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» Sinewave - A tear for Argentina's pension funds
Rule number one: Don't panic.Rule number two: Panic first!
07/04/2002
ARGENTINA'S experience with private pensions offers a sobering lesson. Four years of recession and its worst financial crisis in history have brought Argentina, the world's sixth richest country in 1902, to its knees a hundred years on.
A quarter of the Argentine population is unemployed. Over half the population is now officially below the poverty line. Rioters loot supermarkets. A people, once proud of eating the best beef in the world, now fight over carcasses of cows when cattle-trucks overturn. The exchange rate has gone from one peso to one US dollar - fixed for over a decade under the convertibility law - to over three pesos to the dollar: Argentines' savings have been cut by two-thirds in five months. The government has defaulted on its $150-billion debt. Bank deposits have been frozen since December and the government now proposes to give depositors long-term peso-denominated government bonds in lieu of their US dollar deposits.
Cash has disappeared since only limited withdrawals are allowed. The stories of interest on radio stations are those that involve ATMs that still have cash. Barter is rampant in private transactions. The entire banking system, shut down several times in the past four months, is now bankrupt. And what has all this done to Argentina's much acclaimed private pension system? In 1994, Argentina replaced its government-run public pension system with a private one in which each individual worker had his/her own individual retirement account (IRA) managed by private pension fund managers. Before 1994, working Argentines paid a tax from their wages to finance pensions paid by the government to retirees. In the 1980s, this public pension system faced a financial crisis as liabilities outstripped assets. Politicians bestowed generous benefits on pensioners - often the full wage at retirement indexed to wage growth in the economy. The system suffered from extensive evasion and low retirement ages. Poor record-keeping meant multiple pensions for some workers. Despite inflows from taxes and generous government transfers from its general budget, pension liabilities could not be covered. In addition, birth rates were slowing, which meant fewer workers paying taxes; death rates were slowing, which meant more retirees getting pensions; and life spans were increasing, which meant each retiree got a pension for longer.
There were only three ways out - cut benefits, increase taxes, or 'reform' the system. Argentina tried to change the benefit formula, but the courts overruled it. Further increases in already high wage taxes on a shrinking tax base were politically unacceptable. So the Argentine system was reformed in 1994. Every worker paid 11 per cent of his salary into IRAs. Private fund managers invested these assets. The industry was competitive: Contributors chose their fund manager. The accumulated funds would be available on retirement to pay a pension to the contributor. And, best of all, since the government was out of the pension system, the political risk was minimised. Politicians could not raid pension funds for pet projects. They could not bestow largesse on their favourite vote bank. Privately managed funds would give the rights of ownership to contributors.
But there was a catch. Pensions involved long-term social and financial contracts with the entire Argentine workforce. The new private system was prone to mismanagement and risk-taking by fund managers. The average Argentine was not financially sophisticated and could not make educated financial investment decisions. So, it was imperative that the pension system be well regulated. The Argentine regulator was, as all good regulators everywhere are, a part of the government. Things began well. Diversification was encouraged. The regulator decreed that, at most, half of all investments should be in Argentine federal government bonds, with a separate limit on bonds issued by the states. Equity investments were allowed. Pension funds should contribute to national development, therefore only a small fraction of the investments could be outside Argentina. An individual pension fund's performance was evaluated on how close its performance was to the industry average, so no single pension fund could take large risks. Within these constraints, the pension fund managers did their own bit to safeguard contributors' assets.
They did not need much encouragement to buy government bonds - the government's insatiable appetite for borrowing kept interest rates so high that bonds were often the most attractive financial instruments. Since equity markets were shallow and risky, much of the other investments was in bank deposits. The rate of return on bank deposits was higher than on equities and the banking system was highly rated internationally.
Continues..........
http://hoovnews.hoovers.com/fp.asp?layou...
