPhone even as it faces competition from competitors running Google’s Android operating system.

Walkley has a “buy” rating on the stock and a USD 700 price target.

While shares of Apple have been falling, investors have been more enthusiastic about Research In Motion’s stock ahead of the launch of the BlackBerry 10.

Peter Misek, who rates the company a “hold,” noted that wireless carriers around the world were planning to push the new BlackBerry device. If the device is a success, Misek said he believes it could make RIMM a takeover target, with Microsoft and Samsung potential acquirers.

Wall Street has been getting more bullish on the banks. This week well-known analyst Meredith Whitney upgraded Bank of America, Citigroup and Discover Financial. She noted that the Federal Reserve could let Bank of America quadruple its dividend in March.

Jason Goldberg, an analyst at Barclays Capital, is also anticipating more banks to return capital to shareholders next year. “We expect more banks to raise dividends and more banks to buy back stock,” he told CNBC, with the vast majority of the 20 stocks he covers likely to boost dividends.

Goldberg has an “equal weight” rating on Bank of America, however.

As Obamacare is implemented, dialysis services provider DaVita could be a winner in the healthcare sector, Nomura Securities’ Martin Brunninger told CNBC. The company has diversified away from just providing dialysis services to focus on saving managed dollars for a broader group of patients, he said, noting “That is the future.”

Additional News: RIM Reports Loss but Beats Expectations

Additional Views: Apple TV Just a ‘Head-Fake’: Porter Bibb

Disclosures can be found in the individual Stock Blogs.

Disclaimer

Related Links

Yoshikami: Trading an Insane Market
Vanguard CIO: Beware Bond Bubble
‘Good Growth’ in Apple: Pro
The Most Likely Buyers for RIM: Pro
Meredith Whitney’s Bank Outlook

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 one gold bull thinks the selloff won’t last

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

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With gold hovering near a four-month low, even some of the yellow metal’s most ardent fans have begun to sweat.

Just don’t count Euro Pacific Capital’s Peter Schiff among the Nervous Nellys.

The perpetual bullion bull and sworn enemy of central bankers everywhere told CNBC’s “Futures Now” this past week that gold’s recent sell-off is only temporary and that investors should be “patient enough to ride this thing out.”

Gold, he said, is one of the few avenues available to investors as a store of value in a world where major central banks are determined to fight economic weakness with ultra-accommodative monetary policy.

“What are you going to do? You’re going to hold dollars at zero percent with (Fed Chairman) Ben Bernanke promising to print until infinity?” the fierce Fed critic asked. “There’s no currency that you can hold and be confident inits future purchasing power. But you can hold gold, you can hold silver.”

Schiff added that people “could make a lot of money in gold and gold stocks if they are patient. But unfortunately there’s money on Wall Street that’s not patient, and I advise other people who understand the fundamentals” to stay put, he said.

Earlier in the week, noted gold bug Jim Rogers sounded a rare note of caution as gold suffered its deepest weekly loss since June.

Meanwhile, well-known investor John Paulson – whose flagship investment funds have had a brutal year – saw falling bullion take a toll on his gold fund, which has fallen 21 percent year to date. (Read more: John Paulson’s Hedge Funds Weather Another Tough Month.)

Schiff said people originally invested with Paulson because he once had a “hot hand.” Now, impatient investors are heading for the exits “because they don’t understand the dynamics behind the market,” he said.

Read on for 10 Things You Need to Know to Trade Futures

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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

CEO Blog: What exceptional companies know

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

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In any given industry, the goal of market dominance is tied closely to size.

You don’t have to be the biggest to be the best, but very often you have to be big. Any company, in any sector, recognizes that with scale can come significant market advantages.

But in today’s low-growth economic environment, we still see companies forgoing growth in order to boost profits through cost cutting. We see it all the time: when a company has to choose between reductions in the cost structure and a drive for more revenue, cost reduction typically gets the nod.

Sometimes, this is the right choice. When a business has a cost structure out of line with its strategic goals, you simply must fix your cost problem.

But ultimately, growth in the top-line is essential. We studied tens of thousands of companies over more than four decades. We found that even when the economy is giving very few signals of growth, the leading and most consistently profitable companies are systematically biased in favor of revenue growth over cost reduction.

