A Blunder or a Moment of Honesty? - Robert Gates, US Defence Secretary Speaks Out

You Decide? - Please feel free to post your comments regarding this. 

Also you can scroll down towards the bottom of this page to find the Google 'follow' tab on the right hand side. This will allow you to keep fully updated with any future postings here.

Thank you.

The Remarkable Rise of Poland - An EU Success Story

Although most of the media attention during the last two years has focused on the peripheral nations of the EU such as Portugal, Ireland & Greece an economic powerhouse is gradually emerging out of the financial crisis. The country I am referring to is Poland.

While the rest of the EU was going through a severe economic recession, Poland's economy grew at an impressive rate of 1.7%. Even though the recession in the EU is all but over, Poland continues to outpace its neighbours, growing at an annual rate of 3.9% according to the latest GDP figures, the EU average is a meagre 1.5%.

The reason for Poland economic success in the last few years is due in part to a rising consumption rate (presently 3X the EU average), a remarkable demographic profile, with a population that has a 'can-do' attitude to life.

Although Poland has been a stand-out story, it has not managed to achieve this on it own, since its accession to the EU the unemployment rate has plummeted 20%, with the current rate standing at around 8%. This is compared to 9% in the US and an EU average of 10%.

Perhaps the single most significant financial policy from Poland's perspective was the bold step of devaluing its currency the Zloty. Alongside this decision Poland also took a stand not to adopt the Euro until 2015, which in the light of hindsight proved to be a excellent decision given the Eurozone's current economic woes at present.

Poland managed to survive the global economic downturn largely unscathed. This was in part because their economy is domestically driven, similar to that of India. Thus Poland relies less on exports in order to drive its economic growth. Due to Poland's above average consumption rate coupled with the fact that the the economy is 60% driven by domestic activity, prevented the economy from been plunged into recession.

Also migration as result of its entry into the EU has played a major role in driving economic growth. Statistics show that flights into its main airport at Warsaw bare this out. Around a decade ago, 200,000 passengers per year were travelling in and out of the cities airport, today figures are closer to 2m. Wages, alongside the living standards of the majority of the population have also risen.

During the course of past 20 years ties with its dominant European neighbour Germany have also strengthened, this has been especially true in the last 2 years. This has become even more apparent as Germany and Poland have both subscribed to and committed to economic austerity as a consequence of the financial crisis.

Finally, the strength of the Polish constitution should also be taken into account, as it includes debt limits and a banking sector is subject to strict controls, which have prevented Polish citizens from borrowing money in foreign currency. A situation that has nearly crippled country such Hungary.

Source of main article: http://dawnwires.com/investment-news/poland-is-the-new-germany-of-eu/ 

For the opinion of Polands' former Prime Minister Jan Bielecki & why Poland navigated way around the recession please view the video link below.

Source: http://iiea.com/events/fighting-the-financial-crisis--the-experience-of-poland-and-its-neighbours?gclid=CMjRsJWAp6cCFQoa4Qodhj5UBg

Mapping the Arab League - Economist.com Graphics

Cote d'Ivoire on the Brink of Civil War

Armed force that are controlling northern Cote d'Ivoire during the last 24hrs claimed to have seized a town that is/was under government control and are continuing to head south of the country, which is the stronghold of the government.

This has increased the likelihood of all out civil war

There are two main forces at play in battle for Cote d'Ivoire: -

• on one side there are loyal forces of Laurent Gbagbo, the incumbent President
• on the other there is forces of the his opponents that lost power in the previous election under Alassane Ouattara the former Prime Minister.

Left - the current president Laurent Gbagbo, Right - former prime minister Ouattara  

However the UN and foreign governments are putting pressure on the incumbent president Gbagbo to relinquish power to his rival Ouattara who is widely believed to have won the election.

There have even been reports of gunfire in the capital Yamoussouko & Al-Jazeera reports that thousands of people of fleeing the capital as hostilities intensify.

Although the towns that have been the main focus of the fighting recently are small & remote, it is the announcement that rebel forces have seized territory from forces loyal to Gbagbo, that has marked a significant increase in violence.

For a Q & A on the Cote d'Ivoire election

http://www.bbc.co.uk/news/world-africa-11916590

David Cameron - A World View Interview (A YouTube / Al-Jazeera Collaboration)

A Three Stage Crisis - Danial Fermon, SocGen Analyst

Source: http://www.greenenergyinvestors.com/lofiversion/index.php/t8022.html

Source: http://www.greenenergyinvestors.com/lofiversion/index.php/t8022.html

Heading towards a new economic cycle

As governments in developed economies struggle to find new ways to reduce their debt, emerging markets– particularly China– are more concerned about the value of the dollar, inflation imported by high commodity prices and internal political troubles. Thus we could now enter into a new economic cycle where the economic recovery will be short lived in developed countries. 

Fixing these global imbalances will take time, and eventually questions over a revaluation of the Yuan will come into play, as exports start increasing again. This could become more likely than ever as China will be paying high dollar premiums for its commodity imports.

