We continue to watch the US Federal Reserve move into questionable territory.

The Federal Reserve “might legitimately consider” using helicopter money in an “all-out” effort to rescue the U.S. economy from a severe downturn, Fed Chairwoman Janet Yellen said.

“It is something one might legitimately consider. I would see this as a very abnormal, extreme situation,” Yellen said.

Helicopter money, a policy that has been taboo for fifty years, calls for a central bank to print money and give it to people, most likely in cooperation with fiscal policy like a tax cut or to fund spending.

Some academics have been pressing the case for using the policy in small doses in the face of weak global demand.

The imagery of dropping money from the sky was the work of Milton Friedman.

Former U.K. bank regulator Adair Turner, a leading advocate for use of helicopter money, said that the Fed would likely struggle to raise rates in coming months and should think about the policy if necessary.

Yellen’s views are similar to former Fed chief Ben Bernanke, who argued in a recent blog post that helicopter money should not be ruled out “under certain extreme circumstances —sharply deficient aggregate demand, exhausted monetary policy, and unwillingness of the legislature to use debt-financed fiscal policies.”

Bernanke earned the nickname “Helicopter Ben” for citing Friedman’s idea as a possible fix for Japan’s economic doldrums.

Fiscal policy and monetary policy would hopefully not be working at cross-purposes with severe downside risks, Yellen said.

“Whether or not, in such extreme circumstances there might be a case for, let’s say, close coordination where the central bank playing a role in financing fiscal policy” is being debated by academics, she noted.

Women on boards demonstrably help a company’s overall performance.  Here are companies that have no women on their boards:  Samsung, Nintendo, Nissan and Kia Motors have exactly zero female board members.

State Farm, Chipotle, Costco, CBS, and even make-up brand Revlon are just a few of the companies with no female executives.

LedBetter (a nod to fair pay activist Lilly Ledbetter) is tracking gender equality on boards and in the executive ranks of 2,000 big consumer brands.

The hope is that with this information readily available, consumers can make purchasing decisions that better align with their values, according to cofounder and CEO Iris Kuo.

“People need to be educated on this topic and understand where their money is going,” said Kuo, who said the idea came from a 2013 interview with Sallie Krawcheck.  Krawcheck noted that women told her they’d buy differently if they just knew the company’s gender makeup.

Women hold the vast majority of purchasing power, roughly 80%.

The data underlines Catalyst’s latest findings on the representation of women at S&P 500 companies.

Women hold just 19.9% of board seats at S&P 500 companies, and only 14% of companies are even approaching gender parity on their boards.

Gender equality was a hot topic at the first-ever United State of Women Summit on Tuesday. To coincide with the event, the Obama administration, companies and foundations pledged $50 million to support women around the world. That includes 28 companies that signed onto the White House’s Equal Pay Pledge, like Amazon, American Airlines, L’Oreal, Gap and Staples.

“We should shop and frequent those companies that are doing the right thing,” said President Barack Obama during a speech at the summit.

Of the 230 parent companies in LedBetter’s database, only 6% — just 14 — had female CEOs.

Personal care, apparel and retail are the best industries for women on in leadership roles. H&M’s board is 58% women and 41% of its top leadership are female; Gap’s board is 36% female and its executive team is 57% female.

Energy and transportation, on the other hand, are the worst industries for gender equity by LedBetter’s measures.

But gender representation on the board and the executive team don’t always go hand-in-hand.

Revlon has no female executives but an above average female board, 33%. Mattel, which makes Barbie, similarly has no women on its executive team, but its board is 30% female.

The fact that the US Federal Reserve commands a tense watch as possible dates for a rise in rates come up shows how powerful the Fed has become.  Whether this is good or not is debatable.  It’s also a fact of US life right now.

With the next interest rate decision coming from the Federal Reserve on Wednesday, Wall Street is voicing some distress that Janet Yellen is overly ambiguous about the path of the Fed’s monetary policy.

“There’s a little criticism starting to stir, that she’s not very clear about what matters the most to her or other members of Federal Open Market Committee (FOMC),” said Hugh Johnson of Hugh Johnson Advisors.

