News Summary

Welcome to the first Poon Report for 2016, wishing everyone

a great year ahead!
China released the December PMI and experts gave mixed
reviews. WSJ said the manufacturing sector edged helped by
robust infrastructure spending, signaling a slight gain in
momentum for the worlds second-largest economy. National
Bureau of Statistics said manufacturing PMI rose slightly to
49.7 from 49.6 a month earlier. This was below the median
forecast of 49.8. Sub-indexes measuring new orders,
production activity and inventory rose, while the sub-index
tracking employment fell. Good news: non-manufacturing
purchasing managers index, a gauge of activity beyond the
factory floor, rose to 54.4 from 53.6. Economists said they
expect China to cut interest rates as early as January, pare
required bank reserves and ramp up infrastructure spending
in a bid to counter higher debt levels and continued
economic weakness (page 13).

will provide a little support for oil prices. I cannot see a

sustained drop in oil to $20 a barrel though.
It is NFP again and market is forecasting US added 200k jobs
in Dec, which will clear way for Fed Reserve rate hike this
March. Decembers monthly job growth would be a slowing
from 2015s typical pace of 210,000 jobs a month. But with
the US jobless rate at a seven-year low of 5pc, the gains are
expected to make the jobs market more competitive, as
bosses are forced to offer better pay to attract and retain
staff (page 12).
Even without New Zealand, official market open will kick off
at 18:00 GMT. Expect slow start Singapore releases the
Advance Q4 GDP growth at 8:00 am local. Caixin China
manufacturing PMI will be released at 08:45 am local.
Expecting an improvement to 49.0 from 48.6.
Have a brilliant week ahead!

Forecasting 2016 the FT said it will be a rollercoaster US

Presidential elections and despite uncomfortably close polls,
Mrs Hillary Clinton will win the electoral college by a
landslide. Next - Britain will vote to stay in the European
Union. In the end voters will choose between the calm logic
of former Prime Minister John Major and the populism of
Ukips Nigel Farage. Assad will remain nominally president of
Syria in 2016. The Bank of England will flirt with rate rises
through much of 2016, it will tease, but in the end it will not
put its money where its mouth is. Although 2015 ended with
Ms Angela Merkel receiving a standing ovation at the
conference of her ruling Christian Democratic Party (CDU),
2016 is likely to see the end of her long reign as chancellor.
Belgium will win the Euro 2016 football cup. Abenomics will
not fail in 2016. The record of Abenomics is mixed, but on
balance, it has done Japans economy more good than harm.
Finally, will Brent crude end the year over $50? Yes. The oil
market in 2015 was brutal for anyone trusting in a rapid
rebound from the previous years crash (page 2-3).
Jeremy Warner doesnt think so. He said recovery in oil
prices does not suit the Saudi strategy. The last thing Saudi
Arabia wants is force such deep cuts in oil industry
investment that eventually supply does indeed fall well short
of demand and the price sky rockets again (page 5).
Sunday Telegraphs Liam Halligan said he agrees with IMF
head Christine Lagarde when she said last week that the
stuttering
global
recovery
will
continue to be
disappointing in 2016. There could, indeed, be a failed
normalisation of rates, with stock and bond markets
reacting badly as some Western central banks begin the long
march back from ultra-low borrowing costs. Financial
turbulence could certainly wipe out up to 3pc of global
economic output by the end of 2017. On oil, in the absence
of a major financial meltdown, oil will certainly end 2016
north of $60 a barrel (page 6).
Sunday Times David Smith warned that Brexit is the biggest
threat to the UK economy. Britains continued membership,
or not, of the EU will come into focus this year. The big
question about the EU referendum is not just the result but
whether the uncertainty leading up to it has a significant
impact, such as postponed or cancelled investment projects.
He believes Federal Reserve will raise interest rates further,
perhaps as many as four times this year. If China growth
stabilises around the current level of slightly below 7%. That
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.