Extracted from SocGen's Cross Asset Research Paper: 

http://www.scribd.com/doc/22756491/SocGen-Worst-Case-Debt-Scenario

The Eurozone Debt Crisis - A Timeline for 2011

This chart comes courtesy of Fitch, which says these are the key dates that will help shape the course of the Sovereign Debt Crisis in the Eurozone.

Judge us by our Actions not our Words - The Voice of Saudi Arabia

It would appear that Saudi Arabia has made good on its promise to increase it oil output. 


The figures also appear to add up. Libya prior to the crisis produced approximately 1.2m barrels a day, however as a result of the crisis oil production has plummeted 70%. 


As a result Saudi Arabia has agreed to increase its oil production by 700,000 barrels per day which would make up for the 70% decline in production in Libya.

South Korea's Little Known Financial Crisis Developing

It would appear that the west has been late to catch on to the fact that South Korea's savings banks are in trouble.  The Wall Street Journal recently reported that there had been a surge in the amount of savings banks that had either temporarily ceased operations or had closed permanently.


Over the past couple of weeks there have been 5 savings banks in the South Korea that have temporarily or permanently closed. The reason for this because more and more people were beginning to withdraw there money from these banks, which resulted in a flood of savers then withdrawing there money. This is what is better know as a 'run on a bank(s)', which looks something like this.

Source: http://www.dailymail.co.uk/money/article-1264945/Northern-Rock-Bradford-Bingley-bad-banks-tied-up.html

Much like the US and the UK, South Korea also has deposit protection/guarantee scheme that protects savers called the KDIC. The KDIC insures people's deposits in accounts (for normal savings accounts). However that fact that savers were withdrawing their deposits at such a rate not only represents a lack of confidence in those banks but also shows that they have little faith that the Korean government will insure their deposits.

This in itself according to the blog koreabridge.net is symptomatic of a more systemic problem, which strikes at that heart of the Korean mindset. That is they are largely distrustful of large, authoritarian entities. Additionally koreabridge.net presents the case as to why this is dichotomy in Korean society, saying that democracy is quite young and the legacy of mistrust of authoritarian regimes understandable. On the other hand Korean's wealth is built up mostly from large corporations AKA chaebol.


The WSJ highlights the problem perfectly saying "  

"The suspensions come as the government tries to head off risks of systemic shocks caused by distressed savings banks, which are suffering from their exposure to the weak South Korean real estate market"

The conclusion that the blog mentioned is that the rising cost of living coupled with declining real estate values is a dangerous combination, which understandably has put savers on edge. This then has the potential to effect the overall economy as consumer confidence gets hit.


Also Reuters has commented that the Financial Services Commission (US equivalent of FDIC - UK equivalent of FSCS) has been trying to assure depositors that the financial health of the other 105 savings banks are sound. Whilst at the same time urging savers not to withdraw too much money [sounds ominous].

Time for the Rhetoric & Talk to Stop and Decisive Action to be Taken in Libya

Shadi Hamid Interview on Bloomberg TV 'In Business with Margaret Brennan'

Feb. 24 (Bloomberg) -- Shadi Hamid, director of research at the Brookings Institution's Doha Center, talks about the need for the international community to take action against the violence in Libya. Libya’s Muammar Qaddafi, who has lost control of much of the country’s oil-rich east, appealed to citizens to end violence as his forces stepped up a crackdown on opponents and more than 100 people were reportedly shot dead. (Source: Bloomberg)

Article 7 of the UN Charter: http://www.un.org/en/documents/charter/chapter7.shtml


Shahi Hamid article from Slate.com - click the link. 

NASA - Space Shuttle Discovery Facts

As the space shuttle Discovery launched into space for the last time, here are a few random facts worth knowing.

Source: http://www.nasa.gov/mission_pages/shuttle/main/index.html

142,917,535 = Total Miles Travelled

351 = days in orbit, equivalent to 8,441 hours

5,628 = number of orbits

38 = total flights

12 = number of International Space Dockings

Construction of the Discovery commenced on August 27th 1979 and was completed on August 30th 1984

It was named after two famous exploration ships: - 

1. was the vessel used by Henry Hudson in the early 1600s, which was used to explore the Hudson bay.
2. after one of two ships used Captain James Cook during the 1770s, Cook's voyages which included navigating the South Pacific eventually led to the discovery of the Hawaiian Islands.

http://www.nasa.gov/mission_pages/shuttle/main/index.html

US Government Shutdown - Unlikely

The US is dangerously close to the Congressionally mandated debt ceiling. So close in fact that it will only take another $200bn in spending to reach the US debt ceiling of $14,300bn. This may sound like a lot but it only equates to roughly 2 months of spending.


This will no doubt expedite proceedings when lawmakers continue to debate the recently published US budget for 2011-2012 from the OMB http://www.whitehouse.gov/omb/budget/Overview.


On Thursday Moody's Investor Services offered its analysis of the potential for a downgrade to the United States Triple-A Sovereign Debt rating. 


Moody's today, has effectively issued a warning to US lawmakers to stand up and take note of their current fiscal situation. 


However, Moody's maintains a relaxed approach saying "The rating is very unlikely to be downgraded in advance of a debt-ceiling driven default, since a missed payment would only result, in our opinion, form an astonishing miscalculation by the government."