Charles Plosser, a former Philadelphia Fed president, has described as a “problem” the desire to reach consensus on FOMC statements that he believes has made them “more vague and uncommunicative.”

Yellen reinforced the notion in a recent speech in Philadelphia, saying investors should not count on the Fed to map out its plan for rate hikes.

“Charlie Plosser and a lot of others would like her to be more transparent. They’re saying something just short of ‘tell us what you’re going to do,’ which is unreasonable at best. They [Fed members] don’t know until they get into the meeting,” Johnson said of the FOMC, which begins its two-day policy-setting session Tuesday.

“I think those rumblings are unfounded. I think she’s been abundantly clear,” Johnson said, referring to Yellen’s frequently repeated refrain that Fed moves are data-dependent.

The Fed has also made clear that it’s looking to hike borrowing costs, with its stated strategy most recently derailed by a shockingly poor jobs report in May.

The Fed is eager to normalize, and would love to increase rates two to three times this year, according to Tom Anderson, chief investment officer at Boston Private Wealth. But he added, “they need the data to show up in a certain way to make the market digest their decisions better.”

Yellen and her colleagues are under pressure to raise rates, in large part because if the economy runs into trouble they need to have some room to lower them again.

The Fed is looking to avoid a scenario where they “don’t have any arrows in their quiver” should it appear the economy is headed into a recession a year or so down the road, Jim Russell, principal and portfolio manager at Bahl & Gaynor, said.

What’s needed, in Anderson’s view, is a good jobs number for June, a slightly higher inflation number or further growth in wages. “If we get any positive data points that would support the case for raising, July is a definite possibility. If not then, they’ll be looking at September.”

“The jobs report was weak, but the overall employment data has been consistently in the right direction,” Anderson said. “The trend has been in favor of a hike.”

“By any objective measure, 4.7 percent, that is full employment,” Russell said of the nation’s unemployment rate. “And it does appear that the inflation rate is starting to increase a bit, to a level where they need to cut off extraordinary accommodation.”

If the June jobs report shows the May report was “not a fluke, then we’ll have an entirely different conversation,” Anderson said.

However, Johnson also pointed out that “The numbers don’t tell you everything. Yellen thinks broadly about what’s going on in the world. She cares about the dollar, she cares about Brexit, she cares about the global financial markets and what’s going on in China.”

So long as the U.K. remains in the European Union and the June nonfarm payrolls numbers don’t confirm a trend that May’s awful numbers imply, the Fed will hike two times in 2016, Johnson and Russell believe. Anderson thinks Yellen & Co. will move only once before the end of the year.

“My guess would be July and October,” Johnson said.

If Britain votes to leave the EU, a divorce would have to be negotiated. It could lead to an orderly transition or a much more unpredictable process, buffeted by political pressure, volatile markets and the clash of national interests.

Leaving the EU is a daunting challenge with no clear precedent. Brexit would unwind economic relations of “incomparable complexity and depth”, according to Stephen Weatherill, professor of law at Oxford university. He argues it would be more legally complicated than decolonisation or the break-up of sovereign countries in the past.

The negotiation would not just concern divorce, the technical parting of ways and the settling of old bills. It would also have to re-engineer the world’s biggest single market, setting new terms of access and legislating to “renationalise” volumes of law rooted in the EU.
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House of Commons research has estimated that EU-related law makes up at least a sixth of the UK statute book. That excludes 12,295 EU regulations with direct effect on everything from bank and consumer rules to food standards, which cease to apply the moment Britain leaves.  Britain would also have to renegotiate or reconfirm a web of EU-negotiated free trade deals with dozens of countries that anchor the UK in world commerce but are not automatically inherited if it leaves.

To prevent the bloc from unravelling, EU countries may seek to punish Britain, so others dare not follow its exit path. “They would try to make it as painful as possible, be it financially painful or politically painful,” said Gordon Bajnai, a former Hungarian prime minister. “The UK would face a hostile Europe.”