World News
FT Forecasting the world in 2016
Taken from the FT Friday, 1 January 2016

A New Year beckons and the Financial Times once more

indulges in the ritual of forecasting the 12 months ahead.
Our experts and commentators set caution to one side and
predict what will happen in everything from the US
presidential election to the Euro 2016 football tournament.
A quick judgment on how they did last year. Ed Crooks
correctly forecast that the oil price had further to fall, a
brave claim at the end of a year in which it had already
halved. Martin Wolf said the ECB would adopt full
quantitative easing, which it did. Clive Cookson rightly
opined that Ebola would be eliminated in west Africa by the
close of 2015. Gideon Rachman said Vladimir Putin would
annexe no further territory in Ukraine and Europe. Not many
at the end of 2014 were saying that.
We got one wrong. Jonathan Ford was among many who
assumed the British general election would end in a hung
parliament (he went so far as to predict a national
government). Otherwise, the fault last year lay not with the
answers we gave but the questions we failed to ask. We did
not foresee a surge of Isis-sponsored terrorism in France;
that Russia would take military action in Syria; and that the
migrant crisis would become a grave threat to the EU. In
2016 too, events will happen that are as yet beyond our
imagination.
Will Hillary Clinton win the US presidential election?
Yes. It will be a rollercoaster election and the nastiest in
memory. Mrs Clinton will be pilloried by her Republican
opponent, Ted Cruz, for her character flaws and weaknesses
in the face of Americas enemies. A large chunk of the
electorate will hold up the Clinton name as an emblem of all
that is wrong and corrupt about todays America. But
elections are still won in the centre, or what is left of it, and
Mr Cruz will be too far to the right of the median voter to
make it to the White House. Despite uncomfortably close
polls, Mrs Clinton will win the electoral college by a
landslide. Democrats will take back the Senate. But she will
start her term in a very polarised Washington. There will be
no honeymoon.
Will Britain leave the EU in the referendum expected in
2016?
No. Britain will vote to stay in the European Union. Not with
any sense of enthusiasm or excitement but because the
innate common sense of British voters ultimately will
prevail. Forget the technical arguments about whether David
Cameron manages to secure a good deal in his renegotiation
or whether the UK gets back its contribution to Brussels in
increased investment and trade. Consider instead the
protagonists on both sides. In the end voters will choose
between the calm logic of former prime minister John Major
and the populism of Ukips Nigel Farage. My money is on Mr
Major. If I am wrong, Britain faces truly turbulent times.
Will Bashar al-Assad still be in power 12 months from
now?
Yes. Assad will remain nominally president of Syria in 2016,
even if in reality he has already been reduced to the status
of the biggest warlord rather than the ruler of a state.
Militarily, he has been bolstered by the Russian military
intervention that has targeted his rebel enemies. Politically,
a US-Russian plan agreed in recent weeks envisages an 18month transition and is fraught with risks. Even in the event
that a peace process gains traction, Mr Assad will do his best
to stall and hold on to his seat of power in Damascus.
Will the Bank of England finally raise interest rates next
year?