-- posted by Sinewave
» Sinewave - Latin American Economies Head South
From a bad news bear.....Latin American Economies Head South
Doug McIntosh
With all the insanity currently going on why not add in a near miss from an asteroid last Friday? Now, wouldn't that have made for an interesting stock market day! Speaking of the stock markets, they don't seem to be doing too well since Memorial Day do they? If not melting down, at least they are wilting a bit. Today Rite Aid became the latest in a long line of companies with ex-CEO's indicted for stock manipulation. Pretty soon Mr. V, investors are going to get the idea that I've been right all along in my comments about business and Wall Street ethics. The DOW, NASDAQ, S;P 500 and the Nikkei are all below or just above what are called technical support levels. Presumably, this means they will support the market, although I see no reason they will.
What we are witnessing is a collapse of confidence in American capitalism in my humble opinion. People have figured out they have been lied to and cheated by the scum at the top of the food chain. I doubt investor's confidence will return anytime soon. Further, the global geo political situation is so uncertain, unstable and downright frightening to any reasonable person, that I really don't know why investors haven't freaked out even more. Probably Maria, Maria and her CNBC bosom I guess. Anyway, one of the things I do here at GOLD-EAGLE.com, besides annoying, enraging, titillating and hopefully educating you, is warn you when TS is about to hit the fan. Yes, many of you have emailed me that I'm full of it and I thank you for keeping me more humble than I usually am. My humble goal is to make sure that even if you get a face full of it, you aren't surprised. Appalled perhaps, but never surprised since I've already warned you.
With that said, I'm about to tell you the American economy and people, led by fools, looted by corporate scum, lied to by media and deceived by priests is now about to be wasted by Latin America. I understand you haven't been following what's been going on down there the last 9 months. I have and now I will give you my usual depressing version of things. Of course, I like to call this either the truth or reality, but then I'm picky. The United States is rotting from the top, but at least this phytoplankton has some personal integrity left. Ken Lay of Enron may still have his 100 million dollars, but he is a piece of human shit in my opinion. One of the things wrong with America today is Mr. Lay isn't sitting on death row awaiting execution for treason.
I'm going to bypass both Mexico and Central America since Mexico would require a full essay and Central America is not on my radar scope. Other than Panama and the Red Chinese control of the Panama Canal that is. Starting with Columbia we have a nation in crisis. Several of the Latin American countries are in bona fide crisis', even if the word is overused. Columbia is currently undergoing a civil war between several different groups. In fact, Columbia isn't really a country at all, but rather a grouping of various enclaves battling each other. The last Presidential election saw the kidnapping of one candidate and the other reduced to making only television appearances. The United States is heavily involved in preventing the military collapse of what remains of the central government. The United States will become increasingly drawn into this military swamp over the next few years. So much for Columbia.
Continues......
http://www.gold-eagle.com/gold_digest_02...
-- posted by Sinewave
» Sinewave - Banking crisis grips Uruguay
The peso's value is falling and the economy shrinkingUruguay has closed all of its banks, as the country's economic crisis tightens its stranglehold.
The Central Bank announced that it had suspended all banking operations, in an eerie echo of similar moves that took place in neighbouring Argentina.
In Argentina's case the move was seen as the only practical solution to prevent a run on the banks after consumers lost confidence.
The exact reason for Uruguay's closure of the banks was not given, as Central Bank officials met to discuss the crisis.
It was also unclear as to when the banks would re-open.
In response to the measure, the Uruguayan peso lost almost 23% of its value on Tuesday.
Panic at the banks
In recent weeks, there has been a massive amount of withdrawals from Uruguayan banks.
Uruguayans fear becoming the next Argentina
This has taken about 33% of deposits out of the country's financial system during the first six months of the year, according to official figures.
The problem has been exacerbated by mass withdrawals of cash by Argentines from their Uruguayan bank accounts.
The launch of an investigation into the capital flight prompted a second wave of panic withdrawals, this time by the Uruguayan people.
Currency dive
Uruguay floated its currency late last month following a run on banks and a plunge in foreign reserves.
New Economy Minister Alejandro Atchugarry faces a tough task
This was in part due to the knock-on effects of financial problems in Argentina and Brazil.