Analyst also state that "there is a extremely high probability that there will be a political compromise".


Finally Moody's also says it only places ratings on review for a possible downgrade if there is more than a 25% chance that occurring - this would only happen in the case where both sides of the aisle [Republicans & Democrats] were unable to agree - default at this point would then become probable.


If Moody's did lower the US Sovereign Debt rating this would substantially increase the interests that the US currently pays on its debt. 


Largest US debt holders can be seen here in a slide show courtesy of CNBC: 


http://www.cnbc.com/id/29880401/The_Biggest_Holders_of_US_Government_Debt 


Track the debt ceiling in real-time here: 


http://www.usdebtclock.org/


Article source: 


http://blogs.ft.com/money-supply/2011/02/24/moodys-and-the-us-debt-ceiling/

Israel - Palestinian Tensions Increase

In response to Palestinian rocket attacks on the Israeli city of Beersheba, the Israeli air force launched a bombing raid into Palestinian territory. 

Commenting on the Palestinian attacks Israel says "it holds Hamas responsible for all attacks emanating from Gaza".

The events of the last 24hours have taken a sizeable effect on the benchmark stock exchange in Tel Aviv, with the TA-25 index seeing a 2% decline intra-day. It eventually closed down 1.7%, down 5% for the week.

Source: http://www.tase.co.il/TASEEng/MarketData/Indices/MarketCap/IndexMainDataMarket.htm?Action=1&addTab=&IndexId=142

Also overnight, additional skirmishes took place with the Abu Mustafa brigades saying its fighters launched three mortar shells towards the Nahal Oz military base and a further two towards Israeli infrastructure east of al-Zaitoun according to Maan news agency. 

Further reporting from http://www.bbc.co.uk/news/world-middle-east-12564546

Region in Turmoil - Al-Jazeera Graphics

http://english.aljazeera.net/indepth/spotlight/2011/02/2011222121213770475.html

Saudi Arabia Provides Reason for Optimism

Fears of instability in the worlds dominant oil producing country Saudi Arabia have been eased in the last 24 hours.


The first was the scenes of jubilation that marked the return of King Abdullah's return home yesterday after the king spent three months abroad undergoing medical treatment.

Source: http://www.msnbc.msn.com/id/41733661/ns/world_news-mideast/n_africa/

Saudi Flags line the streets of the capital Riyadh alongside pictures of King Abdullah Bin Abdul Aziz to mark his return home yesterday (23/02)

Also this morning (24/02) Saudi Arabia has announced that it is in active talks with European oil companies to increase crude oil supply. This is to offset the production slowdown in Libya as a result of increasing political and social unrest. These reports were given substance as the source was the FT.

Iraq Could Provide Blueprint for Libya (no-fly zones)

David Owen a member of UK House of Lords has indicated on Al-Jazeera that the United Nations Security Council should take decisive measures and implement a no fly zone over Libya to protect the population. This has come amid growing threats that Colonel Gaddafi is using the power of his air force to bomb protesters on the ground.

He also said that UN Security Council should take the case of Iraq no-fly zones that were put into place after the 1991 Gulf was as blueprint for the implementation of this in Libya.

He also went onto to say the UN Security Council should meet in emergency session tonight and declare the actions in Libya 'a threat to the peace' under the UN Charter. He also said that under article 7 take mandatory action and to declare a no-fly zone for military aircraft over the entirety of Libya. 

This could be enforced by the regional power organisation NATO, who could then ask for further assistance from Middle Eastern nations to give added legitimacy to this resolution.

Furthermore he said that if this is not implemented immediately then 'we could see a wholesale massacre' of Libyan civilians by the morning if Gaddafi makes good on his threat to use the might of his air force to squash the protesters.  Finally he added that there we be 'a serious day of reckoning' if the UN did not take action.


If a resolution is passed by the UN security and the resolution is broken by the leaders of Libya then this would allow the International Criminal Court to put them on trail for war crimes.

FT Reports Indicate Oil Companies Pulling out of Libya

Continuing on from the previous post:


Major western oil companies are planning or in some cases have already begun to pull their employees out of Libya as the crisis in the oil rich North African country escalates.


http://video.ft.com/v/797508954001/Libya-and-oil - Click on this link for a short video clip from John Authers, editor of the influential Lex column. 

• UK oil major BP has said already that it has suspended exploration work in the Libyan desert and has started to evacuate family members and other non-essential staff.
• Statoil the Norwegian energy giant reported on Monday that it had already closed its offices in Tripoli, the Libyan capital.
• ENI the Italian oil company refused to comment on speculation that it to was taking the same actions and said its operations have remained unaffected. 

Libya, is not only the 12th largest exporter of oil in world it is a critical supplier to key European countries such as Germany, Italy and France - the three of which imported last year more than half of Libya's oil.

http://www.ft.com/cms/s/0/702f5730-3dd7-11e0-ae2a-00144feabdc0.html#axzz1EcpGUAAY

Escalating Crisis in Libya Sends Oil Price Soaring

Comments from Saif al-Islam Gaddafi, the son of Libya's embattled leader Moammar Gaddafi indicating the country is on the brink of civil war has sent prices of oil soaring today. 


