Iraq’s Credit Default Risk Lowers

The current RGE reports state:

• Credit default risk on Iraq's debt has fallen since UAE announced plan to forgive $7 billion in Iraqi debt, the first gulf country to forgive all Iraqi debt. Credit default risk of Iraq is lower than of many US financial institutions (Reuters)

• Rumors that Kuwait may forgive outstanding debt of Iraq (compensation from Gulf War) take place in the context of a general thaw in Iraq's relations with Sunni Arab governments in the region in mid-2008. The reduction of Iraq's debt by official creditors should bring its overall external debt stock to around $50 billion. Saudi Arabia announced plans in 2008 to cancel 80% of Iraqi debt but has yet to follow through

Australian Economic Recovery Expected in Two Years

According to the news,

SYDNEY - Treasurer Wayne Swan is counting on a rapid recovery from recession within two years to get the budget back towards balance, repay the national debt, and cut the unemployment rate.

While this is still possible, it is amazing to see such expectations only a couple of months after “the end of the world” predictions. Encouraging, nonetheless.

Architecture of Australia's tax and transfer system

This document is a part of the review of Australian tax system and proposal for the reforms of it. “Architecture of Australia’s tax and transfer system” was published on 6 August 2008 (link).

Interesting sections with graphical representations of the current Government income from taxation:

• Australian Government Taxes (link)
• Australian government and state revenue powers (link)

Other documents available in the Publications list (link).

Architecture of Australia's tax and transfer system

Sign of Times

Here are a couple of quotes from Mish’s Global Economic Trend Analysis that portray where we are headed.

The first one is a quote from David Rosenberg at Merrill Lynch:

"There seems to be a lot of market chatter today about how the dramatic fiscal and monetary stimulus is going to reignite inflation. Let's get a grip. We have a real unemployment rate of nearly 16% and a capacity utilization rate that looks about to decline to 65%. There is simply too much spare capacity to absorb to be concerned about what the government is going to do except prevent an outright deflationary environment from taking hold."

 

And another one relates mainly to the US but with repercussions to the rest of the world:

No one wants to hear this but here it is without sugar coating: A long painful recovery process is in order. It may take a decade to play out. Lower home prices, lower prices on goods and services, and lower wages and benefits will all be a part of the recovery process.
In aggregate, the current generation now in high school is likely going to be the first generation in America's history with a lower standard of living than their parents for quite some time to come.

This, at the same time, may mean that the redistribution of wealth is in place. While developed countries feel it as deflation of wealth, most of the world will necessarily see it as inflation of wealth. With lots of spare industrial capacity out there, I believe this will lead to a higher standard of life, where many things will be possible. At the same time, all of them will lose on the scale of desirability. New trends will emerge later on to make up for it.

Markets Past the Worst

uncertainty measured by implied volatility on the S&P 100 – commonly known at the financial “fear factor” – has fallen back by 50 per cent, and the stock market has begun to rise. I believe growth will resume by late 2009, and the halfway point of the credit crunch may have passed.

The above seems to be the general consensus about the current situation in the markets. Even Nouriel Roubini agrees with this view, albeit with a bit different time frames. I believe the above might be true in case we see some positive surprises, whereas Roubini sees only negative surprises in the future, hence the progress is to be slower than generally thought. Well, both options are possible. That’s why they are called ‘surprises’ in the first place. However, March 6-9, 2009 seems to have been the (double) bottom of the current financial crisis.

“Too big to fail”

The latest RGE Monitor’s newsletter contains the following text:

Edward Harrison describes why Swiss bank UBS is too big to fail, but also too big to bail for tiny Switzerland. He provides concurrence to this feeling from Swiss banking expert Manuel Ammann, who in the German language press recently gave his opinions on how UBS should be structured as a result of the crisis.

This pretty much summarizes where we are with the globalization progress. There are multinational companies that are “too big to fail”. But not only that. They are now too big to save by individual countries. I assume the current coordinated multinational response to the economic crisis might bring the new way of dealing with these gigantic corporations. They have overgrown their native countries and markets and are simply too big a burden for any single individual country. And, since there are entities that are now larger than the state, the significance of states may be waning rapidly. In Europe this is more or less obvious with the advancement of the European Union. Individual countries are losing their power. I actually do hope this happens even faster and European Constitution gets up to speed with the EU development and enlargement.