No. The Bank of England will flirt with rate rises through
much of 2016, it will tease, but in the end it will not put its
money where its mouth is. It has good reasons to avoid a
decision. Inflation will lift off from zero very slowly, wage
growth is weak; oil prices are weaker; and deficit reduction
will prevent a boom. The BoE is keen to try its new powers
to limit credit first before thinking about interest rates. The
consequences of a spell of higher than target inflation are
also limited. Later in the year, the BoE might decide to act,
but even if it did, it would not make much difference. As far
as interest rates are concerned, Britain is in what governor
Mark Carney says is a low for long world for some time
longer than 2016.
Will at least one member of the group of 20 leading
economies request an IMF assistance programme in 2016?
Yes. Within the G20, no developed member will need a
rescue. The only conceivable candidate is Italy, given its high
public debt. But the European Central Banks support,
including quantitative easing, protects it.
The G20 also contains 10 emerging economies. Some are
being buffeted by sharp falls in commodity prices
(Argentina, Russia and Saudi Arabia are prime examples).
Some run significant current account deficits (Saudi Arabia
again springs to mind, along with Brazil and South Africa).
Both India and South Africa have fairly large fiscal deficits.
Others, such as Brazil, have a smaller deficit but a sizeable
burden of public debt. The countries that tick all the boxes
for instability are Argentina, South Africa and Brazil. Under
stress, those countries have recently changed finance
ministers. Argentina has a new government that promises a
new approach. The IMF stands ready. Will at least one of
these countries call upon it? It seems likely.
Will Brazils Dilma Rousseff be impeached before the
Olympic Games begin in Rio?
No. But it will be a close-run thing. For now, Ms Rousseff
probably has enough support in Congress to stop the process.
But the more time passes, the worse the countrys recession
and the weaker her political support becomes. Impeachment
proceedings, even if the House of Representatives votes for
them to go ahead, will probably only begin on February 10.
Assuming the processs complex sequencing then takes its
full 180 days, Ms Rousseff could be impeached in midAugust. That would be after the Olympics officially starts on
August 5 phew but, still in time for the high-jump final
on August 16.
Will Angela Merkel still be German chancellor at the end
of the year?
No. Although 2015 ended with Ms Merkel receiving a standing
ovation at the conference of her ruling Christian Democratic
Party (CDU), 2016 is likely to see the end of her long reign as
chancellor. That ovation looked like conclusive proof that
her job is safe despite the pressures caused by the arrival
of about 1m refugees in Germany in 2015. But Ms Merkel has
now promised to reduce refugee flows next year. This is
likely to prove undeliverable as desperate migrants, aided by
people smugglers, continue to flow in.
Admiration for the chancellors courage and moral
leadership will give way to uncertainty and discontent. The
cracking point could be a revolt from local governments,
who pronounce themselves unable to cope with the
numbers. That, in turn, would finally provoke a challenge to
the chancellor from within the CDU, making her position
untenable.
Who will win the Euro 2016 football tournament?
Belgium, the best team in the world, according to recent
Fifa rankings. That arcane coefficient overstates Belgiums
quality, but not by an exorbitant margin. Through an
advanced system of scouting and coaching and a liberal

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.

naturalisation policy for immigrants this small nation

under a rickety state has produced a torrent of elite players.
Belgium can field an attacking trio of Eden Hazard, Kevin de
Bruyne and Romelu Lukaku, Premier League stars whose
combined market value would touch 150m. The German
squad is more seasoned, Spains more cohesive, but Belgium
lacks little in sheer technical quality. With France playing
host, there is also something akin to home advantage.
Will China devalue the Renminbi significantly next year?
Yes. China has good reasons to want to keep the renminbi
stable against the US dollar in 2016 a strong merchandise
trade surplus, massive foreign exchange reserves and a
desire to show the world that the redback is a worthy
reserve currency. But the renminbi is still likely to
depreciate to about Rmb7 to the US dollar, down from about
Rmb6.48 currently. The flagging Chinese economy is likely to
need at least two interest rate cuts next year while the US
dollar is supported by continued Fed tightening. That should
keep capital outflows from China at a high level, putting
downward pressure on the currency. The renminbis
trajectory is unlikely to be smooth. This may well be the
most volatile year ever for the Chinese currency.
Will Jeremy Corbyn still lead Britains Labour party a year
from now?
Yes, and for several reasons. The first is that a majority of
the party, if not its MPs, want him to. Despite Labours weak
showing in the opinion polls, the rank-and-file seem happy
with the direction the party is taking. Then, there is the
congenital loyalty of Labour MPs. Unlike the Tories, the party
has never excelled at assassinations. And in any case if, as
now seems likely, Mr Corbyn tweaks the partys unclear
leadership election rules to ensure that the incumbent is on
the ballot come what may, any challenge would be quixotic
at best. It took the full rhetorical force of Ernest Bevin to
hound Labours last pacifist leader, George Lansbury, into
retirement in 1935 when the then union boss persuaded the
party to stand up to fascism. Todays Labour is still waiting
for its Bevin. They seem unlikely to show up next year.
Will Abenomics fail in 2016?
No. The record of Abenomics is mixed, but on balance, it has
done Japans economy more good than harm. That will
continue in 2016. True, the central goal to get inflation to
2 per cent has been missed. Because of the oil price
collapse, inflation, as normally measured, is still hovering
around zero. Shinzo Abes government compounded the
problem by prematurely raising consumption tax, taking
money out of peoples pockets just when it wanted them to
spend. Yet the broader reflationary goals of Abenomics are
working. Stripped of energy prices, inflation is about 1 per
cent. Public debt has stopped rising as a percentage of
nominal output. Japans companies are making record
profits. Mr Abes problem is that he has pledged to raise the
consumption tax again in 2017. That is when the crunch
could come.
Will Russian athletes compete in the 2016 Olympics?
Yes. There is no political will to punish Russia for
resurrecting the mass doping of the Soviet era. Last month,
it became the first country in history to be suspended
indefinitely from athletic competition until it can prove it is
clean. But Moscow and the west are keen to minimise the
embarrassment of an independent report that listed some of
the worst abuses the sport has seen. To compete in Rio,
Russia will have to fire any officials that have been part of
doping programmes, resolve all pending disciplinary cases,
investigate its doping culture and demonstrate that it has
changed its ways. The Russians say this will take three
months.

