Sunday, December 13, 2015

What is Income Protection and Why do we need it?

We know for a fact; plans and dreams are built on the potential income which we will earn over our lifetime.

Loans for University, Car Loans, Mortgages, Personal loans for Weddings, etc are all built on the potential income earned by the individual or the family.

In the last few decades, this has encouraged people to now start thinking about having Income Protection.

Now there are two potential reasons why a person can lose income:
1. Loss of Employment/Economic Downturn
2. Loss of Income due to Bad Health

If a person losses his/her job on average they can get a job within 6-9 months, even if not at the same level maybe with a 20-30% pay cut, hence it has been a recommendation to always hold liquidity to cover expenses for 6 months as a buffer.

But, if a person falls sick or gets disabled it would immediately put a stop to income.

Now the question usually asked is... well all my expenses for treatment would be covered by my Medical Insurance... Reality: Medical Insurance (individually purchased or by the company or government) would usually pay bills related to the treatment; but what about the daily expenses?
The family would still have to cover mortgage payments, education fees of the kids, might need to change lifestyle and or the house, other expenses like car loans.

Hence, Income Protection... Ensuring the family continues to get the income which the family would require in the event a person falls ill to be able to meet the financial commitments and to continue living the same lifestyle.

#sanjaytolani #speaker #author #28000 #incomeprotection #income #financialplanning #mdrt #topofthetable

Note: All proceeds from the books are donated to charity.

Friday, December 11, 2015


So one of the most important questions asked about Life Insurance is...

I mean, would it not make sense to invest the money in Hard Assets instead? Hard Assets give you higher returns...don't they?

Well, to get maximum return out of a Life Insurance policy, ensure you buy it "1 DAY before you die"; it would generate the maximum return; no asset class can match that rate of return. #LOL

But then that rises a bigger question... Which day is that??? Unfortunately, not all of us know (some claim to know) when that day is. So the best day to buy Insurance was "YESTERDAY", as our last day could be today.

Question: Do you want the same regret tomorrow? "I wish i had insurance yesterday"

"NOW" is when you have the power to protect your hard earned wealth and income.

Your delay... Your Loss...

If you want to know "How much is enough?" you can read more in "28000 - Make Every Day Count"

#sanjaytolani #speaker #author #mdrt #topofthetable #lifemember #orderonline #charity

Note: all proceeds from sale of the book goes to charity.

Tuesday, December 8, 2015

RMB Is Now a Reserve Currency. What It Means for Treasurers

The International Monetary Fund (IMF) announced Monday that the Chinese renminbi (RMB) has met the criteria to be included in the Special Drawing Right (SDR) basket of currencies. Effective October 1, 2016, the RMB will join the U.S. dollar, euro, Japanese yen and British pound in the SDR basket.
For corporate treasury and finance professionals, this news could make the RMB a more attractive option for both payment and funding.

Debra Lodge, head of RMB business development, North America at HSBC, believes that adding the RMB to the SDR basket could change the way that some U.S. companies view their foreign exchange risk both onshore and offshore. “This may challenge large U.S. companies—who purchase inventory from China—to rethink their purchasing strategy and shift to buying goods with RMB or simply add RMB into their currency hedging portfolios,” she said. “The bottom-line, U.S. companies will need to be RMB ready as the currency continues to reach key milestones in 2016.”

Additionally, some experts believe that U.S. companies may look to the RMB as the U.S. is expected to raise interest rates any day now. “We will see more U.S. companies considering raising capital in RMB, especially as many expect that the U.S. will raise rates in coming weeks,” said Martin Maciak, head of development, Americas at HSBC Global Banking and Markets.

However, for the RMB to truly progress into a global currency, some changes will likely need to take place in China. “There are still many capital controls in place that prohibit the currency from being freely used and until that happens, it can't be mentioned in the same breath as the USD, EUR or JPY without an accompanying asterisk,” said Alfred Nader vice president, Latin America and the Caribbean Western Union Business Solutions and an expert on the RMB. “Because of this, you won’t see a rush towards the RMB anytime soon. You will see a trickle, and the Chinese will have to be content with this until they loosen their capital controls. After all, a trickle is better than nothing.”

View from Asia

The SDR basket was a major topic of discussion during a plenary on the RMB at the recent Sibos conference in Singapore. A quick poll of attendees found that 62 percent believe that the RMB should be added to the SDR basket.

But not all experts believe the RMB belongs in the basket at this time. During the Sibos plenary, Amol Gupte, region head of treasury and trade solutions, APAC for Citi, said that while he expected the IMF to include the RMB, he didn’t think it should. “The reason I say ‘no’ is, I’d like to see much more capital account convertibility before it becomes a reserve currency,” he said. “If you are a reserve currency, you want to incent a foreign investor not just to own their own currency but to own somebody else’s currency as well. That’s what a reserve currency is. To do that, you need a lot more trust, transparency and liquidity for it to really succeed. I think it still needs to mature.”

Gupte asked attendees to consider what exactly will happen once the RMB achieves SDR basket status and becomes a reserve currency. “Sure, there will be some countries that will buy the RMB as a reserve currency, but that’s not going to change anything in my view,” he said. “You think of world reserves today; about 70 percent of the world reserves are in the dollar, about 15 percent are in the euro, 5 percent in the sterling, 5 percent in the yen and 5 percent in everything else. Is that going to change by a big magnitude if the vote is ‘yes’? I don’t believe so.”

Copyright © 2015 Association for Financial Professionals, Inc.
All rights reserved.

