Author Archives: Adela Rogers

Turkey, a Bright Light in Emerging Markets?

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Kristoff Saunders write:  While some emerging markets are facing sharp declines in growth and investment, Turkey is holding out, experts said, remaining both a growing economy, and a significant presence in global politics

“The Turkish economy should see growth in the third quarter, and will substantially recover in the fourth quarter,” forecast Bora Tamer Yilmaz, an economist with Ziraat Securities. Growth is forecast at 3 percent for the quarter by a number of economists.

The recovery in Europe will contribute significantly to Turkish growth this year, Standard & Poors said in a report published on Oct. 1.

Some emerging markets are facing “their fifth consecutive year of declining rates of growth”, warned Christine Lagarde, managing director of the International Monetary Fund in a speech on Thursday.

“This outlook is heavily affected by major economic transitions — namely, China’s transition to a new growth model and the normalization of U.S. monetary policy — that are creating global ripple effects or spillovers and spillbacks,” Lagarde said.

The Institute for International Finance has said that, for the first time in nearly 30 years, more money is leaving emerging markets than entering them. The institute projected net outflows of $541 billion in 2015, according to a note published on Oct. 1 on its website.

Brazil and Russia are especially affected, and, indeed, are already in recession.  Malaysia is experiencing slow growth, forecast to hit only 4.5 percent in 2015, according to the Malaysian Finance Ministry. Growth in China is below 7 percent this year.

But the Turkish economy grew 3.8 percent in the second quarter, according to Finance Ministry statistics. Industrial production was up 0.3 percent in July, TurkStat said, and domestic demand was up 0.4 percent in the same month.

Lagarde pointed out in her speech that financial risk is high for many emerging markets, due to high levels of debt.

But Turkey is less exposed to this kind of risk, Paul Gamble, senior analyst at Fitch Ratings told Anadolu Agency.

“Another reason that we affirmed the rating, there has been no issue with the banks or corporates’ ability to roll over maturing debts. They still have comfortable access to capital markets. In fact, even if there is an abrupt change in the capital markets’ financing conditions, Turkish corporates and banks have comfortable foreign exchange positions,” he said.

Moreover, with foreign direct investment still substantial, at $9.71 billion from January to July, according to the central bank, Turkey is holding out well despite the difficult global climate for investment.

“We expect the economy to improve and grow moderately this year, and more rapidly in 2016,” Yilmaz said.

What’s more, Turkey’s influence in geopolitics is still significant, despite political uncertainty, experts said.

Turkey is expected, for example, to play a major role in the settlement of the conflict in Syria, according to Sinan Ulgen, executive chairman of the Istanbul based EDAM think tank, and managing partner of the consultancy Istanbul Economics.

Turkey to EU?

EU: Back to Nation States or Forward to a Community of Shared Values?

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Joshka Fischer writes: Until a few weeks ago, Europeans believed they lived in a kind of sanctuary, insulated from the world’s current conflicts. Certainly, the news and images of drowned migrants were dreadful; but the tragedy occurring south of Italy, Greece, and Malta, seemed a long way off.

Syria’s brutal civil war, which has been raging for years, seemed even farther away.

So, sometime this summer, when the last glimmer of hope of a return to Syria disappeared and an alternative to Assad and the Islamic State no longer seemed realistic, these people started heading toward Europe, which seemed to promise a future of peace, freedom, and security. The refugees came via Turkey, Greece, and the Balkan states, or across the Mediterranean to escape similar chaos in Eritrea, Libya, Somalia, and Sudan.
In August, thousands of refugees became stranded at Budapest’s Keleti train station for days on end when Hungary’s vexed and incompetent government deliberately allowed the situation to escalate.

Eventually, thousands of men, women, and children – and even old and disabled people – started to make their way on foot toward the Austrian border. At this point Europe, witnessing an exodus of biblical proportions, could no longer ignore the challenge and the consequences of the crises in its neighboring region. Europe was now directly confronted with the harsh realities from which it had appeared to be a sanctuary.

The European Union lacked the civilian, diplomatic, and military tools needed to contain, let alone resolve, the crises and conflicts in its neighborhood. And, once the migrants headed for Europe, the EU’s common asylum policy failed, because the so-called Dublin III agreement provided no effective mechanism to distribute asylum-seekers among all members states after their initial registration in EU border states (in particular Greece and Italy). Italian Prime Minister Matteo Renzi’s call for European solidarity went unheeded.

