The U.K. Turns Up the Heat on Offshore Tax Evasion

“Prime Minister David Cameron wrote to the Cayman Islands and nine other U.K. territories to request action to tackle company tax evasion as Britain prepares to host the Group of Eight summit next month.

“We need to know who really owns and controls each and every company,” according to the letter, released today by Cameron’s Downing Street office. “This goes right to the heart of the ambition of Britain’s G8 to knock down the walls of company secrecy.”

Cameron asked the countries to set up central registries that contain information on the owners and controllers of every company, and for this information to be made available to law enforcement and tax collectors. He asked the nations to attend an event on June 15 to indicate progress on tax, trade and transparency.

He said that while countries have the right to set low taxes, they’re sustainable only if “what is owed is actually paid — and if the rules to achieve this are set and enforced fairly to create a level playing field right across the world,” he wrote….”

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“Enron Corp.’s 2001 collapse revealed the extent of its manipulation of spot gas prices. Twelve years later, European Union regulators may discover energy traders never learned the lessons of the scandal.

BP Plc (BP/), Royal Dutch Shell Plc (RDSA) and Platts were visited by EU inspectors last week over allegations they “colluded in reporting distorted prices” to manipulate the published prices of oil and biofuel products, the European Commission in Brussels said after the raids.

Shell, London-based BP and Statoil ASA (STL), three ofEurope’s biggest oil explorers, are under investigation for potential manipulation of prices in the $3.4 trillion-a-year global crude market. The involvement of McGraw Hill Financial Inc. (MHFI)’s Platts, which publishes pricing data, hearkens back to other pricing scandals including Enron, and more recently, Libor.

“We’re making exactly the same mistakes we did with Enron, just with a different commodity,” Robert McCullough, an energy consultant, said by telephone from Portland, Oregon. “The same manipulation we saw in electricity and gas pricing is what we’re seeing in oil.”

The Enron scandal started in 2001 as traders used trading strategies called “Fat Boy” and “Get Shorty” to create phantom congestion in the California energy markets. Electricity prices rose 10-fold on average and California consumers endured days of rolling blackouts.

Rapid Fire…”

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“Chen Li, the UBS AG (UBSN) strategist who predicted the tumble in China’s smallest sharestwo years ago, says the companies are poised to retreat again after valuations rose to the biggest premium over larger stocks since 2010.

The ChiNext index of Shenzhen-listed companies with a median market value of $765 million climbed 43 percent this year through last week, while the CSI 300 Index, which has a median capitalization of $3.5 billion, rose 2.7 percent. The smaller-company gauge traded for 4.6 times net assets versus 1.7 for the CSI index, the widest gap since June 2010, data compiled by Bloomberg show.

Small-cap stocks have surged on speculation President Xi Jinping’s plan to boost the consumer, technology and alternative energy industries will benefit companies from Huayi Brothers Media Corp. (300027) to Leshi Internet Information & Technology Co. (300104) The rally may get derailed by tighter monetary policy, which helped spur the last slump, according to Chen.

“The bubble may burst” within two months, Chen said in a May 9 phone interview. The Shanghai-based strategist predicted in January 2011 that small-cap stocks would drop as much as 20 percent. The ChiNext gauge fell 21 percent in nine months.

Investors will rotate out of smaller companies and into larger stocks as liquidity tightens, Chen said.

Tightening Liquidity…”

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“Japan’s Economy Minister Akira Amari said a further slide in the yen would have negative effects after the currency’s 21 percent drop in the past six months, and signaled concern at the prospect of higher bond yields.

The yen was the biggest loser among 16 major currencies in the past six months, as Prime Minister Shinzo Abe pledged to beat deflation and the Bank of Japan doubled monthly bond purchases. Amari declined to comment on an appropriate exchange rate for the yen or say if it has declined so much that its negative effects need to be contained. The currency touched 103.31 per greenback on May 17, the weakest since October 2008, and rose 0.4 percent to 102.80 as of 8:30 a.m. in Tokyo.

“It’s being said excessive yen gains have been corrected a lot,” Amari said on the public broadcaster NHK yesterday. “If the yen extends losses a lot, people’s lives will be negatively affected. It’s our job to minimize that.”

Import prices for Japan rose 9.5 percent in April from a year earlier, while Japan’s Nikkei 225 Stock Average surged 66 percent since November, the most among developed markets. The government must demonstrate a commitment to fiscal rehabilitation to boost the credibility of government bonds, Amari said. Benchmark yields advanced last week to the highest levels in more than a year.

“As stocks have rallied this much, it’s a common economic phenomenon and principle that capital shifts from bonds to stocks,” Amari said. “We need to enhance the credibility of government bonds to prevent a rise in long-term yields.”