 

 

Pro-leave politicians liken such predictions of doom to past warnings over Britain’s rejection of the euro, which did not pan out. The day after the referendum, Britain’s rights and obligations would remain the same, as would the rule book for business. Champions of Brexit say all sides — from London to Brussels to Berlin — would have the incentive to agree a smooth transition.

Article 50 sets departing countries a two-year deadline to agree terms with a weighted majority of remaining EU states. But a comprehensive EU-UK trade deal would require unanimity and national ratification — giving parliaments a veto all the way down to the assembly for the 76,000 strong German-speaking community of Belgium.

In the US, states try to fill their coffers by taxing the very wealthy.  When this drives the wealthy to move to more favorable tax environments, they turn around and offer subsidies to the companies they run.

From an editorial in the Wall Street Journal: Connecticut lost General Electric’s headquarters to Massachusetts earlier this year, so Governor Dannel Malloy is now trying Illinois’s business model: Raise taxes, and then when businesses threaten to leave, write a check to other businesses so they’ll stay.

Last week the Governor presented Bridgewater hedge fund with $5 million in grants and $17 million in low-interest, forgivable loans to renovate its headquarters in Westport along the state’s Gold Coast. Mr. Dalio could probably dig up $22 million from petty cash.

The Governor’s office says tax revenues could shrink by $4.9 billion over the next decade if all of Bridgewater’s employees departed. After Appaloosa Management’s David Tepper escaped to Florida from New Jersey last year, Trenton’s budget gnomes sounded the public alarm.

Like other states with progressive tax codes, Connecticut is dependent on high earners. As recently as 1990, the state had no income tax and had long been a refuge for companies and employees fleeing high-tax New York. But as usual after an income tax is introduced, the political class keeps raising the rate.

Raising taxes has backfired on the state economy and budget. Higher taxes have also depressed business and income growth.

Fitch Ratings and Standard & Poor’s downgraded Connecticut debt last month because of structural deficits and slow income growth, which Mr. Malloy calls “our new economic reality.” Fitch noted that employment growth between 2012 and 2015 was half that of the U.S. average. Median home prices have declined during the past two years.

Connecticut has lost 105,000 residents to other states over the last five years while experiencing zero real economic growth.

Here is the new-old progressive governing model: Raise taxes relentlessly in the name of soaking the 1% to pay off government unions. When that drives people out of the state, subsidize the 0.1% to salvage at least some jobs and revenue. Ray Dalio gets at least some of his money back. The middle class gets you know what.

Broad policy objectives were announced at the meeting of the Group of Seven leaders of  the world’s richest economies.  In Japan, ideas were broad, concrete measures skimpy.  The G-7 leaders — including Canadian Prime Minister Justin Trudeau — claimed a “special responsibility” for beefing up policies to stimulate growth of their economies.

But their declaration glossed over disagreements over co-ordinating public spending policies to help perk up weak consumer spending and business investment, saying each country would take into account “country-specific circumstances.”

Germany, in particular, has balked at calls from other G-7 members to commit to an expansionary fiscal policy.

“Weak demand and unaddressed structural problems are the key factors weighing on actual and potential growth,” they said in the declaration. “We remain committed to ensuring that growth is inclusive and job-rich, benefiting all segments of our societies.”

In Japan the public debt is more than twice the size of its economy.  The G-7 group noted the need to ensure debt is “on a sustainable path.”

The G-7 host, Japanese Prime Minister Shinzo Abe said he had won support from his counterparts for his own “three arrows” economic strategy of ultra-loose monetary policy, public spending and longer-term reforms.  Christine Lagarde, head of the International Monetary Fund, said there was agreement on such a three-pronged approach.

Abe appealed to his fellow leaders to act to avert another global crisis, comparing the current global economic situation to conditions just before the 2008 financial crisis. Lagarde was less alarmist, saying the world was “no longer in a 2008 moment.”

“We are out of the crisis but we are suffering the legacy of the crisis,” she said, pointing to bad loans on the books of companies and banks as one of the biggest causes for concern.