Well, since these entities that are now more important than states are companies – entities in the economic sphere – this shows that this is the age of finance and economy. Whether this current financial crisis, originating in and affecting primarily the financial circles, will cause this era to end? I guess we’ll know in the next 6-12 months.

EU Funds to Support Serbia :: BalkanInsight.com

EU delegation is in Serbia, negotiating the EUR 100 million aid package.

The mission of European Commission arrives in Belgrade today for talks with Serbian officials on a financial help package worth EUR 100 million.

EU Funds to Support Serbia :: BalkanInsight.com

SSgA: SPDRS Australia - Frequently Asked Questions

Here is the summary of fees on SPDRs ETFs in Australia:

The total annual operating fees and expenses for the SPDR 50 and the SPDR 200 funds are currently capped at 0.286% pa. of the Net Asset Value of the fund, calculated and accrued on a daily basis. The total annual operating fees and expenses for the SPDR Listed Property Fund are currently capped at 0.40% pa. of the Net Asset Value of the fund, calculated and accrued on a daily basis. The cap excludes transactional fees incurred, such as brokerage and transactional fees charged by custodians and registrars. Transactional fees may therefore be charged in addition to the cap. The cap does not apply to extraordinary fees and expenses or those that were not contemplated at the date of the SPDR Product Disclosure Statement. Investors will also be liable for customary brokerage when buying, selling and redeeming units through a broker. Transaction fees are also payable for those who use the in-kind application and redemption facility. The SPDRs Product Disclosure Statement contains further information on fees and expenses.

SSgA: SPDRS Australia - Frequently Asked Questions

Vanguard to Launch ETFs in Australia

Vanguard Australia recently announced that they will launch Exchange Traded Funds (ETFs) on Australian Stock eXchange.

I am looking forward to this as I have been looking at Australian ETFs recently. Depending on your investment volume ETFs may be even better option than index funds. The costs make all the difference.

More details about these new funds will be released once regulatory and legal approvals are finalized.

Source: article at Vanguard Australia

Investing for Your Future

Great home study course about investment for beginners.

This 11-unit home study course was developed by the Cooperative Extension system for beginning investors with small dollar amounts to invest at any one time. We assumed that many readers will be investing for the first time or selecting investment products, such as a stock index fund or unit investment trust, that they have not purchased previously.

The course units were developed in a logical order. "Basic" topics such as setting goals, investment terms (e.g., diversification, dollar-cost averaging, asset allocation), and finding money to invest lay a foundation to help readers understand how and why they’re investing. You’ll also begin to understand that there’s generally a trade off between risk and reward. The more risk an investor assumes, the greater the chance of a high return, as well as the greater chance of loss.

After exploring "the basics," the course describes specific types of investments (e.g., stocks and bonds) in detail. You’ll begin to understand their characteristics, how they are purchased, and what it costs to purchase each investment. There are also units that focus specifically on tax-advantaged investments and investments that can be purchased with $1,000 or less.

Finally, Investing For Your Future concludes with additional topics of use to investors: available resources, how to select professional financial advisors, and information to help you avoid becoming a victim of investment fraud. You can choose to read the entire course, in any order that makes sense to you, or select only those topics that are of most interest. The choice is yours.

• Introduction
• Unit 1: Basic Building Blocks of Successful Financial Management
• Unit 2: Investing Basics
• Unit 3: Finding Money to Invest
• Unit 4: Ownership Investments
• Unit 5: Fixed-Income Investing
• Unit 6: Mutual Fund Investing
• Unit 7: Tax-Deferred Investments
• Unit 8: Investing Small Dollar Amounts
• Unit 9: Getting Help: Investing Resources
• Unit 10: Selecting Financial Professionals
• Unit 11: Investment Fraud

Investing for Your Future - eXtension

Australia - Currency

My first Google Web Toolkit application has been deployed. AJAX buttons on the lower currency chart allow changing the time period displayed. Check it out. It looks really neat.