Bond Yields….”

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“Japanese shares gained for a second day, with the Topix Index (TPX) extending a 4 1/2-year high, as utilities climbed on optimism nuclear power plants may be restarted and Nippon Yusen KK and Osaka Gas (9532) Co. advanced on prospects for U.S. shale gas imports……

The Topix has risen 48 percent this year, outperforming all major equity indexes amid unprecedented easing from the Bank of Japan. The gauge traded at 1.3 times book value, compared with about 2.5 for the Standard & Poor’s 500 Index and 1.7 for the Stoxx Europe 600 Index……”

 

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“Japanese biotech ventures promising to make jet fuel from algae and to produce synthetic cartilage are soaring in Tokyo trading as cash pumped into the economy by the central bank cascades into speculative investments.

Five of the 10 best-performing stocks this year traded on JASDAQ, which has lower minimum profit requirements than Japan’s main bourse, are biotech firms.

The companies have surged as the Bank of Japan last month voted to double debt-buying to more than 7 trillion yen ($68 billion) a month to achieve 2 percent inflation in two years. Prime Minister Shinzo Abe’s proposal this month to provide 110 billion yen in support to stem cell research over the next 10 years is also helping the shares.

“The market expects quantitative and qualitative easing to continue long term, boosting liquidity and drawing investors to speculative shares like biotech,” said Kazuyuki Terao, chief investment officer at Allianz Global Investors Japan, in an interview. “Abe raised health-care reform as a part of his growth plan and that’s also supporting the buy.”

Japan’s regenerative medicine market will probably increase by 62 times to 1.6 trillion yen by 2030 from 26 billion yen in 2012, the economy ministry estimates.

D. Western Therapeutics Institute Inc., a maker of medicines for glaucoma and blood clots, surged 23 percent today as of the close of Tokyo trading, making it the best performer on the JASDAQ Index this year, soaring 19-fold. The company has formed a partnership with Tokyo-based Wakamoto Pharmaceutical Co. to develop eye treatments.

Algae Fuel….”

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“Thailand’s government lowered its full-year growth forecast after the economy expanded less than analysts estimated last quarter, boosting the case for the central bank to cut interest rates.

Gross domestic product increased 5.3 percent in the three months through March from a year earlier, after expanding a revised 19.1 percent in the previous quarter, the National Economic and Social Development Board said in Bangkok today. The median of 13 estimates in a Bloomberg News survey was 6 percent.

The growth slowdown may give the Bank of Thailand scope to join a global wave of monetary easing, after resisting pressure from the government in recent months to lower borrowing costs and curb inflows that last month drove the baht to a 16-year high. Finance Minister Kittiratt Na-Ranong, who has led calls for lower rates, has said the central bank must cut by more than a quarter of a percentage point or implement capital controls.

“The recovery in external demand that will be positive for Thai exports is not happening,” and weaker growth justifies an interest-rate cut, said Enrico Tanuwidjaja, a Singapore-based economist at Royal Bank of Scotland Group Plc. “The baht’s strength is an additional factor to motivate a rate cut.”….”

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World Markets

Currencies

Commodities

USD Libor

Euribor

Yields for Italy, Spain, France,  and Germany …

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Remember all gaps get filled….

Cheers on your weekend!

 

[youtube://http://www.youtube.com/watch?v=d4o13isDdfY 450 300] [youtube://http://www.youtube.com/watch?v=Jt8T-Dl1tIo 450 300]

 

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“A senior Bank of England official influential in global policy debates has praised proposed U.S. legislation that would forever end the perception that the biggest banks are too big to fail, providing support for a bipartisan bill that forces the biggest American banks to either make themselves safer or shrink.

Andy Haldane, Bank of England executive director for financial stability, said legislation introduced by Sens. Sherrod Brown (D-Ohio) and David Vitter (R-La.)“has attractions” that may have long-term appeal. The bill, dubbed the “Terminating Bailouts for Taxpayer Fairness Act” and introduced April 24, would force banks with more than $500 billion in assets to fund at least 15 percent of their balance sheets with equity capital. If implemented, the largest U.S. banks would have to raise more than $1 trillion in fresh capital, on top of the tens of billions of dollars in capital they’ve raised over the past year to meet impending requirements.

The proposed legislation and Haldane’s cautious support comes as policymakers in Washington and around the world target the phenomenon known as “too big to fail,” or the perception that some banks are either so large or so important that government officials would never allow them to default on their obligations.