The G-7 leaders denounced protectionism and trade barriers and noted the negative impact from overcapacity in some industries. One of the biggest headaches, Abe said, was a glut in China’s steel industry.

In their declaration, the summit leaders cited the possible departure of Britain from the European Union, depending on the outcome of a June 23 vote, as one of many potential shocks for the global economy.

British Prime Minister David Cameron said staying in the EU was “all about Britain’s national interest.” “It’s about Britain being big and bold,” he said.

Matt Levine comments on the Citibank fines for Libor manipulation.

Senior Yen Trader: i think after june I will push for higher libors and lower tibors after june imm we are joining fixing panel in tibor and will keep it high [. . .]
Deutsche Yen Trader: after june coolio
Senior Yen Trader: after june higher lib is ok for you? [. . .] I selling june ey will keep tibor high at least till june for year end I will need low tibor and high l;ibor

Coolio is new, but otherwise it’s even a familiar cast of characters: The main villain in the CFTC order is “Senior Yen Trader,” whom Citi hired in the fall of 2009 because, in a Citi manager’s words, “this guy has forty percent of the market, and he knows where all the fixes are, he knows everybody on the street, he’s a real fuzzy animal, this guy owns it,” only he didn’t say “fuzzy.” Senior Yen Trader seems to be Tom Hayes, whom you may remember from the UBS Libor settlements, and the interdealer brokerLibor settlements, and from being sentenced to 11 years in prison for manipulating yen Libor at UBS before manipulating it at Citi.

The one real novelty may be the chats and e-mails between Libor submitters and “salespeople in other funding units of the bank” about how Citi shouldn’t borrow at rates above Libor.

I just wanted to try to understand the level [ …] the level at which they were paying was quite higher than LIBOR and we as an institution have to be a little be careful about what rates we show in the market since we’re LIBOR setters[…] we monitor quite heavily what different Citi branches pay in the interbank bank market, and the reason is here in London we set the LIBORs, and the CFTC in the ‘States have been very sharp on institutions that set LIBORs […] you were paying in the market quite higher in the market than compared to where I would set LIBOR which kind of ties my hands a little bit so I’m trying to work out what you’re trying to do, [ …].

If Citi had submitted a high Libor, that would have undermined confidence and made it hard for it to get short-term unsecured funding. So its Libor submitters begged its funding salespeople not to get short-term unsecured funding. It’s a real privileging of form over substance.

Patrick Radden Keefe writes:  Since 1713, when the Great Council of Geneva banned banks from revealing the private information of their customers, Switzerland had thrived on its reputation as a stronghold of financial secrecy. International élites could place their fortunes beyond the reach of tax authorities in their own countries. For Swiss wealth managers, who oversaw more than two trillion dollars in international deposits, the promise to maintain financial privacy was akin to a religious vow of silence. Switzerland is the home of the numbered account: customers often specify that they prefer not to receive statements, in order to avoid a paper trail. In light of these safeguards, the notion of a breach at HSBC was shocking in 2008.

The Swiss economy is charged by banking.  Were its secrecy policies to be ended, they would be left making cheese, cuckoo clocks and watches.  The Swiss vote in their cantons almost daily on every imagineable issue, so at some point they will weigh in on the future of their economy.

In the meanwhile, the US and its tax and justice departments want to know which of their citizens are avoiding taxation by stashing their money in private accounts in Swiss banks.

When Hervé Falciani, a computer technicians,  arrived in Geneva, he realized that HSBC. was engaged in a “gigantic swindle.” Clients were not only placing their fortunes in accounts that were “undeclared” to tax authorities; HSBC bankers were actively assisting clients in hiding their money, by setting up shell companies and sham trusts in the British Virgin Islands and Panama. In some instances, the bankers were handing customers hundred-thousand-dollar bricks of U.S. bills, allowing money to be smuggled back home. In a subsequent investigation by French prosecutors, an HSBC client said that the bank had instructed him to “make a company in Panama, which should open an account at HSBC. in Lugano, into which I should transfer all my holdings, in order to not be hit by this tax.”