Monday, November 23, 2015

Here are some secrets about Life Insurance which the Super Rich are not telling you

So as an advisor to several Ultra HNI families and after several discussions with them, I have realized that the way Life Insurance is perceived by some of the SUPER SUPER Wealthy families is very different from the rest of the population. Below I have tried to quickly summarize some of those observations and comments.
The Ultra HNI Clients buy Life Insurance; EVEN IF THEY DON'T NEED IT!!!! WOW... !!
Now why do they buy it then? (The Million Dollar Question)
1. Liquidity! A lot of wealthy families are "Asset Rich" but liquid poor. The Life Insurance policy becomes a quick tool to create liquidity when any key person in the family passes away to ensure Hard Assets are not liquidated in a "Fire Sale". It also protects the reputation of the family
2. Income Replacement: AND I get this question asked a lot... But don't the Super Rich have passive incomes and established businesses?? Well they do, But when the primary breadwinner passes away, these income sources may start to dry up, so the Life Insurance provides a quick buffer to help stabilize the income flow.
3. Wealth Transfer: We all work very hard to build HARD Assets; It is essential that these HARD Assets are transferred to the next generation without loosing value. Taxes, Transfer fees, Probate costs, Lawyers, Trusts, Foundations, the more complex the structure the more fees the estate has to pay. Life Insurance ensures those payments are made without touching any of the assets in the estate. Hence ensuring full Wealth Transfer.
4. Hedge against the Future: But don't the SUPER RICH already have a secured future? Well just like a car, every estate needs to have Shock-Absobers, Seat Belts and Airbags. You may be in a Rolls Royce, but you would still need the essential protections from uncertainity. Life Insurance is the Shock Absober in the Estate Value. It hedges the pot holes on the way. Life is unpredictable and so is your estate value.
5. Life Insurance as an Asset!! Life Insurance is not considered an expense on the Super Rich Income Statement; one of the reasons why a lot of people think the Super Rich don't have it..It is on the Balance Sheet as an Asset. No wonder a lot of people have the Myth that Life Insurance is only for the Poor and not the Rich. Life Insurance is an option (for all the traders and accountants out there) which is always "in - the - Money" which means; it will always have value for an estate even at its worst performance. Its a Liquid Asset/Property on the Balance Sheet of the SUPER RICH
This is a quick summary of the discussions I have had with many families. If you believe you know someone who could benefit from this information. Please share it.

Thursday, November 19, 2015

What financial resolutions should be planned for the new year?

So with the new year round the corner... Bonuses might come through... but more essentially.. What financial resolutions should be planned for the new year?

Some tips when planning (Not a new mantra...just some wisdom and old information which we might have been forgotten or ignored)

1. Preplanning or Re-Planning your Budget: Sometimes we ignore some of the small sources of income and also miss out on the small leaks of expenses in our daily busy lives. Once a year... it would be good to be reflective and just relook at where some of the money just disappeared....Only a small leak is needed to sink a boat... would be good to recheck the small leaks

2. Emergency funds: If you are thinking.."What emergency fund?" ...Well imagine if you did have an emergency? Something as simple as loosing your job! The rule of thumb for emergency funds is 6-9 months of expenses... It's a buffer good to keep a check on...sometimes it gets dried up... best time to top it up is usually when the bonus flows in..

3. Plan for Big Life Changes: Marriage, Children, Starting a business or buying a house, Kids going to University or even retirement... When best to start saving for these potential life events? Answer: The sooner the better... the cost of delay can be very expensive. Time passes by very fast and these commitments will just come knocking on the door...

4. Start paying down your debt: Very essential that you consider the cost of the debt which you may be carrying... Personal Loans and Credit Card debt is one of the most expensive forms of debt.. Try to avoid carrying debt that's not essential... and paying it down is most ensure that other financial commitments can be met in the future. Exactly one of the reasons to ensure your children don't start life with a debt.. plan for their university while you can.. giving them a strong foundation will ensure they get a slight head start at facing life with confidence.

5. Protect your Income: All of the above strategies can go down the drain; if the source of your wealth dries up.. YOUR INCOME... Income Protection is very essential for any budget and financial plan. Your income can be hampered due to two potential reasons... loosing your job or a major recession (Point 2 is what comes handy then) or you if you fall sick and are unable to work; then who continues to pay off the debt or pay off expenses? Insurance companies have in the last 30 years started building income protection products usually called Critical Illness Protection Plans which would provide you a lump sum which would support your family for an additional 3-10 years.

6. Fulfill atleast one dream or desire: Do put aside a small fund to ensure you fulfill your desires as well.. or else regret kicks in or end up taking up unnecessary debt. No point in killing desires... But plan these splurges as well.

If you find it useful.. please share this with your friends and family as well. A lot more tips have been written in my book "28000 - Make Everyday Count" which is available in 3 Languages: English, Hungarian and Bahasa Indonesia

#loveyourfamily #plan #income #retirement #debtmanagement #incomeprotection #financialplanning #budgeting #sanjaytolani #speaker #author #28000

Wednesday, November 18, 2015

Planning your retirement?... you have a lot of work cut out for you....

So this is a slightly long article... but I felt I should write down my thoughts for my friends and family....
1. Longevity: People are living longer than ever before... (not healthier but longer)... very important to think how long will your income last after you retire. Setting up a minimum income guaranteed every month should be the first criteria for your retirement plan.
2. Healthcare Costs: We know we are going to live longer... cost of healthcare is also increasing... how are we going to manage this risk? Health Insurance? Health Care Fund on the side? Critical Illness Insurance for experimental medication? Long Term Care Insurance for nursing homes? Cost of Changing a house in case of disability? WOW... overwhelming isn't it? Even as I type this... I can feel this is something everyone should always have on their radar of planning.
3. Government Support: Never underestimate the power of this support... sometimes its the only thing that might help... but also don't overestimate this support as government policies change and you don't want to be left without any coverage. So plan as if you have to fend for yourself alone... this is an additional support level.
4. Inflation: Yes every financial planner talk about it... how real is it.... very real .... how can it affect your future income...BIG TIME... do not loose sight of this rate... it can creep up real fast and eat into your income pie... make sure your minimum income guaranteed every month is inflation protected... or 20 yrs into your retirement (when you are even more old) you might be struggling to make ends meet... so Watch it very carefully.
5. Investment Risk: Yes we all talk about risk too... Low risk... Low returns... High risk ... high returns... so what happens if we start taking risk with our pension money... well either we have a lot more than we need...or we are gonna be facing a huge challenge to catch up... watch it very carefully as well... take risks early..and reduce it as you grow older..when you cant afford to loose...
6. Legacy: An over rated and over used word... but its something we all can relate to... how do we want to be remembered? the person who was an asset or a liability on the family?? what did you do for the next generation(s) to remember you? Some of us want to be remembered for our deeds... and some of us really don't care... so painting everyone with the same brush is probably unfair.. however... as we grow older... we do want to be recognized and not totally forgotten by society... and especially our grand kids.. so think about it...
If you liked this article... please share this with your friends... I have written a lot more in my book "28000 - Make Everyday Count" which is now available in 3 languages - English, Hungarian & Bahasa Indonesia

