News Summary

News Summary
Hello from Hong Kong. Three central banks to watch this week
Bank of Japan monetary policy decision on Tuesday March 15,
Bank of England on Thursday March 17, followed by FOMC later
that day. Nothing expected from BOJ and BOE; an article in The
Nikkei said markets are beginning to pin their hopes for Japan's
economic recovery on ambitious government outlays as the
central bank's monetary easing runs low on fuel (page 20).
Almost everyone sees Fed Res putting rate hikes on hold this
month.
Post-ECB and Draghits Bazooka, there are lots of news articles
from the weekend. FT said currency forecasters are pulling back
on 2016 expectations of a weaker Euro following its whipsaw
move. ECB staff projections in December forecast the 2016
exchange rate to reach $1.09, but have now pushed this out to
$1.11 (page 6). In Bloomberg (page 7), the Euro-bears are now
counting on Fed Res to deliver where ECB failed. Options prices
show traders are paying the lowest premium since Feb. 10 to
protect against a Euro slump. Hedge funds and other large
speculators are also starting to capitulate, shaving bets against
the currency to the least since June 2014 late last month. The
prospect of tighter monetary policy in the US holds out a kernel
of hope for Euro bears. Futures contracts show a 51% likelihood
of a rate increase by June, from 2% probability a month ago.
From Barrons Online, forgive the repetition, but this will be
another confab to watch what they say instead of what they do.
Vice Chairman Stanley Fischer, opined that four rate hikes in
2016 were in the ballpark, the consensus view has softened to
perhaps two increases this year from the current funds rate
target of 0.25% to 0.5% (page 9). CIBCs Avery Shenfeld said
hawks like Fischer still expect to carry on with further hikes
over the course of 2016. Doves like Brainard want to see a lot
more evidence of wage inflation and even tighter labour
markets before moving again.
http://research.cibcwm.com/economic_public/download/mar1
1_16.pdf
Three European central bankers opposed to Draghit. We all
know the first one. Bundesbank President Jens Weidmann was
particularly opposed to the decision. The other two are
Governing Council Board Members Dutch central banker Klaas
Knot and Germanys Sabine Lautenschlaeger. Not surprising,
Buba has publicly opposed recent ECB policy moves, including
the launch of its quantitative-easing program a year ago and its
expansion in December. It views government-bond purchases as
a risky policy tool that could inflate asset bubbles and reduce
the pressure on highly indebted governments to reform. Two
Germans have resigned from the ECBs governing council since
2011 amid disputes over bond purchases, including former Bunba
President Axel Weber (page 6).
We are hearing it again former BOE Governor Mervyn King tells
Daily Mail on Sunday, in his most explosive comments for
Europe's biggest economy, saying Germany's dominance has been
one of the more damaging consequences of the single currency
project (page 8).
NIRP is here to stay. Five of the worlds major monetary
authorities have resorted to sub-zero rates. Negative interest
rates - widely seen as a central bank ploy to depreciate their
currencies - have been called a "dangerous experiment" due to
their adverse impact on the profitability of retail banks. At the
last G20, BOE Governor Carney has said central bank action to
stimulate domestic activity with negative rates was a "zero sum
game" for the world. What will Kuroda do on coming Tuesday
March 17? Barrons Online said little is expected, especially
given how its adoption of NIRP in late January largely backfired
by sending the Yen sharply higher (page 10). The febrile market
environment means the Fed is set to hold fire on another hike at
its March policy meeting on Wednesday. Investors are now
pricing in just a 4% chance the Fed will implement another 25

basis point rate hike this week (page 8).
PBOC Governor Zhou Xiaochuan has a message to those rushing
to convert their holdings of Chinese currency into dollars these
days: No need. Speaking on Saturday, the Governor said he
cannot rule out future fluctuations but sees a gradual return to
normalcy in the Yuans exchange rate in the wake of the
currencys sharp selloffs early this year. Zhou reiterated there
was no need for them to weaken the Yuan to stimulate exports.
Zhou said monetary policy will remain prudent and there is no
need for excessive monetary easing (page 2).
Chinese economic data published on Saturday were
disappointing. Industrial production rose 5.4% versus last
months 5.9%. Retail sales rose 10.2% as to last 11.2%.
Bloomberg News said the Chinese should step up monetary and
fiscal stimulus and build up more debt, or let the nations
industrial engines slow further while reducing overcapacity in
the steel, cement and coal sectors. A bright spot was a pickup in
investment in real estate development following stronger sales
(page 3).
Avoiding layoffs, Chinese government is looking to consolidate
state companies. Xiao Yaqing, director of the powerful
government commission that oversees state assets, said his
agency will protect workers rights as it balances competing
interests in reforming the state sector. Over the past year, the
government engineered the merging of 12 big state firms into
six entities, mostly in energy and transportation, and Xiao said
his agency would press ahead with more mergers and
acquisitions in the state sector while de-emphasizing
bankruptcies (page 5).
Moodys has downgraded long-term debt outlook to negative
over strong mainland ties? This is really strange. Hong Kong
Financial Secretary John Tsang Chun-wah blasted Moodys
decision and said it isnt a China risk but a China opportunity
(page 17).
Two stories on the Norwegian oil fund; FT on Sunday posted a
report that Norges Bank Investment Management has severed
ties with Pimco and BTG Pactual, the Brazilian bank. NOBIM
pulled its money from the Californian bond house last year after
widespread investor fears took hold about underperformance at
some of Pimcos largest fixed income funds and the acrimonious
departure of Bill Gross. FT warned this withdrawal could prompt
other sovereign funds to reassess whether to hold money with
Pimco (page 12). Nikkei database showed that NOBIM has
invested nearly Jpy6trln in Japanese equities. Report said
Japanese shareholdings came to roughly Jpy5.95trln at the end
of 2015, an increase of 24%, or some Jpy1.1trln, from a year
earlier (page 17).
On August 24 2015, Global Finance magazine listed Bank Negara
Governor Tan Sri Dato' Sri Dr Zeti Akhtar Aziz as one of the top 9
Worlds Best Central Bankers over the past year. Thomas White
International named Dr Zeti as one of the Emerging Leaders. She
is the first woman from Malaysia, in fact from anywhere in Asia,
to head a central bank. And the formidable lady certainly has
shown a steely resolve, judging by some of her seemingly
unorthodox policy maneuvers during her long stint at the bank.
Come April, Dr Zeti will step down and she is likely to be
replaced by MOF official Irwan Serigar Abdullah (page 19).
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
Focus on China
China to Maintain Prudent Monetary Policy,
Says PBOC Governor Zhou
Taken from the WSJ Saturday, 12 March 2016
Zhou said yuan returning to normalcy

Chinas top central banker Zhou Xiaochuan has a message
to those rushing to convert their holdings of Chinese
currency into dollars these days: No need.
At a news conference Saturday, Mr. Zhou, the governor of
the Peoples Bank of China, said he sees a gradual return
to normalcy in the yuans exchange rate in the wake of
the currencys sharp selloffs early this year.
Mr. Zhou said recent pressure weakening the yuan, also
known as the renminbi, mainly came from uncertainty over
Chinas economy, bouts of turbulence in Chinas financial
markets and the divergent monetary policies pursued by
central banks around the world.
I cant rule out any future fluctuations in the exchange
rate, Mr. Zhou said. But the current trend is a return to
normalcy and rationality.
The news conference, which was held on the sidelines of the
annual national legislative session, is the second time Mr.
Zhou has faced the media in a little over two weeks. The
appearances come as the government stages a messaging
campaign to shore up confidence in an economy that is
markedly slowing, weighed down by debt and overcapacity,
and that is trying to shift its drivers toward consumption and
services and away from investment and industry.
Accompanying Mr. Zhou on the stage Saturday were three
of his top lieutenants, who oversee the central banks
exchange-rate policy, management of foreign-exchange
reserves and the countrys financial stability, respectively.
I want you to get to know them as well, Mr. Zhou,
currently the longest-serving central banker of a major
economy, told a roomful of domestic and foreign reporters
and photographers.
Mr. Zhou batted aside concerns raised by some economists
that the governments newly set growth target for the year
of 6.5% to 7% will necessitate concerted stimulus spending
and an easing of credit. Mr. Zhou disagreed, saying there is
no need for excessive monetary easing.
Barring any international and domestic shocks, he said,
monetary policy will remain prudent.
The central bank, he said, is eyeing the countrys low
inflation and deflating prices for factory supplies before
adjusting interest rates. The bank has cut the benchmark
interest rate six times in 17 months and again last month
reduced the amount of deposits commercial banks must hold
in reserve with the central bank.
Asked about plans to help Chinese banks deal with fast-rising
piles of bad loans, Mr. Zhou said one solution is to allow
banks to repackage them as securities and then sell them
to investors.
Banks have incentive to carry out so-called securitization as
it could help them remove bad loans from their books and
expand new lending, Mr. Zhou said. But the central banker
also offered a note of caution about the risks associated with
such moves, pointing to the role played in the global
financial crisis by the risky securitization of questionable
home mortgages.
Well draw lessons from international experience, Mr.
Zhou said.
Currently, the Chinese central bank has picked a handful of
big banks for a trial bad-asset securitization program.
Securities to be sold under the scheme can only be sold to
institutional investors, said Mr. Pan Gongsheng, a deputy

governor of the central bank.
Mr. Zhous recent public appearances contrast with his lack
of visibility for much of the past six months, a volatile period
for the yuan and Chinas stock markets. Since his reemergence, part of his new messagerepeated Saturdayis
to allay fears that the high volume of money leaving China in
recent months amounts to capital flight that could
destabilize the overall economy.
Pointing to recent sharp declines in Chinas foreign-exchange
reservesviewed as a sign of money leaving Chinaanother
deputy central bank governor, Yi Gang, said most of that
drop was due to businesses, banks and individuals purchasing
dollar funds from the central bank.
Chinese companies, for instance, used the dollar funds to
pay off about $100 billion in foreign debt last year, Mr. Yi
said. Going forward, he said, both capital inflows and
outflows will be in a reasonable range.
Mr. Zhou also said there was no need for Beijing to weaken
the yuan to stimulate the nations exports or boost the
competitiveness of products made in China. Even amid
weak demand for goods world-wide, he said, China
exports are taking a slightly bigger share in global trade.
On Chinas housing market, in which a few major cities are
seeing rapid price rises while most struggled with excess
supply, Mr. Zhou said the sector is still under pressure to
destock.
Mr. Zhou and his colleagues warned against property
developers and agencies using Internet-financing platforms
to help homebuyers fund their down payments. The practice
is illegal and could increase risks in Chinas financial system,
said Mr. Pan.
(Full article click - WSJ)
---
China's Zhou Xiaochuan plays down risk of

surging property prices
Taken from the AFR Saturday, 12 March 2016
China's central bank governor Zhou Xiaochuan has played

down the risks created by runaway house prices in major
cities, stressing the priority was to clear excess apartments
rather than dampen demand.
As house prices in Shanghai and the southern city of
Shenzhen continue to surge, Mr Zhou and his deputies
defended lending standards and said average down payment
levels remained high by global standards.
"On the whole the property market is facing relatively big
de-stocking pressure," Mr Zhou, Governor of the People's
Bank of China, told a press conference on Saturday.
The Governor said monetary policy needed to consider the
overall situation in China's housing market, where there are
more than 8 million unsold apartments.
The comments will fuel speculation that authorities are
prepared to tolerate runaway house prices in first tier
cities, if it means clearing surplus stock in regional centres.
This should help to kick-start the construction market and
provide a boost to the broader economy.
"Property and easy credit have worked as engines of growth
before for the government and it looks like they are going
back to what they know," said Michael Cole, the founder of
Shanghai-based property consultancy Mingtiandi.
"The big rolling ball of Chinese hot money is going back into
property."
Prices in Shanghai are up nearly 20 per cent over the last
year, while the technology hub of Shenzhen, which borders
Hong Kong, has seen prices rise more than 70 per cent over
the same period.
A deputy governor of the PBOC, Pan Gongsheng, told the
press conference that the average down payment for first
home buyers in January was a relatively high 35 per cent,

while investors had put down an average of 45 per cent.
He also said non-performing loans (NPLs) in the housing
sector were just 0.38 per cent, compared to 1.7 per cent
for corporate loans.
"NPLs in the housing sector are significantly lower that other
sectors," Mr Pan said.
While downplaying the risks to the broader economy from
the housing market, Mr Zhou said the PBOC would seek to
tighten regulations around internet financing, which had
allowed some buyers to avoid minimum down payment
requirements.
Speaking on the sidelines of the Nationals People's Congress,
Mr Zhou also stressed China would maintain "prudent"
monetary policy and not seek to devalue the currency to
gain an advantage for its exports.
"We are not using exports to boost the GDP growth," said Mr
Zhou.
"We will support innovation, productivity and measures to
boost domestic demand."
Mr Zhou said China was not losing its export competitiveness
from higher wages and the relatively stronger currency, as
the country's market share in global trade was flat or rising
moderately.
The Governor also played down the prospect of a spike in
capital outflows, as he was confident China's economy would
continue to grow between 6.5 per cent and 7 per cent.
(Full article click - AFR)
---
China Industrial Output, Retail Sales Slow as