International reserves at Uruguay's Central Bank have fallen 76.6% since January.
After exchange rate controls were abandoned, the value of the Uruguayan peso fell about 30%.
Following its latest dive on Tuesday, a US dollar would now buy 35 pesos.
Economic crisis
The country's economy, which has experienced a three-year recession, relies on agriculture, tourism and banking.
An even deeper recession in Argentina has intensified fears that Uruguay could also face a sustained downturn.
Earlier this month, Uruguay's President Jorge Batlle appointed Alejandro Atchugarry as the country's new economy minister.
His predecessor, Alberto Bension, resigned on after losing support for his programme of austerity measures.
Earlier this year the economy shrank by 10% in three months, as the effects of the Argentine crisis were felt across South America.
-- posted by Sinewave
» Sinewave - Zurich, Other Insurers to Raise $5 Bln in Share Sales (Update3)
09/13 06:21By Samantha Lafferty
London, Sept. 13 (Bloomberg) -- Zurich Financial Services AG, Royal & Sun Alliance Insurance Group Plc and other European insurers will ask investors for at least $5 billion as investment losses mount and deplete their ability to pay claims.
Zurich Financial last week said it plans to raise as much as $2.5 billion by selling shares after posting its biggest-ever loss. Royal & Sun has said it will decide by Nov. 7 whether to sell shares. Legal & General Group Plc and France's Scor SA have said they will tap investors. Swiss Life is expected to finish a review of its capital requirements next week.
Tumbling stock markets have forced insurers to write down the value of their investment portfolios, slashing their earnings and share prices. The Dow Jones Stoxx 50 Index has dropped 29 percent this year. Declining reserves may curb the ability of insurers to underwrite new policies and meet claims, leading them to seek capital from shareholders.
``This is unpleasant but necessary,'' said Simon Shaw, who helps oversee $95 billion of assets, including European insurance stocks, at Insight Investment, a unit of HBOS Plc. ``There will be more rights issues, and investors will accept them grudgingly.''
Some companies may seek to raise funds via methods other than the sale of new shares. Aegon NV, the No. 2 Dutch insurer, said Wednesday it's in talks with its biggest shareholder to gain ``financial flexibility.'' Analysts have estimated it may need 2 billion euros ($2 billion) to prevent its AA- credit rating from being cut by Standard & Poor's. Allianz AG and Munich Re might seek to issue debt, Merrill Lynch analysts said in a report.
Swiss Life
Allianz today said it will pump $750 million into its U.S. Fireman's Fund Insurance Co. unit to cover asbestos-related claims, the third time in two years Europe's largest insurer has been forced to add money to the subsidiary. In June, Credit Suisse injected 1.7 billion francs ($1.1 billion) into its Winterthur insurance unit to boost its ability to pay claims.
Swiss Life, Europe's worst-performing insurance stock this year, in April said it would review its capital needs. The largest Swiss life insurer is expected to announce the results next Wednesday when it reports first-half results. Profit fell 87 percent last year. The stock has tumbled 74 percent this year.
``A capital increase is very conceivable'' if Swiss Life's capital has eroded since the end of last year, said Volker Kudszus, an analyst at WestLB Panmure in Dusseldorf with an ``outperform'' rating on the company.
CEOs Fired
Two chief executive officers already have lost their jobs this year in order for their companies to sell new stock, analysts said. London-based Royal & Sun yesterday fired Bob Mendelsohn, who presided over a slump in his company's profit and stock price, as the U.K. motor and home insurer tries to sway investors to give it more money. In May, Zurich Financial appointed James Schiro to replace Rolf Hueppi as CEO.
``The price for shareholders to give Royal & Sun money was Mendelsohn's head,'' said David Bradbury, who helps oversee 2.5 billion pounds at Canada Life Financial Corp.