Monday, November 16, 2015

Economic Summary for the week ended 15th Nov 2015

The International Energy Agency said stockpiles of oil stand at a record 3 billion barrels. Indeed, oil prices returned to their August lows, losing some 8% as the entire commodity spectrum came under pressure. These are certainly interesting times. Although the USD is the global reserve currency, the US economy is quite insular (exports contribute only around 13% of GDP). As such, the FED is focused on their domestic economy, which is expanding at a reasonable pace, somewhat out of sync with broader global weakness. This could continue to perpetuate USD strength.
Key questions for investors are therefore whether non-USD liquidity (for example from the ECB) can make up for US tightening and whether current exchange rates already fully reflect impending rate hikes.

Sunday, November 1, 2015

Economic Summary for the week ended 20th Oct 2015

One year ago, Germany’s DAX index bottomed. Back then, optimism about German growth had been falling sharply, illustrated by the ZEW survey. A few months later, the DAX rebounded in tandem with a bounce in this survey. This summer, the ZEW figures have again fallen as investor optimism diminished.
However, history could repeat itself in the coming months with a renewal of optimism. We expect a stabilisation in the Chinese growth outlook but German domestic demand, which is far more significant for the economy than exports to China, should support German economic expectations regardless of Chinese demand. Given our expectation that German growth will be close to 2% next year, investors should watch the ZEW survey for signs of an attractive entry point for DAX-listed equities, which appear to have already priced in recent concerns. The other major German survey from the IFO suggests that a pick-up in the ZEW survey may be just around the corner.

Monday, October 12, 2015

Economic Summary for the week ended 11th Oct 2015

Last week saw a big bounce across almost all asset classes, with oil up close to 10%. As such oil related market outperformed (see huge moves in Norwegian and Indonesian equites or the rally in the Russian Ruble). In the current environment with enormous financial liquidity (from QE and low rates) but limited trading liquidity (given greater bank regulation), we think the distribution of market returns has changed. Positioning is crowded, volatility is generally lower, but tail risks are more significant. This perhaps helps to explain recent moves.
At a fundamental level, the global economy is characterised by consumer strength (from easy policy and lower commodities) and industrial weakness.On Tuesday, the IMF again lowered its global growth forecast for 2015 and 2016; there is a sense of déjà vu.

Tuesday, October 6, 2015

Economic Summary for the week ended 5th Oct 2015

The Euro Stoxx 50 is now lower than it was going into the final quarter last year. Back then Brent oil was trading at around $100, EURUSD was at 1.26 and investors were relatively optimistic with only 15% of them describing themselves as bearish.

Since then the European Central Bank (ECB) has started printing €60bn a month and said it is willing to add more if necessary, the Euro has weakened by around 10% and the oil price has more than halved. Yet 30% of investors now describe themselves as bearish, the highest proportion since 2012 and valuations are back down to their long term average. We think the low oil price, low euro, low borrowing costs, reasonable valuations and already weak sentiment will support European equities from here.

Monday, September 28, 2015

Economic Summary for the week ended 21st Sep 2015

Whilst all focus was on the Fed last week, some important European data points will be released this week. Eurozone consumer confidence is released on Tuesday and PMIs on Wednesday.

Consumer confidence is close to pre-crisis highs but we believe it can rise further in the medium term. Eurozone unemployment has been falling steadily over the last two years and is now showing signs of falling at a faster pace. The chart below shows that the change in the unemployment rate is closely linked with consumer confidence. As consumer confidence increases consumers spend more, which boosts the economy and reduces unemployment. This in turn further boosts consumer confidence creating a virtuous cycle. This positive feedback loop still has plenty of room to run in the Eurozone given that unemployment remains very high and therefore has the potential to fall much further. 

Sunday, September 20, 2015

Economic Summary for the week ended 14th Sep 2015

Eurozone GDP was revised up this week showing that the eurozone grew 1.5% year on year in the second quarter. The underlying data showed a continued recovery in domestic demand and net exports.

Whilst the European Central Bank recently revised down their GDP growth forecasts slightly, they still expect 1.7% growth in 2016. They have also highlighted that they are willing to expand their Quantitative Easing (QE) programme if necessary to support growth and inflation. Even without further easing, money supply has been picking up strongly and suggests that GDP growth should remain well supported. With money supply and the economy picking up, and the EuroStoxx 50 down near where it was when Draghi first announced QE back in January, this would suggest that European equities have upside potential from here.

Sunday, September 13, 2015

Economic Summary for the week ended 7th Sep 2015

The FTSE All Share is down nearly 10% since May. As the school holidays draw to a close and investors return from their summer breaks, it’s worth noting that intra-year corrections of this magnitude are the norm rather than the exception. In 17 of the last 25 years the last four months of the year have delivered positive returns, with the average return in those positive periods being 8.0% for the FTSE All Share. We don’t believe this market selloff is the precursor to a recession and, if we’re right, history suggests there is money to be made before the New Year.