Merkel took the brave and correct decision to let the refugees enter Germany. For this, she deserves wholehearted respect and full support, all the more so in view of the icy response of many within her own party.  But Merkel was not alone in embodying humane values at this decisive moment. Civil-society groups in Germany, Austria, and elsewhere mobilized to a hitherto unseen extent to meet – together with the public authorities – the enormous challenge posed by the influx. Without the public’s active empathy, the authorities would never have managed. With the support of such ad hoc coalitions, Europe should do whatever it takes to ensure the refugees’ successful integration.

The influx launched during the “refugee summer” will change Germany and Europe. The EU will be able to address the challenge – and seize the opportunity – of integrating the newcomers only together and in the spirit of European solidarity. Should unity crumble in this crisis, the consequences for all parties involved – especially the refugees – will be grave.

First and foremost, a new, effective system for securing Europe’s external borders must be established as quickly as possible. This includes a joint procedure for judging asylum claims and a mechanism to distribute the refugees among EU countries fairly. Moreover, if the EU wants to maintain its core values, including the abolition of internal borders, it will need to focus on stabilizing its Middle Eastern, North African, and Eastern European neighbors with money, commitment, and all its hard and soft power. A united approach will be crucial.

But Europe should avoid the kind of dismal realpolitik that would betray its core values elsewhere. It would be a grave mistake, for example, to sell out Ukraine’s interests and lift the sanctions imposed on Russia out of the mistaken belief that the Kremlin’s assistance is needed in Syria. Cooperation with Russia, however useful and advisable, must not come at the expense of third parties and Western interests and unity. Attempting to redeem past mistakes is not advisable when it means making even bigger ones.

To be sure, there is a risk that the refugee crisis will strengthen nationalist and populist parties in EU member states. But the renationalization of politics within the EU gained traction long before the summer of 2015, and it is not a result of the refugee crisis. At its heart lies a fundamental conflict over Europe’s future: back to a continent of nation-states, or forward to a community of shared values? Convinced Europeans will need to marshal all their strength – and muster all their nerve – in the times ahead.

 

Can Finance Save the Planet?

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Jean Pisani Ferry writes:  Most people hate finance, viewing it as the epitome of irresponsibility and greed. But, even after causing a once-in-a-century recession and unemployment for millions, finance looks indispensable for preventing an even worse catastrophe: climate change.
Action is urgently needed to contain global warming and prevent a disaster for humanity; yet the global community is desperately short of tools. There is not much support for the most desirable solutions advocated by economists, such as a global cap on greenhouse-gas emissions, coupled with a trading system, or the enforcement of a worldwide carbon price through a global tax on CO2 emissions.

Instead, negotiations for the United Nations Climate Change Conference in Paris in December are being conducted on the basis of voluntary, unilateral pledges called Intended Nationally Determined Contributions. Although the inclusion of voluntary targets has the merit of creating global momentum, this approach is unlikely to result in commitments that are both binding and commensurate to the challenge.
That is why climate advocates are increasingly looking for other means of triggering action. Finance is at the top of their list.

For starters, finance provides an accurate yardstick to gauge if deeds are consistent with words. In 2011, “Unburnable Carbon,” a path-breaking report by the nongovernmental Carbon Tracker Initiative, showed that the proven fossil-fuel reserves owned by governments and private companies exceed by a factor of five the quantity of carbon that can be burned in the next 50 years if global warming is to be kept below two degrees Celsius.
Reserves held just by the 200 top publicly listed fuel companies – thus excluding state-owned producers such as Saudi Arabia’s Aramco – exceed this carbon budget by one-third. And that means that these companies’ stock-market valuation is inconsistent with containing global warning.

This realization prompted a campaign to convince investors to divest from carbon-rich assets. Individuals and institutions representing a $2.6 trillion portfolio have already joined the divestment movement. Furthermore, Bank of England Governor Mark Carney has highlighted the threat represented by potentially stranded carbon assets. Investors are being warned that, from the standpoint of financial stability, “brown” securities bear specific risk.
The amount of divestment may look big – and it is, particularly given that the campaign started recently. Yet $2.6 trillion amounts to less than 5% of global private non-financial securities. The trend is real, but it is still too little to trigger significant changes in fossil-fuel companies’ valuation and behavior.