EURAUD chart available below for different periods

Australia - Currency

The Day I Reached My Goal

Today should be a historical day for me. It is the day I reached my goal of financial independence, according to my definition. From this day, assuming stock market does not change and currency exchange rates remain the same, I should have enough passive income to cover for my basic expenses and hence not depend on any external conditions.

But things are not that rosy, of course. Stock market is quite volatile these days and many forecast further downside moves. The same goes for Australian Dollar, which closely matches the world markets as it is a commodity currency, basically. And, the last but not the least, my initial calculations included income at 6% return. This also remains as the great unknown as the bank cash rates are at 4% mostly and earnings on mutual funds are to drop significantly this year. But we won't know until July, at least.

Still, today, according to numbers, I have reached my target. Thanks to Australian Government's economic stimulus payment, which pushed me just over the set goal.

Rustic Furniture

Just run across a web site of a company that makes rustic furniture. I was amazed to see that such a furniture is being produced. Guess this style is coming back to fashion.

I spent quite some time just browsing through the images of wooden furniture, imagining how it would fit in my home. The shapes and colors of the furniture are excellent. They are mostly wood in various colors and that is exactly what gives it that cosy, warm feeling. I would love to have such an environment to live in. It is much more preferable to the bare, industrialized look of the modern apartments and houses. Wooden surfaces create a natural ambient which is very pleasant to look at.

I always wanted to have a Japanese-style environment, with tatami mats and shoji screens. The beds and book cases at Rustic Furniture would really fit into my imagined design. This furniture also brings back some memories of my grandparents’ house. They take me back into childhood and make me feel safe and happy.

Wish I had something like this closer, where I could go and see it live. I’m sure I’d find a few things to take back home. If you are interested, check out the Rustic Furniture web site.

Government Stimulus Payments Being Delivered

Today I have received the notice from the Australian Tax Office that the economic stimulus payment has been made into my nominated bank account. Hopefully this will help pave the way to an economic recovery in the near future.

Core-Satellite Asset Allocation Strategy

Detailed description on how to build investment portfolio. The focus in this article is the strategic asset allocation decision. Explains what is asset allocation and why is it important.

Michael Houlihan, Manager, Retail Products and Technical Services discusses strategic core-satellite asset allocation decisions

Helm

Will Euro Fall Sharply? - Update 1

Following my original question - will Euro fall sharply after April 1, 2009, here is the first update. As expected, Euro is far lower compared to Australian Dollar. It is in a descending trajectory. A typical technical analysis states that there might be support at 1.8 level but it could also go all the way to the multi-year average. Have a look at the chart... Click to see larger image.

Australia - Currency

Tabcorp Bonds Offer

Tabcorp is making a bond offer for the period of 5 years. The expected (advertised) return is 7.39%. The minimum investment is $5000. The offer provides quarterly interest payments.

I’m glad to finally see some life in Australian bond market.

Tabcorp Bonds Offer

Adoption of Euro in Eastern Europe?

Current RGE Monitor mentions the following text, written by the FT:

Accelerated Euro Adoption To Ease Eastern Europe's Woes: IMF Backs The Idea

• A confidential report, drafted by the IMF, World Bank and the EBRD to support a region-wide anti-crisis strategy, says struggling EU countries in the CEE area should switch to the Euro even without full Euro zone membership: "Without euroisation, addressing the foreign debt currency overhang would require massive domestic retrenchment in some countries, against growing political resistance" (Financial Times)

Business Spectator - RBA cuts rates by 25 basis pts to 3%

As can be seen on my Foreign Exchange page, the Australian Reserve Bank’s cash rate has been reduced to 3%.

Business Spectator - RBA cuts rates by 25 basis pts to 3%

Adgitize - A critical look | The Nexus

To shed some more light on Adgitize, at the link below is an interview with Ken Brown, and admin at Adgitize.com. It is a new service that builds upon the Entrecard model. Not a typical advertiser-publisher network but a new hybrid service that links bloggers, advertisers, and blog readers into a network.

This network offers an advantage to small blogs and web sites in a form of capped or limited benefits for activities that earn points. Points are capped at 100 so that very successful blogs do not overwhelm the small ones.

