Skip to main content


Showing posts from February, 2016

Saudi using foreign exchange at alarming rate, selling US treasuries. & a secret under pressure

Saudi Arabia has about 660 Billion USD of forex reserves. It has used up 100 billion in the past one year itself since the oil prices fell.
Just how much of America's debt does Saudi Arabia own? Well, It is a secret of the vast US Treasury market, a holdover from an age of oil shortages and mighty petrodollars.But now that question—unanswered since the 1970s, under an unusual blackout by the US Treasury Department—has come to the fore as Saudi Arabia is pressured by plunging oil prices and costly wars in West Asia. A big risk is that the kingdom is selling some of its Treasury holdings, believed to be among the largest in the world, to raise needed dollars. Or could it be buying, looking for a port in the latest financial storm? As a matter of policy, the Treasury has never disclosed the holdings of Saudi Arabia, long a key ally in the volatile West Asia, and instead groups it with 14 other mostly Opec nations including Kuwait, the UAE and Nigeria. For more than a hundred other coun…

MBA not important to rise to be a CEO in top 500 companies in India

An MBA is not at all a must have to rise up the corporate ladder.
144 of the CEOs of BSE 500 companies, India's largest listed firms that make up 90% of its market capitalisation, have an MBA. There are 322 companies whose CEOs are not MBAs and it is evident that a B-school background may not be necessary to rise to the top -- even in the case of professional managers.


Do negative interest rates create jobs?

   Quantitative Easing (QE) by the Federal Reserve has a goal of increasing liquidity and the circulation of money and reducing interest rates. Negative real interest rates are used by Central Banks with the goal to stimulate economy by pressuring people to start a business so they can earn a yield. The problem is that marketing or finding customers is the hardest part of running a business. An investment advisor would not recommend buying a business simply because financing was attractive; instead they factor is demand for goods and services.
In many other countries loans are granted to businesses that are not creditworthy because it is a matter of government policy. These banks are called “policy” banks instead of real banks because they don’t operate with a constraint to loan only to credit worthy businesses. In Japan during their great real estate bubble of the 1980’s the banks would persuade businesses to borrow more than they needed with a promise to buy office buildings from the…

High probability of global recession in next 5 years, even high in next 10 years: Chief economist of Bank of England

How low can you go? - speech (​Given at the Portadown Chamber of Commerce, Northern Ireland) by Andrew Haldane, Chief Economist and the Executive Director of Monetary Analysis and Statistics at the Bank of England

A metric on the probability of the ZLB binding is to look at the likelihood of recession.  Table 2 looks at cumulative recession probabilities over three time horizons (1, 5 and 10 years ahead) measured over three historical samples (the UK since 1700 and 1945 and a cross-country panel since 1870).  Recessions occur roughly every 3 to 10 years.  Over the course of a decade, they are overwhelmingly more likely than not. So given these recession probabilities, how likely is it that interest rates will be at levels that would allow them to be cut sufficiently to cushion the effects of a typical recession?  We can calculate the probability of interest rates having reached, say, 3% by using the market yield curve.  These market-based probabilities are shown in the final column of…

A tight spot: US Fed could learn from ECB, Swiss National Bank, Germany and now Japan's move into negative interest rates

Wednesday’s statement of the Federal Open Market Committee should be read as a mea culpa. “Four hikes in 2016??? Ha. The economy is a lot more fragile than we thought,” the statement seemingly says. It doesn’t, of course. But it says, quoting correctly this time, “economic growth slowed late last year.” Yes, the economy seems to be growing at a “moderate pace,” but no longer are the risks balanced between an economy picking up steam and one slowing further. Business investment, called “strong” last month, is now “moderate.” And, oh, that stock market? The Fed noted it was closely monitoring “global economic and financial developments.” That’s not the same as saying the Fed will forever prop up your 401(k), but it’s saying the central bank is showing concern over it. How do negative interest rates work? A central bank uses its deposit rate to influence how banks handle their reserves. In the case of negative rates, central banks want to dissuade lenders from parking cash with them. Th…