31 December 2011 $6.3tn wiped off markets in 2011 – Pg. 1 ‐ Almost $6.3tn was erased from global stock markets this year as the Eurozone financial crisis reverberated across the world in the latter half of 2011, calling into question the future of the world’s largest currency bloc ‐ Global stock market capitalization dropped 12.1% to $45.7tn …. ‐ The S&P 500 is flat this year while the FTSE 100 has only dropped 5.5% ‐ Asian equity markets were hit particularly hard with Japan’s Nikkei index losing 17.3% this year, Hong Kong’s Hang Seng index 20% and the Shanghai Composite 22% ‐ Some investors also fear that China’s economy could be facing a “hard landing” next years, posing yet another danger to the fragile global economy Spain warns off deficit overshoot – Pg. 2 ‐ …this year’s budget deficit is likely to reach 8% of GDP, much higher than expected and a full 2% above the target agreed with the EU ‐ Following the rescue of Greece, Ireland and Portugal by the EU and the IMF, Italy and Spain are under intense pressure in the sovereign bond markets to restore order to their public finances and make their economies more competitive Decline in Chinese output begins to abate – Pg. 4 ‐ Chinese manufacturing activity declined for the second consecutive month in December but showed tentative signs of stabilizing ‐ With inflation falling sharply and growth slowing in recent months, Beijing has cautiously started to relax its tight monetary policy settings. It trimmed banks’ required reserves at the end of November – its first such move in three years ‐ …. ‐ The stock market has provided another indication the slowing economy. The Shanghai Composite Index is down 22% this year – making it technically a bear market – and is near its lowest level since 2009 Forecasts for a future imperfect – Pg. 7 ‐ Will Barack Obama be re‐elected? Yes (Prof Note: The FT also predicted Hillary Clinton would win) Ten‐year low for euro on last trade day – Pg. 8 ‐ The euro has dipped to a 10‐year low against the Japanese Yen, underlining the yen’s enduring status as a haven amid this year’s global financial turmoil ‐ The euro also finished the year as the worst performing major currency against the dollar, falling 2.9% since the beginning of the year ‐ Various explanations have been offered for the euro’s strength. For much of the year, fixed‐ income investors moved from sovereign wealth bonds in the peripheral countries of Italy, Spain and Greece into those of France and Germany, sending German Bund yields to record lows but keeping the euro high ‐ Many believe the ECB will embark on some form of quantitative easing next year amid a worsening European economic outlook 30 December 2011 Chinese push to put man on moon – Pg. 1 ‐ China has declared its intention to land an astronaut on the moon… ‐ Chinese experts say after 2020…. ‐ The last time an astronaut set foot on the moon was in December 1972 as part of the Apollo 17 mission ‐ ….US without a vehicle of its own for manned space flights ‐ Beijing this week launched a trial of its own satellite navigation system… ‐ …hopes to complete construction of a permanent space laboratory by 2016 Sceptical investors race to safety of US money market funds – Pg. 1 ‐ The flight to safety has coincided with a mini‐recovery in the equity markets, with the S&P 500 rising 14.5% since October 3 ‐ Money market funds invest in highly liquid securities such as US Treasuries and short‐term debt issued by financial institutions ‐ The sector is used by institutional investors to park cash not invested elsewhere Optimism over US economy but dangers lurk in background – Pg. 3 ‐ GDP could well exceed 3% on an annualized basis in the fourth quarter ‐ …businesses have created more than 150,000 positions every month on average since September ‐ The biggest concern is that the Eurozone sovereign debt crisis could flare up again and inflict much more severe damage to the global financial system – including US banks and the supply of credit to US consumers and businesses – than it has so far ‐ …growth expected to be 1.5‐2.0% next year…. ‐ ….house prices are falling again – raising concerns that the collapse has not fully run its course Women on boards – Pg. 10 ‐ …more countries considering quotas ‐ Norway went first, requiring listed companies to reserve 40% of board seats for women from 2008 Gold falls to lowest level for six months – Pg. 11 ‐ Spot gold in London fell to $1,523 a troy ounce, the weakest since July and down almost $400 from a nominal record reached this year ‐ Gold has nevertheless climbed almost 8% in 2011, marking the 11th straight year of gains an d outperforming most other commodities and stock indices Banks learn the liquidity lessons