These comments made last night in conjunction with rumours that western oil companies are preparing or have begun to pull employees out of the country have sent oil prices soaring today.


Also reports indicating that around 200 people have been killed in clashes throughout the country has also increased investor uncertainty over potential short term supply disruptions.


WTI Crude Oil soared 6% to $91.42 a barrel on the futures market in New York. While at the same time Brent Crude in London surged 5.3% to reach $108.01 a barrel.

Libya, is the first country in the ongoing crisis in the Middle East and North Africa that is a significant player in the oil markets. As an OPEC member, Libya accounts for around 2% of daily production, has the potential to have a direct impact on the oil markets as investors have realised today. 

As G-20 Finance Minister's Meet This Weekend -

they should all take a moment to visualise this 

http://www.usdebtclock.org/world-debt-clock.html

& then ask themselves have they done enough.

A New Regulatory Landscape Takes Place in 'the City' - UK

Under new proposals that will be outlined by the Government there will be three Regulatory agencies that will be responsible for upholding the soundness of the overall financial system in the UK.


No. 1 - Financial Policy Committee (Under the Bank of England) Responsible for:-

>Headed by Mervyn King, Bank of England Governor<

• Systemic Risk - macroprudential supervision
• watch for and deflate credit bubbles
• monitor shadow banking

No. 2 - Prudential Regulatory Authority (Under the Bank of England) Responsible for:-

>Headed by Hector Sants<

• oversight of safety and soundness of banks and insurers - microprudential supervision

No. 3 - Financial Conduct Authority (Independent Agency) Responsible for:-

>Headed by Martin Wheatley<

• investor protection
• market supervision and regulation
• business conduct of banks and financial services
• civil enforcement of market abuse rules
• UK listing authority

Source: Financial Times, Thursday February 17th 

The J-Curve in Action Throughout the Middle East - FT Reports

How has the death of a Tunisian citizen opened a can of worms that may never be closed in the Middle East. According to an article published on the FT.com website, the events while been chaotic and disorderly in nature are part of 'powerful political phenomenon' been played out before our very eyes. 

http://english.aljazeera.net/watch_now/


This 'powerful political phenomenon' known as the J-Curve or the dip in stability as countries move from closed to open societies. This is a possible explanation of why so many autocratic governments in the region may be caught in a trap they cannot escape.


According to the J-Curve, the theory goes like this:- 

The theory goes like this. If you plot the relationship between a country’s stability (on the vertical axis) and its social and political openness (on the horizontal axis) the points that mark every possible combination of openness and stability will produce a pattern that resembles the letter J. Most countries start off closed and stable (think: North Korea). Many end up open and stable (like Britain). But in between there is a turbulent transition. Some governments, such as post-apartheid South Africa, survive this transition. Others – the Soviet Union, Iran under the shah and the former Yugoslavia – do not

Another factor must also be added to the equation, this is the impact of globalisation and the substantial effect it is having on the the youth population of the Middle East. Most notable is the effect that social media websites such as twitter and facebook are having on the region, most recently in Egypt, which gave people the ability to organise mass protests and demonstrations as never before. This was immediately recognised by the security services and the government who moved to cut off the internet and ordered companies such Vodafone to temporarily shut down their network.

The J-Curve a relatively recent theory was first brought to public attention in 2006 and proved to be quite controversial. This was because it was hijacked by people seeking to explain the unstable environment in post-war Iraq. The current events in the Region provide a much better example of the Theory in action.

Although the J-Curve presents a convincing argument for what is currently going on in the Middle East it does have drawbacks. That is, strong authoritarian regimes such as China and to a lesser extent Saudi Arabia that have maintained strong economic growth that have effectively pushed up the J-Curve.

There are two possible outcomes in the Middle East based upon this theory:- 

1. that is the the leaders can hope to suppress the populations of the most isolated countries in a bid to cling onto power. However Tunisia's leader Ben Ali learnt the hardest possible way this isn't always possible.
2. alternatively there is the Jordanian solution been implemented by King Abdullah, which is to gradual put in place reforms - however this also carries risks. Since it is real reform people are after, this presents increased risks since this requires their respective leaders to surrender some forms of state control. This could very well hasten the pace of change.

Jordan is been closely watched by Saudi Arabia, Kuwait and more significantly given recent events over last few days Bahrain. As Jordan is gradually allowing its citizens more freedom of speech, if this backfires then it will make the leaders of the other three countries deeply reluctant to follow its lead.

Given the substantial income from their natural resources i.e. oil & gas, sweeping political reform is made a great deal easier than in Jordan, a country which relies heavily on foreign aid for its survival.

But going back to the root of this crisis [Tunisia] countries such as Saudi Arabia & Jordan know full well that it only takes a spark to ignite a country. Even those who can afford instability that accompanies the depths of the J-Curve may be fearful to begin the journey best exemplified by Egypt 

Purchase the J-Curve here Amazon.co.uk

European Debt Crisis Returns to Fore - Reports From Financial Times Highlight

There is growing concern regarding Portugal's ability to raise money in the capital markets. This has sparked increasing fears of a potential default in one the Eurozone members, which sent the yields on Portugal's 5 year bond to the highest level since the formation of Euro.

