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Wed, 22nd February 2017

Anirudh Sethi Report

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Archives of “money” Tag

Negative rates put corporate Japan in a spending mood

The introduction of negative interest rates a year ago by the Bank of Japan is prompting listed companies here to funnel the money they save on borrowing costs toward takeovers and capital investment.

The average borrowing rate of 1,387 nonfinancial companies listed on the first section of the Tokyo Stock Exchange and which released their third-quarter results by December 2016 has shrunk to an estimated 1.06%, down 0.11 percentage point from a year earlier. Interest-bearing debt has increased nearly 1 trillion yen ($8.84 billion) to about 207 trillion yen, while interest payment costs have fallen 10% to about 1.63 trillion yen. Some 30% of the companies have increased their borrowings.

 Telecommunications giant SoftBank Group is one of the companies that has benefited the most from negative interest rates. Chairman and CEO Masayoshi Son bought British chip designer ARM Holdings for about 24 billion pounds ($29.8 billion) at the current rate in 2016 and has announced other bold global plans.

SoftBank’s interest-bearing debt has jumped 16%, or about 1.9 trillion yen, to a little more than 14 trillion yen over the past year. However, its average borrowing rate — obtained by dividing interest payment costs by average interest-bearing debt — was 3.53%, down 0.18 percentage point.

Negative interest rates have also lowered borrowing costs for corporate bonds. Borrowing costs for SoftBank seven-year bonds issued in April 2016 were 1.94% per annum, 0.19 percentage point lower than the cost for the seven-year bonds it issued six months earlier.

China Just Created A Record $540 Billion In Debt In One Month

One week ago, Deutsche Bank analysts warned that the global economic boom is about to end for one reason that has nothing to do with Trump, and everything to do with China’s relentless debt injections. As DB’s Oliver Harvey said, “attention has focused on President Trump, but developments on the other side of the world may prove more important. At the beginning of 2016, China embarked on its latest fiscal stimulus funded from local government land sales and a booming property market. The Chinese business cycle troughed shortly thereafter and has accelerated rapidly since.”

DB then showed a chart of leading indicators according to which following a blistering surge in credit creation by Beijing, the economy was on the verge of another slowdown: “That makes last week’s softer-than-expected official and Caixin PMIs a concern. Land sales, which have led ‘live’ indicators of Chinese growth such as railway freight volumes by around 6 months, have already tailed off significantly. “ 

Le Pen Victory Would Lead To “Massive Sovereign Default”, Global Financial Chaos, Economists Warn

With two months left until the French election, analysts and political experts find themselves in a quandary: on one hand, political polls show that while National Front’s Marine Le Pen will likely win the first round, she is virtually assured a loss in the runoff round against either Fillon, or more recently Macron, having between 20 and 30% of the vote; on the other, all those same analysts and political experts were dead wrong with their forecasts about both Brexit and Trump, and are desperate to avoid a trifecta as being wrong 3 out of 3 just may be result in losing one’s job.

Meanwhile, markets are taking Le Pen’s rise in the polls in stride, and French spreads over Germany are moving in lockstep with Le Pen’s rising odds. In fact, as noted earlier in the week, French debt is now the riskiest it has been relative to German in four years.

Cash No Longer King: Europe Accelerates Move To Begin Elimination Of Paper Money

In the shadow of Donald Trump’s spree of controversial actions, the European commission has quietly launched the next offensive in the war on cash. These unelected bureaucrats have boldly asserted their intention to crack down on paper transactions across the E.U. and solidify a trend that has been gaining momentum for years.

The financial uncertainty amplified by Brexit has incentivized governments throughout Europe to seize further control over their banking systems. France and Spain have already criminalized cash transactions above a certain limit, but now the commission has unilaterally established new regulations that will affect the entire union. The fear of physical money flowing out of the trade bloc has manifested a draconian response from the State.

The European Action Plan doesn’t mention a specific dollar amount for restrictions, but as expected, their reasoning for the move is to thwart money laundering and the financing of terrorism. Border checks between countries have already been bolstered to help implement these new standards on hard assets. Although these end goals are plausible, there are other clear motivations for governments to target paper money that aren’t as noble.

BOJ Dec. meeting minutes published now – main points

Minutes from the Bank of Japan December 19 & 20 meeting

  • Most members shared view momentum for Japan’s inflation to reach 2 pct inflation was being maintained
  • Some members said factors that would support rise in prices going forward had been increasing
  • One member said recent yen depreciation might push up prices in short run but would not raise underlying trend in inflation
  • Many members said yield curve control had been functioning as intended, JGB yield curve had been formed smoothly despite global yield rises
  • Many members said BOJ must pursue powerful monetary easing as still long way to go to hit 2 pct inflation target
  • A few members pointed to market views that BOJ wants to guide 10-yr JGB yield at range of -0.1 to 0.1 pct, said it was inappropriate to set such “uniform standards”
  • One member said it was uncertain whether amount of JGB purchases would decrease going forward under yield curve control
  • One member said BOJ should set amount of its JGB purchases as operating target and make sure to reduce it incrementally
  • One member said BOJ should allow for natural rise in long-term rates if they reflect prospects for improvement in Japan’s economy, prices
Headlines via Reuters

DEMONETISATION: CBDT IDENTIFIES 18 LAKH PEOPLE WITH SUSPICIOUS DEPOSITS

The Income Tax department has identified 18 lakh people who have made ‘suspicious’ cash deposits post demonetisation, including those having deposited over Rs5 lakh, and will send emails and SMSes seeking explanation about their source of funds.