Three years after President Barack Obama heralded the Dodd-Frank overhaul of U.S. financial regulation as ending “too big to fail,” policymakers ranging from Ben Bernanke, Federal Reserve chairman, to Tom Hoenig, Federal Deposit Insurance Corp. vice chairman, have conceded that “too big to fail” remains and that the largest banks continue to benefit from the perception.

“Despite enormous progress in developing policy proposals, too big to fail is an itch that remains unscratched,” Haldane said in a paper dated April 9 that was made public on Thursday.

Community banks, represented by the Independent Community Bankers of America, have supported the Brown-Vitter bill as a way to end “too big to fail.” Former regulators have publicly backed it, while some current U.S. regulators privately support it as well.

The level of support for the bill has alarmed the biggest U.S. banks, which vehemently oppose the legislation….”

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CNBC reports the deal was oversubscribed and that hedge fund managers have complained they have received no allocation…..that spells melt up to me.

Company link 

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“The end of the payroll tax holiday is prompting consumers to cut spending, according to a new survey from Federal Reserve Bank of New York.

Of the 370 individuals surveyed, 79 percent said they plan to cut spending in response to the end of the tax cut, while nearly 20 percent said they will cut savings and 2 percent will increase debt (borrowing).

The payroll tax cut reduced Social Security and Medicare taxes withheld from paychecks by 2 percent in 2011 and 2012, impacting 155 million workers. It gave an extra $1,000 a year to the average household earning $50,000.

The economists compared how people had used the extra money with what they say they’re doing in response to the end of the tax.

“We see a disproportionate shift toward primarily reducing spending,” New York Fed economists Basit Zafar, Max Livingston and Wilbert van der Kaauw write in their report. “Regardless of what consumers reported doing with the increase in take-home pay over the last two years, a majority report that they will cut back on spending.”

For example, 86.2 percent of those who mostly spent the extra money said they now plan to mostly cut spending, and 80 percent of those who used the extra funds mostly to pay off debt also plan to mostly reduce spending. ….”

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“Spain is officially insolvent. Just look at the International Monetary Fund (IMF)’s latest Fiscal Monitor, says U.K. Daily Telegraph columnist Jeremy Warner.

His advice: Get your money out now.

“I don’t advise getting your money out lightly. Indeed, such advice is generally thought grossly irresponsible, for it risks inducing a self-reinforcing panic. Yet looking at the IMF projections, it’s the only rational thing to do.”

The IMF’s report, he says, comes as close to declaring Spain as being insolvent as you’ll ever see in an official analysis.

“The IMF is far too diplomatic for such language. But that’s the plain meaning of its latest forecasts, which at last have an air of realism about them, rather than being the usual dose of wishful thinking,” Warner writes.

Spain’s budget deficit is projected to decline this year to 6.6 percent of gross domestic product (GDP), Warner notes. That steep drop is mostly due to the cost of bailing out the banking sector from last year. Other than that, the deficit didn’t really fall much. And the IMF doesn’t predict it to fall any time soon.

The structural deficit, or permanent debt remaining even after economic growth returns, is even worse.

“By 2018, Spain has far and away the worst structural deficit of any advanced economy, including other such well known fiscal basket cases as the U.K. and the U.S.,” Warner explains…..”

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“Central banks got it right when they saved the world economy, but their unprecedented actions risk disruptive cross-border spillovers and potentially heavy losses when the time comes to reverse course, the IMF said on Thursday.

In its most detailed survey so far of the dramatic measures taken to counter the damage from the 2007-09 financial crisis, International Monetary Fund staff repeated earlier assessments that the steps had worked but face diminishing returns.

However, in new research, they also said central banks could face severe losses when they begin to withdraw the extraordinary sums of money they have pumped into financial systems around the world.

Massive market bets are riding on whether the U.S. Federal Reserve and its peers can execute a graceful withdrawal from more than four years of ultra-easy monetary policy, which helped restore confidence in global growth.

Central banks have pumped trillions of dollars, euro and yen into the global economy through bond-buying campaigns after interest rates were slashed close to zero.

The ultra-easy monetary policies have prompted critics to warn of the risk of inflation and asset price bubbles, while some developing nations have argued their richer counterparts were seeking to gain an export edge by lowering the value of their currencies.

Jaime Caruana, head of the Bank for International Settlements, warned on Thursday that big central banks should not delay in winding down their economic support programs. The BIS advises global central banks.

But the IMF found the benefits of unconventional measures still outweighed the potential costs in the United States and Japan, and it reserved its toughest language for politicians who fail to undertake long-overdue economic reforms.

“A key concern is that monetary policy is called on to do too much, and that the breathing space it offers is not used to engage in needed fiscal, structural, and financial sector reforms,” the IMF said in the report.