We’ve concluded that when you have a tough choice to make between the pursuit of growth or retrenching through lower cost, you have the best chance of improving your overall performance by choosing revenue. You can use cost controls to get yourself into the game with other market leaders. But once you’re there, you want to win. And if you want to win, you have to grow.

(Read More: Wanna Be Successful? Rethink Your Weekends)

A useful illustration comes from the world of college basketball, where coaching legend John Wooden dominated. When Wooden started at UCLA, the only remarkable thing about his players was their size – they were uniformly smaller than their opponents. So Wooden decided to pursue a “costs” strategy – doing more with less. He got his players to punish opponents with a high-energy, full-court press for the entire game.

For a while, the strategy worked. But teams eventually figured out how to beat the press. They neutralized the “costs” strategy.

By then, it didn’t matter. Wooden’s winning ways started attracting taller players such as Lew Alcindor (who later changed his name to Kareem Abdul Jabbar) and Bill Walton. Wooden had adopted a growth strategy – literally.

In times like these, companies often turn to cost cutting – the equivalent of the full-court press – to pave the way to profits. And for a while, that works. But eventually, companies need to get bigger, and build the kind of scale that is essential to market leadership.

Growth demands investment, in capital, talent, training, innovation efforts, new processes, and so on. More importantly, senior management should focus their strategic energy on growth – giving that goal more time and effort than the focus on costs.

(Read More: The Cheap-Price Hunt Hurts Retail Loyalty)

Wooden understood that running the full-court press could neutralize a weakness. But ultimately, long-term dominance would have to come from going big. And UCLA won 12 championships because of it.

Jim Moffatt is Chairman and CEO of Deloitte Consulting LLP (Deloitte Consulting). During his 25 years with Deloitte, he has steadily taken on new assignments and leadership roles in the organization, with a focus on health care and companies in crisis. In his role as Chairman and CEO, Moffatt is helping Deloitte Consulting accelerate its growth through a variety of meaningful acquisitions and initiatives, emphasizing global growth, integrated services to clients, collaborating with clients to help create a lasting impact, and innovative approaches to leadership and management of Deloitte Consulting’s 23,000 employees.

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

Is Bank of Japan already dancing to Abe’s tune?

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

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Japan’s incoming Prime Minister Shinzo Abe is slated to take office next week, but the country’s central bank, which concluded its two-day policy meeting on Thursday, already appears to be dancing to the leader’s dovish tune, analysts told CNBC.

The Bank of Japan (BOJ) increased its asset purchase and lending program by 10 trillion yen (USD 119 billion) to 101 trillion yen, expanding stimulus for the third time in the past four months, and also outlined plans to review its one percent inflation target at its next meeting on January 22.

As expected, the BOJ kept its overnight call rate target at a range of zero to 0.1 percent.

“The Bank of Japan can justify the move by pointing to the Tankan report (showing worsening business sentiment) but if there was no pressure from the politicians, it might not have moved today (Thursday). The BOJ is reacting to the pressure,” Masafumi Yamamoto, chief forex strategist, Japan at Barclays told CNBC.

Abe’s Liberal Democratic Party (LDP), which won Sunday’s parliamentary elections in a landslide victory, securing a large majority in the lower house, has been a big proponent of aggressive monetary easing.

In his election campaign, Abe pledged to pressure the BOJ to prop up growth in the world’s third-largest economy through stepping up monetary easing efforts and establishing a 2 percent inflation target. On Tuesday, the incoming leader said that he had asked Bank of Japan Governor Masaaki Shirakawa to consider adopting his inflation goal, Reuters reported.

(Read more: Aggressive Easing Wrong Medicine for Japan: Roach)

The economy, which has been struggling with deflation for around two decades, entered a mild recession in the third quarter after its key export sector was hit by weakening global demand. The latest tankan report released last week showed Japanese business sentiment worsened for a second straight quarter in the three months to December.

Nizam Idris, head of strategy, fixed income and currencies at Macquarie said the central bank’s decision to reassess its inflation target next month indicates a willingness to move to a more aggressive stance in the fight against deflation.

While the BOJ reviews the inflation target on a regular basis, it typically does not signal intentions to do so a month earlier, Idris noted.

“If you compare this to their monetary policy statement last month, they are becoming less defiant. The BOJ isn’t as protective about their independence as they were a month ago… I wouldn’t rule out them adopting the 2 percent inflation target,” he added.