Additionally the 10 Portuguese bond widened against the German 10 year benchmark to levels not seen since November last year. The spread between the German and Portuguese 10 year bond to 415 basis points. (see previous post about sovereign debt for charts)

Crucially the overnight lending rate, which plunged as a result of the huge emergency liquidity that was injected into the system by the European Central Bank has now risen back to levels close to the ECB refinancing rate of 1%. The reason why this is of such significance is because when the refinancing rate rises, it indicates that there is demand for emergency loans. So as the interbank lending rate increases, one would expect the demand for emergency funding to increase along with. These putting investors on edge.

http://www.ft.com/cms/s/0/16a94878-3acc-11e0-9c1a-00144feabdc0.html#axzz1EK0iPhZm

Egypt - A Possible Glimps into the Future

A recent chart has been making the rounds in the blogosphere, regarding how a future Egypt could look. This chart was originally found on the blog Zero Hedge at http://bit.ly/eODr1H, however the main source for charts comes from EFG Hermes a leader investment banking firm in the Middle Easter Region.

This chart lays down a possible path for the future of Egypt during the next 2-3 years. Although charts fail to capture the true complexities of events on the ground or external events, which could effect the development of Egypt.

However for people interested in how the broad economic development could shape Egypt into future, this chart is for you.

 

Below is an overall summary of the report released by EFG Hermes

We believe the recent political events in Egypt will have a negative short-term impact on the macroeconomic environment, although the events provide hope for a significant move to a more liberalised political and strengthened economic framework in the medium term. We aim to provide some initial guidance on the economic impact of the situation and possible implications for interest rates and the EGP outlook. We highlight, however, that given the high level of uncertainly, this is an initial analysis, and we will refine our view as developments unfold.

NOT AN ECONOMIC-OR FINANCIAL-TRIGGERED EVENT

Importantly, Hosni Mubarak ceding power to the military on 11 February will speed up the process in restoring economic and political stability and a return to normality, albeit under a transitional political period. We believe it is important to note that when comparing Egypt’s current position to earlier global crises that this is led by political developments and not sparked by a financial or currency crisis. Thus, we believe Egypt will be in a strong position to intervene in the economy, despite the fact that political developments will have a profound impact on the economy, with Egypt having limited fiscal space, even pre-crisis, and inflation stubbornly remaining above 10.0%.

We believe that there are two critical areas of support – the ample FX reserve position and a strengthened banking sector (with improved liquidity and greater NPL coverage) – unlike a financial-led crisis, which places substantial stress on the economy. Vitally, the ample net foreign asset (NFA) position should help to manage any periods of downward pressure on  the EGP and allow a managed weakening of the currency. We believe that a gradual weakening will be an important anchor for the economy, leading to a return of confidence. The FX reserve position allows the Central Bank of Egypt to intervene to ensure ample liquidity in the banking system, if required, to meet the government’s borrowing requirements as external funding comes under pressure.

 Source: http://www.zerohedge.com/

The Sovereign Debt Crisis in Europe is Far From Over: 10-Year Government Bonds Illustrate

The European Sovereign Debt crisis is far from over and while the equity market seemingly hits new 52 week highs on a daily basis, behind the scenes bond traders are increasingly pessimistic regarding the financial health of Europe.

Specifically, bond traders are again beginning to price in the likelihood of default in one or more of the Eurozone's peripheral nations or so-called PIGS. This is no more clearly demonstrated than in the 10 year Government Bond Yields of those countries (see below for countries in question).

Firstly I use Germany, which is the Benchmark 10-Year Government Bond in Europe - Bond yields above this indicate additional risk for investors.

Germany 3.29%

 

Spain 5.38%

Portugal 7.31%

Greece 11.52%

Ireland - 9.09%

While the 10-Year government bond yields of Greece, Spain, Portugal and Ireland have continued to widen against the benchmark 10 German bond, European equity markets have continued to set new 52 week highs.

FTSE-Eurofirst 300 Index - Click this link to get a breakdown of the constituents that represent this market.

Source: http://markets.ft.com/ft/tearsheets/performance.asp?s=599139&ss=wsodissue

The bond market based on the above appears to be less then convinced by the policy measures implemented so far by Jean-Claude Trichet and the European Central Bank i.e. http://www.efsf.europa.eu/about/index.htm (Click this link for an overview of the most comprehesive solution so far to the European Sovereign Debt Crisis - The European Financial Stability Facility)

The ultimate question here is, who is going to blink first [the bond or equity trader]? - clearly both cannot be right about the health of the overall European economy.

Nasdaq Responds to NYSE Deal With DB - Clearing & Exchange M&A Activity Surges

In response to the latest round of M & A activity in the Clearing and Exchanges Market, Intercontinental Exchange (ICE) and the Nasdaq OMX group are apparently in the critical stages of strategic talks. To substantiate these claims further both boards have hired Bank of America to advice on the possibilities of a strategic partnership between Nasdaq OMX and ICE.

