Art auction to test India’s demand for luxury

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

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After raising USD 25 million at its inaugural auction in China earlier this year, Christie`s will tackle another first next week: an auction in India.

The firm will become the first international auction house to hold an event in India, scheduled to take place at The Taj Mahal Palace Hotel in Mumbai on December 19.

The auction comes amid a drive to provide for the increasingly lavish tastes of Asia`s growing wealthy class. India, Asia`s third-largest economy, is home to 65 billionaires as of 2013, up from 61 a year earlier, according to Forbes. China, Asia`s largest economy, is home to 168 billionaires, up from 113 the previous year.

“You begin to see the tell-tale signs, when is it right to come into a market,” Paul Hewitt, head of Christie`s Growth Markets division, told Reuters last week.

“Strategically it is the elephant in the room, so we should be here. We`ve made significant progress in China over the last year so [we were] almost conspicuous by our absence of doing something in India,” Hewitt said.

Christie`s first-ever auction in China in September saw 39 of 40 lots sold – including jewelry, art and wine – and netted USD 25 million.

The Mumbai auction will feature 83 lots in total, with works from high-profile Indian artists including Ram Kumar and Syed Haider Raza. Among the highlights will be a 1994 painting by Tyeb Mehta titled Mahishasura. Christie`s estimates the piece will fetch between USD 1.2 and USD 1.52 million – the highest estimate among the lot.

“Christie`s entering India is a very positive sign in the Indian art market,” Tushar Sethi, director of The Arts Trust – a Mumbai-based gallery that has been promoting contemporary Indian art since 1990 – told CNBC via e-mail.

“It proves that Christie`s as a multinational company believes that India has a bright future and its entry into the market will definitely create a positive buzz,” he added.

“Christie`s intends to make this an annual event from my understanding and this will definitely increase prices and the [Indian] art market shall be at a better platform by the next year,” he said.

Will timing be a factor?

Internationally, the demand for Indian art is on the rise. In March, competing auction house Sotheby`s sold 43 works held by private collector Amrita Jhaveri for a total of USD 6.7 million in a New York auction which set four artist records.

Still, while foreign demand for Indian art is on the rise, Christie`s auction comes amid a downturn for the local market.

According to art market analysis firm ArtTactic, confidence among participants in India`s art market declined 13.6 percent over the six months to November. The November figure snapped 18 months of steady increases – a period many had hoped would bring India`s art market back to its 2008 pre-economic crisis boom levels.

The shift in sentiment is the result of the country`s worsening economic situation and a weaker currency, the report said. There are concerns the imminent tapering of the US Federal Reserve`s asset-purchase program, which sparked massive capital outflows out of India earlier this year, would roil sentiment again. The Indian rupee is down around 11 percent against the US dollar year to date.

However The Arts Trust `s Sethi does not see such concerns, or the uncertainty before next year`s general elections, as a headwind.

“The art buyers in India are primarily business families who have excess liquidity at their disposal,” Sethi said. “Artworks that have been presented at Christie`s are rare and buyers interested in acquiring these artworks will acquire them either ways.”

– By CNBC`s John Phillips. Follow him on Twitter @J_Phillips_CNBC

Copyright 2011 cnbc.com

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8.6% China growth? What’s Deutsche ‘smoking’?

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

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Markets are underestimating China`s 2014 growth potential, say analysts at Deutsche Bank, whose forecast is far above consensus expectations.

Most analysts expect the world`s second-largest economy to expand at a rate of 7.5 percent in 2014, but Deutsche Bank sees much stronger growth at 8.6 percent.

When jokingly asked by CNBC`s anchors what the analysts were smoking at Deutsche Bank, because their forecast is so far above consensus, Taimur Baig, chief economist for Asia at Deutsche Bank replied: “We`re smoking reality.”

(Read more: Forget a slowdown, China`s economy set to accelerate )

“Of course, China is slowing, given adverse demographics and the ongoing shift from manufacturing to services, we all know that story. And of course we fully understand the drag coming from the financial sector,” said Baig.

“Our point is, on a cyclical basis, the market is underestimating the bounce that China will get in 2014,” he added.

2013 has been a volatile year for Chinese investors, who have attempted to navigate uncertainty over policy makers` agenda and fears over slowing growth. Meanwhile, a number of overhanging risks, such as worries over the bubbles forming in the nation`s property and credit markets, and concerns over shadow banking, have also put investors off.