Will sales of cars with diesel engines fall in Europe in

2016?
Yes. European car buyers were already growing less
enamoured with diesel engines, and the autumn revelation
that Volkswagen had installed software to cheat on emissions
tests in 11m diesel vehicles worldwide will exacerbate the
decline. Diesels penetration among new European cars
peaked at 55 per cent in 2010 and has been dropping fast in
France, where subsidies have been reduced and scepticism
about the environmental impact has risen. VW is a
particularly big maker of diesel engines and its sales dropped
more than 20 per cent in key markets in November after the
scandal. In 2016, diesels share will shrink so fast that it will
outweigh the growth in the overall car market.
Will Brent crude end the year over $50?
Yes. The oil market in 2015 was brutal for anyone trusting in
a rapid rebound from the previous years crash. The tenacity
of the US shale industry and surges in output from Iraq and
Saudi Arabia meant the world was awash with crude. Next
year, the lifting of sanctions on Iran could bring yet more oil
to the market. Still, the financial torments of oil producers
worldwide are forcing them to cancel projects and cut
drilling programmes, curbing future supplies, and the impact
will become apparent. Brent crude below $50 per barrel is
too low for the industry to make the investments needed to
meet growing global demand. Providing the world economy
does not skid into recession, this looks like being the year
that the oil price heads back to more sustainable levels.
Will George Osborne scrap tax relief for pensions in his
March Budget?
Yes. The UK chancellor put off making a decision on the
matter at Novembers Autumn Statement. But he sent a
strong signal that far reaching change is coming. Upfront tax
relief on pension contributions currently costs the exchequer
nearly 50bn a year. A mooted Pensions Isa would slash
this bill as workers would accumulate savings out of their
taxed income instead, with the guarantee of withdrawing it
tax-free upon retirement. The change would take years to
implement. Taxpayers could prepare by making maximum
contributions into pensions before the end of the tax year in
April.
Will 2016 be the year virtual reality finally takes off?
No. But it will be the year in which many experience for the
first time what may one day be the most transformative of
all technologies. The first view through a VR headset the
chunky goggles used to view alternative 3D versions of
reality is, for most, unforgettable. But great demos dont
make an industry. While VR games are starting to appear,
there is a shortage of content for the devices. And the
applications that will push it into the mainstream like
visiting a doctor or holding an office meeting in virtual space
are more dream than reality. Still, the technology is set to
captivate the public imagination. Physical reality will never
seem the same again.
(Full article click - FT)
---

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.

Ambrose Evans-Pritchard
Economic sweet spot of 2016 before the
reflation storm
Taken from the Telegraph Saturday, 2 January 2016