Tweet "Nasdaq/ICE talks reach a critical stage as both boards notified & Nasdaq hires BAC to look at strategic moves in response to NYSE/DB deal." from Charlie Gasparino of Fox News Network

Additional M & A activity in the Exchanges and Clearing Market;

1. Hong Kong Exchange merger with the Australian Securities and Exchange
2. London Stock Exchange merger with the Toronto Stock Exchange (this is a bid to create what would become the largest exchange for mining companies at a time of soaring commodity prices)
3. The Shanghai Stock Exchange and the BM&F Bovespa (the largest exchange in Latin America) are to announce next week the cross-listing of stocks - This represents a deepening of ties between the two emerging market powerhouse and two member of the so called 'BRIC' nations.

 http://blogs.ft.com/beyond-brics/2011/02/17/shanghai-brazil-join-bourses/

http://www.bbc.co.uk/news/business-12400785

 http://blogs.barrons.com/focusonfunds/2011/02/17/nasdaq-ice-get-boost-from-reports-of-more-talks-nyse-up-1/

http://www.ft.com/cms/s/0/6ad9485a-3610-11e0-9b3b-00144feabdc0.html#axzz1EErqaxFY

Charting Egypt / China GDP 1-2008

Felt the need to publish this interesting chart in light of recent events in Egypt and the continuing China growth story.

UK (un)Employment Figures Another Cause for Concern

Today, the UK population were given further cause for concern, regarding the strength of the UK economy, when the Office for National Statistics (ONS) released the latest round of employment data for the three months ending December 2010.

The figures showed the UK unemployment rose by 44,000 to almost 2.5m, perhaps the most concerning extrapolation from this report is that youth unemployment rose to a record high with one in five 16-24 year old out of work a rise of 66,000 to 965,000.

• The UK unemployment rate now stands at 7.5% with youth unemployment running at a deeply worrying 20.5%.
• The number of people now seeking Job Seekers allowance also rose by 2,400 a month to 1.46, also putting further pressure on the UKs fiscal position at a time when the government is aiming to reduce the welfare bill in a bid to cut the deficit.

David Cameron also seems to be concerned by the high youth unemployment rate, saying that is was a "matter of great regret".

Most analyst expect the UK unemployment rate to rise further as the government continues to cut public spending in order to reduce the public deficit. However this could also have the adverse effect, since the number of people claiming Job Seekers allowance continues to rise.

Inflation Report (CPI & RPI) Fuel MPC Hawks Case for a Interest Rate Rise - UK

Yesterday saw the rate of Inflation or the Consumer Price Index (CPI) in UK rise to 4%, a jump from 3.7%. The Retail Price Index (RPI) saw another increase to 5.1% from 4.8%, this combined with the recent in VAT is putting significant strains on the public purse. RPI, also include the interest repayment on mortgages.

Both of these statistics will put increasing pressure on the Bank of England to raise interests rates in order to curb accelerating inflation. An oddity in the UK is that when the UKs is that Bank of England Governor is required to write a letter to the Chancellor of the Exchequer when the CPI figure exceeds the target rate of 3%. This is now the third such letter that Mervyn King has written to Chancellor.

The letter highlighted that Mervyn King expects inflation to rise to around 5% in the coming months, giving further ammunition Monetary Policy Committee (MPC) policy hawks to raise interest rates. However Mervyn King remains defiant, saying that interests rates should remain on hold, saying that he expects inflation to fall back "so that is about as likely to above the target as below the target in the next two to three years. The UKs interests rate currently stands at 0.5%, an historic low.

(see video below for Mervyn King's response to this latest inflation report)




Mervyn King also cites three reason for sharp rise in inflation;

1. VAT rise
2. the past weakness in the pound
3. & the recent rise in commodity prices 

There has already been political fallout from the latest round of CPI/RPI data, commenting on Radio 5 live Ed Balls the newly appointed Shadow Chancellor (Labour) said that the rise in VAT was a mistake. George Osborne the Conservative Chancellor has said the rise in VAT was a necessity in the order for the UK to put its fiscal house in order, citing Labours decision to cut VAT temporarily to 15% last year.

While there is growing pressure on the MPC to vote for an interest rate rise, analysts say the they should hold off until the governments austerity (cost-cutting) measures are fully in place. Perhaps the strongest argument against raising rates now is that the UKs latest GDP figures showed a decline of -0.5% in the final quarter of 2010 - this was before the rise in VAT was put into place.

http://www.bbc.co.uk/news/business-12462901

Middle Eastern Leaders Are Reaping Their Own Whirlwind

A common theme seems to be prevalent throughout the Middle East where significant uprisings have taken place this has be brought to the fore, firstly by Tunisia and more significantly by Egypt.

Five common themes are;

1. lack of true democratic reforms which have brought about anger & frustration among the general populace of Algeria, Yemen & Jordan
2. rising commodity prices and inflation that has sent prices of basic foodstuffs soaring, which has not be match by wage increases
3. poor housing and living standards that have been further aggravated as their respective leaders live in luxury - take for example the recent declaration that the Mubarak family has wealth in excess of $40bn.
4. the leaders of countries such as Jordan, Algeria and & Yemen have become corrupted and out of touch with the people they are supposed to govern - this was particularly evident given the recent speeches by Hosni Mubarak who refused to listen to the the demands of his people and resign. 
5. lack of basic freedoms; such freedom of the press & speech - most evident in most countries in the region as internet and telecommunications have been cut.