A second reason why finance matters is that the transition to a low-carbon economy requires huge investments. According to the International Energy Agency, global investment in energy supply currently amounts to $1.6 trillion annually, and 70% of it is still based on oil, coal, or gas. Green investment amounts to only 15% of the total, and investment in energy efficiency – in buildings, transport, and industry – totals a meager $130 billion. Containing the increase in average surface temperature to two degrees requires developing clean technologies, and even more important, a four-fold increase in investment in energy efficiency over the next ten years.

The real hope among climate specialists is that innovative finance could help provide the planning clarity that is currently missing. To elicit the investments that are necessary to mitigate climate change and green the economy, the elimination of fossil-fuel subsidies and a credible, fast-rising path for the price of carbon are vital. But, because high fuel prices are unpopular with consumers and raise competitiveness concerns among businesses, governments are reluctant to take action today – and may renege on their commitments to act tomorrow.

To overcome such trepidation, advocates for climate action are turning to incentives. Some have recommended that governments issue CO2 performance bonds, whose yield would be reduced if companies exceed their carbon target. Another idea, put forward in a recent paper by Michel Aglietta and his colleagues, is to map out a path for an indicative price of carbon called its “social value” and provide green project developers a government-guaranteed carbon certificate representing the value of the corresponding emissions reduction. Central banks, they suggest, would then refinance loans to such developers, up to the value of the carbon certificate.

This would amount to a calculated bet. If the price of carbon in, say, ten years, actually corresponds to the announced social value, the project will be profitable and the developer will repay the loan. But if the government reneges on its commitment, the developer will default, leaving the central bank with a claim on the government. Failure to increase the price of carbon would result either in higher public debt or, in the case of monetization, inflation.

The idea is to force governments to have skin in the game, by balancing the risk of inaction on the carbon tax with the risk of insolvency or inflation. There would be no procrastination. Action against global warming would take place without delay. But a decade or so later, governments – and societies more broadly – would need to choose between taxation, debt, and inflation.
Undertaking massive investment now and deciding only later how to finance it looks irresponsible – and so it is. But not acting at all would be even more irresponsible.

Financing a Clean Planet

Is Systematic Investing Safer?

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Robin Wigglesworth writes: Since the bruising losses of the financial crisis investors have sought out novel and complex ways to play markets more safely. Many have increasingly turned to computer-driven “systematic” investment strategies that aim to maximise returns while mitigating risks — whatever the market conditions.

The attractions are understandable. Many traditional fund managers’ investment returns have consistently underperformed, though this has not diminished their hefty fees. This has burnished the appeal of the systematic investment industry, the creation of a new generation of scientist asset managers who use complex algorithms to beat the market. Freed from the shackles of human bias and slow reaction, their funds harness computer power to constantly and automatically exploit millions of minuscule investment opportunities, using sophisticated risk management tools that aim to tame volatility rather than be terrorized by it.   Systematic Investing

Computer trading

SEC Insists on Compliance in Bond Offerings

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Matt Levine comments on the trend to file required financial documents when municipalities issue bonds:

The SEC found that between 2010 and 2014, the 22 underwriting firms violated federal securities laws by selling municipal bonds using offering documents that contained materially false statements or omissions about the bond issuers’ compliance with continuing disclosure obligations. The SEC also found that the underwriting firms failed to conduct adequate due diligence to identify the misstatements and omissions before offering and selling the bonds to their customers.

Sampling the individual settlements brings up a lot of due diligence errorslike this:

Respondent acted as either a senior or sole underwriter in a municipal securities offering in which the official statement essentially represented that the issuer or obligated person had not failed to comply in all material respects with any previous continuing disclosure undertakings. In fact, certain of these statements were materially false and/or misleading because the issuer or obligated person had not complied in all material respects with its previous continuing disclosure undertakings. The offering in which the official statement contained false or misleading statements about prior compliance was

  • A 2011 negotiated securities offering in which an issuer failed to disclose that it filed an audited financial report on the MSRB’s Electronic Municipal Market Access system 499 days late, and failed to file the required notice of late filing.