According to Idris, Japanese monetary policy is now at a “cross roads.” “This could be an inflection point where they turn decidedly more dovish and refuse to tolerate deflation,” he said.

(Read more: Japan’s Deflation Battle – Why This Time Is Different)

Mounting pressure on the Bank of Japan to ease policy has raised the question of the central bank’s independence. Abe has threatened to revise a law guaranteeing BOJ’s independence, if he cannot get the central bank to embark on bolder monetary stimulus.

While Sean Callow, senior currency strategist at Westpac Bank, said there is high probability of further easing action in the coming year, it is unlikely the central bank will formally raise the inflation target while current governor Masaaki Shirakawa is in power.

“I don’t see why Shirakawa would change his tune. He has a few months left in his term. Inflation targeting will have to wait for a new governor.”

Shirakawa’s term is set to expire in April, and the government will appoint the new governor with approval from both houses of parliament.

“Shirakawa has been a roadblock for more aggressive easing. Abe will appoint someone of his mindset, so radical action will wait until a new governor,” Callow 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

With Boehner’s ‘Plan B’ off the table, what now?

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

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The US House of Representatives Speaker John Boehner called off a vote on Thursday to raise taxes for wealthy Americans in a proposal dubbed “Plan B,” bringing the country on the brink of going over the “fiscal cliff.”

A series of tax increases and spending cuts are expected to kick off on January 1, if lawmakers don’t reach a compromise and this could push the US economy into a recession.

But analysts told CNBC they expect a “Plan C” within a few days that would help US avert a fiscal crisis.

“I’m sure a ‘Plan C’ will materialize over the next few days, there’s time for things to be renegotiated, and 2013 will be in better shape for equity markets,” said Jim McCafferty, managing director and co-head of equity research with CIMB Securities in Hong Kong.

Soon after the vote was called off, the House went into recess until after Christmas. Reacting to the news stock futures immediately sank, but then recovered some lost ground. (Click here for the latest premarket prices.)

In Asia as well, stocks gave up their earlier gains.

Boehner said Thursday that he had failed to gather support among Republicans for “Plan B” that proposed raising taxes only on families earning more than USD 1 million. This plan is opposed by the White House, which favors raising taxes on families earning more than USD 400,000, instead of the USD 250,000 cited during President Barack Obama’s successful campaign for a new term.

(Read more: Is $250,000 a Year Rich? Let’s Break It Down)

While Thursday’s events have made markets nervous, analysts said they expect the Republicans and Democrats to come up with a new income threshold to raise taxes.

“The Republicans are agreeing to higher tax rates for the so-called rich. I don’t know how it will look like – somewhere between USD 250,000 and USD 1 million – they will compromise on that,” said Hans Goetti, chief investment officer of Finaport in Singapore, referring to the income threshold.

The “magical number” will be in the USD 600,000 to USD 750,000 range for higher taxes, said Jason Hughes, head of premium client management with IG Markets in Singapore.

After the planned vote fell through, President Barack Obama said he will ensure that the majority of Americans will not see higher taxes.

Obama’s press office said in a statement on Thursday: “The President will work with Congress to get this done and we are hopeful that we will be able to find a bipartisan solution quickly that protects the middle class and our economy.”

Mark Sheriff, head of research Asia with Bank Julius Baer, said “there’s only a “small chance” a deal won’t be reached.

“I think they will reach an agreement, I put a very small chance on them not doing that. I think its grabbing headlines but the world goes on. If this doesn’t go through in the next 24 hours, it won’t be the end of the world,” Sheriff said.

-Additional reporting by Ansuya Harjani.

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

Wall Street tense after ‘fiscal cliff’ setback

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

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Friday could be a tense day for markets, as a resolution to the “fiscal cliff” appears less likely in the final trading days of the year.

Stock futures fell sharply Thursday evening after House Speaker John Boehner said he failed to mount support for his “Plan B” version of a bill that would raise taxes only on families earning more than USD 1 million, a plan already opposed by the White House. GOP leaders said the House would not take up any other votes until after Christmas, meaning the fiscal cliff talks could now count down to the new year’s deadline or later.

Dow futures saw triple digit losses Thursday evening, while Asian markets gave up early gains.