Property Gains
Taken from the Bloomberg News Saturday, 12 March 2016
Chinas industrial production and retail sales both slowed in

the first two months of the year, highlighting the pressure
leaders will face to meet this years annual growth target
even as the central bank governor said major stimulus
wasnt needed.
Industrial output rose 5.4 percent from a year earlier in
January and February, the National Bureau of Statistics said
Saturday, compared with the 5.6 percent median estimate of
economists surveyed by Bloomberg. Retail sales climbed 10.2
percent from a year earlier, missing the 11 percent
projected gain in the survey, while fixed-asset investment
exceeded estimates with a 10.2 percent increase.
The reports highlight the choice facing policy makers: step
up monetary and fiscal stimulus and build up more debt,
or let the nations industrial engines slow further while
reducing overcapacity in the steel, cement and coal
sectors. Steel output fell in the two-month period, while
aluminum output tumbled 7.7 percent, Saturdays reports
showed.
"The overall growth profile remains still gloomy," said Zhou
Hao, an economist at Commerzbank AG in Singapore. "The
mix of data give us a worrying picture. Activity data
remained weak while inflation and property prices are
turning around."
Speaking at a briefing just before the data release, Peoples
Bank of China Governor Zhou Xiaochuan sought to project an
aura of calm about the economy, saying that the government
will be able to meet its target of at least 6.5 percent growth
over the next five years.
Excessive monetary policy stimulus isnt necessary to
achieve the target, Zhou said, reiterating past comments
that monetary policy is prudent with a slight easing bias. If
there isnt any big economic or financial turmoil, well keep
prudent monetary policy.
The industrial output slowdown was due to seasonal factors,
an NBS official said in a statement posted on the agencys
website. Weak global demand, deterioration in sectors such

as steel and chemicals, and a slump in tobacco output
weighed on factory production, the official said.
A bright spot was a pickup in investment in real estate
development following stronger sales. The pace
accelerated to 3 percent in the first two months from a
year earlier compared with a 1 percent increase
throughout 2015. The value of property sales in the first
two months of this year surged 43.6 percent from a year
earlier, while property sales in some mid-sized cities
doubled.
Retail sales are still in a double-digit growth range, showing
shows theres no need to panic yet, said James Laurenceson,
deputy director for the Australia-China Relations Institute at
the University of Technology Sydney.
"Retail sales are struggling under the weight of weaknesses
in the rest of the economy," Laurenceson said. "This
increases the pressure on the authorities to present
households with a credible economic narrative to bolster the
consumer outlook."
(Full article click - BBG)
---
China Economic Data Paints Gloomy Picture

Taken from the WSJ Saturday 12 March 2016
Industrial production weaker than forecast for first two

months of 2016, while retail sales miss usual Lunar New Year
jump
Factories and retailers in China put in weaker-thanexpected performances in the first two months of the
year, as anemic demand and excess capacity continued to
bear down on the worlds second-largest economy.
Industrial production grew 5.4% in January and February
compared with a year earlier, down from Decembers 5.9%
pace, according to government data released Saturday, and
just below the 5.6% forecast by economists polled by The
Wall Street Journal. Meanwhile, retail sales clocked 10.2%
growth in the two-month period, slower than Decembers
11.1% increase.
While industries have been battered by the economic
slowdown, retail sales have been relatively buoyant, so the
downtick surprised some economists, especially since it
occurred around the Lunar New Year holiday when
consumption is usually strong.
Overall, the picture is still quite gloomy, said
Commerzbank AG economist Zhou Hao. Normally, because
of Chinese New Year, theres a big drop and a big jump. This
year theres only a big drop.
The government combines some economic data for January
and February to minimize distortions tied to the Lunar New
Year holiday, which falls during those two months. It was in
early February this year.
One area that did pick up was investment in factories,
buildings and other fixed assets, which increased a fasterthan-expected at 10.2% year-over-year in January and
February, compared with a 10% increase for all of 2015.
Economists said that boost came largely from government
spending on infrastructure and from investment in parts of
the overbuilt property market.
Mostly, economists said, weak demand at home and abroad is
weighing on industries and many factories continue to churn
out unneeded goods. Jiang Yuan, an economist with Chinas
National Bureau of Statistics, said makers of steel, cement
and tobacco reduced output in response to slack demand.
A recovery is still eluding Chinas industrial sector, Mizuho
Securities Asia Ltd. said in a recent report, before the
release of the data Saturday.
Chen Zhenxing, sales manager with Zhejiang Lanxi Shanye
Machinery Co., which produces handcarts and other logistics
equipment in the eastern city of Jinhua, said his company

faces ongoing problems raising capital and boosting prices.
Competition is cutthroat, he said. Too many companies
make products that are pretty much the same, so the focus
turns to lowering prices.
At the opening of the annual legislative session this month,
which lasts through mid-March, Premier Li Keqiang pledged
to reduce taxes, cut red tape and streamline regulations to
improve conditions for businesses. But Mr. Chen said he
hasnt seen much evidence of change on the ground. Its
useless, just slogans, he said.
The weak production data suggest that first-quarter growth
could fall toward the bottom of the governments 6.5% to 7%
target growth range for 2016, economists said. Concern over
wobbly growth likely spurred Beijing to sharply boost credit
in January and step up infrastructure projects, they said.
Its only stabilizing the growth slowdown, said HSBC Ltd.
economist Ma Xiaoping. Its not a turnaround yet.
While property is picking up, activity is largely concentrated
in Chinas largest cities. Most other cities remain beset by
overcapacity and show little evidence of improvement,
economists said.
Housing sales rose 49.2% year-over-year during the Januaryto-February period, compared with a 16.6% increase for all
of 2016, the statistics agency said. Property investment
growth is up 3% so far this year, compared with a 1% increase
for all of 2015.
Zhang Yiping, an economist with China Merchants Securities
Co., said property investment and domestic consumption
could be Chinas major growth drivers this year given
sluggish global demand and Beijings plans to cut industrial
overcapacity.
Commerzbanks Mr. Zhou and other economists expressed
concern that investment is flowing into a few real-estate
markets that show signs of overheating, rather than into new
ventures. Monetary policy is relaxed, but its reluctant to
go to the real economy, only to property assets, he said.
The slower pace of retail sales in January and February may
reflect the turbulent financial markets and weak corporate
profits last year, which dampened wage hikes and bonuses,
economists said.
Even accounting for data volatility around the Lunar New
Year holiday, Chinas economy is off to a slow start this year
following economic growth in 2015 of 6.9%, the slowest pace
in 25 years. A host of stimulus measures late last year and
into 2016most recently a 0.5 percentage point cut in bank
reserves late last monthhave yet to reverse the slide in
momentum.
---
China Securities Regulator Vows to Step In if

Markets Swing Again
Taken from the WSJ Saturday 12 March 2016
Newly appointed Liu Shiyu defended Beijings heavy

intervention aimed at propping up stocks last summer
Chinas newly-appointed securities regulator struck a
cautious tone in his media debut, promising sustained
government support for the battered stock markets and new
intervention should unusual volatility recur.
Liu Shiyu took over as chairman of the China Securities
Regulatory Commission less than a month ago, after his
predecessors removal following policy missteps that critics
say contributed to sharp fluctuations in Chinese shares last
year. Nevertheless, on Saturday Mr. Liu defended the
governments attempted and expensive rescue of the
plummeting markets last year. He also said little about when
his agency would go ahead with a new, long-promised system
for stock listings.
At a news conference, the former central bank official and

most recently head of one of the four biggest state banks
described last years precipitous rise and plunge in the stock
markets as rare and abnormal.
The decline, after an epic bull run that began in late 2014,
led the government to launch a series of unprecedented
measures to help stabilize the market, including directing
state funds to buy shares, imposing a halt to new stock sales
and prohibiting major shareholders from selling.
At a time of such tightened-up liquidity, how could (the
government) not have taken decisive actions, said Mr. Liu
said, who at the time was chairman of the Agricultural Bank
of China.
If such abnormal volatility happens again, he said,
decisive actions still need to be taken. That, he said,
would be in keeping with the governments goal of
deepening economic reforms.
Mr. Liu also said its too early to discuss any potential exit
from the markets of the state company tasked with shoring
up stocks, called the China Securities Finance Corp. I
havent considered it, he said.
Throughout the hour-and-a-half news conference held with
the countrys top banking and insurance regulators, Mr. Liu
came across as deliberate, answering questions slowly and
starting many of his responses by saying Ive studied the
matter.
His caution seemed to reflect the difficulties of his position.
His predecessor at the securities commission, Xiao Gang, had
been branded by some investors as inept, and grilled by
Chinese leaders over policies he advocated but that they had
approved.
Though Saturdays news conference took place when
markets were closed, Mr. Liu chose his words carefully.
Investors early last year took it as a signal to buy shares
when Mr. Xiao said the markets have had more room to rise
due to ongoing economic reforms.
Mr. Liu took issue with domestic media reports last Monday
portraying him as encouraging the public to buy shares and
not to sell. What I really said that day was, as chairman of
the Securities Regulatory Commission, Im not in the position
to advise people on buying stocks or selling stocks, Mr. Liu
said, eliciting laughter from the roomful of Chinese and
foreign journalists.
Asked whether his agency will still push ahead with plans to
replace the current stock-listing system with one that allows
the markets to play a bigger role, Mr. Liu said the
government is determined to make the overhaul but was
vague on timing. He said the focus of the reform would be
on protecting investors rights.
The government late last year set a two-year timetable for
the changewhich would take away some of the power the
government has over approving new share sales and give
more of that to companies and investorsthough investors
had expected the reform to be put in place in the first half
of this year.
One policy where Mr. Liu differed with his predecessor was
the use of a circuit-breaker system to halt trading
automatically in the event of precipitous declines. Meant to
stabilize the market, the system instead added volatility and
was scrapped after less than a week this year.
Mr. Liu said even though it was aimed at protecting
investors, the circuit-breaker isnt suitable for Chinas
markets because it hurts individual investors, who drive
much of the trading, rather than institutions.
At the same news conference on Saturday, Chinas top
banking regulator, Shang Fulin, stressed the need to increase
banks ability to dispose of bad assets in the face of rising
dud loans.
He said that can be done by banks repackaging soured loans

as tradable securities or transferring those loans to special
asset-management companies that handle distressed debt.
Mr. Shang dismissed the recent action by Moodys to
downgrade Chinas credit outlook to negative from
stable, which cited concerns over Chinas banking sector.
That downgrade reflected a misjudgment of the banking
industry, Mr. Shang said, without naming Moodys.
---
China Looks to Consolidate State Companies to

Avoid Layoffs
Taken from the WSJ Sunday, 13 March 2016
Chinas government is prioritizing consolidation over

bankruptcies in reorganizing state companies, a senior
official said, suggesting a go-slow approach in an effort seen
as key to revitalizing the slowing economy.
Xiao Yaqing, director of the powerful government
commission that oversees state assets, said his agency will
protect workers rights as it balances competing interests in
reforming the state sector. China wont experience a
wave of layoffs as seen in the late 1990s, Mr. Xiao said at
a news conference Saturday, referring to an earlier period of
restructuring when tens of millions of state workers lost
their jobs.
Mr. Xiao praised progress made to date in reorganizing the
state firms that tower over the economy in diverse strategic
sectors such as oil, banking, telecommunications and more.
Over the past year, the government engineered the
merging of 12 big state firms into six entities, mostly in
energy and transportation, and Mr. Xiao said his agency
would press ahead with more mergers and acquisitions
in the state sector while de-emphasizing bankruptcies.
The results have been quite good, said Mr. Xiao, who
heads the State-owned Assets Supervision and Administration
Commission, or SASAC. This year, well intensify the
effort.
How to wring the best performance out of state enterprises
has long been a problem for the government, and the
deepening economic slowdown has heightened the
imperative to eke out better returns. State firms not only
dominate the commanding heights of the economy but also
are involved in running hotels, making toothpaste and other
commercial endeavors.
Their performance, however, has consistently lagged behind
their private peers, even though state firms enjoy much
easier access to capital and other resources. Some of the big
state firms also represent the chunk of loss-making
companies listed in Shanghai and Shenzhen, with most of
them concentrated in industries plagued with overcapacity
such as steel and mining.
Some economists have urged a scaling back of state firms,
seeing their outsize claim on resources as an overall drag on
the economy. But Beijing is instead pursuing consolidation as
a way to both tighten the governments grip on economic
activity and to build national champions that can compete in
the global economy.
Chinas leadership has mapped out a plan to cut excess
capacity and shut loss-making firms. Mr. Xiaos remarks
Saturday suggest the restructuring is likely to be measured
and those who carry it out will try to avoid the large-scale
layoffs the government has long worried could trigger social
and political instability.
At the top of the restructuring agenda is a goal for state
companies to hand the government 30% of their profits by
2020from 15% or less now. Some of this is to be earmarked
for costs related to a rapidly aging population.
In years past, Beijing has sought to improve state companies

efficiency through consolidation, with little success. For
example, the government of Hebei province, which rings
Beijing, merged two major steelmakers to create Hebei Iron
and Steel Group. That firm went on to scoop up more
companies but is now mired in losses and debt.
Reform of state companies faces unprecedented difficulties
and challenges, Zhang Xiwu, a deputy director of the assets
commission, said at the same news conference.
---
China's Anbang to acquire Strategic Hotels for

$6.5 billion: source
Taken from the Reuters News Sunday, 13 March 2016
China's Anbang Insurance Group has agreed to acquire

Strategic Hotels & Resorts Inc for around $6.5 billion, as
the owner of New York's iconic Waldorf Astoria expands its
U.S. hotel portfolio, a person briefed on the matter said
Saturday.
The deal, which illustrates corporate China's unquenched
thirst for U.S real estate, comes just three months after
Strategic Hotels' current owner, private equity firm
Blackstone Group LP (BX.N), took the company private for
around $6 billion.
The source asked not to be identified because the deal is
not yet public. Anbang and Strategic Hotels did not
respond to requests for comment, while Blackstone
declined to comment. Bloomberg first reported on the
transaction earlier on Saturday.
Strategic Hotels' properties include the Four Seasons
Washington, D.C. on Pennsylvania Avenue, the Westin St.
Francis on Union Square in San Francisco and the beach-front
Ritz-Carlton Laguna Niguel in Orange County, California.
Anbang purchased New York's Waldorf Astoria from Hilton
Worldwide Holdings Inc (HLT.N) in 2014 for $1.95 billion, one
of the highest prices per room ever paid for a U.S. hotel.
The deal closed in February 2015 following a review of by
U.S. national security watchdog Committee on Foreign
Investment in the United States (CFIUS).
At the time that Blackstone took it private, Strategic Hotels
owned 17 hotels operated by top hospitality chains including
Hyatt Hotels Corp (H.N), InterContinental Hotels Group Plc
(IHG.L) and Marriott International Inc (MAR.O).
Chinese investment into hotels has been growing since 2011
and 2012, when just $160 million and $130 million were
invested, according to data from JLL, a global real estate
broker and advisory services company based in Chicago.
In November, Anbang agreed to buy U.S. annuities and life
insurer Fidelity & Guaranty Life (FGL.N) for about $1.57
billion.
(Full article click - Reuters)
Post-ECB and the Euro