Tuesday, September 1, 2015

Economic Summary for the week ended 31st Aug 2015

Volatility hit record highs: both the S&P 500 VIX and Euro VSTOXX peaked at 40.8 compared to respective five year averages of 17.5 and 23.0. These global equity drawdowns were not foreseen, and some portfolios did suffer losses, but it is important to remember the long-term. If an investor had stayed fully invested in the MSCI ACWI over the past 14 years, their returns would be over 180% — yet, if this same investor had missed even just the 20 best days of the ACWI’s performance, their investment would be in the red.  Keep calm and stay invested.

Saturday, August 29, 2015

Economic Summary for the week ended 24th Aug 2015

Markets reacted with the pound strengthening against the dollar, reflecting the likelihood of an earlier rate rise. Yet, global disinflationary pressures from cheaper Chinese imports and falling commodity prices could counteract a pick-up in domestic demand. Across the channel, Eurozone five-year/five-year inflation expectations dropped dramatically on the news of the Renminbi’s devaluation, as highlighted in the chart. Continued imported deflation could force the ECB to extend its quantitative easing programme. When predicting central banks’ next moves across the world, investors would be wise to listen to Socrates: “The only true wisdom is in knowing you know nothing”.

Tuesday, August 18, 2015

Economic Summary for the week ended 17th Aug 2015

Fears over Greece, China and the US Federal Reserve rate rise has resulted in there being more bears in the market than you’ll find at that oft-sung picnic in the woods.  This negative sentiment is highlighted in this week’s chart, which shows that the weekly bullish sentiment survey, conducted by American Association of Individual Investors, has reached multi-year lows.  Should investors be worried?  If history is any guide the collapse in sentiment is a strong contrarian indicator for US equities.  Historically, when bullish sentiment has dropped below 30% it has on led to 21.3% average return from the S&P 500 in the subsequent 12 months.  Past performance is not always a good guide of future performance however, in the famous words of Warren Buffett: “Be greedy when others are fearful and fearful when others are greedy”.

Friday, August 14, 2015

The Chinese did what was inevitable but still came as a surprise to the market – they devalued the renminbi against the dollar

The Pressure Tells

·         China surprises the market by devaluing the renminbi

·         Chinese authorities will position the change as structural

·         Massive portfolio outflows appear to have pushed the Chinese to act now

·         The surprise shift in policy only encourages investors to remain risk averse

·         The Fed may still move to increase interest rate in September

·         We continue to advise investors to remain risk averse and biased to bonds

What has happened?
The Chinese did what was inevitable but still came as a surprise to the market – they devalued the renminbi against the dollar. The devaluation has taken the form of adjusting the reference rate against the dollar, 1.84% higher on Tuesday and a further 1.6% higher today, Wednesday. We believe the currency is at risk of further downside. In a break with the past, the authorities will going forward set the reference rate closer to the market traded rate. This latter move is a form of structural change which will be welcomed over the longer term by the market. For the moment the markets are trying to come to terms with the shock of what has just happened.

Although the authorities say that the currency adjustment is a one-off given the state of the economy and the significant amount of hot money that has sat in CNY denominated products sold to foreign investors we believe there could be further downside.

One of the catalysts for the devaluation is the ongoing capital flight from China. Charts 2 shows that monthly portfolio flows from foreign investors turned very negative at the end of 2014. Except for one month this year, outflows have continued. Since the data series began there in 2009,  a net $474 billion of foreigners’ portfolio flowed into China, however in June alone $47bn left the country. The currency devaluation may precipitate even further outflows.

Why did they do it?

On first blush it doesn’t seem absolutely clear what specifically the Chinese authorities are trying to achieve with the move to a more flexible currency regime. Was it to make their exports more competitive to help growth? Exports have been weak but this weakness may be as much a reflection of weak global growth as it is about a loss of competitiveness of Chinese exporters. The Chinese must also have been aware that many Asian countries would move to maintain the status quo by letting their currencies fall back too.

The move could be seen in the context of ongoing economic reform. The new process around the reference rate is more transparent and certainly takes the country in a direction that would find favour with the IMF. However, it seems a little odd to make a structural shift in your currency management at a time of such marked weakness of the Chinese economy.

It appears that the authorities have had to respond to the capital outflows by letting their currency fall back rather than buying up all of the capital outflows. The volume of selling was just too big to cope with. The decision to let the currency slide was therefore rolled into a structural shift in the way in the hope that the impact would be more muted.

What happens next?

Despite the new flexibility in the renminbi currency regime we suspect the authorities will not be happy to see the reniminbi slide too sharply. Some intervention might be expected if the slide continues to be aggressive. The challenge for the authorities will be the potential scale of the outflows. As we said earlier there is potentially as much as $400bn of hot money from foreign investors still in China. It would be a surprise to see all of the hot money repatriated however the shock for investors of seeing the break from the previous safe haven nature of the reniminbi probably means it will be some time before we see foreign investors returning to the currency.

The reniminbi weakness will undoubtedly be good news for Chinese exporters. It is often forgotten that the government remains pro-exports with its programme of “One Belt, One Road” initiative.  The country is aiming to sell high-value equipment such as high-speed trains and renewable energy equipment.

Events in China have sent another shock through emerging markets.  Amongst the BRIC countries only India stands out as somewhere we a modicum of positive news. Asia has been rocked by the devaluation of the reniminbi and it has set off of a wave of weakness in other Asian currencies.  For the moment the scale of the Asian currency depreciations is insufficient to create a wave of inflation fears that could translate into early rises in interest rates. Hence we see this as a transitory crisis.

The risk of a rise in official interest rates by the Federal Reserve in September must have fallen. Such a view has already been discounted by and large by the market with a fall in the 10 year yield to below 2.10% and a two-year yield at 0.65%.