(Read more: Behind China`s shadow banking system )

But according to Deutsche Bank there are a number of major drivers set to propel economic growth forward next year. One will be a strong pick-up in external demand for Chinese exports; another will be the boost the economy will get from deregulation, following the bold reforms announced following the Third Plenum in November.

(Read more: Breakthrough rally for Chinese stocks (finally) )

“Improvement in global demand, especially from G3, will boost demand for Chinese exports,” said Baig.

“[On] the deregulation side… that`s where we think the market is missing out. We see a post-plenum bounce of cutting capacity in industries that have excess, and building capacity in industries that don`t,” he said, adding that he expected healthcare and public housing to get a particular boost.

Furthermore, Baig added that the central bank`s expected financial regulation reform, which is said to involve the liberalization of interest rates and freer trading of the renminbi amongst other things, should also work to get the market “humming again.”

“It`s not just one or two tricks. We have a five pillar narrative that will drive this 8.6 percent growth, which is, yes, significantly above consensus,” he added.

(Read More: China 2014 growth target: To cut or not to cut? )

The Deutsche Bank chief economist acknowledged, however, that there were overhanging risks to the market, including the USD 6 trillion annual shadow banking industry in China, which has in the past led to taxpayers having to bailout mainstream banks, together with concerns about the relationship between banks and SOEs.

“The shadow banking industry… and the unholy relationship between SOEs and the banks needs to be cleaned up. [But] in an economy that is broadly closed capital account wise, one can`t really have a massive capital outflow just because people are worried about the banks,” he added.

By contrast the Royal Bank of Scotland sees China growing 8.2 percent in 2014, while analysts at Nomura have a much more bearish forecast at 6.9 percent.

– By CNBC`s Katie Holliday: Follow her on Twitter @hollidaykatie

Copyright 2011 cnbc.com

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Best companies to work for in 2014

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

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American consulting firm Bain and Company has been ranked as the best place to work in 2014, according to an annual survey of employee satisfaction, knocking Facebook off the top spot.

Jumping from fourth place last year, the Boston-based firm scores highly on a variety of company rankings, including Vault`s `Consulting 50` and Consulting magazine`s `Best Firm to Work For` survey.

Employees have praised the company for fostering a collaborative environment, maintaining a smoothly-functioning meritocracy, and ensuring a continuous learning curve.

(Read more: The Best Jobs for 2013 )

The survey by career website Glassdoor asked US-based employees to rate how satisfied they are with their company overall, as well as key workplace factors like career opportunities, compensation and benefits, culture and values. The survey was conducted online and on an anonymous basis. Companies were graded on a scale of 1 to 5 – with 5 representing the highest level of satisfaction.

“”We are incredibly proud to be named the #1 Best Place to Work,” said Russ Hagey, Global Chief Talent Officer at Bain and Company- which scored 4.6.

“For more than 40 years, we have placed significant focus on creating an outstanding professional and personal work experience that in turn has fueled our growth anchored in a mission of delivering results for clients and organizations around the globe,” Hagey said.

(Read more: Office party: Career builder or career killer? )

Microblogging giant Twitter placed second, while LinkedIn, Eastman Chemical and Facebook obtained the third, fourth and fifth spots respectively.

Despite slipping down the rankings, Facebook CEO Mark Zuckerberg has the highest approval rating of all company heads, according to a separate survey by Glassdoor published earlier this year.

Meanwhile, Google, which is famous for offering lavish perks to its employees – from free gourmet food and snacks to nap pods – ranked in eight place.

(Read more: Americans hate their jobs, even with office perks )

“The people are fantastic, the work is challenging and the environment is a lot of fun. The perks are a lot of fun. The culture is very open which makes the experience very positive,” a Google employee wrote on the Glassdoor site.

-By CNBC`s Ansuya Harjani; Follow her on Twitter: @Ansuya_H

Copyright 2011 cnbc.com

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S&P downgrades US growth forecast

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

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Standard & Poor’s (S&P) credit ratings agency has lowered its US growth forecast warning of “significant downside risks” from federal spending cuts.

“We’ve lowered our forecast for US GDP growth in light of the additional sequester spending cuts in 2014 as well as the potential for another political standoff in Washington after the October government shutdown,” S&P said on Monday, ahead of the bipartisan budget deal struck in Washington.