Too frequently people in the Middle East have been promised change, but little or none have materialised. This situation has finally been brought to a head in the last month. Already leaders are recognising even before the fall of Mubarak changes need to be made and rapidly

The fear now for the leaders of Jordan, Algeria and Yemen is that events may well overtake them as they scramble to initiate reforms to placate their discontented population(s). However, since the people have been promised reforms before which have bore little fruit, the people may well decide to take it upon themselves to expedite events.

Bulls Driving Bears to the Brink of Extinction - Doug Cass

With the S&P 500 having soared 27% in the last 5 months, this market seems to be headed in only one direction. No meaningful market correction has been made in this 5 month period, which has skeptics such as Doug Cass of Seabreeze Partners believing the rally is due for correction.

To further highlight his case, Cass lays out 4 potential reasons why the rally could come to a grinding halt;

     1. The recent decline in the Emerging Markets, made most evident in the EEM ETF, which has seen a correction of over 5% since its 52 week, while the US markets i.e. The Dow Jones, the S&P 500 and the NASDAQ hit new 52 almost on a daily basis. A recent article in the FT highlighted that there had been a massive $7bn outflow of capital from emerging markets. This historically has been a leader indicator of a pullbacks in the developed market. The one question he asks is "if emerging markets are the worlds economic drivers, then why are investors pulling out"?. However one possible answer could have been the political uncertainty, which has developed in the Middle East in the last month.

     2.  Cass also highlights that even though Mubarak has been overthrown, there is still a substantial amount     of Geopolitical mess in the region with no clear solution in sight. Additionally further uprisings are very likely, especially in Yemen and Algeria the consequences of which are unknown.

     3. Raw Materials Inflation - Cass feels that investors are presently ignoring the impact of higher input cost, which have been brought attention most recently in PepsiCo's earnings report http://www.nytimes.com/2011/02/11/business/11pepsi.html?_r=1&partner=yahoofinance. This will inevitable have an impact on companies gross margins or alternatively prices will be passed onto consumers, which will have a trickle down effect on the overall economy as they cut personal spending.

See charts here:
http://www.finviz.com/futures_charts.ashx?t=SOFTS
http://www.finviz.com/futures_charts.ashx?t=GRAINS


     4. Lastly, he highlights "the rate of the rise in bond yields may be nearing a tipping point" - he then goes on the say that he is a little concerned by how the futures market indicates a lower market in the morning but then by the close, equity markets are positive. At some point the train has got to come of the track.

Also the fact that trading volume as been pathetically low for some time now is another sign of potential weakness in this rally, on Friday for example only 7.7bn shares changed hands compared to last years average at this time of 8.47bn. This is a possible sign of waning investor interest as the market continues to trade in narrow range, with a steady upward momentum.

Who Could Become the Next Egypt - 11 Potential Candidates

Ayn Rand Returns...to the Big Screen

For fans of the 20th century cult literary figure, you will be delighted by the announcement that Atlas Shrugged is coming to the big screen on April 15th.

http://www.atlasshruggedpart1.com/atlas-shrugged-movie-trailer

Congratulations to the People of Egypt - May the Transition Be Peaceful and Fruitful

A Personal message to the people of Egypt

I would like to congratulate the people of Egypt for their determination to bring about peaceful change to their country and to begin what we all hope will be a more prosperous future for all Egyptians. This revolution would have made even the Founding Fathers of US proud. A truly historic moment in Middle Eastern political history, which has echoed the fall of the Berlin Wall that led to a seismic shift throughout vast swathes of central and eastern Europe.

Already your actions have propelled others into action in countries like Yemen, Algeria & Jordan who seek a more equal, fair and democratic society.

Also I would like to take this moment to praise al-Jazeera's coverage of the events in Egypt that have taken place over the last 18 days. The network has provided unrivalled coverage of this historic moment in the countries proud history and continues in my opinion to be the leader in the field of providing international affairs news.

Continuing live coverage can be found here http://english.aljazeera.net/watch_now/

The Moment of Mubarak's Resignation - Jubilation in Tahrir Square

Egypt Maintains Business as Normal Away from the Media Spotlight - Live Stream via http://english.aljazeera.net/watch_now/

Source: http://www.theglobeandmail.com/report-on-business/egypts-suez-canal-still-open-for-business/article1889511/

Additionally looking at sea traffic surrounding the port of Alexandria, life would appear to be proceeding as normal - see below diagram.

Source: http://www.marinetraffic.com/ais/

What can clearly been seen here is there are a substantial amount of Cargo vessels and oil tankers in and around the port. Notice the highlighted section in the center at the bottom which shows the quantity of vessels in range of this map, which demonstrates there is still a substantial amount of activity around Egypt. This goes against the mainstream media, which has focused almost solely on the demonstration in Cairo while paying little attention to other areas of Egypt which some would argue are more significant. Since it is the ports and oil industry are the lifeblood of the Egyptian economy which has been growing at or around 7% annually since 2005.

Also the below picture shows just how close the primary oil pipeline in Egypt the "Sumed Pipeline" runs to Cairo, which throughout the crisis has continued to flow without disruption.