Forecasts torn up after euros whipsaw run
Taken from the FT Saturday, 12 March 2016
Currency forecasters are pulling back on 2016 expectations

of a weaker euro following its whipsaw move in the
aftermath of the European Central Banks new stimulus
drive.
In one of the most volatile days in euro history the currency
fell nearly 1.5 per cent as the ECB unveiled a wide-ranging
package of monetary easing measures, on Thursday, only to
reverse course and soar close to 2 per cent higher above
$1.12.
The trigger for the reverse appeared to be Mario Draghis
press conference after Thursdays announcement in which
the ECB president drew a line under further negative
interest rates.
Volatility continued on Friday, the euro retreating 0.75 per
cent to $1.1090, before rising back to $1.1176, the level at
which it began trading.
Strategists at BNP Paribas said they expected the euro to
climb higher, reaching $1.14 by the end of March.
Steven Saywell, the banks global head of FX strategy, said
policy divergence, one of the main drivers of the euro, could
still push the currency lower against the dollar, but only if
the impetus came from the Federal Reserves rate cycle.
It could be that the euro part [of divergence] is done, said
Mr Saywell. Fed policy has much more power to influence
the exchange rate than the ECB.
While Goldman Sachs was sticking to its 12-month forecast
of $0.95, it said we dont think risk-reward for euro
downside is compelling in the near term.
According to Rabobank, which increased its euro-dollar 12month forecast, the ECB may have had to look at different
mechanisms for stimulus because against a backdrop of
limited risk appetite, investors have limited desire to short
the euro.
The euros trading range thus far in 2016 of $1.07-$1.14
looked like holding, said Socit Gnrale, unless the
Federal Reserve comes to the ECBs rescue and sends the
euro lower by talking up the prospect of further US rate
rises.
ECB staff projections in December forecast the 2016
exchange rate to reach $1.09, but have now pushed this out
to $1.11. They assumed a 5 per cent increase in the nominal
effective exchange rate.
Interpretations varied on Mr Draghis intentions when he
made his comments on interest rate policy. Nicholas Spiro of
Lauressa Advisory, a macroeconomic consultancy, said the
ECB president had committed a faux pas by ruling out
further cuts.
Having wielded an impressive-looking bazooka for over an
hour, Mr Draghi then misfired it spectacularly, blunting the
impact of the ECBs aggressive policy response in the foreign
exchange markets, said Mr Spiro.
Stephen Gallo, FX strategist at Bank of Montreal, believed Mr
Draghis intention was to shift the markets focus from
exchange rates to the interest rate channel.
We are in an environment where the dollar bull run has
turned. What is the point of forcing the trade-weighted euro
lower when there is waning demand for dollars? It is easier
to put a floor on the euro, said Mr Gallo.
Kit Juckes, a SocGen strategist, said the ECBs
announcement of targeted longer-term refinancing
operations at rates of -0.4 per cent reflected Mr Draghis
wish to refocus away from lower rates and therefore away
from driving the euro down, towards helping banks to lend
cheaper money.
(Full article click - FT)

---
Bundesbank
Package
Opposed
Latest
ECB
Stimulus
German central bank fears doom loop of high expectations

followed by disappointment
Germanys Bundesbank opposed the European Central
Banks stimulus package as structured Thursday, people
familiar with the matter said, underscoring the long-running
tensions between the two banks and the deep difficulty of
forging a monetary policy for a region with sharp economic
disparities.
The German central bank, a bastion of orthodoxy on
monetary policy, is worried that repeated forays into
stimulus could spark a doom loop of expectations and
disappointment, a person familiar with the matter said.
Seeking to spur ultralow inflation, the ECB on Thursday
announced a major package of interest-rate cuts, bond
purchases and ultracheap loans, its second fresh stimulus in
three months. But investors appeared unimpressed, just as
they were after a more modest boost from the ECB in
December.
Stock and bond markets initially rallied, but switched
direction and ended lower after ECB President Mario Draghi
said at a news conference that interest rates probably wont
be cut further.
That comment had broad support within the ECBs governing
council, including from some southern eurozone countries,
another person familiar with the matter said.
Bundesbank President Jens Weidmann was particularly
opposed to the decision to accelerate bond purchases to 80
billion ($89.5 billion) a month from 60 billion, people
familiar with the matter said. Mr. Weidmann couldnt vote at
Thursdays meeting owing to the ECBs system of rotating
voting rights. He was willing to debate more standard
central-bank tools such as interest-rate cuts and long-term
loans, but may have preferred to do nothing at all, the
people said.
The German central bank has publicly opposed recent ECB
policy moves, including the launch of its quantitative-easing
program a year ago and its expansion in December. It views
government-bond purchases as a risky policy tool that could
inflate asset bubbles and reduce the pressure on highly
indebted governments to reform. Two Germans have
resigned from the ECBs governing council since 2011
amid disputes over bond purchases, including former
Bundesbank President Axel Weber.
Mr. Draghi stressed at a news conference on Thursday that
the stimulus measures had been supported by the
overwhelming majority of governing council members. And in
an apparent dig at the Bundesbank at the same event, Mr.
Draghi warned that the eurozone would have fallen into a
disastrous deflation had it adopted a nein zu Allem
policy strategy, using the German for no to everything.
Mr. Draghi coined the term in late 2012 to describe German
opposition to the ECBs potentially unlimited bond-buying
program, which helped end the blocs debt crisis but was
bitterly opposed by the Bundesbank.
Suppose we had embraced what two years ago I used to call
the nein zu Allem policy strategy, so do nothing. What
would be the counterfactual? Mr. Draghi said. Of course
we deem that the counterfactual would have been a
disastrous deflation.
The Bundesbank has clashed with the ECB on other issues as
well. Last month Mr. Weidmann criticized efforts to abolish
the 500 note, which Mr. Draghi has said the ECB is
considering. Many Germans see the move as a first step
toward the abolition of cash, which could make it easier for

the ECB to cut rates further below zero.
But even as it has been repeatedly overruled within the ECB,
the Bundesbanks views still carry weight. The ECBbased in
Frankfurt like the Bundesbankwas modeled on the German
central bank, whose staff still outnumber its own three to
one.
The Bundesbank was one of the worlds most powerful
central banks until the ECB was formed in 1998 to administer
monetary policy for the eurozone, which has grown to 19
members. At the time, officials at the German central bank
were deeply worried that the new era would bring a
loosening of fiscal discipline.
Today the Bundesbank has only one vote on the ECBs 25member governing council, though Germany accounts for
more than a quarter of the eurozones economy, and is in a
very different economic position from some southern
members of the bloc. Among the 19 countries for which the
ECB sets monetary policy, the unemployment rate, for
instance, ranges from 4.3% in Germany to 24.6% in Greece.
The Bundesbank President went from being the guardian of
the national currency to a [member of a] multinational
governing council, with just one vote like all the others, like
Malta, said Otmar Issing, the ECBs former chief economist
and a former Bundesbank board member. The dimension of
this loss of importance cannot be overstated.
Still, Mr. Issing said Germans confidence in the euro remains
very much related to the credibility of the Bundesbank.
Mr. Weidmann isnt the only ECB member who is skeptical of
the banks easy-money policies. Some governing council
members are concerned that fresh stimulus is growing less
and less effective after years of ultraloose policies, the
people familiar with the matter said.
While 19 governing council members voted in favor of the
latest stimulus, two council members voted against,
people familiar with the matter said. They were Dutch
central bank Gov. Klaas Knot and German ECB Executive
Board member Sabine Lautenschlaeger. Four members
were ineligible to vote on Thursday under the rotating
system.
In a piece published Friday on the ECBs website, the central
banks vice president, Vtor Constncio, hit back at mounting
concerns over the effectiveness of central-bank stimulus,
arguing it was dangerous to talk it down.
What is rational and essential is to examine what would
have happened had the policy not been adopted in the first
place, Mr. Constancio said. The ECBs staff estimate that
the eurozone would have been in permanent deflation since
last year without its stimulus policies, he said.
However, on Friday the governor of Latvias central bank,
Ilmars Rimsevics said he doubted the ECBs latest stimulus
could help rekindle economic growth across the bloc. He
voted in favor of the package on Thursday, people familiar
with the matter said.
Presently, unfortunately, there are no sweet medicines
left, Mr. Rimsevics said on a Latvian television current
affairs show. What the European Central Bank has done
just printing moneyincreases the amount of money in
circulation, but is unable to print the European economies
out of crises, out of this stagnation.
---
For Euro Bears, Fed Offers Their Last Hope for

a Weaker Currency
Taken from the Bloomberg News Saturday, 12 March 2016
Traders staking their reputations and capital on a weaker

euro are looking to U.S. policy makers to deliver where the
European Central Bank failed.
With ECB President Mario Draghi warning this week that
interest rates may have reached a floor -- after lowering
them as part of an expansive program of additional easing -one possible catalyst of a lower common currency has been
shuttered. Thats drawing attention to the Federal Reserves
March 15-16 meeting, and whether its actions can support a
stronger dollar at the expense of the euro. The Bank of
Japan will issue a policy statement March 15.
At this point, the Feds probably going to have to do their
job for them, said Jennifer Vail, head of fixed-income
research in Portland, Oregon, at U.S. Bank Wealth
Management, which oversees $125 billion. The euros
probably going to be stuck in a range. Where it has the
potential to break out of that range and start moving lower,
really sits on the shoulders of what the BOJ and the Fed do.
Vail is bearish on the euro versus the dollar as she sees the
Fed being less accommodative than markets anticipate.
Euro resilience has upended the forecasts of banks including
Goldman Sachs Group Inc., which is sticking to bets the euro
will fall to 95 U.S. cents within 12 months. The currency has
gained 2.7 percent this year and remains stronger than the
$1.05 median estimate made Dec. 31 for where the euro
would trade by the end of March.
The euro rose 1.4 percent this week to $1.1156. The
Bloomberg Dollar Spot Index, which tracks the U.S. currency
versus 10 peers, fell for a second week, slumping 1 percent.
Heavy Trade
Trading in currency futures and options rose to a record on
March 10, when the ECB met, thanks to interest in euro
contracts, CME Group said in a statement on Friday. Total
trading climbed to 2.5 million contracts, surpassing a
previous high of 2.4 million that had held since May 2010.
Euro futures accounted for more than $127 billion of trades,
the exchange said.
Options prices show traders are paying the lowest
premium since Feb. 10 to protect against a euro slump.
Hedge funds and other large speculators are also starting
to capitulate, shaving bets against the currency to the
least since June 2014 late last month.
The prospect of tighter monetary policy in the U.S. holds
out a kernel of hope for euro bears. Futures contracts
show a 51 percent likelihood of a rate increase by June,
from 2 percent probability a month ago. Policy makers
have also indicated they see nascent signs of inflation,
backing the case for rate increases.
Theres still room for euro-dollar to go down, but a lot of it
now turns into a dollar story, said Jeremy Cook, the
London-based head of currency strategy at World First UK
Ltd., an international payments company that had about $9
billion of foreign-exchange turnover in 2015. Youve got to
be coming from a position where you think that the Fed
hikes another three times this year; its not going to come
from the ECB.
(Full article click - BBG)
---
A disaster zone that's dominated by the

Germans: Ex-Bank chief King's verdict on euro
project
Taken from the Daily Mail Saturday, 12 March 2016
Former Bank of England governor Mervyn King has launched

an extraordinary attack on the eurozone and Germany's
dominance.
In an exclusive interview with the Daily Mail, he warned the
'one-size-fits-all currency' was doomed.
He said Germany's rise to power has created 'enormous
tensions' across Europe.
Lord King, who steered the Bank through the 2008 financial
crisis, refused to take sides in the referendum debate.
But he said the launch of the euro had been an unmitigated
disaster.
'The attempt to create a monetary union has been damaging
economically, and it has been damaging politically,' he said.
'There are no good ways out of it. It's only a question of the
least bad way'.
The grim prognosis from the former central banker was
seized on by Eurosceptics as evidence it is 'game over' for
the eurozone. But Lord King saved his most explosive
comments for Europe's biggest economy, saying Germany's
dominance has been one of the more damaging
consequences of the single currency project.
To make it work, more powerful countries have had to prop
up poorer nations, with countries including Greece, Portugal
and Ireland getting huge bail-outs.
Germany has been the biggest lender but, with its leaders
wary of a backlash from voters fed up of bankrolling
profligate nations, Berlin has insisted on tough austerity
reforms. Lord King, 67, who stepped down as governor in
2013 after ten years, said: 'As a consequence of monetary
union, Germany has become the dominant economic, and
therefore political, power.
'So the tensions between, say, Greece and Germany, are
greater now than before. The tension between Italy and
Germany are greater.
'Rather than create political warmth and good feelings, and
co-operation, the single currency has created enormous
tensions.'
Lord King spoke to the Mail before current governor Mark
Carney gave evidence to the Treasury select committee last
Tuesday on the impact of Brexit.
Mr Carney told MPs that he and the Bank of England were
entirely neutral but the Canadian did call Brexit Britain's
'biggest domestic risk'.
Lord King told the Mail: 'I don't think the governor or the
former governor of the Bank of England should help advise
people on how they should vote.'
Pro-Brussels cheerleaders have claimed that Britain's trade
with Europe will be devastated if it leaves the EU.
But this was also given short shrift by Lord King. The
economist, now a director of Aston Villa football club, said:
'We've always been a global trading power and we will
continue to be'.
Last night Eurosceptics described Lord King's caustic
assessment of the eurozone as a blow for pro-Brussels
campaigners.
Douglas Carswell, Ukip MP and a member of the Vote Leave
lobby group, said: 'This is a central banker who recognises
that we need far-reaching reform, and has the humility to
accept that people like him got it wrong in the past.
'Lord King recognises that it is game over for the grand euro
project.'
(Full article click - Mail)
---
'Love affair' with negative rates ends as central

banks step back from global currency wars
Taken from the Sunday Telegraph 13 March 2016
The worlds most powerful central banks will come under