Mendelsohn, 56, has in the past year sold assets in a bid to raise 800 million pounds ($1.25 billion) to back new business. Last month, he told investors Royal & Sun might need to sell new shares to bolster reserves, causing the company's stock to plummet to a 14-year low. The insurer probably would need to raise 750 million pounds in a sale, according to Merrill Lynch & Co. Today, shares of Royal & Sun had dropped 4.2 percent to 115 pence at 11:20 a.m. in London.
Legal & General
Legal & General, Britain's No. 4 insurer, said on Tuesday it plans to sell shares worth 786 million pounds to existing investors at about half the current market price in a transaction that's expected to be completed Oct. 22. CEO David Prosser said shares are being sold at a discount to attract investors as markets fall. UBS Warburg and Dresdner Kleinwort Wasserstein are underwriting the sale. Legal & General's stock was down 2.4 percent to 102.25p.
Zurich Financial also is expected by analysts to sell its new shares at less than half the current price. The insurer's shares today were down 4.4 percent to 129.5 francs.
Hiscox Plc on Tuesday said it plans to raise 110.5 million pounds as the century-old U.K. property insurer tries to fund new polices and boost earnings. ING Barings is underwriting the sale. Hiscox's shares gained 0.4 percent today to 141.5p.
On the same day, Paris-based Scor's shares fell to their lowest in more than seven years after France's largest reinsurer said it will sell new stock early next year to finance the acquisition of part of German rival Gerling-Konzern Versicherings- Beteiligungs AG. Shares of Scor declined 3 percent to 14.25 euros.
Allianz, Axa SA, Munich Re, Britannic Group Plc, Old Mutual Plc, Assurances Generales de France, Gerling, Ergo Versicherungsgruppe AG and Allianz Lebensversicherungs-AG aren't planning share sales, officials at the companies said in the past week.
The 27-member Bloomberg Europe 500 Insurance Index has fallen about 48 percent this year.
-- posted by Sinewave
» Sinewave - Hong Kong Bankruptcies Climbed to Record in August (Update1)
By Theresa TangHong Kong, Sept. 16 (Bloomberg) -- Hong Kong personal bankruptcies rose to a record in August and almost tripled in the first eight months of the year, as rising unemployment made it hard for people to pay debts.
Bankruptcy orders surged to 14,847 from 5,247 a year earlier, the Official Receiver's Office said. For August alone, orders rose 169 percent to 2,440, the highest since records were kept.
``Employment and property markets haven't bottomed out yet,'' said Preston Ko, who helps manage $200 million of Asian stocks and bonds for Bank of Communications in Hong Kong. ``Following the recent slide in Hong Kong and U.S. stock markets, keeping more cash on hand is better.''
Housing prices and the benchmark Hang Seng Index have almost halved from their peaks amid a slump that's getting worse as companies fire workers and move jobs to mainland China to save money. The jobless rate rose to a record 7.8 percent in July and is expected to have climbed to 8 percent in August, according to a Bloomberg News survey of six analysts.
With an average of 79 people filing for bankruptcy each day last month in a city of 6.8 million people, the solution that the Hong Kong Monetary Authority, the Hong Kong Association of Banks, police representatives and other concerned groups said they were seeking in a series of meetings a year ago remains elusive.
In the second-quarter of this year, credit-card issuers wrote off HK$2.06 billion ($264 million), according to the Hong Kong Monetary Authority, which regulates lenders.
Hong Kong started eight weeks of review on Aug. 28 on a proposal to let banks share data about their customers, in an attempt to stem the rise in bankruptcies and loan defaults.
Under the proposal, a credit report available to a lender would display a borrower's repayment record during the past two years.
-- posted by Sinewave
» Sinewave - Warning on world economic recovery
Thursday, 21 November, 2002, 11:23 GMTA recovery in world economic growth could be delayed unless interest rates are cut further to boost confidence among consumers, businesses and stock markets, a report has warned.
The present outlook incorporates a period of sluggish spending in most of the OECD until mid-2003
OECD
The message came in a report from the Organisation for Economic Co-operation and Development (OECD) - the club of 30 of the world's richest countries.