“These reforms are essential to ensuring macroeconomic stability and entrenching the recovery, eventually allowing for the unwinding of unconventional monetary policies,” it said.

FRIEND OR FOE…”

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“A so-so first-quarter earnings season hasn’t dented investors’ enthusiasm for stocks.

Profit at large U.S. companies modestly exceeded Wall Street analysts’ expectations, while revenue was weak and many companies ratcheted down growth projections.

But stock prices have been rising, with the Dow Jones Industrial Average up 16% for the year and 4.2% since earnings season began April 8 with a mixed report from aluminum company Alcoa Inc. AA 0.00%

The developments have added up to a rise in stock-market valuations. The price/earnings ratio on the Standard & Poor’s 500-stock index now stands at 14.5, its highest level since 2010.

Stock-rally skeptics said that spells trouble. They contend soft U.S. economic growth and expanding P/E multiples can’t coexist forever. Economists predict U.S. gross domestic product will expand at a slower rate in the second quarter than the first, when it increased at a 2.5% annual rate. Government spending cuts known as the sequester came into effect March 1. The Labor Department said Thursday that initial jobless claims increased by 32,000 to a seasonally adjusted 360,000 in the week ended May 11, the largest one-week gain since November.

But many market watchers emphasize there are few other options available for investors. With the Federal Reserve committed to buying $85 billion a month in bonds for the foreseeable future, pushing down interest rates and reducing the income investors can make on assets perceived as safe like Treasurys, many will likely continue pushing into stocks, betting that the economy will continue to improve. “Revenue is not good,” said Adam Parker, chief U.S. equity strategist with Morgan Stanley MS -1.14% . “But people are giving companies a hall pass for that, because most believe that companies will do better in the second half of the year.”

Longtime bulls have been waiting for years for investor confidence in the rally to pick up. Even as shares soared off their March 2009 financial-crisis lows, investors sent only a trickle of cash into stocks despite a recovery in corporate profits. But that has changed this year with the pickup in the stock market and the rise of other riskier asset classes such as “junk” bonds, those issued by below-investment-grade companies.

The increased flows come as the corporate-earnings recovery has plateaued…..”

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What do the masses know?

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“The Dollar Index rose to the highest level since July 2010 while South African and Australian currencies fell on speculation the Federal Reserve will scale back stimulus measures. U.S. stock-index futures gained while gold dropped.

The gauge of the U.S. currency against six trade partners added 0.7 percent to 84.173 at 8:49 a.m. in New York. The rand sank to its weakest level since April 2009 and the Aussie slid to the lowest in almost a year. Spain’s 10-year bond yield fell eight basis points. Standard & Poor’s 500 Index futures climbed 0.4 percent. The Stoxx Europe 600 Index added 0.1 percent. Gold fell for a seventh day, the longest slump in four years…..”

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“The U.S. economy will continue to recover until at least 2015 without tumbling into a recession, achieving the sustained growth that has eluded it since the last slump ended four years ago, according to a Bloomberg poll.

With the economy creating an average of 208,000 jobs a month since November, 69 percent of those surveyed call the recovery “sustainable” while 27 percent anticipate a new recession within two years, according to the global poll of investors, analysts and traders who are Bloomberg subscribers.

“I expect growth to accelerate,” says respondent Brandon Fitzpatrick, 35, a portfolio manager for D.B. Fitzpatrick in Boise,Idaho. “Consumers’ balance sheets are improving, and consumption is set to pick up.”

The prospect of increasing energy independence, a rise in home values after years of decline and a pause in the partisan budgetary battles in Washington are driving investor sentiment.

Real estate, the epicenter of the 2008 financial crisis, is a big part of the optimism. Even after yesterday’s reported drop in April’s housing starts, homebuilders began work on 853,000 new homes, up 78 percent from the April 2009 low. After watching the housing crash erase more than $7 trillion worth ofwealth, homeowners have recovered about $2 trillion in real estate holdings, according to Federal Reserve data.

In the poll, 71 percent of Bloomberg customers say the recent home-price increase in major U.S. markets is evidence of a genuine recovery in values; 21 percent say it’s a sign that a new bubble is inflating.

Above Average….”

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“Struggling department-store retailer JC Penney on Thursday reported operating margins plunged in the first quarter on weak sales and heavy clearance deals, as its new chief executive promised more promotions and a return to basics to win back shoppers.

Penney, struggling with mass customer defections after a failed strategic shift by former Chief Executive Ron Johnson, said gross margins came in at 30.8 percent, nearly 7 percentage points lower than a year earlier. Total sales and same-store sales both posted double-digit declines, in line with the company’s warning last week…..”

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