(Read more: No ‘extremists in my party,’ says Dem Whip Hoyer)

“We now expect the world’s biggest economy to expand 2.6 percent next year, down from our forecast of 3.1 percent at last quarter’s Credit Conditions Committee meeting,” it added.

The ratings agency published its warning in its quarterly update on credit conditions in North America, the Asia-Pacific region and Europe on Monday, in which it gives its outlook on the “evolution of macroeconomic conditions and broad financial trends that could affect credit quality.”

(Read more: Guess what? DC could deliver a merry Christmas)

US lawmakers reached a deal on Tuesday evening to fund the government past mid-January, averting another feared government shutdown like the one seen in October. In a new sign of bipartisan cooperation, Senate Democrats and Republicans agreed to reduce automatic spending cuts and the deficit levels by USD 23 billion over two years.

The framework would set spending levels above the USD 967 billion cap established by the sequester; the budget for 2014 would be set at USD 1.012 trillion, and the budget for 2015 would be USD 1.014 trillion. The compromise means that they have effectively agreed to roll back billions of the harshest automatic spending cuts for the Pentagon and domestic programs.

(Read more: Budget deal would reduce automatic spending cuts by USD 63 billion over two years)

“While modest in scale, this agreement represents a positive step forward by replacing one-time spending cuts with permanent reforms to mandatory spending programs that will produce real, lasting savings,” House Speaker John Boehner said in a statement.

The agreement still needs to pass a vote in the Republican-controlled House, expected to take place by Friday, as well as a vote in the Democrat-controlled Senate shortly thereafter but analysts expect it to pass as lawmakers are keen to avert a damaging government shutdown like the one seen in October.

(Read more: Tea Party Founder: Time to Cut Federal Spending in Half)

S&P had spotted some highlights for the US, noting that modest gains in employment and a continuing recovery in the housing market were bolstering consumer sentiment and spending. Furthermore, it said that “resilience” inthe private sector was “outweighing the drag from sequestration-relatedcuts in government spending and that Americans’ purchasing power wasimproving. Nonetheless, these were not enough to prevent it lowering its growth outlook.

S&P noted that uncertainty about when the Federal Reserve would taper its bond-buying program — and the reaction of global financial markets — was also adding to headwinds facing global economies.

(Read more: No respect! Traders unimpressed by ‘boring’ S&P trade)

“A disorderly response from financial markets to the Fed’s unwinding of quantitative easing remains a shared and important risk for credit conditions around the world,” S&P warned. It added, however, that low inflation in the country meant that the fed was likely to “gradually taper bond purchases and to keep monetary policy accommodative through 2014.”

“We anticipate overall financial conditions will remain favorable for some time,” the report said.

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A year-end bounce for gold?

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

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Gold could see a rally of around 5 percent before year end, according to one strategist, bringing a respite for the precious metal which has fallen 25 percent year to date and is on course for its worst year since 1981.

Andrew Su, CEO of Compass Global Markets, said gold prices will rise 5 percent in the next few weeks leading up to the end of the year, from Wednesday`s trading level of USD 1,257 per ounce.

“We have an end-of-year target of USD 1,320 for gold and a medium-term target of USD 1,450… I think USD 1,350 is a relatively modest target for the end of the year,” he said.

Su said a number of factors are driving his more bullish sentiment. Firstly, as a contrarian investor the fact that so many analysts have turned bearish on the yellow metal is, for him, a clear signal to buy.

“When the market becomes overly bearish as it did yesterday, [we see it] as an indication to buy. There was a lot of news yesterday that hedge funds had increased their shorts to the highest level in five years and we took this opportunity to go long,” he added.

On Tuesday data from the Commodity Futures Trading Commission showed hedge fund and money managers were the least bullish they have been on gold since June 2007. In the week ended December 3, short bets on gold increased by 4,557 to 79,631 lots, and longs slipped slightly to 106,405.

Interestingly from June 2007 to March 2008, gold prices rose by 50 percent.

Other bullish factors that are set to drive gold higher, according to Su, will be the US Federal Reserve`s decision not to taper next year, despite increasing speculation that this will be the case.

This year, expectations of Fed tapering have prompted sharp sell offs in the gold price. This is because the end of quantitative easing is likely to lead to a rise in interest rates, making non-interest bearing assets like gold less attractive.