"Forward looking indicators show that a solid recovery may be rather slow to materialise," the OECD said.
Economic growth across the world is predicted to remain weak well into next year, though by 2004 most regions should have recovered.
By then, the world economy should be growing at a rate of 4%, up from a predicted growth rate of 1.5% this year and 2.2% in 2003.
Lower interest rates
The US central bank, The Federal Reserve, which has already cut interest rates to their lowest level in 41 years, should be prepared to act again if need be, the OECD suggested.
In Japan, interest rates should remain close to zero.
While in the eurozone - where "growth of output has remained very modest, with Germany and Italy particularly sluggish," - interest rates should come down soon.
"In the euro area the main refinancing rate is assumed to be lowered by 0.5 percentage points over the coming months, and to start gradually moving up later in 2003," the OECD said.
Weak spending
The US is set to become one of the fastest growing economies among the world's rich countries, the OECD predicted.
By 2004, US economic growth should reach 3.6% compared with 2.7% in the eurozone and 0.9% in Japan.
The UK was expected to slightly lag growth in the eurozone with 2.5% growth in 2004.
In 2003, growth is not expected to accelerate, essentially because consumer spending, the engine of growth in recent months, is set to ease, the OECD warned.
"The present outlook incorporates a period of sluggish spending in most of the OECD until mid-2003", in part due to "the general slide in equity prices" which has eroded the spending power of people in many rich countries, said OECD chief economist Jean-Philippe Cotis.
US consumers, who generally own more shares than anyone else, have been worst affected by the stock market weakness, but the effect has been felt across all wealthy countries.
Latin American crisis
For Latin America, 2002 has been a truly horrible year after an economic crisis spread from Argentina across the region, and many problems remain.
"Adverse financial conditions, and perhaps a more general loss of confidence, have caused weakness in both consumer and investor demand," the OECD said.
"The region as a whole has also suffered from a significant drop in foreign direct investment."
Asian contribution
In Asia, the picture was more mixed, with "some Asian economies... growing strongly, contributing to the recovery of the world economy", while serious challenges remained for others.
Singapore, Taiwan and Hong Kong were highlighted as success stories as their economies have been "getting closer by some indicators to OECD economies and in some cases beyond".
-- posted by Sinewave
» Sinewave - Hong Kong's Consumer Prices Fell for 48th Month in October
By Thomas LauHong Kong, Nov. 21 (Bloomberg) -- Hong Kong consumer prices fell 3.6 percent in October from a year earlier, marking a 48th month of deflation as unemployment and a property slump force retailers to cut prices to tempt shoppers.
The drop was in line with the median forecast by five economists in a Bloomberg News survey. In September, prices fell 3.7 percent from a year earlier.
Falling prices erode company profits and raise the risk of job losses. That in turn makes consumers reluctant to spend, hampering economic growth. The government expects Hong Kong's economy to grow 1.5 percent this year.
``Retailers will have to carry the pain of seeing very little pricing power and their profit margin will continue to come under pressure,'' Kevin Lai, an economist at National Australia Bank Ltd., said before the figures were released. ``Consumer spending will continue to be feeble, and that's going to be the story for the next few years.''
Hong Kong's jobless rate dropped to 7.2 percent in October from a record 7.8 percent in July, helped by rising exports and tourism. Still, the rate remains more than triple what it was five years ago.
PCCW Ltd., the city's biggest phone company, yesterday fired 529 workers. On Tuesday, it told more than 2,000 staff they must accept pay cuts of as much as 20 percent or face dismissal.
Water led the decline in consumer prices, falling 9.3 percent, today's report showed. Gas and electricity prices fell 7.9 percent, housing slipped 6.7 percent, and the cost of home appliances and other durable goods fell 6.3 percent. Food prices declined 2.3 percent.
In the first 10 months, consumer prices fell 3.1 percent from the same period last year. Prices have fallen 13 percent since their peak in May 1998.
-- posted by Sinewave
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