Events in China have limited near term implications for the MENA markets. However the China currency crisis has taken many of the equity markets back close to important supports which if broken could precipitate 5-10% downside. The devaluation also serves to highlight that for those countries that peg themselves to the dollar and yet are not able to mirror too closely the momentum of the US economy they will suffer. Luckily the GCC countries are by and large generating growth better than the US and hence are much less vulnerable to the current challenges in global markets

The fall in the renminbi has precipitated another risk-off phase for global markets. To us events in China are just another manifestation of the troubles in the global economy with too little growth and policy makers struggling to get sufficient traction with their policies to reinvigorate global growth. We continue to advise investors to have a bias to bonds and to only buy equities that offer yield or have good long term growth opportunities such as healthcare and technology.


Monday, August 10, 2015

Economic Summary for the week ended 10th Aug 2015

Sir Isaac Newton taught us that the movement of objects is all about its momentum, and so it seems for equity indices as well. Eurozone earnings are forecasted to come through over the next twelve months, with nearly 5% year on year forward Earnings per Share (EPS) growth, the only index of the three with a positive expected change. Whilst US and EM companies face headwinds from the strengthening dollar and an expected Fed Funds rate hike later this year, Eurozone equities have benefited from the weaker Euro, domestic demand, and a supportive central bank. And because of this momentum, the MSCI Eurozone has risen with considerable velocity: a 20% gain in the past eight months. With improved growth prospects in the region, European equities are likely to continue along this trajectory.

Monday, August 3, 2015

Economic Summary for the week ended 3rd Aug 2015

All eyes were on the US Fed’s FOMC statement last week, in which the smallest change (the addition of the word ‘some’ before ‘further improvement in the labour market’) meant the most to economists.  Janet Yellen and her FOMC want to see greater labour market tightening before starting to hike rates – but what exactly will they be looking for?  One measure, the number of job vacancies (JOLTS), has hit its highest point since the inception of the series.  Before the financial crisis, the Fed’s policy rate moved with the JOLTS number, however the past seven years of near-zero interest rate policy and rising vacancies has created a massive gap between the two figures.  Next week’s new JOLTS release could add one more data point to the Fed’s ammunition for a September hike.

Tuesday, July 28, 2015

Economic Summary for the week ended 28th July 2015

As the gold bear market continues, the precious metal suffered a battering in speculative trading last week, breaking through the $1,100-an-ounce support level. Bullions ($1.7bn to be precise) melted away in a matter of minutes on futures exchanges in the US and Shanghai whilst Europe slept last Sunday, with the sell-off continuing through the week. The gold price has dropped -42% since its market peak in 2011, after investors flooded into the “safe haven” post financial-crisis. With a positive outlook for global growth, a rapidly strengthening dollar and hawkish statements from the Fed, investors are seeking returns from other asset classes. Perhaps the biggest mover of the market though, came from the People’s Bank of China declaring its current gold holdings were much less than analysts expected. Gold investors can no longer sit in their gilded cages as the price of this asset moves towards record lows.

Tuesday, July 21, 2015

Economic Summary for the week ended 22nd July 2015

The first half of the year has been good to oil producers as WTI rallied 11%, after falling 47% over the course of 2014. However, the rollercoaster ride in oil isn’t over yet. Despite some signs of correction, supply continues to flood the market. Saudi Arabia produced crude oil at a rate of 10.5m barrels per day in June, its highest in recorded history (since 1962). Last week’s deal with Iran is likely to add yet more fuel to an already oversupplied fire in the coming quarters. Lower oil prices will hurt producers, but, on the whole, the global economy continues to benefit from these lower energy costs. Hold on tight through the turbulent times ahead.

Tuesday, July 14, 2015

Economic Summary for the week ended 14th July 2015

Wimbledon marks the start of the British summer but as the weather heats up, the UK economy is cooling off. In the Summer Budget 2015 last week, George Osborne introduced various supply-side measures including a Living Wage Premium, which could encourage corporates to improve their labour productivity. In response, the UK Office for Budget Responsibility revised its forecast for unemployment back up to 5.4% (after revising it downwards to 5.3% in the March Budget). But this downward revision stems partly from the anticipated increase in productivity - the forecasted average for 2015-2019 was revised upwards by 0.1%. The key to economic recovery in the UK is the return of productivity growth to a sustainable level. When, or rather if, output per worker returns to its pre-crisis trend is difficult to predict. Yet if achieved, game, set and match.

Monday, July 6, 2015

Economic Summary for the week ended 6th July 2015

In recent weeks the Chinese stock market has hit the headlines for all the wrong reasons. Major indices have fallen significantly, with the shanghai composite, for example, is now down over 20% from its recent peak. Such was the scale of the run up, key indices of Chinese equities remain up by double since the start of the year. But where to now? Although there were pauses on the way up, history suggests that now the tide has turned, further downside awaits. This latest evolution in share prices bears a striking resemblance to the rally in Chinese equities that started in 2007 and lasted throughout that year. The similarities are so great that the correlation between the two series is almost prefect. Buyer beware.   

Tuesday, June 23, 2015

Economic Summary for the week ended 23rd June 2015

It came as no surprise that the Norges Bank voted to cut its policy rate by 25 bps to a record low last week of 1.0%, one of the highest policy rates in Europe. The economic challenges Norway faces are rather different to its neighbours: firstly, Norway is the only net oil exporter in western Europe; secondly, its housing market has boomed after the crisis compared to the European union. With a depreciating krone, increasing consumer prices, and rising house prices, a rate cut may seem rather counter- intuitive. Norway has weathered the storm so far but with signs of an imminent slowdown in the oil industry pushing down Norway’s 2015 and 2016 GDP growth forecasts, further rate cuts are expected from September into 2016.