That is: Municipalities issue bonds. When they do that, they promise to file current financial statements in a publicly accessible way. Sometimes — quite frequently, it seems — they forget to do that, or stop doing it, or whatever explains being a year and a half late with the financials. Then they want to issue new bonds. As part of issuing the new bonds, they again promise to file current financial statements, and also promise that they’ve never been late on their financials in the past. Even though in fact they have been 499 days late on their financials in the past. And somehow neither the issuer, nor the underwriters, nor the buyers of the bonds notice that this isn’t true.

That is an obvious failing of due diligence and the underwriters should definitely be in trouble. But I’m kind of more worried about the fact that the municipality here was 499 days late on its filings, and no one noticed, or at least, no one cared enough that it was hard to sell the bonds in the future. And there are lots of cases like this; here’s one with an issuer who “filed three annual financial reports which were between two and 50 months late.” One gets the rather strong impression that no one is reading these filings, and that the whole disclosure system for issuing municipal bonds might be more or less ignored.

by William Haefell, The New Yorker

by William Haefell, The New Yorker

Can Media Reports Constitute Insider Trading?

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When can a media company be considered a dispenser of “inside trading information?”

Matt Levine writes:   This Wall Street Journal article begins “A high-profile investigation into a leak of sensitive information from the Federal Reserve in 2012 has escalated to an insider-trading probe led by a key market surveillance agency and federal prosecutors in Manhattan, according to people familiar with the matter,” and it is always fun to wonder who those people are. I suppose it is possible that they work for the target of the probe, “macro policy intelligence” firm Medley Global Advisors, but that seems unlikely; later in the article a Medley spokesman is quoted on the record. So that leaves … the investigators? Leaking news about their investigation into leaks of news? The irony is compounded by the fact that this investigation is into information about Fed deliberations that were apparently leaked to Medley only after they were leaked to the Journal:

The important details of the Fed’s internal deliberations at the September meetings were supposed to be disclosed by the Fed in early October.

Before that happened, The Wall Street Journal published a story reporting that Fed officials at the September meeting were considering further action to stimulate the economy. The Sept. 28 story said there was a “strong possibility” the Fed would begin purchasing large amounts of Treasury bonds.

The next week, Medley sent a research note to its clients saying with more certainty that the Fed was “likely to vote as early as its December meeting” to begin monthly purchases of $45 billion worth of Treasury bonds.

Medley is fighting the investigation on the grounds that it is a media organization, and publishing news can’t really qualify as insider trading. Medley, though, is the sort of media organization that sells expensive subscriptions to fewer subscribers (who trade on it) rather than cheaper subscriptions to more subscribers (who are entertained and enlightened by it). This seems like a hard line to police: The Wall Street Journal, which apparently got this leak before Medley did, also charges for subscriptions. How many subscribers do you need, or how cheap must your subscription be, to qualify as a media organization?

Insider Trading

Enhancing EU Capital Markets

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Jonathan Hill writes:  Europe needs stronger, deeper capital markets. Our economy is about the same size as America’s, but our equity markets are less than half the size of theirs — and our debt markets less than one-third.

In the US, small and medium-sized companies raise about five times as much funding from capital markets as in the EU. If European venture capital markets were as deep as those in the US, our companies could have raised an extra €90bn over the past five years. And the differences between EU countries are even bigger than those between Europe and the US.

The benefits of stronger capital markets are also clear. We could give Europe’s businesses more choices over funding, helping them to invest and grow; increase investment in infrastructure; draw in more funding from outside the EU; help businesses sell into bigger markets; and help those saving for their old age. And, by reducing reliance on bank funding, we could help make the financial system more resilient, particularly in the eurozone.

All 28 members of the EU share this view. So does the European Parliament.

Some of the big questions are longstanding. How will we encourage investors to make cross-border investments when national insolvency laws are so different? How can investors gain access to comparable credit information on SMEs? How do we overcome national barriers, such as “passporting fees” if businesses operate in multiple countries?

Here are some clear priorities for early action.

To help free up banks’ balance sheets, making it easier for them to increase lending, I am proposing a new EU framework, with lower capital requirements, to encourage simple, transparent and standardized securitization. We need to make it more attractive to invest in infrastructure. A new infrastructure asset class that will attract lower capital requirements under the Solvency II regime for insurers.