renewed to pressure to regain control over the global
economy this week as faith in extraordinary monetary
stimulus fades.
Following last week's shock and awe stimulus blitz from
the ECB, nervy investors will turn their attention on the
US and Japan amid speculation that central banks' brief
"love affair" with endless interest rate cuts is over.
Five of the world's major monetary authorities, including
the ECB, Swedish Riksbank and Bank of Japan, have
resorted to sub-zero rates in a bid to weaken their
currencies and stoke inflation.
Last week Mario Draghi, ECB president, announced a three
pronged interest rate cut, including another 10 basis point
reduction to its deposit rate to -0.4pc.
But Mr Draghi stressed the bank was not willing to slash
interest rates to as "low as we want", instead turning to
unconventional tools such as quantitative easing to stimulate
demand.
His comments sent the euro rocketing by 3pc from its weekly
low to $1.1148 against the dollar.
"The ECB's love affair with negative rates has ended", said
Michael Hartnett, chief investment strategist at Bank of
America Merrill Lynch.
Central banks have played the rates card as aggressively as
they can. The ECB is done and the Bank of Japan has nothing
in the tank.
Negative interest rates - widely seen as a central bank
ploy to depreciate their currencies - have been called a
"dangerous experiment" due to their adverse impact on
the profitability of retail banks.
But any new found reticence to continue slashing rates
below zero suggests policymakers are also wary of stoking
international currency wars after the issue was raised by the
US during a G20 finance ministers meeting in Shanghai last
month, said Simon Derrick at BNY Mellon.
Bank of England governor Mark Carney has said central
bank action to stimulate domestic activity with negative
rates was a "zero sum game" for the world.
"At the global zero bound, there is no free lunch" he said at
the G20.
The comments suggest Mr Carney believes "that the use of
negative deposit rates in this fashion bordered on currency
manipulation" said Mr Derrick.
Maxime Alimi, senior economist at AXA Investment Managers,
said the ECB has now all but given up on trying to
manipulate the currency in favour of boosting growth
through QE.
"The ECB no longer counts on a weaker euro to raise
inflation, perhaps for fear of a reaction from the Federal
Reserve," said Mr Alimi.
Responding to claims the ECB is involved in competitive
devaluation, Mr Draghi launched a staunch defence of his
actions.
"The ECB has never ever started [a currency war]. Our
measures are entirely addressed to our domestic
economy. We are not in this war at all."
On Monday, the Bank of Japan is expected to refrain from
slashing interest rates a month after its foray into sub-zero
territory sent investors into a tailspin.
Relaunching its bid to fight off low inflation, the ECB also
bolstered bond purchases by $20bn to $80bn-a-month and
will allow retail banks to borrow cheap loans at negative
rates - moves described as throwing the kitchen sink at
the moribund eurozone.
But despite exceeding expectations, markets took fright at

Mr Draghis hint that interest rates would fall no further for
now.
Germanys DAX index lost 2.3pc in a turbulent day of trading
- suggesting central bank action is losing its magic touch,
said Mr Harnett.
Investor reaction - which also saw oil prices fall and gold
soar - screamed of 'quantitative failure, he said.
The febrile market environment means the US Federal
Reserve, which was on course to raise interest rates four
times this year, is set to hold fire on another hike at its
March policy meeting on Wednesday.
Investors are now pricing in just a 4pc chance the Fed will
implement another 25 basis point rate hike this week. US
policymakers have also jettisoned their target to lift rates to
as high as 1.25pc by the end of 2016, fearing the spillover
effects of tighter policy and a rising dollar on the rest of the
world.
Fed governor Lael Brainard has warned against the US
diverging too far from its peers in the developed world. She
argued now was a good time for policymakers to reaffirm
their commitment to work toward the common goal of
strengthening global demand.
In the UK, the Bank of England will have kept interest rates
at their record low of 0.5pc for seven years when the
Monetary Policy Committee meets on Thursday.
(Full article click - Telegraph)
---
Central Banks Seek More Ammo for the Bazooka

Taken from the Barrons Online Saturday March 12 2016
The ECB goes deeper into negative rates while the Federal
Reserve is likely to hold off for now. One radical option:
Drop money from the helicopter.
Pity the poor central bankers of the world. Theyre having a
harder time than ever pushing out torrents of money into
the worlds economies.
First they reduced interest rates to zero. Then they bought
boatloads of bonds with money they conjured up
electronically and shovelled out the door. But still, they had
to get even more creative by cutting interest rates below
the previously presumed lower boundary of zero.
Negative interest rates turned the world upside down,
with depositors and bond investors paying for the
privilege of investing their money and borrowers, in some
cases, being paid for borrowing.
There have been more radical schemes put forth, notably
helicopter drops of cash, to use the metaphor originated
by economist Milton Friedman and repeated by former
Federal Reserve Chairman Ben Bernanke. Government
borrowing to cover a deficit resulting from a tax cut or
spending scheme that was funded by central-bank money
printing would be the equivalent to Friedmans metaphorical
cash drop, Bernanke explained back in 2002, earning him the
nickname Helicopter Ben.
One might presume that getting central bankers to run their
printing presses would be as easy for them as falling off a
log. But Jeff deGraaf, who heads Renaissance Macro
Research, last week, noted that the year-over-year
expansion of global central-bank liquidity (from the Fed,
the European Central Bank, the Bank of Japan, the assets
of the Peoples Bank of China, and Chinas currency
reserves, plus assets of sovereign-wealth funds) has
turned negative. Thats a far cry from the double-digit
annual growth rate seen as recently as late 2013, when
the Fed began its taper of bond buying. Lo and behold,
the year-over-year change in the Standard & Poors 500
index turned negative.
But fear not. A new way to get money from the central
banks into the hands of the people was invented by an
unlikely source.
Actually, they did it the old-fashioned way: They stole it. It
seems that computer hackers purporting to be the central
bank of Bangladesh were able to transfer some $101 million
from the New York Fed, according to various press reports. A
$20 million batch went to a bank in Sri Lanka, which didnt
disburse it, according to a Sri Lankan central-bank
spokesperson quoted by the Financial Times. The other $81
million was transmitted to accounts at a Philippine bank,
where authorities were working with Bangladesh and had
frozen the accounts. Not surprisingly, the Bangladeshis want
their money back, but the New York Fed insisted it hadnt
been hacked and followed protocol in making the transfers.
If the dough isnt recovered, the central banks might console
themselves that the money probably will be spent and
provide real monetary stimuluspossibly getting more bang
for the 100 million bucks than their more usual policy
operations aimed at boosting asset prices and in turn
spurring spending and investing.
When you think about it, negative interest rates are a bit
like a bank robbery in reverse. You give a borrower money
for some period of time, and you get less back for your
trouble. The idea is that youd rather get something for your
money, so youll look for some investment with a positive
return. Anyway, thats how its supposed to work, but so far
the results have been mixed.
The problem is that banks in countries with negative
rates, such as the euro zone, Switzerland, Japan,
Denmark, and Sweden, cant bring themselves to charge
depositors to hold their money. In other words, theyre not
like airlines, at least not yet. So, the banks eat the
negative rates on some of their balances at the central
bank. Meanwhile, the gravitational pull from negative rates
results in lower bond yields and loan-interest fees, squeezing
the banks profits.
Last week, the ECB came up with a new twist on NIRP, which
is the acronym popular in central-banking circles for
negative interest-rate policy. So while Mario Draghis crew
last week said it will lower the rate the ECB charged banks
by 10 basis points (0.1 percentage point), to minus 40 basis
points, they came up with a new twist. The ECB would
provide banks with long-term cash, free of charge but
with a twist: The central bank would pay the banks 40
basis points if they actually made loans with the money.
In addition, the ECB also upped its monthly bond purchases
to 80 billion euros ($89 billion) from 60 billion currently.
And the central bank will start buying corporate bonds from
European nonfinancial corporations with investment-grade
credit ratings.
All of these novel moves left markets flummoxed on
Thursday when Super Mario announced his latest moves. The
bazookato use former U.S. Treasury Secretary Hank
Paulsons term for powerful policy toolsfirst rallied the
markets but then backfired, to use the metaphor uttered
throughout the market.
The euro plunged and bourses rallied on the prospect of
more cheap money driving profits of euro-zone corporations.
But those moves snapped back, and more, after Draghi
almost offhandedly indicated that rates were unlikely to be
pushed still lower, and the euro popped and stocks tanked.
After further review, on Friday, markets reconsidered the
novel ECB moves to spur more credit in the private sector
via the lending facility and corporate-bond purchases. On
the latter score, there may be unintended beneficiaries.
Before the ECB schemes were announced, Berkshire
Hathaway (tickers: BRKA, BRKB) sold 2.75 billion of euro-
denominated bonds on favorable terms to help fund its

acquisition of Precision Castparts. Even though the ECB
wont be buying issues from non-European issuers such as
Berkshire, there will be lots of euros looking for bonds to
buy.
Attention this week shifts to the ECBs counterparts. The
Bank of Japan meets on Tuesday, from which little is
expected, especially given how its adoption of NIRP in late
January largely backfired by sending the yen sharply
higher, not lower, as the textbooks would indicate. On
Thursday, the Bank of England also should keep policy on
hold.
SANDWICHED BETWEEN THE BOJ and BoE will be the main
event of the week, the two-day meeting of the Federal Open
Market Committee that winds up on Wednesday. Forgive the
repetition, but this will be another confab to watch what
they say instead of what they do.
Theres roughly the same chance of the Feds policy-setting
panel this week enacting its second rate hike of this cycle as
Donald Trump getting a buzz cut. The real revelation will
come in the FOMCs rhetoric about prospects for future
moves, the so-called dot-plot graph of the members
projections of the federal-funds rate target at the end of
this year and next (with guesses beyond to show that the
FOMC has a sense of humor), plus revised economic
projections.
Since the start of the year, when various Fed officials,
notably Vice Chairman Stanley Fischer, opined that four
rate hikes in 2016 were in the ballpark, the consensus
view has softened to perhaps two increases this year from
the current funds rate target of 0.25% to 0.5%. In the fedfunds futures market, the movement has been in the
opposite direction in the past month or so; from pricing in
about a 50% chance of a single rate hike, and not until
December, to slightly better-than-even money on a June hike
and better than three-in-four odds by year end.
So, while the dots will likely come down in Wednesdays
plot, JPMorgan Fed watcher Michael Feroli observes that
theyll still be higher than market expectations. As for the
FOMC statement, he thinks a balanced assessment of risks is
most likely, as opposed to Januarys statement when Janet
Yellen & Co. essentially punted by saying they were
watching developments, notably the deterioration in global
financial markets.
The recently increased odds in the futures market for a Fed
hike have coincided with the recovery in risk markets,
mostly high-yield bonds and stocks related to commodities,
which have rallied in tandem with crude oil and metals. Not
for nothing, commodity stocks were among the most heavily
shorted names, so reversing those sales has made for outsize
pops.
So far, the actions of central banks have, shall we say,
trumped all of the political uncertainty. Tuesday brings
make-or-break primaries for the #NoTrump contingent in the
GOP. The positioning to block the Donald reached such an
extreme that Florida Sen. Marco Rubio was urging his Ohio
supporters to vote for John Kasich, the states governor, to
keep Trump from locking up the nomination ahead of the
convention in July. Meanwhile, Vermont Sen. Bernie Sanders
upset former Secretary of State Hillary Clinton in last weeks
Michigan primary, pointing up her shortcomings as a
candidate.
The relevance to the stock market is that continuity counts.
According to Bank of Americas Global Wealth & Investment
Management group, since 1928 the S&P 500 fell an average
of 2.8% when an incumbent president was not seeking reelection. When a sitting president was seeking another term,
the S&P 500 averaged a 12.6% return.
These days, not only isnt the incumbent not running for reelection, but rarely has there been such a free-for-all for the
White House. At least the remaining GOP contenders called a
halt to their childish behavior and negativity in Thursdays
debate. That said, markets should expect the worst from the
political sphere and hope for the best from the central
banks.
(Full article click - Barron's)
---
Cautious Stock-Picking After the ECB Eases

Taken from the Barrons Online Saturday March 12 2016
Some banks stocks could be ripe for an upturn, and