Su added that in his view gold has found a floor at USD 1,200 per ounce, meaning that a fall below this technical level could prompt a strong bounce to the upside.

“We believe that gold has formed a solid base at USD 1,220 for now and this level coincides with the approximate average global cost of production for the metal. Investors are very shy to take it down below that level last time we saw it below USD 1,200 it bounced very quickly,” he said.

However, more bearish gold commentators argue that there are a number of overhanging macro-economic factors which suggest the yellow metal is heading for further pain.

“The Federal Reserve is going to exit from quantitative easing and we expect yields to rise, and when yields go higher commodity markets generally suffer, gold in particular,” Alain Bokobza, head of global asset allocation at Societe Generale Corporate and Investment Banking, told CNBC on Wednesday.

Meanwhile, analysts at investment group Julius Baer warned that slowing demand from China was bound to put downward pressure on the price of gold.

“Fading Chinese investment demand is a new bearish theme to watch while higher interest rates, subdued inflation and reduced tail risks continue to weigh on Western world investors` willingness to pay from gold as insurance,” the analysts said in a note.

Compass` Su acknowledged that gold was vulnerable to further falls but said he still sees it rising higher in a few months` time, spurred by fresh appetite for safe haven buying next year.

“I think we`ll see a renewal of the budget crisis in the US… that will cause some safe haven buying and I think we`ll also see China growth slowing down to about 7 percent [in the first quarter of 2014]…that will bring back a bit of risk aversion to the markets and we`ll see gold recover as a result,” he said.

– By CNBC`s Katie Holliday: Follow her on Twitter @hollidaykatie
Copyright 2011 cnbc.com

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Next emerging market sell-off may be time to pounce

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

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Emerging Asian markets may see another sell-off once the Federal Reserve begins tapering its asset purchases, but with declining risks and better pricing, that may offer a chance to buy, analysts said.

From May to September, expectations that the Fed would begin tapering spurred sharp declines in Asia`s markets, with India and Indonesia the hardest hit by fund outflows.

After the much-anticipated tapering didn`t materialize in September, most emerging markets recovered some lost ground. But recent stronger-than-expected US economic data have raised expectations for a nearer-term move by the Fed.

A budget deal from the US Congress, freshly announced late Tuesday, “also triggers the expectation that the Federal Reserve is going to tighten policy rather soon,” Alain Bokobza, head of global asset allocation at Societe Generale, told CNBC.

“On positioning, it`s not good news,” he said. “I do expect another round of sell-off when the Fed confirms it`s going to taper.”

Others agree: “Tapering might cause a 10 percent to 15 percent down move in some emerging markets,” private banking group Julius Baer said in a note.

But some are preparing to pounce on the decline. “It would be a great opportunity to buy places like Indonesia, Thailand and the Philippines on (finally) cheap prices,” added Julius Baer, which has around 341 billion Swiss francs (USD 384 billion) under management.

Some aren`t waiting, with LGT Capital, an asset manager with around USD 40 billion under management, beginning to add emerging market equity exposure. “Equity market valuations are more modest, with many emerging markets even looking like a bargain,” it said in a note.

While tapering might trigger a knee-jerk sell-off, analysts believe the underlying risks for the region`s economies have actually been receding.

“We`re seeing the two big risks actually narrow next year,” Paul Gruenwald, chief economist for Asia-Pacific at Standard and Poor`s, told CNBC.

“The first risk this year was Chinese growth, the so-called downside scenario. It was very fashionable for a while to put in a really bad number for China but we think those downside risks have really been taken out,” he said.

The second risk was capital outflows from the region, he said. “We`re probably going to get more turbulence. We can`t rule that out. But the real effect of future turbulence is going to be lower because the market has already forced a lot of adjustments” on India and Indonesia, he said.

“The reason they were sold off is because they were seen as having external deficits that were too large,” he noted. “India`s external deficit has come down a lot. Indonesia`s has come down as well.”

Others also see improvements in markets hard-hit in the last round of taper turmoil.

“We would assume we do get beyond the current impasse in Thailand, that we get the election results and we know what the situation is in India and Indonesia,” David Mann, head of Asian research at Standard Chartered, told CNBC. Bokobza also expects India`s election will lead to improved economic policy.

Mann also expects a rising global economic tide will float Asia`s boat.

“If you look at where the macro economies around the world are going, there`s a pretty positive story to be told,” he said. “The US will be accelerating, China will have stabilized – we think [growth will stay] above 7 percent – and Europe will be growing in aggregate.”