China, Europe, and the US are picking up speed but the

credit cycle is ageing, and treacherous waters lie just
beyond the horizon
Sunlit uplands beckon. Almost $2 trillion of annual stimulus
from cheap oil has been accumulating for months, pent up
and waiting to be spent. It will soon come flooding through
in a burst, catching the world by surprise.
But beware: the more beguiling it is over coming months,
the more traumatic it will be later as the reflation scare
comes alive.
Since the rite of New Year predictions is to stick one's neck
out, let me hazard hopefully that this treacherous moment
can be deferred until 2017.
The positive oil shock will hit just as austerity ends in the
US, and big-spending states and cities ice the cake with a
fiscal boost worth 0.5pc of GDP. Americans broke records
with the purchase 1.7m new cars and trucks in December, a
foretaste of blistering sales to come. There is a deficit of
20m cars left from the Long Slump yet to be plugged.
The eurozone is nearing the sweet spot, a fleeting nirvana of
2pc growth, conjured by the trifecta of a cheap euro,
budgetary break-out, and the end of bank deleveraging.
Mario Draghis printing presses are firing on all cylinders. The
'broad' M3 money supply is growing at turbo-charged rates of
5pc in real terms. This is a 12-month leading indicator for
the economy, so enjoy the ride, at least until the demonic
Fiscal Compact returns at the dead of night to smother
Europe once again.
In China, the dogs bark, the caravan moves on. There will be
no devaluation of the yuan this year, because there is no
urgent need for it. Premier Li Keqiang has vowed to keep the
new exchange basket stable. Armed with a current account
surplus of $600bn, $3.5 trillion of reserves, and capitol
controls, that is exactly what he will do.
The lingering hangover from the Great Chinese Recession of
early 2015 has faded. The PMI services gauge has just
jumped to a 15-month high of 54.4, and this is now the
relevant index since the Communist Party is systematically
winding down chunks of the steel, shipbuilding, and
chemical industries.
China's money supply is also catching fire. Growth of 'real
true M1' has spiked to 10pc, a giddy shot of caffeine not seen
since the post-Lehman spree. Combined credit and local
government bond issuance is surging at a rate of 14pc. The
Communist Party cranked up fiscal spending by 18.9pc in
November.
Whether or not you think this recidivist stimulus is wise given that the law of diminishing returns set in long ago for
debt-driven growth - it will paper over a lot of cracks for the
time being.
One thing that will not happen is a housing revival in the
mid-sized T3 and T4 cities of the hinterland. It will be a long
time before the latest reform of the medieval Hukou system
unleashes enough rural migrants to fill the ghost towns. The
stock of 4.5m unsold homes on the books of developers is
frightening to behold.
The epic dollar rally has come and gone. The world's
currency will drift down over coming months, and that will
be a reprieve for the likes of Brazil, Turkey, South Africa,
Indonesia, and Colombia.
Those at the wrong end of $9 trillion of off-shore debt in US
dollars may breath easier: they will not escape. The MSCI
index of emerging market stocks will return from the dead,

clawing back most of the 28pc in losses since last April, but
only to lurch into a greater storm.
Dr Copper will recover. Inventories are down to 13-days
supply in Chinese warehouses, and African supplies are
dwindling. Forced liquidation of base metals by exchange
trade funds - with a final killer twist from hedge funds - has
distorted the market. Finance has decoupled from physical
demand. The springs are coiled for a short-squeeze.
Oil may take longer as Saudi Arabia and Russia slug it out.
The Saudis think they have deep enough pockets to outlast
the Russians, and the Russians think they have the greater
strategic depth to survive a long siege.
Both are courting fate. Russia's reserve fund will be depleted
before the end of this year if oil stays anywhere near $40,
and there is no other viable way to fund the Kremlin's
budget deficit. Pressure on the Saudi riyal will keep building
despite the latest austerity package, and capital flight will
turn virulent.
Behind the bluster, both are looking for a way out. We will
know if they reach a secret truce, and by implication take
the first step toward 'super-OPEC'. Excess production will
stop. Crude will be nursed back up to $60. So watch what
they drill, not what they say.
It is not bad a outlook for the world, but economic recovery
contains the seeds of its own demise at this late, stretched,
phase of the cycle. Inflation lurks. Core CPI for services in
the US is already creeping up to 3pc and the jobs market is
tightening hard.
Base effects will lift the headline inflation in the US and
Europe by mechanical effect as the commodity slump
bottoms out, and it will not be long before we are all
chattering about secular stagflation.
This is where the danger lies. $6 trillion of global
government debt trades at interest rates below zero, and
$17 trillion below 1pc. The bond market is priced for
deflation as far as the eye can see, yet deflation is
yesterdays story.
Let us hope the lull before the storm is long enough to enjoy.
The world is not prepared for the inevitable pivot when the
Fed suddenly finds itself behind the curve and switches to
rapid fire rate rises, sending 10-year US Treasuries screaming
back towards 4pc, and lifting German Bunds with them. The
global cost of borrowing will go up whether or not debt is in
dollars.
Nobody knows where the pain threshold lies for a global
system leveraged as never before. Public and private debt
ratios are hovering at all-time records of 265pc of GDP in the
OECD club and 185pc in emerging markets, 35 percentage
points higher than at the top of the pre-Lehman credit
bubble. But that is a bedtime horror story for 2017.
Happy New Year.
(Full article click - Telegraph)
---