Tuesday, June 9, 2015

Economic Summary for the week ended 1st June 2015

Volatility in bond markets has been heating up - in fact, yield fluctuations last Thursday were some of the biggest in 2015. This week’s chart shows the 1 week rolling volatility of the German 10 year Bund yield, which spiked after European Central Bank’s President Mario Draghi confirmed on 4 June that his stimulus programme is working to boost the Eurozone economy. The international Monetary Fund cut its 2015 GDP growth forecast for the US form 3.1% to 2.5% on the same day. It may be the start of the summer, but investors certainly aren’t taking it easy as they position themselves for perceived shrinking divergences in the world’s largest economies.

Monday, May 25, 2015

Economic Summary for the week ended 25th May 2015

In just a few weeks, Saudi Arabia will allow qualified institutional investors to invest directly in its USD 570bn equity exchange – an exchange with a market cap larger than that of Russia’s MIECX and Poland’s WIG. Perhaps surprisingly, the index has not only diversified impressively over the past years, but its 169 constituents are not solely oil-related. Average daily trading volume of USD 2.3BN makes the Tadawul All share index the fourth most liquid amongst the emerging markets. Once the exchange opens on 15th June , we would anticipate a further increase in liquidity. Which will contribute to market stability and reduce volatility of the country’s stocks. But the effects are not just on the technical side: longer term investors will be pleased as Saudi Arabian corporations are expected to improve transparency and governance.  

Thursday, May 21, 2015

Economic Summary for the week ended 21st May 2015

As Greece slips into recession, fears of the country running out of money are mounting. The 11th May Eurogroup meeting was meant to be a key turning point, but progress is slow- moving. Although Greece successfully paid the IMF €750mm  last Tuesday, Athens still owes around €25bn through the end of 2015. With ECB support via the Emergency Liquidity Assistant (ELA), a “Grexit”  is less likely  - - even in the event of a Greek Default.However, the ECB will weight up the political and financial costs of their support and may reconsider if the 20th July repayment to the ECB itself is missed. There are a range of possible scenarios if Greece misses its summer repayments, and while there is less contagion risk than in the past, investors could see volatility spread into other European markets.

Tuesday, May 12, 2015

Economic Summary for the week ended 11th May 2015

It’s been a tough week for European fixed income investors as long-dated government bonds across Europe were thoroughly shaken. German 10-year bund yields jumped from 0.1% to over 0.6% in just one week. As shown in the chart, the abrupt sell-off in German bunds has disturbed a long-running rally in European sovereign bond market. So what has triggered the rush for the exit? Analysts are touting a series of explanations including a reassessment of inflation risk by investors, liquidity concerns as well as bearish comments made by high profile bond investors, Ultimately, with a list this long, it is likely to be a cocktail of several reasons that have caused such a reversal for European fixed income market.

Wednesday, April 29, 2015

Economic Summary for the week ended 27th April 2015

Euro Area capex as a share of GDP is currently close to its record low. But the pressure to begin making capital investments is mounting. As capacity utilization in the region starts to tick upwards from its mid-2013 trough, companies will have to consider finally making the investment that they’ve been putting off. Since the last cycle peak in ’07-’08. Italy and Spain have seen the greatest fall in buildings spending, while France and Germany saw a bigger drop in transport expenditure. Consider the US post-financial crisis, when US capex rebounded from record lows in 2009 to levels above its long term average. The key driver then was profile recovery, and European earnings look to be gaining strength. Given the Eurozone’s rising utilization, relatively healthier corporate earnings, and easier lending standards, investors might like to pay attention to capex trends in the coming quarters.

Thursday, April 23, 2015

Economic Summary for the week ended 20th April 2015

With the exception of a confetti- throwing protestor, there were no surprises out of the ECB press conference last week. Draghi confirmed that purchases would run “until we see a sustained adjustment in the path of inflation”, ruling out any speculation of tapering in the near term. Despite escalating rhetoric over a Greek default and news that Greek officials made an informal approach to the IMF about delaying the interest payments, yields continue to grind lower. German Bund yields went negative at the 9-year maturity, while the 10 year yield tested the zero threshold. The question remains, with yields still falling and the ECB unable to buy bonds below its -0.2% lower limit, weather policy makers will face a scarcity of European government bonds. How long will it be before they may have to change their strategy?

Thursday, April 16, 2015

Economic Summary for the week ended 13th April 2015

The year of the Sheep is characterised as one of promise and prosperity, this seems to be accurate when looking at the equity market - the Shanghai Composite index has gained 25% this year despite a slowing economy. The surge in equities has less to do with growth and more to do with liquidity and valuations. The challenging economic outlook is leading to a case of ‘bad news is good news’ for Chinese equities. Sentiment is spilling over into the international market via the Hong Kong-Shanghai Stock Connect as investors look for arbitrage opportunities for dual-listed companies. The pace of the gain in Chinese equities is alarming but with further policy easing likely and valuations that remain unchallenging, this may be the sheep with the golden fleece.

Saturday, April 4, 2015

Economic Summary for the week ended 30th March 2015

The dollar’s sharp increase on a trade weighted basis over the last year implies lower economic growth in the coming quarters via weaker export growth. But, the US Federal Reserve may be more concerned with the impact on prices, as consumers may choose to swap domestically produced goods for cheaper foreign imports, further weighing on prices and with a potential knock on effect to wage growth. The Fed’s preferred measure of inflation, personal consumption expenditure, exhibits a close relationship with consumer import prices as shown in this week’s chart. Central banks usually treat currency movements as transitory, but with the inflation rate already at zero the greenback is going to come under closer scrutiny.

Monday, March 16, 2015

Economic Summary for the week ended 16th March 2015

European markets continue to make headlines with the euro hitting fresh lows for this economic cycle and a proportion of Eurozone sovereign bond yields dropping to levels never seen before. The European Central Bank (ECB) started its QE programme last week and their €60 billion monthly purchase plan has increased demand for eligible bonds. This demand seems to be pushing much of the euro area investable bond universe towards negative interest rates. Around 30% of Eurozone sovereign bonds already have negative yields - a marked increase from just August of last year, as seen in this week’s chart. Because the ECB is relatively insensitive to valuation measures, negative yields could be here to stay, suggesting a continuation of a weakening currency and high stock market valuations..