Start-ups in need of capital should not be forced to go to the US, so I propose measures — including changes to legislation — to encourage the European venture capital scene to thrive. We need to make it easier for companies to raise funds on the public markets, too.

To channel more investment from Europe’s citizens to its businesses, we need to improve retail financial services. This means looking at them from the consumer’s point of view.

The creation of a capital markets union is a big opportunity for Europe. The UK, as Europe’s leading financial services centre, has a major contribution to make.

This is a good example of the practical benefits that membership of the single market can bring. But to make the most of it, and to help influence the rules which will set the terms of engagement for years to come, the UK needs to be shaping the system — not looking on while others set the rules.

EU Capital Markets

The End of Steel?

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Masumi Suga Kiyotaka Matsuda write:   The molecules of plant fibers are being transformed into a light-weight material five times stronger than steel that can be used to make everything from auto parts to electronic displays.

No wonder the technology, called cellulose nanofiber, has piqued the interest of executives in Japan, where manufacturers in the world’s third-largest economy import almost all the metal and fuel they need.

While development is in the early stages, the government estimates domestic sales may be worth about 1 trillion yen ($8.3 billion) in 15 years.

“Cellulose nanofiber itself could be an ace-in-the-hole for Japan’s industry,” said Hiroyuki Okaseri, a senior pulp and paper analyst at SMBC Nikko Securities Inc. in Tokyo.

At a time when developed countries are looking for ways to curb carbon emissions, Japan sees commercial development of a plant-based building material as an attractive option to metals that require fossil fuels to mine, transport and process ore. The steel industry is the nation’s top polluter among manufacturers, accounting for more than 40 percent of industry emissions, government data show.

Leading the charge to a plant-based alternative are companies connected with the paper industry in Japan, where about 70 percent of the island nation is covered with forests. They’re looking for new markets and revenue as Japan’s shrinking population and the shift to more online content erode demand for books, newspapers and paper documents.
Seiko PMC Corp., a maker of chemicals for the paper industry, is offering potential customers cellulose nanofiber samples made at a pilot plant that began operating last year in Ibaraki prefecture, north of Tokyo.
Developing cellulose nanofiber has gotten the backing of the government under measures enacted by Prime Minister Shinzo Abe intended to revive Japan’s stagnant economy.

The trade ministry has asked for 450 million yen for the year starting April 1 to develop the manufacturing process and study how the material can be used. In cooperation with the auto industry, the Ministry of the Environment sought 3.8 billion yen to assess the potential for improved fuel efficiency and lower emissions by using the lighter-weight material in vehicles.

While replacing steel won’t happen immediately, car bodies made of cellulose nanofiber are a possibility, according to Kentaro Doi, director of the environment ministry’s climate-policy division. The economy ministry estimates automotive uses could account for as much as 60 percent of the 1 trillion yen market within 15 years. That figure could rise many times when markets outside Japan are considered, Watanabe said.

Competition to develop new materials for the auto industry is heating up as stricter emissions rules force companies to look for ways of making their vehicles more fuel efficient, including with materials that weigh less than metal.

Cellulose Nanofibers

 

Entrepreneur Alert: Teach Improv to Businesses

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Corporate training from America’s most famous improv company.   An opportunity for artists of all sorts?

At The Second City, the world-renowned comedy company, living in the moment is the stuff of great improvisation. This is the stage that launched some of the greatest comedians of our day: Gilda Radner, Dan Ackroyd, John Candy, Mike Meyers, Tina Fey, Steve Carrell. The list goes on.

As CEO of Second City Communications, the business solutions division of The Second City, Tom Yorton’s passion has been in expanding the power of improvisation beyond the stage to address a wide array of challenges in innovation, learning, training, social media marketing – and more.

It turns out, improv fundamentals work very well in business – the idea of working without a script; the importance of co-creation and building on others’ ideas; and the essential challenge of balancing the needs of individuals and the ensemble.

“So much of business – like life itself – is one big act of improv,” Yorton said. “People make plans but, if they accept that there’s a whole bunch of stuff they can’t control, then most of what they’re doing is improvising,” Yorton added. “Working without a script, creating something out of nothing, working in teams, co-creating solutions with input from the marketplace – all that’s improvising.”