“Now it is up to the president to work with Senator Reid on legislation to avert the fiscal cliff. The House has already passed legislation to stop all of the January 1 tax rate increases and replace the sequester with responsible spending cuts that will begin to address our nation’s crippling debt,” said Boehner in a statement. “The Senate must now act.”

The cliff is the more than $500 billion in taxes and spending cuts that would start hitting the economy Jan. 1 if Congress does not act. Many market participants have been expecting a compromise between House Republicans and the White House that would be enough to head off the worst affects and lead to bigger tax and budget discussions in the new year.

(Read More: Fiscal Cliff’ Impasse: Can a Deal Still Get Done?)

Stocks so far have been tilting toward a positive resolution of the “fiscal cliff,” but anxiety is rising that the talks between Congress and the White House could fail.

“The market is sensing a deal will come,” said Richard Bernstein, CEO of Richard Bernstein Capital Management earlier Thursday. “…if it doesn’t come period, then we’re in trouble. There’s a chance we go into next week and then volumes will be down and moves will be exacerbated.”

The Dow Thursday finished up 59 at 13,311, and the S&P 500 was up 7 at 1443, after a down day Wednesday. But the bond market reacted to the lack of a deal, with yields declining slightly. The 10-year yield was at 1.798 percent.

In another move aimed at pressuring President Barack Obama, the House did approve a bill Thursday evening that would cut domestic spending but protect defense spending. Defense spending is scheduled to take a major hit unless automatic spending cuts are stopped. The cuts were agreed as part of the debt ceiling compromise and are referred to as part of the sequester.

“I am tremendously offended that everyone is getting on TV,” said Bernstein. “They should be is a room with their sleeves rolled up, working hard…We should sequester them until they deal with the sequester.”

(Read More: Pros’ Picks as ‘Fiscal Cliff’ Deal Nears)

Markets will be hyper-focused on the cliff talks and related rhetoric Friday, as traders position ahead of the weekend and ahead of the upcoming quiet holiday week. There is personal income and spending data and durable goods at 8:30 a.m., and consumer sentiment at 9:55 a.m.

“There was so much cynicism and skepticism coming into this, and the market is up two percent for the month of December. It’s behaving very well,” said Leo Grohowski, CIO of BNY Mellon Wealth Management, earlier Thursday. “There’s an asymmetric risk/reward here over the next 11 days. I think there’s now developing more potential downside if a deal doesn’t get done than there is upside to a deal getting done.”

Grohowski said if there’s no deal, the market could quickly lose several percent on that news alone. Analysts fear the economy would slip quickly into recession if there is no deal, and that would also slam stocks in the new year.

Even if there is a deal, Grohowski expects a choppy market in the first quarter but he sees the economy and earnings improving as the year goes on, giving a lift to stocks.

“The most annoying thing about this is the 30-year average GDP growth rate is 2.9 percent, and we’re at 3.1,” said Bernstein. “I can’t believe it. The economy is just starting to show signs of life, and they could kill it.”

Third quarter GDP, reported Thursday, was revised to show 3.1 percent growth, up from an earlier 2.7 percent. The Philadelphia Fed business index Thursday was also better than expected, rising to 8.1 from November’s minus 10.7 and better than an expected decline of 2.1. November existing home sales rose 5.9 percent, more than expected and the fastest pace in three years.

Investors have been acting ahead of expected cliff-related changes coming next year, including higher taxes on dividends. Dividend paying stocks have paid the price. For instance, the utilities sector is the only major SandP sector to be negative for the year, with a loss of 1.3 percent.

Municipal bonds have also come under selling pressure recently. Lipper Thursday reported that municipal bond funds in the past week had their first outflow in eight weeks, losing USD 2.3 billion, the largest redemptions since Jan. 1, 2011, and the fifth largest on record.

(Read More: Municipal Bond Maze, A CNBC Special Report)

“Munis have been hit in the last couple of weeks, a lot of that because of concern of the future of tax exemptions for upper income investors,” said Grohowski. “In our view, it will become a better buying opportunity.”

The SandP intermediate municipal bond index was up more than five percent for the year, through last Friday . “We’re still constructive on munis, but I think due diligence on issue selection is going to be important,” said Grohowski.

Copyright 2011 cnbc.com

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

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