Sunday, March 15, 2015

Economic Summary for the week ended 9th March 2015

The Reserve Bank of India managed to surprise markets once again with a rate cut of 25bps to key rates at an unscheduled meeting. This rate cut follows the recently unveiled Union Budget for 2015-16 and appears as a sign of support for the new policies set out by the government. In their latest statement the RBI appears confident of the government’s efforts for better fiscal consolidation, despite the delay in reaching the deficit target. An officially agreed inflation target of 4% (+/-2%) is also a positive sign of co-operation. The central bank and government’s efforts to work together with complementary fiscal and monetary policy should be a very constructive signal for investors in the Indian market.

Sunday, March 1, 2015

Economic Summary for the month ended 28 Feb 2015

2nd Feb 2015
Nearly all asset classes have had a volatile start to the year, none more so than commodities. This week’s chart looks at the price ratio of gold and oil which is at a 16-year high. A rising dollar and slower inflation should have seen these two commodities behaving in a similar fashion, however, correlations this year are negative. What is causing the spike? If you see the glass as half empty it could be fears of a repeat of 2008 when worries over the global economic outlook saw investors flock to safe havens such as gold. A more optimistic interpretation is that much of the slump in oil prices is a product of excess supply rather than falling demand which could boost growth in the near future.

9th Feb 2015
Since the financial crisis, “deleveraging” has been cited as a reason for sluggish economic performance. While US households, for example, have significantly reduced their debt burden, a new report by McKinsey & Co, shows that globally, debt has risen by $57tn since 2009. Furthermore, a significant proportion of the increase occurred in economies that were already heavily indebted. As a share of GDP, global debt has now risen to 286%, up from 270% in 2007. While this is certainly a concern, vastly increased and improved regulation of financial markets suggests the likelihood of another financial crisis in coming years is low. However, efforts to curve financial imbalances are still clearly on the to-do list of global policymakers.

23rd Feb 2015
The countdown has begun to the UK general election in May 2015. With only three months to go, the outcome is still far from certain with both the major parties level pegging in the polls. The uncertainty that hangs over the election is beginning to make itself felt in financial assets. This week’s chart shows the cost of hedging the pound has jumped considerably as implied volatility of GBP versus the US dollar over 3 months and 2 year time horizons has spiked to near four-year highs. Whilst predicting the final outcome of the general election and its impact on British financial assets is turning out to be quite challenging, investors should prepare for currency volatility in the months ahead.

28th Feb 2015
Last week, for the first time in history, Ireland’s 10 year bond yield fell below 1% - a stark contrast to the 14% borrowing cost seen in the midst of the European debt crisis. While Ireland’s debt-to-GDP ratio remains one of the highest in Europe (115%) and unemployment is in double digits (10%), GDP forecasts for the country name it the fastest growing nation on the continent in 2015. However, Ireland’s fragile economic recovery isn’t the only reason for this tightening. As the ECB kicks off €60bn of asset purchases this month, sovereign bond yields have fallen across the region in anticipation. Additionally, the Eurozone’s approval of Greece’s bailout extension last week squashed fears of an immediate Greek exit, causing a rally in periphery country government bonds and bolstering, if only slightly, investor confidence in the Eurozone as an entity.

Friday, January 23, 2015

Economic Summary for the week ended 21st Jan 2015

Market movements
The new year is still only a couple of weeks old, but already it is starting to look and feel rather different from the environment that we experienced in much of 2014. There are five key trends which have emerged so far in 2015. First, moderately weak equity markets, although this is more evident in developed than in emerging markets; second, weak commodity prices, with a sharp fall in the copper price last week coming off the back of an oil price that is still declining; third, lower-quality high government bond yields in the US as well as Europe; fourth, wider credit spreads; and finally, a much higher level of volatility in financial markets. These are the patterns that we would expect to see in the event of a material global slowdown in economic activity, or even in a recession.
So the key question for investors at the moment is whether markets are getting it right in appearing to price in much weaker growth expectations. Or is this just some erratic market behaviour, which sometimes happens at this time of year? Now to get this one right, it is important to review some of the recent key market developments which have brought about this shift in behaviour. This includes a number of factors: for example, some weak economic data and corporate reports from the US, in particular falling retail sales and inflation, lower manufacturing business sentiment, rising unemployment claims, and also, importantly, some disappointing financials results in the early stages of the current reporting round. Second, we’ve seen some potential financial dislocations caused by the collapse in oil prices, as in the high-yield market. Third, there have been concerns that the weakness in commodity prices is signalling a frail global economy both at present and going forward. The next factor is the potential for quantitative easing in the eurozone, which is likely to be announced this week. It is a reflection of the inevitability of a period of negative inflation in Europe, and a still less-than-stellar macro background. Another factor is the pending Greek election result, which could lead to additional tensions. And finally, the unpegging of the Swiss franc last week may not have broad global implications, but it is another example of the sort of challenge that markets have had to come to terms with in recent weeks. At the same time, there has been a dearth of unexpectedly good news to provide some welcome relief.
The fall in the oil price has resulted in some very material income transfers
Recently, we suggested that volatility was likely to be more a feature of 2015 than we’ve seen in years past, but this is not to say that all of the themes of the past couple of weeks or so are set to persist. Importantly, we would remain sceptical of the claim that the global economy either has been very weak, or is about to weaken. On the contrary, global economic growth in the second half of last year was the strongest it had been in some time, and we would characterise the more general tone of recent macro data as being quite trendless, rather than indicating material acceleration or deceleration – although the larger emerging economies do continue to struggle. While US financial earnings have indeed been disappointing in the current reporting round, the non-financial companies that have reported so far this quarter have, on average, displayed very robust earnings growth. The oil price is crucial here: the fall in the oil price has resulted in some very material income transfers from oil-producing companies and countries to oil users. To date, the pain being felt by the first group is very visible, and markets have reacted quickly to it. Look at the extreme underperformance of equity markets of commodity-related companies, the underperformance of energy-related high-yield companies, and the drop in the Russian and Brazilian currencies. But ultimately, the fall in oil prices should prove very beneficial for the global economy as energy users react to what is, in effect, quite a substantial increase in their real incomes. That should support spending. And this supportive impact is likely to become increasingly apparent in the coming months. Also, the recent Swiss and Greek challenges to the investment environment in the eurozone should not be seen as inevitably destabilising. In particular, even if Syriza does come to head a new coalition in Greece after the election, their stated policy is for Greece to remain in the eurozone, and some compromise over the degree of austerity is likely to be reached with the Troika even if the negotiations prove difficult for a period.
So recent weeks, for us, do provide a helpful guide to the rest of the year, because they highlight the range of challenges which the markets are having to deal with, and will continue to have to deal with. However, our central case is that these difficult first two weeks of the year will not be a good guide to risk-asset activity going forward. We would expect, on balance, better risk-asset performance than we have seen recently, largely because the weakness in the global economy that is currently being signalled by markets, is, we believe, unlikely to materialise.