As one of the regions most open to trade, Asia is likely to get more support from the economic growth, he said.

“Broadly next year, emerging markets are going to do a bit better in terms of equities than developed markets,” Mann said. “We`ve moved from pricing to perfection in emerging markets earlier this year to something that`s a lot more balanced.”

-By CNBC.Com`s Leslie Shaffer; Follow her on Twitter@LeslieShaffer1

Copyright 2011 cnbc.com

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

Man named Sam Sung no longer works at Apple

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

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You may not have known that they were together, but Apple and Sam Sung have parted ways.

CNBC has learned that Sam Sung, a one-time specialist at an Apple store in Vancouver, hasn’t worked at the giant tech company for months.

It was just a year ago when Sam Sung—or at least his business card—became a viral sensation when a visitor to an Apple store in Canada noticed the interesting name of the specialist assisting a family member.

This week, this CNBC writer called the number on Sung’s business card to confirm Sung’s departure. We reached Apple’s Pacific Centre, saying we were from CNBC and speaking with an employee who gave his name as John. It played like a scene from Abbott and Costello.

“Hi, I’d like to speak to Sam.”

“Sam who?”

“Sam Sung.”

“Oh. Sam Sung no longer works at Apple.”

“Where did Sam Sung go?”

“He decided to move on. He may have wanted to do something else.”

Sung was said to be very friendly to Huffington Post reporter Andree Lau before Thanksgiving 2012 when she visited the store to confirm his identity. “He said he was aware of the Internet interest but couldn’t say much because of Apple’s strict media policy,” Lau wrote.

Apple declined to comment to CNBC on the status of the man who bears the name of its biggest rival.
At first, Sung did not respond to a message on LinkedIn. Once this story went live, though, we found our way to him.

“Want to know where [Sam Sung] went?” tweeted Victoria Welsby, a Vancouver-based headhunter and recruiter. “We stole him. He is at Holloway Schulz.”

Holloway Shulz is a corporate recruiting firm.

Welsby put us in touch with Sung who said he would prefer not to comment for the time being out of respect for his current (and former) employer.

Proud of the accomplishment, Welsby offered the story this headline: “Sam Sung ends relationship with Apple to join top recruitment firm.”

This got us thinking: What would be the best worst possible names for an Apple employee?

Here’s our running list:

• Sam Sung

• Ann Droid (via Jack Baker)

• Mike Rosoft (via @jaslusher)

• Eric Son (via @donohuechris)

• Wendy Sfone (Windows Phone, heavy accent)

• Galaxie Esfore (via @AllDaveAllDay)

(Read more: Samsung Takes on Apple With New Galaxy S4)

Drop your submissions in the comment section and we’ll add the best worst names to the list.

—By CNBC’s Eli Langer. Follow him on Twitter at @EliLanger. CNBC’s Ryan Ruggiero contributed to this story.

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Buffett’s 2014 action plan

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

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Buffett will still be running Berkshire Hathaway one year from now.

This has been my best prediction for the past two years and I see no reason not to go for a three-peat, although each year there’s a greater chance it will be proved wrong. Even though he will turn 84 in August, Buffett is showing no signs of slowing down and still says “I truly do feel like tap-dancing to work every day.”

More predictions: Email’s long-awaited makeover in 2014

He has, however, been giving portfolio managers Todd Combs and Ted Weschler more money to work with, acknowledging they outperformed the S&P by “double-digit margins” in 2012, leaving Buffett “in the dust.” While Ted and Todd will continue to get more responsibilities in 2014, I expect Buffett will remain in charge as long as he’s physically and mentally able to do so.

Berkshire Hathaway will ‘bag’ General Mills

I’ve been encouraged to make bold predictions, so here’s this year’s. Berkshire Hathaway will follow up its USD 12 billion H.J. Heinz deal with an even bigger food acquisition. At a market value of USD 32 billion General Mills definitely qualifies as the elusive “elephant” Buffett has been trying to bag the past few years with all the cash Berkshire has accumulated. It’s not flashy (Buffett doesn’t like flash) and it has very well-known brands, (Buffett likes brands) including Cheerios, Betty Crocker, Pillsbury, Green Giant, Yoplait and Häagen-Dazs. (Buffett really likes ice cream.)