corporate bonds could rally. One theme: defensive
growth.
Mario Draghis slate of measures designed to ease domestic
financial conditions could be good news for bank stocks, and
the decision to purchase corporate bonds could lead to a
rally.
But the president of the European Central Bank offered
nothing to further depreciate the euro, effectively drawing a
line in the sand for now in its efforts to devalue the common
currency against other major currencies and committing it to
trade in a range against the dollar between $1.07 and $1.14.
Draghi on Thursday delivered far more than anticipated. His
package included increasing the size of the asset-purchase
program from 60 billion euros ($67.15 billion) a month to 80
billion beginning in April, lowering the deposit rate to minus
0.4%, and introducing a new targeted long-term refinancing
operation for banks from June, all of which were largely
expected.
However, he also trimmed interest rates on the main
refinancing operations and the marginal lending facility, and
included in the asset-purchase program euro-denominated
bonds issued by euro-zone nonbank corporations.
The reaction was muted on Thursday, partly because of
Draghis blunt message that the ECB doesnt anticipate
cutting rates further. But markets rallied on Friday after
investors had a chance to digest the actions. The Stoxx
Europe 600 index gained 2.6% on Friday, while the yield on
German sovereign bonds with a 10-year maturity fell four
basis points, to 0.27%. The euro was trading at $1.11 on
Friday, up 2.3% in 2016.
The scale of the measures reflects the ECBs worry about the
health of the euro-zone economy and comes as the central
bank cuts its forecast for gross-domestic-product growth to
1.4% in 2016, down from 1.6% in December. Its estimate for
inflation this year drops to 0.1% from 1%.
Little wonder the ECB is keen to stimulate bank lending. The
ECB has tried to make life easier for banks through the
targeted long-term refinancing operation: with negative
deposit rates, banks are essentially going to be paid to lend
to the real economy.
It could be a good time for investors to re-evaluate the
sector. Bank stocks are down some 20% since the start of
2016. Benjamin Segal, who manages the Neuberger
Berman International Equity fund (ticker: NBIIX), in recent
weeks has purchased shares in Lloyds Banking Group
(LLOY.UK) and Barclays (BARC.UK) in anticipation that
they were going to rebuild their capital, repair their
balance sheets, or make plans to pay dividends.
ECB purchases of corporate bonds will begin in the second
half of the year, but the long wait and uncertainty over what
will be bought could produce a rally in high-grade spreads.
Debt issued by utility, transport, energy, and basic
industrial companies could outperform. There could be a
positive knock-on effect in high yield, which is ineligible
for purchase. The market for investment-grade credit is
worth about 1.6 trillion, but the portion that meets the ECB
criteria for purchase is just 550 billion.
Details are still to be worked out, but the ECB plan raises
numerous issues. With debt prices set to tumble as the ECB
buys what it can, it makes sense for European companies to
raise debt at close-to-zero interest rates and use the
proceeds to buy back their stocks or pay higher dividends,
suggests Bill Blain, strategist at Mint Partners. Perhaps its
time to buy the shares of European investment-grade
corporates, he says.
STOCKPICKERS ARE TAKING THEIR TIME evaluating the ECB
moves and their effect on the markets. Brian Hennessey,
the portfolio manager of Alpines Dynamic Dividend fund,
says future gains wont be across the board, so stock
selection is important. Hes looking for defensive growth
companies with good cash-generation in niche markets.
Among his picks is ISS (ISS.Denmark), which provides facility
services such as cleaning, catering, security, and property
management. The Danish company is not a very exciting
story, says Hennessey, but it is delivering organic growth of
2% to 4% annually, improving margins, and reducing debt. Its
shares, which closed in Copenhagen on Friday at 249.50
Danish kroner ($37.33)giving it a market value of about
$6.93 billionhave climbed 55% since its initial public
offering in March 2014.
But at 15 times estimated 2017 earnings and a ratio of
enterprise value/earnings before interest, tax, depreciation,
and amortization of 10, ISS trades at a discount to peers like
Compass Group (CPG.UK), which has a 2017 price/earnings
ratio of 19 and a EV/Ebitda multiple of 12. Hennessey
believes that the stock could rerate and shareholders could
see higher returns. ISS currently offers a 3% dividend yield.
Neuberger Bermans Segal sees opportunities in the healthcare and industrial sectors due to factors like recurring
revenues and lower volatility. Among his holdings are SAP
(SAP.Germany) and Linde (LIN.Germany).
(Full article click - Barron's)
European News
Germans to
Exchange
seal
deal
for
London
Stock
Taken from the Times Saturday, 12 March 2016
Fears grow that trade could be lost to Frankfurt

The 20 billion merger between the London Stock Exchange
and Deutsche Brse could be announced as soon as Monday,
raising fears in the City that trade will soon be diverted to
Frankfurt.
There is intense speculation that the deal, which had to be
revealed to the stock market on February 23 when news of
talks between the two exchanges leaked, could be
completed next week.
That would end 215 years of independence for the London
Stock Exchange, which remains at the heart of the City
physically and spiritually, though its importance has declined
in recent years because of the rise of rival trading platforms.
Hopes from City-watchers distrustful of the Germans
intentions that a rival bid could come from America have not
been realised so far. Under Takeover Panel rules, the two
have until March 22 to reach agreement.
A deal could still trigger an intervention by another potential
suitor, Intercontinental Exchange (ICE), which has indicated
formally that it is considering an offer for the LSE. The scene
would then be set for a bidding war for the London
exchange.
Nevertheless, it seems more likely that Deutsche will secure
its prize. It first bid for the LSE in 2000, but was fended off.
The Brse strengthened its position this week with the
agreed $1.1 billion sale of the International Securities
Exchange to Nasdaq, the American high-tech market.
There is speculation that the two, which have extensive
derivatives trading and dealing operations, are keen to
cement a deal before Tuesday, when a big conference for the
derivatives industry opens in Boca Raton, Florida.
According to the terms under discussion, the Brse will have
54 per cent of the combined group and London 46 per cent,
a proportion derived from their respective market
capitalisations. However, the exchanges have hailed the deal
as a merger of equals.
The merged group will be a UK plc, with a London premier
listing and another in Frankfurt and with dual headquarters
in both cities. It could come under scrutiny from European
competition authorities because of its strong position in
derivatives clearing.
LSE shares closed yesterday up 27p at 28.56, just below the
record high of 28.93 on March 3.
A report on the Bloomberg newswire service suggested that
ICE, if it did bid for the LSE, would hang on to the equities
trading operation in London, the original heart of the group,
as a demonstration of its commitment to London. In 2013 it
bought NYSE Euronext, but subsequently spun off Euronext,
which operates equities markets in Paris, Lisbon, Amsterdam
and Brussels, in a stock market float. ICEs aim at the time
was to gain control of Liffe, the London financial futures
market.
The LSE reached a draft co-operation deal with the Shanghai
Stock Exchange yesterday that will increase the financial and
trading links between the British equity market and its
Chinese counterpart. The signing of the agreement paves the
way for an in-depth study into the creation of a ShanghaiLondon connect arrangement that would make it far easier
for Chinese and British investors to trade in one anothers
markets.
Shanghai has a connect scheme in place with Hong Kong,
which means that investors on the mainland and in the
former British territory can access local brokers and clearing

houses.
(Full article click - Times)
---
EDF could axe Hinkley Point unless France

increases funding
Taken from the Telegraph Saturday, 12 March 2016
EDF could scrap its plan to build the 18bn Hinkley Point
nuclear plant in the UK if the company fails to receive
further funding from the French government, its chief
executive has revealed.
Jean-Bernard Lvy wrote to staff explaining that he was in
talks to obtain commitments from the state to help
secure our financial position as the financial situation is
tense. He added that he would not engage in the [Hinkley
Point] project before these conditions are met.
The French government, which holds an 85pc stake in EDF,
could purchase a stake in the Hinkley Point project or take
part in a company fundraising, according to the Financial
Times, which first reported news of the letter.
Hinkley, the UKs first new nuclear plant in a generation, is
scheduled to start generating 7pc of the countrys electricity
in 2025 but the scheme has been mired in controversy.
Despite generous subsidies, unions in France have raised
concerns over the cost of the project, which was meant to
be completed in 2017 but has been repeatedly delayed.
Earlier this week the European Commission approved a
partnership between EDF and China General Nuclear to build
Hinkley and two other nuclear plants in the UK, reducing the
French firms financial burden.
EDF finance director Thomas Piquemal resigned earlier this
week over the firms plan to push ahead with Hinkley, but Mr
Levy added in his letter that he still expects Hinkley to be
profitable, with a return of 9pc over 60 years.
A final investment decision from EDF is due as soon as April.
(Full article click - Telegraph)
---
Norwegian oil fund dumps Pimco and BTG

Pactual
Taken from the FT Sunday, 13 March 2016
Norways $830bn oil fund has severed ties with Pimco, the
bond house, and BTG Pactual, the Brazilian bank, as part
of an overhaul of how the worlds largest sovereign wealth
fund is run.
The oil fund, which is considered one of the worlds most
prestigious investors and which has become a prized client
for big asset management companies, has invested with
Pimco since at least 2013.
The sovereign fund pulled its money from the Californian
bond house last year after widespread investor fears took
hold about underperformance at some of Pimcos largest
fixed income funds and the acrimonious departure of its
founder, Bill Gross, in late 2014.
The divestment is a further blow for the Newport Beachbased asset manager, which suffered 125bn of outflows
from investors last year. The level of money from external
clients fell 6 per cent last year, to 987bn. Pimco declined to
comment on the oil funds departure.
The withdrawal could prompt other sovereign funds to
reassess whether to hold money with Pimco.
Amin Rajan, chief executive of Create Research, the asset
management consultancy, said: Losing a mandate from an
iconic investor like the Norwegian oil fund is like losing the
main feather in your cap. It will raise many eyebrows among
other sovereign wealth funds.
The sovereign fund also dropped BTG Pactual during the
course of last year. The bank suffered heavy redemptions
in 2016 after it became embroiled in a vast corruption

scandal at Petrobras, the Brazilian oil group.
Its mutual fund assets nearly halved last year, to $14bn,
after the banks chief executive was arrested for allegedly
conspiring to interfere in a police investigation into
corruption at the oil company.
Andr Esteves has denied any wrongdoing and was released
in December after spending a month in jail. BTG Pactual
declined to comment.
Alexandre Yamashiro, an analyst at Fitch, the rating agency,
said: Whether warranted or not, investors decided to
reduce their exposure to BTG Pactual as there are concerns
[about the] implications for the group [from the Petrobras]
investigation.
Norges Bank Investment Management, which oversees the
oil fund, would not specify the size of individual external
investment mandates but it had Kr297bn ($35bn) invested
with external managers at the end of 2015.
This included three fixed income managers: Ashmore and
Franklin Templeton, which have been in place since 2014;
and Investec Asset Management, which was added last year.
Mr Rajan said that being struck off NBIMs list of external
managers could be quite damaging as investment
consultants will put them on their watch lists
immediately, putting them at increased risk of losing
money from other institutional investors.
The oil fund took business away from eight investment
houses last year.
This included Thames River, the UK-based hedge fund
company that lost several senior staff members, including its
chief executive, after being acquired by F&C in 2010. F&C
was in turn bought by Canadas Bank of Montreal in 2014.
Black River, the US hedge fund company that was partly
spun off from its parent company last year following the
closure of several products, was also cut, as well as
Swedens Lancelot Asset Management, Chilean group MBI
AGF, and Koreas Truston Asset Management.
The Norwegian oil fund added a number of new investment
companies to its roster last year, including Mirabaud, the
Swiss asset manager, Brummer & Partners, the Stockholmbased hedge fund outfit, and Sri Lanka-based Lynear Wealth
Management.
Michael Maduell, president of the Sovereign Wealth Fund
Institute, a US-based consultancy, said: Norways sovereign
fund hires all types of managers, large, medium and
emerging. For smaller managers, it is a great opportunity to
land larger mandates with other asset owners.
The Norwegian oil fund declined to comment on the changes
to its roster of asset managers.
---
Cinven plots 2bn swoop on Reuters

Taken from the Sunday Times 13 March 2016
BUYOUT giant Cinven is plotting a swoop on a division of

Thomson Reuters as the news organisation presses on with
plans for a break-up.
Reuters is set to launch a sale of its intellectual property
and sciences units in the next few weeks. The businesses,
worth $3bn (2bn), provide specialist information on
patents, clinical trials and scientific research.
Potential buyers for the whole division were sounded out in
November, but Reuters has notified bankers that bidders can
make offers for individual parts.
That decision is said to suit Cinven, which owns the
intellectual property giant CPA Global. It is working on a bid
for the intellectual property arm but is less keen on the rest
of the assets, insiders said.
Investment banks JP Morgan and Guggenheim are managing

the sale, set to complete in the second half of the year.
Neither Cinven nor Reuters would comment. The intellectual
property and sciences units employ about 3,200 people and
made revenues of $1bn last year, making an underlying profit
of $313m, according to the last set of accounts.
Reuters financial and risk business has come under pressure
from flat revenues in recent years. Reuters makes most of its
profit from financial information, but clients including
banks have cut spending. It also faces strong competition
from the American giant Bloomberg. Reuters plans to use
cash from the asset sale to pay down debt and accelerate
share buybacks.
The information and analytics group RELX, formerly known
as Reed Elsevier, is monitoring the sale of Reuters science
assets, City insiders said. They added, however, that RELX
would not be able to buy the entire division because of
competition concerns. BC Partners and KKR are also circling
the auction.
News Americas
Protectionism a big threat to global economy,
says Larry Fink
Taken from the FT Saturday, 12 March 2016
The spectre of protectionism whipped up by Donald

Trumps US election campaign rhetoric, and the
destructive impact of negative interest rates, pose serious
threats to the world economy, says BlackRock chief
executive Larry Fink.
Mr Fink, who heads the worlds largest money manager, said
negative rates coming on top of eight years of low rates
eroded peoples ability to save for retirement and stored up
trouble for the future. The European Central Bank on
Thursday delivered a 10-point cut to minus 0.4 per cent.
We are not focusing enough on what negative rates do to
retirement plans, Mr Fink told the Financial Times in an
interview at the annual convention of Mexicos banking
industry in Acapulco, Mexico. It was potentially the
biggest global problem to be faced, he said.
Retirement is a bigger problem than healthcare, its just
not todays problem, Mr Fink added.
He noted that 80 per cent of German retirement savings
were invested in bonds, not equities. He was hostilely
against negative rates, but saw them lasting a couple of
years.
The Federal Reserve was now in a box regarding the
course of interest rates because a more aggressive stance by
the European Central Bank and the Bank of Japan could
encourage it to delay its next increase, said Mr Fink. While
many in the markets expected the Fed to move in June,
he said: It may be longer than that.
He warned about the possible consequences of Mr Trumps
protectionist stance if he was elected president. The
Republican frontrunner has hit out against US companies
that have transferred production to lower-cost Mexico and
China and has vowed to repatriate jobs. Mr Trump has also
promised to barricade the US-Mexico border and deport 11m
undocumented migrants.
Mr Fink called such rhetoric on jobs a knee-jerk reaction
and warned: It would put the global economy into a
recession.
He predicted that Mr Trump would clinch the Republican
nomination but lose the election to Democratic frontrunner
Hillary Clinton.
Mr Fink, who is considered one of the worlds top financiers,
is widely believed to covet the job of US Treasury secretary.
He recommended that the Treasury focus on stimulating
growth through investment in infrastructure. Whoever is
president, we need a good dose of fiscal policy, he said.
Monetary policy had been kind to capital but not to the
squeezed middle-class, whose disgruntlement with stagnant
wages has helped to boost protest candidates in the US
election.
Mr Fink said that kind of feeling was also fuelling anti-EU
sentiment in Britain, and he called the prospect of Brexit
horrible. However, he later told an audience of Mexicos
banking elite that: I dont think Brexit will happen.
One of the biggest global risks was a devaluation in China,
he told bankers. Theres quite a bit of talk that China
needs to devalue. I think that would be one of the worst
outcomes for the world economy, he said. He gave the
country a strong grade for seeking to re-engineer its
export-driven economy into a service economy, and said
devaluation would hurt domestic consumption by raising
prices.
Mr Fink saw investor sentiment picking up after an overly