Wednesday, January 14, 2015

Economic Summary for the week ended 13th Jan 2015

Market movements
It was a volatile start to 2015. We’ve had six trading sessions so far this year, and in three of those, the European equity market, as measured by the Eurostoxx 50, has moved plus or minus 3% on three occasions. To put that into context, the Eurostoxx 50 moved by that amount only four times in the whole of 2014. As a result of that volatility, most equity markets are now in the red (year-to-date). This is something we expected to happen at some point in 2015; we expected it would be a more volatile year, that we would see periods of sharp moves in equity markets, but even we’ve been surprised that it’s happened so early on. It’s worth looking at the fears that are driving this. Firstly, let’s look at central banks. One of the reasons we expected volatility at some point in 2015 is because we expect central banks to start taking different paths. Up until now, the banks have pointed in the same direction, towards easier monetary policy and more liquidity being injected into the financial system. We expect that to change this year, particularly with the central banks in the UK and the US beginning to tighten monetary policy and perhaps raise interest rates. Meanwhile, we see central banks in Europe and Asia easing monetary policy and continuing to push on with quantitative easing (QE).
But that’s not enough to explain the volatility that we’ve seen so far in markets, because at this stage, those potential rate hikes in the UK and the US are being pushed out much further into 2015 than perhaps we thought. That leads to the second point on what’s driving this climate: the sharp fall in the price of oil is a key driver for financial markets. The delay in rate rises may in part be down to the fall we’ve seen in the price of crude and the knock-on effects in terms of reducing inflation. But from an equity-market perspective, the situation has changed from December, where the fall in the price of oil to around USD$65-70 per barrel was seen as a positive by equity markets because of its impact on consumer demand via the lower prices for petrol. And that is still the case: consumer-led data is beginning to show increased spending on hard goods and soft goods. But in the equity markets, with oil now below $50 per barrel, much closer attention is being paid to the impact on corporate earnings.
A lot of major companies, many of which are energy companies, are starting to hurt from this drop in oil. Currently, people are recognizing that many of the positives from an economic-growth perspective, particularly in the US, have been related to the infrastructure spend going on in oil, for example through fracking and natural gas. Though this has had a positive effect in terms of capital expenditure, a loss of employment has been generated in these industries, leading to concerns that if prices stay where they are today, then perhaps things will reverse, with a negative impact on the US economy.
Where do we think oil prices will stop?
It also leads to the question ‘Where do we think oil prices will stop?’ The most honest answer to give is that we don’t know. But let’s look at both the demand side and the supply side. First, the demand side: one of the drivers of lower commodity prices over the last few years has been the weakness in the Chinese economy, and expectations are for that to continue, notwithstanding the fact that the Chinese authorities have continued to pump money into that system to try and stimulate economic growth. But we don’t think that’s going to be enough to have a meaningful impact on crude-oil demand. It’s difficult to see where there would be an increase in demand sizable enough to mop up the supply. It comes down to when we think supply will start to dwindle. This is a long-run picture, and we are seeing some tentative signs that supply will begin to be curtailed. One of the statistics you can look at is the number of rigs being employed in the US, which has started to fall. We’re also seeing companies beginning to remove money from capex programs designed to investigate new supplies of energy. But that’s a long-term game to be played out. So ultimately, it’s difficult to see oil prices recovering meaningfully anytime soon. We think markets will start to price in oil prices remaining lower for longer. For example, if you look at market expectations going in to 2016-17, expectations are that prices will recover to around $70 per barrel, and that may lead to further pressures on oil price, when people’s long-term expectations start to fall. Elsewhere, we’ve seen speculation about the upcoming Greek election; Syriza still shows a small lead. The challenge here is that we are likely to see a coalition coming out of that election, and it will be a long time before there is any certainty around Greek policy.
So, was there anything that did well over the start of the year? We’ve seen a decent bounce in the price of gold, from $1,185 to $1,224 per ounce. The strength of the US dollar has continued; the euro is now trading below 1.20 versus the dollar. Government bonds also did well; 10-year US Treasuries are trading below 2%, and 10-year gilts are trading at 1.6%. Similar to gold, gilts and Treasuries are a clear beneficiary of sentiment regarding rate rises being pushed farther into 2015. One equity market that has gotten off to a good start is China. This is surprising given the poor economic news coming out of the country, and we suspect growth will slip below the 7% target. But the government is increasing liquidity flows into markets, and equities have been responding to that. As a result, Chinese equities are up 2% on the week. However, we think the Chinese economy is still going to struggle, so that’s an area we’ll avoid. The outlook ahead is all about the European Central Bank meeting on 22 January. Expectations are high that Mario Draghi will introduce some form of QE, so there is scope for volatility and disappointment around that.