The Second City has been a dominant force in improv comedy for 50-plus years – but the application of the company’s expertise to business has taken shape over the past 20 years or so. Second City Communications now does more than 400 assignments a year for clients looking to spruce up their customer relations skills, tap into their collective creativity, or maybe get their employees to play nicely together.

Yorton describes how he ended up at the helm of Second City Communications as a ‘happy accident’ in a career spent largely toiling in the leadership ranks of technology, retail, and advertising companies. “I come out of corporate ranks – not from the world of improv or theater. In fact, I often say that I’m the most unfunny guy at Second City,” said Yorton. “But my experience – and in fact, my scars – are from bumping up against the same organizational hurdles that improv is so effective at helping companies get over – challenges that include connecting with customers, engaging employees around change, moving into new markets, innovating new products and services, working without a script,” said Yorton.

Co-creation is essential to the improv process. The classic rule of engagement is called, “Yes, and.” When your partner says something, you respond, “Yes,” and then add to it. Yorton explains: “Whatever you say, I affirm and build on that. You can create interesting scenes and characters that way. You can also create an entire business model.”

Drawing on its command of the 3 to 5 minute sketch, Second City Communications creates online videos that develop corporate brands in “short form funny” format and reach a huge audience fast.

“To be successful, our actors have to use the same skills that are regarded as soft skills in business—how to listen, to react to the unexpected,” Yorton explains. “We built this capacity to use humor as a mirror to hold up to an organization, to pop the tension bubble. We get people laughing at the shared truth of the organization, and it changes the mood. By changing the mood, you’re able to make progress,” Yorton added.

Improv turns business upside down. Don’t follow the leader, follow the follower. Rigorously support whoever initiates. Forget what you know about critical thinking because, as Yorton points out, “there are times when it’s about creating something new, so there’s nothing to be critical about.” Forget your self-interest. Exist for your partner to succeed. Live in the moment.

Even Yorton is amazed at how the delightful raucousness of improv can enliven a business: “How are we able to co-mingle this temple of satire with this affirmative, positive thing? It’s really a powerful combo.”

Improv for Business

Entrepreneur Alert: Tech Services for Registered Investment Advisors

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Sophisticated tech support now available for registered investment advisors allows them to strike out on their own.

A group of Bank of America Corp. private bankers that helped anchor the firm’s wealth-management practice in one of California’s wealthiest enclaves has defected to start an independent company.

The seven advisers managed about $3.3 billion in client assets out of Newport Beach.

The group is joining a stream of advisers and private bankers leaving big banks and brokerages to start their own boutiques, hoping to exert more control over their dealings and keep a greater share of the revenue. They’re making use of technology ventures that provide record-keeping, custody services and product offerings once available only at the largest firms.

The new tech ventures that aid the boutiques are a growing nuisance for banks and brokerages, which have long focused on wresting each others’ talent.

While it’s difficult to find figures that rank the size of teams leaving the largest brokerages to form their own ventures, the Corient group counts as “a very large practice” with an average of about $470 million in client assets managed by each person.

As independents, the group will be freer to go after new customers. Bank of America advisers often compete with other employees such as those at its U.S. Trust and advisory units in trying to attract or service the same clients, Henderson said.

Four of Corient’s seven advisers attended Brigham Young University in Provo, Utah, and met after college, Henderson said. Bel Air’s Halladay also is an alumnus of the Mormon church-affiliated institution.

The group bolted with help from Dynasty Financial Partners, a firm founded by formerCitigroup Inc. executives that finds office space, sets up trading systems and handles such details as printing business cards and marketing materials. Chicago-based HighTower Advisors LLC, Focus Financial Partners LLC in New York and Tru Independence LLC in Portland, Oregon, also are in the business.

Corient is among the biggest teams that Dynasty has helped turn into independent investment advisers over its five-year history, according to Shirl Penney, Dynasty’s founder. In June, the firm helped a group managing $3 billion at Deutsche Bank AG to break away and form their own firm.

The 20,000 independent RIAs in the U.S. have gained market share every year since 2007, more than doubling their assets to $2.7 trillion as of 2014, according to Aite Group. Client assets at the largest retail brokerages of UBS Group AG, Morgan Stanley, Wells Fargo & Co. and Bank of America rose 14 percent to $6.6 trillion in the same period, Aite said.

by Robert Manoff

by Robert Manoff