pessimistic start to the year, but not in Brazil. Latin
Americas biggest economy is reeling from corruption
scandals, which are threatening to ensnare former president
Luiz Incio Lula da Silva and putting pressure on his
successor Dilma Rousseff.
Mr Fink saw a possible change of leadership. Brazil was guilty
of squandering its potential, and splashing money on the
Olympics and World Cup that it needed for social
programmes such as education, he said.
Brazil had enjoyed the boom times of the commodities
supercycle, but cheap labour and high raw material prices
were not a recipe for world growth, Mr Fink said. Innovation
would be.
He praised what he said were the only two countries where
governments were trying to use public policy to build a
better future Mexico and China.
He was bullish on Mexicos structural reform agenda, and
predicted a deepening of relations with the US. Despite the
political rhetoric, I do believe our two countries will be
closer in two years than they are now, he told the
conference.
And he sparked laughter when he referred briefly to the US
election, saying: Politics is filthy dirty and we are just at a
filthy dirty part right now.
---
Irwin Stelzer
American Account: We now know the elections
loser free trade
Taken from the Sunday Times 13 March 2016
One thing has changed in the battle for the presidential

nominations. Until now, all eyes were on the Republican
side, both because it became clear early on that Jeb Bushs
$100m war chest could not buy the nomination and because
Donald Trump proved a master at garnering media attention.
In the Democratic race, Hillary Clinton was considered a
certain winner over socialist Bernie Sanders, making that
contest a bore. Then came Sanderss victory in Michigan, in
the course of which free trade was consigned to the dustbin
of history, a phrase with which Sanders, who honeymooned
in Russia, is familiar but for obvious reasons chose not to
deploy.
According to some estimates, Michigan has lost about
150,000 manufacturing jobs because of the North
American Free Trade Agreement (Nafta). Blame it on the
then-president, Bill Clinton, who signed the trade pact into
law in 1993. The auto industry was decimated not only by
Mexico but also by Japan, and misrule by Democratic
liberals drove Detroit to bankruptcy. The city was once
home to 1.8m people and the motor industry, the pride of
the nations manufacturing sector. Then came competition
from overseas. Jobs disappeared, the population fell to
700,000, and the average house price sank to about $6,000.
But Michigan voters have not become socialists. The majority
were simply unprepared to vote for anyone called Clinton,
the name of the destroyer of the states manufacturing
sector. Hillarys husband brought ruin, and voters would
not return him to the White House, even as First Man. No
matter that she is opposed to President Barack Obamas
legacy-seeking Trans-Pacific Partnership (TPP) and last week,
in a debate with Sanders, burnished her shiny new
protectionist credentials in preparation for Tuesdays
primaries in Illinois and Ohio, where free trade is unpopular.
The rust may be coming off the Rust Belt as the jobs picture
brightens, but the memory of the suffering lingers.
Cut through the smoke from the gunfire of the candidates

debates, and we see much of a much-ness.
All candidates are to varying degrees protectionist, and so
is a majority of Congress. Trump would do unspecified bad
things to companies taking jobs overseas and build tariff
barriers higher than his wall with Mexico to disadvantage
currency manipulators. Clinton would charge companies
that move their headquarters to lower-tax jurisdictions an
exit fee geared to the amount of tax relief they
received while resident in America. TPP RIP.
All candidates are to varying degrees hostile to the
financial community, with Sanders calling for a break-up of
the big banks and jail time for malefactors of great wealth,
as well as a tax on financial transactions to fund his
education plan. Trump is hostile to hedge fund managers
and their special tax treatment, while Clinton, more
sensible on this as on many other issues, is calling for
reforms that include placing insurance-style burdens on
banks proportionate to their threat to the stability of the
international financial system.
All candidates are to some extent dissatisfied with the
healthcare system, with all Republicans calling for repeal
and replacement of Obamacare, Sanders wanting to convert
it into an NHS-style system, and Clinton looking to repair
what she believes are its flaws.
All candidates want to ease the cost of higher education.
Sanders would offer free tuition at public universities at an
annual cost of $75bn. Clinton says: No family and no
student should have to borrow to pay tuition at a public
college or university. And everyone who has student debt
should be able to finance it at lower rates. Trump says
student loans are one of the only things the government
shouldnt make money off its terrible that one of the only
profit centres we have is student loans. Details to follow
maybe.
There are two important differences among the candidates.
First, Clinton is calling for a de facto ban on fracking and for
the nation to convert to 100% renewables to fight global
warming, while Republicans promise to remove regulations
on the fossil-fuel industries and end efforts to prevent
climate change, which they deny is occurring. That may be a
hard sell in Tuesdays primary in often-flooded Florida.
Second, all Republicans propose lowering the tax burden on
wealthier Americans, the theory being that this cut will
stimulate sufficient growth and generate tax revenues to pay
for itself while creating millions of jobs. Ted Cruz is the most
radical reformer: he would have a 10% flat income tax rate
and substitute a 16% VAT-style tax for all corporate taxes.
Sanders and Clinton would increase the burden on the
wealthiest to finance infrastructure improvements and a
variety of benefits for low and middle earners. No one talks
very much about the deficit, now at $19 trillion and rising.
And none of the candidates sees fit to remind voters of the
wisdom of our Founding Fathers, who erected a system of
checks and balances that will require them to persuade
Congress to make an honest man or woman of them by
enabling them to deliver on their promises. What comes out
of the legislative sausage factory may be far different from
what went in.
We will, of course, know more on Tuesday, when more than
350 delegate votes are up for grabs, most of them in winnertakes-all states such as Florida and Ohio. Then the fun heads
north, to regions less favourable to Cruz, and to states in
which Trumps typical 40% share of the vote earns him 100%
of the delegates. The so-called Republican establishment is
hoping that Cruz and John Kasich can deny Trump a majority,
allowing party regulars to cobble together support for some
compromise candidate at the national convention in
Cleveland in July. In which case the millions Trump has

brought to the voting booths for the first time will storm
out, sending the Clintons back to the White House. Unless,
of course, Hillarys misuse of emails results in an indictment,
which is why some call this an FBI primary.
---
An oilmans $7 billion refresher course in the

economics of drilling and climate change
Taken from the Washington Post Sunday, 13 March 2016
Marvin Odum, president of Shell Oil, was attending a

meeting of the parent companys executive committee in
Singapore when word trickled in that an exploration well
drilled in Alaskas Chukchi Sea the crowning step in a
multi-year $7 billion quest was a dry hole.
Maybe not bone dry. In a recent interview, Odum wouldnt
say. But in the oil business glossary, a dry hole is one that
cant pay off commercially, and Shells hole definitely
qualified. The parent company, Royal Dutch Shell,
abruptly dropped any further drilling a setback for the
industry, though a relief for environmentalists.
For years, they had fought a vigorous, litigious and
politically intense battle over the Chukchi. Meanwhile Shell,
lured by potentially rich rewards, had overcome a couple of
embarrassing rig mishaps at sea and patiently navigated the
courts and the Obama administrations permitting process.
Now, geology had rendered its verdict.
Odum, who subsequently announced that he would be
retiring at the end of this month, said the news about the
well didnt hit all at once, but that the drilling results and
analysis came in small, painful drips over several days of the
executive committee meeting.
Odum knows all too well the element of chance that drives
the oil-drilling business. The mechanical engineer has spent
his entire 34-year working life at Shell and has overseen
successful exploration in the Gulf of Mexico and elsewhere.
(About a third of Shells capital spending goes to North
America.) The tools of the trade have grown more
sophisticated over time; with computer-aided seismic
surveys that can give exploration companies detailed threedimensional, multi-colored maps of the subsurface. Still, at
the end of the day, there is only one way to find out for
certain whether oil or natural gas is lurking deep in the
Earth.
Through geology and seismic surveys, we had reduced the
risk to where the only way to reduce it more was to put
down a well, Odum said, adding that Shell put it where we
thought there was the highest prospect of a discovery. If
they had been correct, Odum said, the reward could have
been fields as rich in oil as the Gulf of Mexico, which
produces 1.6 million barrels a day worth $22 billion a
year, even at todays depressed prices.
The size of the prize was always big enough to take that
next step and find out for sure, he said.
Odum took time to reflect during a recent visit to the
University of Pennsylvanias Wharton School. Odums
departure has saddened many at Shell who see him as, well,
a nice guy. He says now is a logical time to leave Shell,
which hired him on the spot during the one and only job
interview of his life. His father also did some work for Shell,
devising a specially fitted type of steel pipe that made
drilling easier and which NASA later used, too.
But now, Royal Dutch Shell is undergoing a massive
reorganization to gird itself for a more climate-conscious
world, but one that Shell says will still need vast quantities
of fossil fuels.
With the recent $52 billion acquisition of the British BG
Group, Royal Dutch Shell is making liquefied natural gas a
bigger part of its future. It also picked up alluring

deepwater oil fields off Brazil. It has reorganized its lines of
management by function, rather than geography. And it is
planning to sell $30 billion in assets over the next three
years, twice the normal rate.
That could include some items in North America.
To many analysts, it looked like Odum was pushed into
leaving. Hes a very competent guy. Very low key and sure
of himself, said Fadel Gheit, oil analyst with Oppenheimer
& Co. But unfortunately for him, the results were pretty
bad. Its basically on his watch.
Gheit said the drilling rig mishaps at sea cost hundreds of
millions of dollars and, back on the mainland, Shell had to
write down the value of shale oil and gas properties. But, he
added, these setbacks were not entirely his fault.
Odum says that while hes not rushing into anything, he
plans to find new work in the oil business. He also plans to
spend more time with his new grandson, his golf clubs, his
cello (an eight-year-old Christmas present hes just learning)
and his three motorcycles a Harley-Davidson, a BMW and a
Ducati. I love riding. Its the engineer in me, he said.
A divestment movement
The night before Odum arrived at the University of
Pennsylvania, students from the Penn Sustainability Review,
an environmental publication, met to figure out how to
pressure the university into selling the endowments
investments in fossil fuel companies.
Last year, 88 percent of Penn undergraduates who voted in a
referendum favored divestment from fossil fuels. (A third of
undergraduates voted.) Similar measures are sweeping
across college campuses, efforts that in some ways resemble
the anti-apartheid disinvestment campaigns aimed at South
Africa.
Fossil Free Penn, which launched the referendum, has called
for the university to stop new investments in the fossil-fuel
industry, sell off holdings in the top 200 fossil-fuel
companies within five years and reinvest a portion of the
funds into renewable energy.
The group estimates that 4percent of Penns $9.6 billion
endowment is invested in fossil-fuel companies.
Royal Dutch Shell is a big target not only because it
produces oil and gas to satisfy global demand, but also
because of its record in places such as Nigerias Niger
Delta, where thieves and local insurgents frequently
siphon oil from pipelines, sometimes causing leaks or
explosions. Community leaders and environmental groups
have accused the company of ruining the environment; the
company has been selling or reducing its troubled operations
onshore and sticking to those offshore.
And in the United States, the push to drill in the Alaskan
Arctic drew sharp opposition. Under Odum, the company
consistently demonstrated a lack of preparedness and a
willingness to push the limits of the law, technology and
common sense, said Michael LeVine, a lawyer with Oceana,
which opposes all offshore drilling. Shells misadventures in
the Arctic Ocean should serve as a cautionary tale for other
oil companies considering investments in remote and
dangerous places.
If ever the oil industry needed a human face, however,
Odum has been it, representing Shell in a coalition that
supported the Obama administrations cap-and-trade climate
strategy back in 2009.
At Penn, he said the Obama administrations Clean Power
Plan which would favor gas over coal was not perfect,
but its a good reasonable place to start and he was
supportive. He said he would prefer an economy-wide
carbon tax if it were ever politically feasible, even though it
would raise retail prices of oil products.
I intellectually understand it, he said during a class in

which a student asked about the divestment movement. If
your point is to divest from fossil fuel companies, just be
very clear what you want to accomplish. If its a symbolic
move we want to voice our position I say, fine. Id
much rather say there is an opportunity here, particularly
with companies like Shell, to co-create a solution with a
company that deeply understands energy markets.
Odum said, The idea that you can turn fossil fuels off and
other sources on and all will be well in 10 years, its just
wrong.
He said, therefore, that if youre going down that route
[toward divestment], then I would ask you to look at
differences between companies out there. I think were
trying to do the right things.
Shell has long basked in a bit of climate-sensitive sunshine
because of Odums revelation (at a Washington Post event)
that the company factors in a $40-a-ton carbon price
when it does the economic analysis on a new project, an
adjustment that would penalize proposals that are the
worst from a climate change point of view. Asked about
the Paris climate accord, he said we will never get this
transition going at the pace people want without a price on
carbon.
A Penn professor had an astute question: Does Shell assign a
carbon price only to the energy the company uses to extract
oil or gas? Or does it apply the price to the end use on all oil
and gas found?
Odum clarified that it applied only to the amount used in
extraction a tiny sliver of the overall climate impact of a
project.
Odum deflected a question about whether Shell should use
part of its huge annual capital budget, now about $33 billion
after the BG merger, to promote renewable energy. He said
that shareholders of a company like Shell might prefer if
Shell stuck to what it knew finding oil and gas and let
shareholders take other money and invest it in firms
specializing in renewable energy.
Odum said that Shell is considering investing in large-scale
biofuels, wind and solar, but most likely side-by-side with
and complementing Shell natural gas projects; Shell is not
going to start manufacturing solar panels.
Divestment is not the only hot-button issue at the University
of Pennsylvania. When Odum arrived earlier in the day at the
Wharton Schools radio station to do an interview, the
producer offered to screen out callers who were particularly
irate about shale gas drilling, which has been a huge issue in
Pennsylvania, where many residents say wells have
contaminated drinking water.
Odum told her not to worry. And when the subject didnt
come up, he brought it up himself.
Whats happened in the back yard here in Pennsylvania has
changed the world, Odum said of the giant Marcellus gas
reserve in the state that has lowered prices and made it
possible to replace dirty burning coal-fired power plants
with gas-fired ones. But he added, there is a right way to
develop this gas and then there are the pollution hazards
residents worry about. Those are not difficult problems to
solve, he said. Shell is part of a group of companies
cooperating with the Environmental Defense Fund to
measure potent methane leaks that could negate climate
benefits of burning gas instead of coal.
I come out in favor of very clear, very strong regulations,
Odum said. From the perspective of a company like us, it
protects us because everybody then has to do it the right
way.
A down cycle
But most of the students who saw him in a classroom, and