More predictions: 2014: Energy prices hit a 4-year low

Free cash flow, a metric Buffett also likes, has risen to $2.3 billion as of May, 2013, according to FactSet.

It’s important to remember that almost every prediction anyone has made about what Buffett will buy next has turned out to be wrong, and I would be surprised if this one doesn’t wind up in that trash heap. But if a deal for General Mills actually happens, I will be bragging for years.

More predictions: The road ahead: Luxury rules

Buffett’s voice will be heard

Now, an even bolder prediction. Buffett’s musical career will explode when he wins “The Voice” with his rendition of “My Way,” accompanying himself on ukulele. His “Today” Orange Room gig was just a launching point. You can take this prediction to the Billboard bank.

A look back at 2013

I give myself an overall grade of B for my 2013 Predictions (with points off for a low degree of difficulty).

—By Alex Crippen, senior coordinating producer, CNBC.com. Follow him on Twitter@alexcrippen

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Get ready: Here comes the REAL economy

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

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Will the real economy please stand up?

Something very interesting will begin to happen in 2014; the real economy will start to surface as the Federal Reserve removes part or its entire stimulus program. That begs the question, what does the real economy look like?

Long-term economic cycles are based on a simple premise: The economy is all about people and the way they spend and invest their money. As economists and businessmen we must also accept that distortions to longer term natural economic cycles will exist from time to time; the USD 4 trillion capital infusion can be deemed to have influenced misrepresentations to natural conditions, but in the end, when the distortions that have occurred since 1900 abate, the economy reverts back to its natural cycle every time.

Because longer-term cycles are all about people, and once temporary offsets abate economies revert back to their natural condition, it is hugely important for us all to understand what the natural state of our economy is, which in turn would shed light on what might happen shortly after stimulus is removed.

Read more: Skyrocketing rents hit ‘crisis’ levels

My research on the “Investment Rate” is a demographic study comparing lifetime investment and spending patterns derived from societal norms and compared to economic cycles since 1900. What I’ve found is that spending does little more than create chaos-like boundaries around longer-term economic cycles, and it is the lifelong natural investment cycles that we experience throughout our lives that govern long-term economic cycles instead.

Unless society changes significantly, people today will continue to live their lives similarly to the way our parents did, and our children will do the same, all technological changes aside. That means we will grow up, go to school, buy a house, raise a family, send our children to college, retire, and by that time our children will start the cycle all over again. This is a societal normality, and the findings of the Investment Rate are predicated on these societal norms, but simple skews to the model can also be made to evaluate societies that do not function as ours does.

Read more: Cashin warns: This could spark ‘outright selling’

Using our societal norms, and with focus on the US economy, the backdated findings of the Investment Rate match up almost exactly with every major economic cycle in US history, which helps to prove that demographic analysis is really all that matters to long-term economic cycles.

However, we must define what long-term cycles are, and in this case, the average up-period lasts 26 years, and the average down period lasts 11. Thus far, there have only been three major up-cycles in US history, and only two complete down cycles:

    Up Period: 1900-1928
    Down Period: 1928-1938 (Great Depression)
    Up Period: 1938-1969
    Down Period: 1969-1981 (Stagflation)
    Up Period: 1981-2007
    Down Period: 2007-(still going)

The good news for investors is that the trend is up over time and that means even major setbacks will eventually be overcome, although it may take quite a while. For example, anyone who bought at the peak of the Great Depression’s stock-market cycle was underwater by 75 percent, and it took 26 years to get whole, but yes, your money would be worth significantly more today if you just held on even from that peak. When financial advisors and brokerage firms tell you to stay invested at all times, even at the peaks of stock-market bubbles, it bugs me, but they are not wrong; the market will head higher over time — eventually. The question is: Do you have the time to wait, and is waiting the best choice?

A differentiation must also be made between buy-and-hold investors and proactive investors, because as much as I know about the real underlying economy and the almost certain reversion to the natural growth rates that exist, I also know that a multimonth market cycle could come before a reversion and without even causing a blip on the decade-long durational cycles. So, I advise proactive strategies that can work both ways, while managing risk, given the longer-term down cycle the economy is in today.

Read more: ‘It’s time to taper,’ says Fed’s Fisher

Eventually this down cycle will come to an end, but before it does, the natural state of our economy, which looks very similar to both the Great Depression and stagflation (when inflation is high but the economic growth rate has slowed), will show its ugly head again. The next time it does may also be the buying opportunity of a lifetime (imagine buying at the bottom of the stock market’s cycle during the Great Depression instead), but money must also be available in order to do that. Tip: Raise cash and become proactive.