from tough rules – Pg. 14 ‐ UK regulators have also proved more flexible than the industry had feared – rather than insisting that each bank maintain its buffer at all times, the FSA s as allowed banks to dip into their stocks to cover temporary funding squeezes, as long as the management has the credible plan to rebuild the base ‐ ….the UK requires banks to hold enough gilts and cash to cover expected outflows during both a short, sharp market shutdown and a less severe 90‐day stress scenario. The global version uses a 30‐day scenario and allows banks to include some high‐quality corporate and covered bonds in their buffers 29 December 2011 ‐ MISSING 28 December 2011 Sears’ shares fall on news of closures – Pg. 1 ‐ ..warned on weak sales of expensive electronic items and clothing would force it to close between 100 and 120 stores (Prof Note: Sears sells expensive electronics??? N o wonder they failed, news to me!) ‐ The news follows Gap saying in October that it will close one‐fifth of its Gap‐branded US stores in the next two years, and reflects a growing recognition that a weak economy and the rise of ecommerce has left the US with too many stores ‐ The fall in the shares takes them to levels last seen in 2004 ‐ The National Retail Federation has revised its holiday forecast upwards, predicting that seasonal sales would rise 3.8% this year to a record $469bn, but this is below last year’s 5.2% increase Financial history lessons urged to help prevent future bubbles – Pg. 1 ‐ Fund managers and financial advisers should be forced to reduce the likelihood of future market panics and crashes (Prof note: How about be required to have an degree in FINANCE? Further note: I lectured a financial crises class last year, it was incredibly enlightening!) ‐ CFA UK….argues that the study of financial history should form a major part of all compulsory education for retail and wholesale investment professionals ‐ (Prof Note: CPAs are only granted to accountants. Why are CFAs granted to non finance individuals?) Saudi Arabia unveils stimulus budget – Pg. 2 ‐ Saudi Arabia has approved a stimulus budget for next year after raising spending by one‐ quarter in 2011 as part of efforts to reduce the potential for social unrest in the region’s biggest economy ‐ On Monday, the Saudi authorities estimated 2012 budget expenditure at $184bn … ‐ In 2011, Saudi Arabia overspent the budgetary allocation by 39% ‐ raising real spending by about 25% ‐ The real GDP rate was 6.8% in 2011, the highest level since 2003, … ‐ An average price of $78 a barrel for Brent Crude would allow Saudi Arabia to meet expected real spending commitments in 2012… Obama strives for balance in Fed nominees – Pg. 3 ‐ President Barack Obama yesterday made a fresh attempt to fill vacant positions on the board of the US Federal Reserve,… Markets braced for Italy debt auction – Pg. 4 ‐ Italy’s benchmark borrowing costs have risen above the critical 7% level in a week that will see Rome auction up to 20bn (euro) of debt ‐ Italy, the world’s third largest bond market, is seen by many investors as the barometer for the eurozone debt crisis ‐ Italy’s borrowing costs have begun to diverge away from Spain’s in recent weeks China and Japan pact on currency ‘symbolic’ – Pg. 4 ‐ China and Japan will promote the use of their currencies for trade and investment, … ‐ The two asian economies said that they wanted to reduce costs and risks for their companies – an implicit call for less reliance on the dollar, which is at present their predominant medium of exchange ‐ Japan also confirmed a plan to buy Chinese government bonds – the first time it has added renminbi‐denominated debt to its foreign exchange reserves ‐ The key obstacle to promoting such trade has been China’s reluctance to relax controls on its capital account, meaning that foreign companies that receive its currency have nowhere to invest in apart from the offshore renminbi base of Hong Kong 24 December 2011 Obama handed political victory as Congress extends payroll tax cuts – Pg. 1 ‐ Congress yesterday approved a two‐month extension to payroll tax cuts, …. ‐ …the extension of a tax cut equivalent to $1,000 a year for the average family A time for forgiveness – Pg. 5 ‐ Most rich economies are bracing themselves for stagnation at best in 2012. The crisis has causes but they all have to do with credit and debt: too much of it ‐ From 2000 to 2007, the average mortgage debt of US households went from two‐thirds of disposable income to more than 100% ‐ British households raised their mortgage indebtedness from 83% to 138$ ‐ Debt itself is presumably as old as settled society: the earliest samples of writing that have been recovered are often debt records.