Like many Swiss banks HSBC. offered “hold mail” accounts, refraining from sending any statements or other mail to clients. Nearly fifteen thousand clients chose this method—roughly half of the account holders at HSBC’s Swiss bank. Another client questioned in the subsequent investigation recalled that when he wanted to make a deposit he would meet his account manager in a public place. “I would give him an envelope holding my money, in cash,” he explained. “And a few days later he would tell me by phone that the funds had been credited to my account in Switzerland.” H.S.B.C. has numerous offices in Paris, but, according to the French investigation, when the Swiss bankers visited clients there they preferred to meet in cafés; in a similar spirit of concealment, account holders used pay phones when making calls to Switzerland. One client pointed out that the furtive face-to-face meetings offered “a bit of reassurance about the money I had in Switzerland, since I had no documents or anything that attested to my having an account.”

Although the conduct that Falciani witnessed may have been illegal, it was fairly standard practice for Swiss banks at the time. A 2014 U.S. Senate report describes a Credit Suisse banker travelling to America to meet a client for breakfast at a Mandarin Oriental hotel, and passing along an issue of Sports Illustrated in which account statements were concealed between the pages.

Swiss banks routinely dispatched emissaries to cultivate new clients at art shows and regattas, and the illegality of the service was implicit in the pitch: if you bank with us, your fortune will not be taxed. It is not illegal for a person or a corporation to hold a Swiss bank account, or to engage in tax “avoidance”—skirting tax requirements through gymnastic accounting and the exploitation of loopholes. But tax evasion, in which wealth is actively concealed from authorities, is illegal, and the behavior of Swiss bankers often suggested that they knew they were crossing the line. According to testimony in a 2014 criminal trial in Florida, representatives of the Swiss bank UBS. who travelled to such events as Art Basel to recruit clients carried encrypted laptops that were configured with an emergency password, so that they could erase the hard drive with a few keystrokes. An unnamed Swiss banker said, “We all have one foot in prison. Maybe that’s why we were all paid so much.”

Mohamed El-Erian writes:  Saudi Arabia has captured the world’s attention with the announcement of Vision 2030, aimed at overhauling the structure of its economy. The plan would reduce historical high dependence on oil by transforming how the Kingdom generates income, as well as how it spends and manages its vast resources. It is supported by detailed action plans, the initial implementation of which has already involved headline-grabbing institutional changes in a country long known for caution and gradualism.

Vision 2030 focuses on three major areas, together with efforts to protect the most vulnerable segments of the population.

First, the plan seeks to enhance the generation of non-oil revenues, by raising fees and tariffs on public services, gradually expanding the tax base (including through the introduction of a value added tax), and raising more income from a growing number of visitors to the Kingdom.

Second, the authorities want to reduce spending by lowering subsidies, rationalizing the country’s massive public investment program, and diverting spending on arms away from foreign purchases.

Third, the Kingdom seeks to diversify its national wealth and, in the process, increase current investment income. For example, the plan would raise funds via the IPO of a small part (up to 5%) of Saudi-Aramco, the giant oil conglomerate, and invest the proceeds in a broader range of assets around the world.

This bold economic vision is not without risks. Economic transitions are inherently tricky, especially one of this scale and scope. Early successes are often needed to solidify the overwhelming buy-in of key constituencies, particularly those that naturally may be resistant to change at first (especially change that eliminates some of the traditional financial entitlements in moving from a familiar, albeit less secure, present toward what is now an unfamiliar future).

The action plans underpinning the implementation of Vision 2030 inevitably involve progressing on multiple fronts simultaneously and in a carefully coordinated and monitored fashion. Requiring invigorated administrative and operational resources, it comes at a time when the Kingdom is not only dealing with lower oil earnings and drawing down its large reserves, but also is increasingly asserting its regional role, including in Syria and Yemen.

How the Saudis proceed on this important economic restructuring is being closely watched by the other five members of the Gulf Cooperation Council – and by many other countries as well. If Saudi Arabia succeeds in transforming its economy, including reforming institutions and restructuring economic incentives, other countries that face similar challenges, in the region and beyond, will be inspired to follow suit.