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SUNday, june 30, 2013 | guyanatimesGY.com
International Financial and Economic Report Chairman, Guyana Americas Merchant Bank
T
he capital markets are being even more confused because there is now speculation that the Federal Reserve will be forced to give up its plan to “taper” bond purchases starting this year because of a weak U.S. economy. Others disagree and are rushing to sell bonds with fund redemptions this month so far amounting to US$61.7 billon which is a record. Gold has continued to drop precipitously this week
and is currently down to below US$1200 an ounce, which is a drop of almost 40 per cent from its peak of US$1913 in August 2011. All of this upheaval started with Dr Ben Bernanke’s remarks following the Federal Open Market Committee Meeting (FOMC), when he gave the impression that not only would bond purchases be reduced in 2013, but be stopped altogether in 2014. The idea that Bolivia could borrow for 10 years at under five per cent just a few weeks ago and that Honduras could borrow at all is regarded as yesteryear and a result of buyers having little or no choice in their selection of assets with the real alternative being zero returns in cash. On Wednesday, the final first quarter estimate for the U.S. Gross Domestic Product (GDP) showed only a 1.8 per cent expansion as compared with the earlier estimate of 2.4 per cent. Also, the Bank for International Settlements (BIS) released plans this week to limit overall bank borrowing and have banks disclose their “leverage” ratios from 2015. The BIS Banking Committee plans to impose a three per cent leverage ratio from 2018 to prevent banks from cheating on their capital
ratio. It is fascinating that the regulators would return to leverage as a criteria of risk in banking which used to be the guide years ago. Naturally, some banks argue that requiring them to hold equity equal to three per cent of assets (which then is a 33 per cent total leverage) regardless of risk will unfairly penalise low risk activities such as mortgage lending and trade financing as well as damage the economy.
Apart from the bad news about the first quarter GDP that will probably result in forecasters lowering the estimate of growth for the second quarter, the economic reports were generally good this week. On Tuesday, durable goods orders in May rose 3.6 per cent, which was more than forecast and the S&P/ Case-Shiller index of property values increased 12.1 per cent from April 2012, the biggest gain since March 2006. New home sales continued to improve with purchases increasing 2.1 per cent to 476,000 homes which was the highest level in five years. The
conference board consumer confidence index increased 7.1 points to 81.4 in June (Tuesday). Jobless claims (Thursday) fell by 9000 to 346,000 in the week ended June 22, while personal consumption rebounded in May following the largest drop in more than three years. Household purchases rose 0.3 per cent and disposable income increased by 0.4 per cent, while pending home sales were up 6.7 per
cent in May (Thursday). On Friday, the Chicago PMI dropped to 51.6 in June from 58.7 in May, which was the longest monthly drop in four years. Consumer sentiment was little changed in June with the Thomson/ University of Michigan index at 84.1 which was very near the 84.5 level of May. In overseas news, there is good news coming out of Japan with housing starts rising by 9.4 per cent in May and with JPMorgan revising up its GDP forecast growth to 3.8 per cent in the second quarter and 3.5 per cent in the third from 3.2 per cent and 2.5 per cent, respectively. Since last
BY GEOFFREY BELL
Friday, 30-year bonds have risen from 3.49 per cent to 3.55 per cent and 10-year notes from 2.42 per cent to 2.52 per cent. As mentioned earlier, the 30-year bond rose to 3.60 per cent and the 10-year note to 2.60 per cent, and interest rates in other countries have risen. For example, UK 10year gilts have risen 49 bps in the last month, German 10-year bonds 20 bps and Australian bonds 48 bps. The only country where yields have fallen is Japan with 10year government yields falling 0.5 bps to 0.84 per cent in the last month. The rise in U.S. interest rates has cut the euro from US$1.32 to US$1.30, the pound sterling from US$1.54 to US$1.52, the Swiss franc from 0.93 to 0.94 and the yen from 97.7 to 99.1. Oil prices have been very volatile starting the week at US$95.50 (WTI) but ending at US$97 a barrel. Gold was at US$1278 an ounce last Friday and is US$1194 this morning, the first time that the metal has been under US$1200 since August 2010. The Dow Jones index rose about one per cent over the week after starting out with a fall on Monday. Not surprisingly the Nikkei did very well rising by over three per cent. The fact is that the market is confused about interest rates and economists are increasingly puzzled about the direction of the world economy.
NEW GPC INC appoints general manager
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EW GPC INC has appointed finance executive Ravie Ramcharitar as its general manager. This appointment comes at a time when the company is rapidly expanding in Guyana and will see the general manager taking responsibility for growth in one of the company’s key business segments. Ravie, as he is fondly known, has a reputation for versatility and is actively involved in the decision-making machinery of the company. He has been a senior executive with the NEW GPC and the Queens Atlantic Investment Inc (QAII) group since January 2000. He has held positions previously in finance and administration. Ramcharitar also serves as director at QAII and its subsidiaries. Ramcharitar is a professional accountant by training. He is a Fellow of the Association of Chartered Certified Accountants (FCCA) and member of the Certified General Accountants (CGA). The NEW GPC, via Limacol, recently announced its title spon-
Ravie Ramcharitar
sorship of the inaugural Caribbean Premier League Twenty20 (CPL T20) competition and the acquisition of the Guyana franchise, the Guyana Amazon Warriors. This is a big and necessary boost for cricket and tourism in the region and will also see the company’s products being promoted even further on the international stage. The board of directors, management and staff of the NEW GPC, as well as the entire QAII group, congratulate Ramcharitar on his most recent appointment.