later at an open event, zeroed in on business decisions
steered by the price of oil, which has tumbled about 70
percent since July 2014. Shell has slashed capital spending
to about $20 billion from about $35 billion, and it has
shelved its planned Carmon Creek oil sands project in
Canada. Instead of exploring for shale oil in two dozen
basins, he said the company is down to six sweet spots.
Were in a commodity business, and when youre in a down
cycle, everything is difficult to decide, he said. Youve got
to keep your balance sheet strong. Not just to remain
solvent but able to make strategic moves when everyone
else is suffering.
When deciding on a project, he said, Shell looks at its
economics, its resilience if economic conditions go bad,
political factors, country risk and environmental issues. He
said that before the steep price drop, Royal Dutch Shell had
been weighing on six or seven big projects a year, but in the
past year had signed off on only two.
You dont make multibillion-dollar choices lightly, he said,
when asked about his toughest decisions.
I could pick an easy one: Alaska. We spent many billions of
dollars exploring off Alaska, he said, but the final answer
comes from the drill bit when the oil that we needed for it
to be viable wasnt there.
(Full article click - WP)
News Asia
Hong Kong hits back after Moodys downgrades
long-term debt outlook to negative over
strong mainland ties
Taken from the SCMP Saturday, 12 March 2016
Financial Secretary John Tsang says city has nothing to fear

from upcoming economic challenges and is actually due for
an upgrade
Financial Secretary John Tsang Chun-wah blasted Moodys
decision to downgrade the citys long-term debt outlook
rating today to negative from stable due to the citys
exposure to the mainland Chinese economy.
Moodys revised the rating on Saturday, explaining that the
trends in Hong Kongs credit profile would closely follow
those in China due to the citys ever-tightening political,
economic and financial links to the mainland.
The assessment is totally wrong and one the government
does not agree on, Tsang said.
We have been implementing the one country, two systems
policy with diligence, he said.
This has manifested into a very healthy economic situation
in Hong Kong, a very healthy fiscal position in Hong Kong ...
which is why we do not agree [with Moodys assessment].
Moreover, it is actually time to consider an upgrade for
Hong Kong, he added.
Indicating a difference in opinion, the agency forecast Hong
Kong would see muted economic growth over the next five
years.
Increasing political linkages are likely to weigh on Hong
Kongs institutional strength. In addition, the risks to Chinas
economic and financial stability may also undermine Hong
Kongs own economic and financial outlook, Moodys said in
a statement.
Tsang responded by saying that said Moodys was mistaken in
interpreting close links with China as a risk.
Yes, Hong Kong has close ties with the mainland - it isnt a
China risk but a China opportunity, he said.
Tsang said the citys sound economic fundamentals; robust
financial regulatory regime, resilient banking sector and
fiscal strength would help the local economy handle any
challenges down the road.
While Moodys has changed the rating outlook for Hong
Kong to negative from stable, it continues to recognise Hong
Kongs credit strengths and strong economic fundamentals,
he said.
Hong Kong is in a good position to benefit from the
structural rebalancing in the mainlands economy from
investment to consumption, as the increase in demand in
services will create new business opportunities for a serviceoriented economy like Hong Kongs, he added.
Moodys also said domestic political tensions and
evidence of interference from China in Hong Kongs policy
formulation and implementation was consistent with a
downgrade.
Tsang said not all-international credit ranking agencies
shared Moodys assessment, and that the International
Monetary Fund had recently written a favourable report on
Hong Kong.
On whether Hong Kong would be able to persuade Moodys to
reverse its assessment, he said: We will try.
(Full article click - SCMP)
---
Norwegian sovereign fund invests nearly 6tn

yen in Japan stocks
Taken from the Nikkei Saturday, 12 March 2016
Norway's public pension fund stepped up its investment in

Japanese stocks in 2015, bucking an overall trend that
saw foreign investors turn net sellers for the first time in
seven years.
The sovereign fund's Japanese shareholdings came to
roughly 5.95 trillion yen ($52.3 billion) at the end of
2015, an increase of 24%, or some 1.1 trillion yen, from a
year earlier. The Nikkei compiled data based on a report by
Norges Bank, the Scandinavian country's central bank. Taking
into account the Nikkei Stock Average's 9% gain, the fund
apparently purchased an additional 500 billion yen or more
in Japanese shares over the year.
The Norwegian sovereign fund is one of the world's largest
government-affiliated investment funds. Its Japanese
shareholdings increased a fourth straight year, based on
year-end figures converted into yen using historical
exchange rates. At the end of 2015, the fund had
accumulated Japanese shares with a total value equivalent
to slightly more than 1% of the market capitalization of the
Tokyo Stock Exchange's first section. Japanese shares made
up 9.3% of the fund's overall stock portfolio, up about 2
percentage points.
The fund reduced the number of Japanese stocks by 94 to
1,433 but put more money into its major holdings.
Toyota Motor remained the fund's biggest Japan-stock
investment. The fund's holdings in the leading Japanese
automaker increased 11% to 254.7 billion yen, with its stake
rising from 0.89% to 1.02%. Mitsubishi UFJ Financial Group
came in second at 134.9 billion yen, while Fanuc ranked
third at 112.3 billion yen.
Although real estate stocks were not strong performers in
the Japanese market, the Norwegian fund increased its
investment in them. Its shareholdings in Mitsubishi Estate
quadrupled, while those in Mitsui Fudosan jumped 76%.
Selling by Middle Eastern investors has been a concern in the
Japanese stock market since autumn as falling oil prices
have taken a toll on many oil-producing countries. Norway's
sovereign fund also gets seed money from the country's oil
revenue. But cheap petroleum apparently had little impact
on its investment strategy, likely because it is a pension fund
oriented toward the long term.
Still, Norges Bank Gov. Oeystein Olsen warned in a February
speech that the fund may have to sell off some assets this
year if oil prices remain low.
(Full article click - Nikkei)
---
Nissan seen agreeing to pay raise demand

Nissan Motor is likely to grant the 3,000 yen ($26.39)

increase in monthly base pay sought by labor, hoping to
improve employee morale in light of its strong
performance in North America.
The last time the automaker fully accepted workers' demand
for an increase in base wages was in 2014, when it agreed to
the 3,500 yen raise sought.
So far Nissan is the only major manufacturer likely to
provide the full pay bump requested by labor in Japan's
annual spring wage negotiations. The company is also seen
agreeing to a bonus of 5.9 times monthly wages, in line with
labor's demands.
Major automotive companies' labor unions are asking for a
base-pay upgrade of 3,000 yen across the board. That is half
the size of last year's request. Talks at Toyota Motor, Japan's
leading carmaker, appear to be centering around a raise of
around 2,000 yen.
Buoyed by brisk North American sales of sport utility vehicles
and other products, Nissan projects an operating profit of
730 billion yen for fiscal 2015, up some 20% on the year. The
company also plans to do its part to spur the economy via
wage increases.
But management is strongly concerned about the
deceleration of emerging economies, stiffening of the yen
and languishing stock prices. Nissan likely will share its
perspective in negotiations scheduled through Wednesday
before giving its formal response on wages.
---
North Korean submarine missing: reports

Taken from the AFP Saturday, 12 March 2016
A North Korean submarine is missing, reports said on

Saturday, as the reclusive state issued a fresh threat of
retaliation against US and South Korean forces involved in
joint military drills.
The unknown class of vessel had been reportedly operating
off the North Korean coast earlier in the week when it
disappeared.
A South Korean defence ministry told AFP Seoul was
investigating the reports. Pentagon officials declined to
comment on the matter.
The US military had been observing the submarine off the
North's eastern coast, CNN said, citing three US officials
familiar with the incident.
American spy satellites, aircraft and ships have been
watching as the North Korean navy searched for the missing
sub, the report added.
The US is unsure if the missing vessel is adrift or whether
it has sunk, CNN reported, but officials believe it suffered
a failure during an exercise.
The US Naval Institute (USNI) News said the submarine was
presumed sunk.
"The speculation is that it sank", an unidentified US official
was quoted as telling the USNI News.
"The North Koreans have not made an attempt to indicate
there is something wrong or that they require help or some
type of assistance."
The incident comes as tensions were further heightened on
the Korean peninsular by a fresh threat from Pyongyang.
The official KCNA news agency, citing a statement from
military chiefs, warned of a "pre-emptive retaliatory strike
at the enemy groups" involved in the joint US-South Korean
drill.
Pyongyang added it planned to respond to the drills with an
"operation to liberate the whole of South Korea including
Seoul" with an "ultra-precision blitzkrieg".
Responding to the statement, South Korea's defence ministry

urged Pyongyang to stop making threats or further
provocations, according to Yonhap news agency.
North Korea's navy operates a fleet of some 70 submarines,
most of them being rusting diesel submarines that are
capable of little more than coastal defence and limited
offensive capabilities.
But the old, low-tech submarines still pose substantial
threats to South Korean vessels.
In 2010, a South Korean corvette was reportedly torpedoed
by a North Korean submarine near their sea border.
In August last year, Seoul said said 70 percent of the North's
total submarine fleet -- or around 50 vessels -- had left their
bases and disappeared from South's military radar, sparking
alarm.
(Full article click - AFP via Yahoo News)
---
Japanese shipbuilders step out of Brazil amid

economic troubles
IHI, JGC and Japan Marine United are withdrawing their

investment in Brazil's largest shipyard as cheap resource
prices and a slumping economy cloud business prospects in
the country.
The three companies had apparently invested a total of
about 14 billion yen ($123 million) by 2014 in Estaleiro
Atlantico Sul through a local special-purpose company.
They agreed to sell its entire 33% stake to two local
construction companies, possibly as early as April.
Japanese shipbuilders have been investing in Brazilian
shipyards for the last few years with an eye on marine
resource development. But a scandal involving state-owned
oil giant Petrobras threw a wrench into those plans.
Kawasaki Heavy Industries, unable to collect payments from
its Brazilian partners, took a 22.1 billion yen hit in AprilDecember 2015. Five Japanese companies, including
Mitsubishi Heavy Industries and Imabari Shipbuilding, also
withdrew their investment in a separate shipyard in January.
Other Japanese businesses are revising their Brazil strategies
as well. Nippon Steel & Sumitomo Metal is ramping up its
assistance for steelmaker Usinas Siderurgicas de Minas
Gerais, an equity-method affiliate better known as Usiminas.
The Brazilian company is holding a management meeting
Friday to decide on a roughly 1 billion real ($275 million)
capital increase, over 30% of which will come from Nippon
Steel.
Nippon Steel also produces specialty pipe used in oil fields
with French giant Vallourec in Brazil. It is looking to boost
utilization of their joint plant amid flagging demand for oil
and gas development by halting two of Vallourec's blast
furnaces.
The Petrobras scandal has damaged trust in Brazil, impacting
foreign investment in the country. Gross domestic product
contracted for the first time in six years in 2015 from a
combination of cheap resource prices and weak domestic
demand.
But there is still great medium-term potential for Brazil,
which has a population of 200 million and is hosting the
Olympic games this year. Manufacturers that have gathered
here in recent years are trying to boost exports. Nissan
Motor will start selling cars from its plant in the state of Rio
de Janeiro to other countries in Central and South America
by the end of this year. Asahi Glass announced Friday that it
will invest 18 billion yen to build a new sheet glass plant in
the country as well.
---
Malaysia Finance Ministry Official to Be New

Central Bank Chief
Irwan Serigar Abdullah is expected to succeed Zeti Akhtar

Aziz as Bank Negara governor
A top official at Malaysias finance ministry is set to become
the countrys new central bank governor, a cabinet minister
and a senior commercial banker familiar with the matter
told The Wall Street Journal on Friday.
Irwan Serigar Abdullah is expected to be named as the new
head of Bank Negara Malaysia by the government next week,
the people said. The central banks appointment requires
formal confirmation by Malaysias king, which is expected.
Mr. Irwan will replace Zeti Akhtar Aziz, who is retiring in
April after 16 years as governor. The office of Prime Minister
Najib Razak, Bank Negara and Mr. Irwan didnt respond to
requests for comment.
Mr. Irwan, who holds a masters in energy management and
policy from the University of Pennsylvania, has been a
government official since 1984 and joined the finance
ministry in 2003.
Ms. Zeti had been lobbying for the central banks new
head to be selected from within the banks own ranks,
according to people familiar with the matter. The
appointment of Mr. Irwan, who is a member of Bank
Negaras board, might be a blow to Ms. Zetis efforts.
Attempts to reach Ms. Zeti were unsuccessful.
During her time as governor, Ms. Zetis stable economic
management attracted investment in the nations stock and
bond markets. This year, however, the ringgit, Malaysias
national currency, has been under pressure partly because of
lower prices for the countrys commodity exports.
Investor confidence also has been hurt by a corruption
scandal at a Malaysian state investment fund, 1Malaysia
Development Bhd., or 1MDB, which Mr. Najib set up in 2009
to help develop the economy.
Mr. Najib is chairman of 1MDBs board of advisers and Mr.
Irwan, as a senior ministry official, is member of that board.
Investigators in at least five countries, including the U.S.,
are probing allegations that billions of dollars in 1MDB money
has gone missing. Bank Negara has been among the most
aggressive agencies investigating the allegations against the
fund, which is 100% owned by the finance ministry, which is
led by Mr. Najib.
The Journal has reported how investigators in two countries
believe that more than $1 billion entered Mr. Najibs
personal bank accounts, much of it originating with 1MDB.
The prime minister has denied and has denied taking money
for personal gain. The fund said it has never transferred
money to the prime ministers accounts and has said it is
cooperating with the probes.
In January, Malaysias attorney general cleared the prime
minister of any wrongdoing, saying that $681 million of the
money that entered one of Mr. Najibs accounts was a legal
donation from Saudi Arabias royal family and most of it was
returned to them.
Investigators, however, believe the money originated with
1MDB and passed through a web of intermediaries to Mr.
Najibs accounts, before much of it was returned.
Last year, Bank Negara recommended the attorney generals
office file criminal charges against 1MDBs management for
allegedly giving inaccurate information regarding the
investment of $1.83 billion outside the country between
2009 and 2011.
The fund said the money was meant for its joint venture
with a Saudi oil company. Last year, a draft report into 1MDB
by Malaysias auditor general, a copy of which was reviewed
by the Journal, found that $700 million of the money instead
went to another company. The final fate of the funds

remains unclear.
The attorney general declined to file criminal charges
against 1MDB, saying Bank Negara had supplied insufficient
evidence of wrongdoing.
---
Bank Negara's Zeti: a tough act to follow