To summarize the features - Maximum earned is 500 points a day. Activities that earn points include writing posts on the blog, visiting advertising blogs, blog page views * number of ads shown, etc. The percentage of activities contributed to the Adgitize network is then multiplied by the revenue earned for the day and credited to the publisher's account. Funds transfer is done via PayPal for a minimum of $10 and via check for a minimum of $50.

Adgitize - A critical look | The Nexus

ASX 200 at 3700

The Australian stock market is following a lead from other world indices and is rushing upwards. It has been a remarkable advance today. Just have a look at the current ASX200 chart (daily).

Will it hold?

The good news is that the market is not going down even when some bad news come up. There is a bit of optimism there. This is the current ASX S&P 200 index chart:

The March lows are consistent with many calculations of the possible low for this current downturn. Prof. Roubini and John Mauldin have mentioned similar levels in their analysis. But, many have also said that it will get worse before it gets better. Whether "worse" meant the March lows or the effects on the real economy, where unemployment is expected to peak only in 2010 or even later, is hard to say at the moment.

Will Euro Fall Sharply

Here is a quote from Shane Oliver that supports my opinion that Euro is to fall sharply against the Australian Dollar, and soon:

An obvious concern is that by increasing the supply of US dollars, the value of the US dollar (US$) will fall. While it has fallen sharply in the last week, it is hard to see the US$ falling too far. Other countries are also undertaking quantitative easing and it is only a matter of time before the European Central Bank is forced to do the same.

Now, from technical analysis we know that a narrowing pendant is a sign of change. The EURAUD chart below presents the focus of a narrowing pendant.

This might be an indicator that Euro is to head South in the next couple of weeks. Well, if it happens as Mr. Oliver states, that could be the trigger for such an event. Another reason would be the increased risk tolerance in the markets, indicated in the last 2-week market rally worldwide.

Update: The first confirmation did not take long. See update 1.

So Many Conflicting Views

There are so many conflicting news and views out there these days. While the markets around the world have rallied about 20% in the past two weeks, the indicators are generally not that good. But, there are signs of hope, some wish-washing from the politicians and bankers and some statements that the banks are not in such a bad shape as previously thought. Or feared, to be more precise.
It is apparent that the analysts' economic outlook have always went behind the actual real numbers. So it is possible that the forecast is dark because the situation is bad. As the situation improves, the forecasts would start to improve. But, nonetheless, the previous performance tells us (almost) nothing about the future performance.

Recession in the Balkans

Balkans Feel Chill of World Recession :: BalkanInsight.com

The IMF and other lenders recently in principle agreed to lend 20
billion euro to Romania and 3 billion euro to Serbia. But while the
loans came as a relief and covers the countries' financing gap, some
analysts in Serbia have doubted their government's ability to adhere to
the rigid fiscal discipline the lenders require.
...
According to Serbia’s National Service for Employment, the number of
unemployed people has increased by 31,000 in the last four months.

...
Bosnia and Herzegovina has been harder hit still. It is yet to launch
negotiations with the IMF, but economic experts predict that the
country, especially its Bosniak (Bosnian Muslim)-Croat dominated
entity, will not be able to meet requirements and curb excessive
spending on social benefits.

As a result, several local officials predict that the
Bosniak-Croat dominated entity's budget and government will collapse
within the next five months. The IMF has predicted that GDP growth rate
in 2009 will at best remain flat.

...

Croatia's economy is also poised for a serious downturn this year,
analysts have warned, although the country’s statistic bureau still
reported a year-on-year quarterly rise of 0.2 per cent in the last
quarter.

Lafoffs in Bosnia - ArcelorMitall

ArcelorMitall in Bosnia Lays Off Workers :: BalkanInsight.com

ArcelorMitall, one of the largest employers in Bosnia, announced it will lay off about half of the 4,000 employees in Zenica smelter, due to reduced global demand. Laid-off workers will receive 55 percent of the average salary, amounting to around 200 Euros.
This is to be the single largest lay-off in Bosnia's modern history. Capitalism is striking hard, it seems.

In the last three months, Bosnia's employment bureaus have reported
that at least 15,000 people have have lost their jobs, in the country
and abroad, and have registered as newly unemployed. Economists warn
that the figure could be even higher since not all workers register
with employment bureaus.