These people will have to reply within 10 days to avoid any notice from the tax department or further enforcement action.

The department today launched ‘Operation Clean Money’ project under which CBDT, with data analysis and profiling of assessees, will send e-communications to people whose cash deposits post November 8 note ban do not match their income.

“Operation Clean Money/Swachh Dhan Abhiyan is a programming software which will be used to get answers on all the deposits made and only after preliminary answers from the people, if need be, we would take legal action against those people,” Revenue Secretary Hasmukh Adhia said.

Adhia also said Operation Clean Money will ensure there is no physical contact between the assessee and the tax department officials as questions will be asked online.

“People have been fearing there will be Inspector Raj as tax department will have data about all the deposits. But, the new programing software will enable e-verification of all bank deposits during the period of demonetisation,” he said.

Central Board of Direct Taxes (CBDT) Chairman Sushil Chandra said 10 days’ time would be given to people to reply to the e-communication and replies can be filed by logging on to the e-filing portal of the Income Tax department.

“In the initial phase, we are putting data of those persons who have deposited Rs5 lakh or more and deposits between Rs3 lakh and Rs5 lakh of suspicious nature and who have poor tax compliance after November 8,” Chandra said.

Initially, this will cover 18 lakh tax payers whose data will be uploaded on e-filing portal. These people while filing reply have to explain to tax department the sources of deposit

Indian households have record gold hoard of Rs 24,000 tonnes worth $800 bn

Indian households, together the world’s largest hoarders of gold, hold a record 23,000-24,000 tonnes of the prea record 23,000-24,000 tonnes of the precious metal, worth at least $800 billion, despite a sharp fall in international prices from their peaks in 2011, according to a comprehensive study of the Indian market by the London-headquartered World Gold Council (WGC). The value of the holdings is based on (conservative) international prices, which doesn’t factor in a 10% customs duty. The value would be substantially higher in the rupee term.

Coupled with 557.7 tonnes of the central bank’s holdings, gold stocks at most of the known sources in the world’s second-largest consumer would represent around a half of its gross domestic product. This means the gold monetisation scheme can be a success if the government makes it lucrative.
The country’s gold demand has been shaken a tad after demonetisation, as some customers feared a crackdown on gold holding as well, but long-term prospects remain bright with demand expected to average at 850-950 per annum by 2020, the WGC said. The country’s gold demand is expected to have fallen to a seven-year low of 650-750 tonnes in 2016, although a recovery is expected as early as 2017.

How to Become a Trillionaire and Other Thoughts

Grab one of these:

zimbabwe_jan7

Careful what you wish for central bankers and fiscal policy makers.  Though we don’t see signs of “rollover risk” in any of the G5 or G20, it’s all about confidence and you know what Joe said about confidence:

Confidence is a very fragile thing.  – Joe Montana

.The World Economic Forum reports this about Zimbabwe’s ghost of hyperinflation past,

Zimbabwe was once so gripped by hyperinflation that the central bank could no longer afford paper on which to print practically worthless trillion-dollar notes. 

The government reported in July 2008 that Zimbabwe was experiencing inflation of 231 million percent (231,000,000%). However, the Libertarian think tank, the Cato Institute, believes that the real inflation rate was 89.7 sextillion percent or 89,700,000,000,000,000,000,000%.

It is interesting to note that the country is now grappling with the opposite problem.

Like Britain, Japan, the US and other nations dealing with the consequences of weak demand and cheap oil, Zimbabwe is threatened more by the prospect of falling prices. But that doesn’t mean its people are ready to trust that hyperinflation won’t happen again.

Demonetisation will not trace corrupt money: French Nobel laureate Jean Tirole

French Nobel laureate Jean Tirole on Thursday said demonetisation “can’t catch much of corrupt money” although it will make corruption more difficult in the future.

“You cannot get the corrupt money right away because the money has already been invested in real estate, gold and other things,” the economist said at a lecture organised by Presidency University.

“It will make future corruption more difficult,” he said, when asked on demonetisation.

Cashless economy, according to him “is a good thing” but “it has to be ensured that poor people who are most dependent on cash do not suffer”.

Expanding on demonetisation, Tirole referred to similar attempts in Scandinavian countries but cautioned that situation in India is different.

“People want to get rid of cash for several reason and you see that in Scandinavia for example, Denmark and Sweden are trying to get rid of cash because it is more convenient. In India, the reason is to get rid of corruption,” he said.

Note ban most disruptive policy innovation since 1991: Subbarao

Former Reserve Bank governor D Subbarao on Thursday termed demonetisation as “creative destruction and the most disruptive policy innovation since 1991 reforms” that has helped destroy black money.

“On November 8, the Prime Minister (Narendra Modi) and the Reserve Bank have demonetised 86 per cent of currency in circulation overnight, which is what is arguably the most disruptive policy innovation in India since the 1991 reforms,” he said.

“Demonetisation, in that sense, is creative destruction. But it is a very special type of creative destruction. Because what it has destroyed is a destructive creation — black money. So, you can understand that demonetisation is creative destruction of a destructive creation,” Subbarao said.

He was addressing an international conference organised by the Institute for Development and Research in Banking Technologies (IDRBT) in Hyderabad. He further said demonetisation is “arguably” leading to a flurry of innovations in Indian financial sector by way of digitisation of payments.