Taken from the Business Times Saturday, 12 March 2016
Malaysia's central bank governor will retire next month after

16 years of sterling service
COME April, Malaysia's most admired "Grade A" central
bank governor Zeti Akhtar Aziz will bow out of the
institution she has led for 16 years with her characteristic
soft-spoken, wavery voice yet steady, trusted hand.
The 68-year old central-bank lifer, who deftly steered the
country through two financial crises, will exit Bank Negara
Malaysia (BNM) at a crucial point: the crude-reliant nation
faces sluggish economic dynamics from a slowing global
economy, a commodity slump, and a much weakened ringgit.
Yet, no successor for the top job has emerged. The country
has a history of announcing top posts late in the day - a
signal, some say, that other factors (especially politics) hold
sway in such decisions.
Think national oil giant Petronas chief Shamsul Azhar Abbas,
whose replacement was named on the last day of his
contract last year; or the appointment of the Securities
Commission boss Ranjit Singh, which was made known just
three weeks before his predecessor's retirement in 2012.
This time, however, the feet- dragging on the next-in-line is
making corporates tense.
"We are anxious, yes, as the candidate has to be right for the
market and the country. The choice has to be based on merit
- that's most important," said CIMB Group chief executive
Zafrul Aziz.
Last year, Dr Zeti - a highly "protocol-conscious"
personality, according to those who work with her - made
a rare public display of combativeness after the country's
top public prosecutor dismissed her request to charge
troubled 1Malaysia Development Berhad (1MDB) for
breaching exchange control rules in a US$1.8 billion
investment. The central bank revoked permissions provided
to the firm and instructed it to repatriate the money.
It was an uneasy episode for a woman who is intensely
private and had, up to that point, stayed calm and dodged
controversy.
That hasn't taken the shine off the medal-heaped career of
the first woman to head Malaysia's central bank and one of
just over 10 women holding the post in the world.
"She has been the most well regarded and respected BNM
governor on the international stage," said CIMB Group
chairman Nazir Razak. This, said the veteran banker, was on
the back of her domestic track record, her contributions on
various international forums, and her leadership role in
Islamic finance.
In 2014, she was graded "A" and named one of the world's
best central bank chiefs by Global Finance magazine. She
also picked up Euromoney's 2015 "central bank governor of
the year" accolade.
In the run-up to the 2011 appointment of Christine Lagarde
as chief of the International Monetary Fund (IMF) and amid
rising voices that it was time that a non-European was given
a shot to helm the Washington-based agency, Dr Zeti's name
emerged as a suitable candidate, driving home her
international repute.
It was during her reign that a new law - the Central Bank of
Malaysia Act - came into force in 2009 to provide the agency
with autonomy to undertake its mandate: indeed, a big win
in a country where political interference in key institutions

runs deep.
Together with other key institutions, chiefly the Securities
Commission, Dr Zeti sharpened Malaysia's edge in the
booming sphere of Islamic finance. Malaysia is the world's
biggest issuer of Sukuk or Islamic bonds while Islamic
banking assets in the country doubled to some RM625 billion
(S$210 billion) in 2014 from RM350 billion in 2010.
Having taken over the reins of the central bank in 2000 after
the debilitating Asian financial crisis wreaked havoc on local
banks, Dr Zeti raised the required capital and liquidity ratios
of banks and pressed them to up the ante on risk
management and compliance. As it turned out, that helped
heaps to hold local banks in good stead during the global
financial crisis in 2008.
To stem rising household debt, the central bank tightened
credit card rules and lending policies and mortgages in 2013
and 2014 - a move that displeased loan-happy banks and
property builders. But it needed to be done.
"The central bank's move to tighten lending measures was
the responsible thing to do," said Mr Zafrul.
Dr Zeti has set the bar high. For that reason, the individual
who will fill her hard-fought-for autonomous shoes will face
heightened scrutiny - not just for his skills in managing the
economy and regulating financial and monetary matters, but
also credibility.
There is one more overriding factor in the public's mind for a
new chief.
"It is imperative for the next governor to be independent of
politics and any interference," said Ramon Navaratnam,
chairman of the Asli Centre for Public Policy Studies and a
former civil servant. "If a politically linked individual is
appointed to head BNM, it will be damaging and disastrous
to Malaysia's confidence and progress."
(Full article click - BT)
---
Rajan says it's time for monetary policy to obey

traffic lights
Taken from the Nikkei Sunday, 13 March 2016
Raghuram Rajan on Saturday called for analyzing the

"spillover" effects that different central banks' monetary
policies are having globally.
The governor of the Reserve Bank of India said these policies
should be categorized as green, red or orange.
"The best way is to use a driving analogy," he said in his
keynote address at a conference organized by the
International Monetary Fund and Indian government here.
Essentially, Rajan said, give a green light to policies with
very little spillover and a red light to those that should be
avoided. "In the current situation, he said, "there are lots
of policies which fall in the orange bucket. ... Typically
orange-bucket policies should be used temporarily and
with care."
To start with, Rajan said, a group of eminent international
academics should analyze spillover. An agreement would
then need to be made to discuss monetary policies at
international forums such as the IMF and Group of 20.
Rajan said red lights should be placed on unconventional
monetary policies that lead to small positive effects on
exports to emerging economies, a feeble recovery in the
source country as well as massive capital outflows and asset
price bubbles in the emerging markets.
If a policy has positive effects domestically and
internationally, it would win a green light, he said.
"Broadly speaking," Rajan said, "whether policies are rated
red, green or orange would depend on [factors such as] the
time dimension, [and the] stage of the financial and business
cycle in the home and foreign countries."
In his concluding remarks, Rajan said the international

community has a choice today. "We can pretend that all is
well with the global financial nonsystem and hope that
nothing goes spectacularly wrong," he said. "Or we can start
the process for building a system for the world of the 21st
century, which will be an integrated world."
---
Mitsubishi Estate eyes 100bn-yen overseas real

estate fund
Mitsubishi Estate is to create a fund of about 100 billion

yen ($880 million) to invest in overseas properties,
sources told The Nikkei. The idea is to attract surplus
domestic capital investors find themselves with now that
the Bank of Japan has introduced a negative interest rate.
Mitsubishi Estate plans to collect capital from domestic
institutional investors such as pension funds and life insurers
and to invest it in prime office buildings and commercial
facilities in major U.S. and European cities, according to the
sources.
The company intends to pay dividends to investors based on
rental revenue, aiming to achieve an annual investment
return of around 5%, the sources said.
Over the next three years, the company plans to invest in
four or so overseas properties that it believes will likely
generate a steady source of rental revenue. It will search for
these properties mainly in New York and other big cities in
advanced countries.
Initially, the company aims to collect as much as 100 billion
yen but is willing to accept an additional dose of capital if
enough investor demand remains.
This will likely become one of the largest overseas real
estate funds aimed at domestic investors.
Until now, the company has managed overseas real estate
funds targeting only certain investors; this will be the first
time for the company to collect capital from a wide range of
institutional investors.
Domestic rivals Mitsui Fudosan and Nomura Real Estate
Holdings are also considering similar real estate funds.
In January, the BOJ adopted a negative interest rate policy
that has pushed the yield on 10-year government bonds
down to near zero. As a result, there are fewer investment
options in Japan that can offer stable returns.
As a large amount of investment money has already found its
way into various properties at home, Mitsubishi Estate is
looking to expand the scope of its investments to include
overseas properties.
---
Japan looks to fiscal spending as monetary

policy sags
Markets are beginning to pin their hopes for Japan's

economic recovery on ambitious government outlays as the
central bank's monetary easing runs low on fuel.
Running dry
"I expect the original third arrow of Abenomics to fly higher
and faster," Bank of Japan Deputy Gov. Hiroshi Nakaso said in
a March 3 speech. By "third arrow," Nakaso was referring to
government-led economic growth strategies -- the third
focus of Prime Minister Shinzo Abe's economic plan.
Japan's central bank has until now has made few outright
requests of the government, preferring to take all possible
action on its own. Yet the BOJ is growing weary of carrying
the brunt of economic stimulus, and options for further
easing are running short, indicating that a change is in order.
"People are increasingly realizing that not everything can

be solved through monetary policy alone," Nakaso told a
press conference after his speech. The Group of 20 finance
ministers and central bank governors committed to
mobilizing both fiscal and monetary policy to protect the
global economy at their meeting in Shanghai at the end of
February. That stance is particularly relevant to Japan,
which has become dependent on solutions from the central
bank.
Despite BOJ Gov. Haruhiko Kuroda's assertions to the
contrary, "options down the road" for monetary policy
"will thin out" as the central bank continues to act, former
Vice Minister of Finance Toyoo Gyohten has said. Takahide
Kiuchi, a member of the BOJ policy board, voted in January
against introducing negative interest rates for just that
reason, fearing that putting all its cards on the table too
early would leave the bank with little recourse in a crisis.
The effects of current policies have begun to weaken. The
yen softened almost constantly for several years after Abe
took office in September 2012 on promises of bold monetary
easing, supporting a gentle economic recovery. Yet that
trend has wavered since the BOJ adopted its negative-rate
policy, with the currency at times gaining and at times losing
value.
"There are limits to the extent to which negative rates" can
stimulate the economy in a healthy manner, Bank of England
Gov. Mark Carney warned his counterparts in Shanghai. The
European Central Bank nevertheless introduced a host of
new easing measures Thursday. Markets took the bold move
as a sign that easing was reaching its limits, causing the euro
to strengthen. The BOJ, too, is facing "stiffer than
anticipated headwinds" from the banking sector and the
political opposition, a staffer said -- making further cuts to
interest rates dicey.
Last chance
Markets' hopes are now turning to what is seen as the only
remaining option -- fiscal policy. The Abe government
faces the task of formulating an economic support plan
ahead of this summer's election for the Diet upper house.
"If we can't go through with the consumption tax hike" to
10%, currently planned for April 2017, "and raise revenue,
we will be completely lost," the prime minister has said. Yet
many suspect Abe could postpone the hike and announce
sweeping economic policies, along with a supplementary
budget, ahead of the Group of Seven summit that Japan will
chair in May.
The finance ministry has been unable to hide its unease
about mounting expectations for government spending. "A
full-out policy push still includes monetary measures," one
official insisted. Japan's national debt totals more than 1
quadrillion yen ($8.79 trillion). Having to finance massive
spending increases without the revenue boost provided by a
timely tax hike is the ministry's nightmare.
Kuroda, a tax-bureau alumnus himself, has pushed the
government to implement the consumption tax hike on
schedule, noting that its effects on the economy "will be a
little over half as large as those from the last increase" in
April 2014. Yet the BOJ's negative interest rates have
ironically given the government some room to borrow
further by lowering coupon payments.
Of course, both monetary policy and fiscal spending are
stopgap measures designed to keep the economy from
sliding until deeper structural reform can be put in place.
Strategies aimed at higher medium- to long-term growth
must form the core of Abe's signature economic program. If
painful yet necessary labor-market and other reforms are
put off for too long, even an all-out policy push will
eventually lose its power.

---
Nuke warhead displayed by Pyongyang not

mockup: propaganda outlet
Taken from the Yonhap News Sunday, 13 March 2016
The "miniaturized" nuclear warhead that North Korea said

could be placed on a ballistic missile is not a mockup,
Pyongyang's state-run propaganda outlet said Sunday.
Citing an article by a military officer, DPRK Today said the
spherical warhead shown in a picture last Wednesday is a
real warhead that the rest of the world does not know
about.
The DPRK stands for the Democratic People's Republic of
Korea, the North's official name.
The propaganda outlet argued that the warhead represents
the latest high-tech military hardware and not something
that has been made up, as claimed by detractors.
It said that the North has deployed weapons that can place
all of South Korea within its reach as well as U.S. military
targets in the Asia-Pacific region and even the mainland
United States. DPRK Today said the country's nuclear arsenal
is ready to strike at North Korea's enemies at any time.
The outlets then said that the United States and South Korea
have engaged in a large-scale joint military exercises despite
warnings to refrain from such provocations by Pyongyang.
The latest announcement by the isolationist country comes
after it was slapped with the toughest sanctions yet by the
United Nations Security Council earlier this month for testing
its fourth nuclear device and launching a long range missile.
It also shot off a short-range multiple launch rocket system
and a pair of ballistic missiles as the joint Key Resolve and
Foal Eagle exercise kicked off in South Korea.
The North has maintained for some time that it has the
capability to miniaturize nuclear warheads so they can fit
onto a ballistic missile, but such claims are contested by
outside sources.
(Full article click - Yonhap)
---
Government mulls bank unit chief as next

Japan Post CEO: media
Taken from the Reuters News Sunday, 13 March 2016
Japan's government is considering appointing Japan Post

Bank Co (7182.T) President Masatsugu Nagato as the
successor to head the bank's parent company, Japan Post
Holdings Co (6178.T), local media reported on Saturday.
Reuters reported earlier this month that Japan Post Holdings
Chief Executive Taizo Nishimuro is set to resign in coming
weeks amid speculation over the 80-year-old CEO's health
following his hospitalization nearly a month ago.
The government, which still owns more than 80 percent of
Japan Post Holdings, is in the final stages of selecting
Nagato, Sankei newspaper reported, without citing sources.
Nagato will replace Nishimuro as early as next month, the
report said.
Japan Post officials were not immediately available for
comment.
Nagato, 67, former Mizuho Financial Group (8411.T)
executive and chairman of Citibank Japan, was recruited
to run Japan Post Bank in May last year.
(Full article click - Reuters)

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