The Fed is slated to remove its temporary offset to the natural economic cycle and when it does, the weakness will cause growth cycles to come down. That will likely result in margin-debt contraction, multiple contraction, and asset-price reduction.

Clearly the Fed has not yet begun to do this, but when it removes the needle, a short while afterwards the true economy will stand up.

— By Thomas H. Kee, Jr.
Thomas H. Kee, Jr. is president and CEO of Stock Traders Daily and founder of The Investment Rate. Follow him on Twitter @marketcycles.

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EU leaders inch closer to banking union deal

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

Listen to the Article (6 Minutes)

There were mixed messages coming from Brussels on Tuesday, as European finance ministers attempted to hammer out a deal on how to wind down failing banks, in an effort to protect the region from another economic crisis.

The proposed pan-European banking union is set to dominate talks at a meeting of the European Union’s (EU) 28 finance ministers, known as the Ecofin, in Brussels, Belgium, on Tuesday.

But details of the plan have proved controversial, with countries such as Germany – the euro zone’s biggest economy and therefore the largest contributor to rescue efforts – opposed to a system which would see failing banks tap a euro zone rescue fund. This part of the union, known as the Single Resolution Mechanism (SRM), would give a single authority the power to wind down struggling euro zone banks.

(Read more: Germany blamed for banking reform delays)

European Central Bank (ECB) board member Joerg Asmussen said he does not expect a deal on the SRM on Tuesday¸ despite a year-end deadline looming.

“I would expect that on the single resolution mechanism we will manage to narrow down the differences today,” he told CNBC.

“It will be very likely a long evening but I do not expect that we will reach a final agreement already today.”

Banking union is designed to take the burden of rescuing shaky banks off the shoulders of debt-laden countries – one of the main causes of the euro zone’s financial crisis – by moving supervision of the financial sector to a European level.

Under the proposed system, major depositors in failing banks would be the first to be tapped in an effort to stump up the lender, in a Cyprus-style “bail-in” process.

Then, if more cash was needed, national rescue funds generated by individual countries would be used. Only if that fails would a common euro zone fund be called upon. The ECB is due to start overseeing this process – in what is known as the “Single Supervisory Mechanism” – in the autumn of 2014.

But Nicholas Spiro, managing director of Spiro Sovereign Strategy, said there were potential issues, even with the bail-in process.
“While the shift to a bail-in regime for vulnerable banks is necessary – and should have happened a long time ago – it’s very unclear whether markets are ready for this, particularly when it comes to vulnerable Spanish and Italian banks,” he told CNBC.

Compromising results?

Swedish Finance Minister Anders Borg said that all the ingredients were present for an agreement on banking union, but warned of the dangers of a “weak compromise.”

(Read more: ECB’s Draghi: New bank stress tests ‘just the beginning’)

“The most important thing for us is to see an end to fragmentation and a strong recovery. So a broad-based solution that is inducing confidence in the banking system is what we are aiming for,” he told CNBC.

“But there is a great risk that we will once again fail to reach the necessary conclusions and therefore we will continue to see a very weak recovery in the euro zone, where the banking sector in some of the countries will remain very weak.”

Carsten Brzeski, senior economist at ING, also said the “optimal solution” was unlikely.

“The messages coming out from the meeting are still hard to digest. How I read it now is that we will get a second-best solution,” he told CNBC.
Spiro agreed, adding: “You can bet your bottom dollar that whatever deal emerges is going to be a classic EU fudge that conspicuously falls short of the mutualization of risks, thereby undercutting the whole rationale behind a proper banking union.”

(Read more: Trichet: Banking union needed ‘as soon as possible’)

Agreement on both a euro zone resolution authority and rescue fund was unlikely, according to Brzeski, who said that ministers were instead likely to agree upon a mixture of national and euro zone responsibilities.
“Instead of a clear sweep which transfers national responsibility away to a euro zone level, it will be a gradual process in which national governments still have the final say,” he said.

Another Ecofin meeting early next week is likely, according to Brzeski, where the final details of a banking union will be decided.

—By CNBC’s Katrina Bishop. Follow her on Twitter
@KatrinaBishop and Google

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