Source: http://www.eia.doe.gov/emeu/cabs/Egypt/Suez.html

This has been the main course of concern for investors, which is why you have seen a spike in the volatility of oil price recently with Brent Crude oil soaring above $100 a barrel in London. However upon hearing the news of Mubarak's resignation earlier today oil prices have dipped below pre-crisis levels.

A huge investor in Egypt's oil is the US oil major Apache, which gets approximately 24% of its revenue from Egypt. (see below chart) has seen a negative impact on its share price as the tensions have escalated throughout Egypt. Investors reasoning behind this was because of the potential for supply disruptions and potential for the government or military to cut of supplies or force out western companies as part of a backlash against America or the west in general.

Source: http://www.apachecorp.com/Operations/Egypt/index.aspx

After the announcement of Mubarak's resignation, investors can clearly be seen moving into shares of Apache as confidence of potential supply disruptions eased.

Source: http://www.nasdaq.com/aspx/chartingbasics.aspx?intraday=on&timeframe=intra&splits=off&earnings=off&movingaverage=None&lowerstudy=volume&comparison=off&index=&drilldown=off&symbol=APA&selected=APA

To conclude, despite all the attention by the mainstream media on the events in Tahrir Square, business through trade and commerce continues virtually unabated throughout Egypt.

Investors Appear to Welcome Mubaraks Resignation - Evidence the EGPT

The huge spike on substantial volume in shares of the EGPT Exchange Traded Fund would appear to highlight investor optimism.

Souce: http://stockcharts.com/h-sc/ui?s=EGPT

Just looking at the surge in the price of shares in the EGPT ETF on substantial volume shows that after news initially broke that Mubarak was resigning that investors would appear to welcome the news. This Exchange Traded Fund has been coined the futures exchange for the main Egyptian market, which has been closed for nearly two weeks. Also the MACD (see bottom section of chart) shows that there is clearly upward momentum in this ETF, especially in light of the huge pessimism that was prevalent during the past two weeks.

Also notice that the share price has almost recovered to pre-crisis levels. Another potentially good sign.

A Military Coup or Not? - Egypt

The main question surrounding the resignation of Hosni Mubarak will be the that the role that the military has played given the significance of the meeting of the Supreme Council of Armed Forces which took place yesterday (see previous post).

Also what is significant is that the communique that was released yesterday after the meeting coined "communique number 1" - this, commentators were saying was possible the first document of the new Egyptian regime. Now in the light of hindsight it would appear that this document was the 'first document of the new regime' in Egypt from the armed forces who appear now to be in control of the country.

The Egyptian Constitution can be found here: http://www.egypt.gov.eg/english/laws/constitution/default.aspx

Amusing Tweets Regarding Mubarak

From @50RM

"new dictionary word Mubarak (n.): a psychotic ex-boyfriend/ex-girlfriend who fails to understand its over"

Also long similar lines @HUSSEINANWAR tweets

"no, Mubarak is another word for glue. I will "Mubarak" my poster on the wall... for example"

and finally from @BOROWITZREPORT

"Mubarak is now officially Egypts first zombie president"

Tweets courtest of Al-Jazeera.

The End of Ultra-Low Mortgages in the US.

Recent data released in US shows that the average 30-year fixed rate mortgage has exceeded 5% for the first time in 10months, rates now stands at 5.05%. To put this into perspective the average monthly cost for $300,000 home loan now stands $1,620 compared to $1,462 just a few months ago.

This has the potential to severely dent US consumer confidence, the consumer being the a primary driver of economic growth given that they contribute up to 70% of the GDP.

Furthermore, a report released by the Federal Reserve a couple of weeks ago, highlighted that the housing market remains "depressed". Adding to these concerns is the number of foreclosures in December, which stood at 2.2m (a record). Add to that rising home prices, which increased by 0.2% in the fourth quarter of 2010, still leaves significant room for improvement in the US housing market.

Tahrir Square - Firmly Entrenched in Egyptian History

Tahrir Square is seeing history repeating itself given that it has previously played host to another revolution in Egypt. Back in 1952 the square will filled with protesters who sought the removal of King Farouk. King Farouk was successfully overthrown and Egypt was placed under military rule under the leadership of Gamul Abdul Nasser. Two years later the square was renamed Liberation Square.

Source: http://rotaryeltahrir.org/

Liberation Square is the focal point of life in Cairo, the Egyptian capital, as the surrounding area is packed with some of Egypt's most prominent buildings. Buildings such as:

• the Egyptian Museum, which was tragically looted during the protest last week,

• the National Democratic Party (NDP) Headquarters, 

• the Mogamma government building, 

• the Headquarters of the Arab League 

• as well as the original downtown campus of American University. 

Source: http://www.bbc.co.uk/news/world-middle-east-12340082

The square is of such national importance one national newspaper is quoted as saying "whatever happens in Tahrir Square immediately becomes a national concern"  The square has also been the a traditional staging ground for Cairenes with grievances against the government, an examples being the bread riots of 1977 or more recently protests against the US-led invasion of Iraq in 2003.

Source: http://www.guardian.co.uk/world/2011/feb/01/ahdaf-soueif-egypt-protests