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.

Jeremy Warner
Dont expect any swift rebound in the oil price
Taken from the Sunday Telegraph 3 January 2016

One reason is that a recovery in prices does not really suit

Saudi Arabias strategy
It's been another disappointing year for the UK stock market,
thanks in large measure to the preponderance of big oil and
mining companies in the midst of its indices.
Any assessment of stock market prospects for the coming
year, at least for the UK, must therefore necessarily focus on
the scope for recovery in oil and commodity prices.
The standard view is that these will indeed begin to pick up
over the next year, under the weight of re-emerging supply
constraints and some mild recovery in Chinese demand. Here
are a few reasons for doubting that.
One is that a recovery in prices does not really suit Saudi
Arabias strategy, which appears to be to put the
competition of American shale out of business.
Yet shale has proved far more resilient to low energy prices
than anticipated, and with so much capital already sunk,
may well remain so for a while longer yet. The promise of
abundant Iranian supply once sanctions are lifted may in any
case fill gaps left by shale and other marginal suppliers such
as Britains North Sea.
Saudi Arabia has meanwhile got itself into something of a
hole. A growing budget deficit means that just to pay the
bills, it may have to keep pumping at full throttle regardless
of any assumed intention of eventually regaining pricing
power.
In any case, the last thing Saudi Arabia wants is force such
deep cuts in oil industry investment that eventually supply
does indeed fall well short of demand and the price sky
rockets again.
Oil back above $100 a barrel may be all thats needed to
invite another flurry of shale investment, and much more
dangerously for the industry as a whole, finally produce
some kind of tipping point in alternative energy investment
such as solar.
In such circumstances, Saudi reserves could eventually
become obsolete. This is not just about
short-term games; the House of Saud is fighting for its longterm future.
Technology failure
Last week, Eric Schmidt, chairman of Googles parent
company, Alphabet, made a startling observation. Britain, he
said, is the world leader in e-commerce, far ahead of the
US.
On some measures, this does indeed seem to be true; per
head of population, more business is transacted online in the
UK than almost anywhere else.
London has also established itself as possibly the biggest IT
recruitment centre outside Silicon Valley, as well as a trail
blazer in so-called fintech, or the use of software to
provide financial services.
Sajid Javid has made it a major part of his mission as
Business Secretary to make the UK as open to e-commerce
and the explosive growth of the so-called shared economy
as possible.
Yet the fact remains that Britain has yet to create any ecommerce company of even remotely comparable scale to
the US tech giants Google, Amazon, Apple, Microsoft and
Facebook. In corporate terms at least, the US remains
utterly dominant.
To Mr Schmidts mind, there is no reason why the UK
shouldnt be able to build billion-dollar, 10billion-dollar or
even 100billion-dollar tech companies.
I would suggest three possible explanations for why it has
not yet happened. One, identified by Mr Schmidt, is a

cultural problem that seems to infect all aspects of

entrepreneurial endeavour in the UK, where too often the
goal of business start-ups is to build the company up as
quickly as possible, flog it to the highest bidder, and then
retire to the country with the labradors.
Call it failure in ambition, or undue risk aversion, it is a
problem that may have something to do with the relative
absence of patient and supportive capital in the UK.
Another is the critical mass already achieved by Silicon
Valley, which sucks in talent and ideas from all over the
world, including Britain. If youve got a great app, and the
engineering skills to develop its use, you tend to go
California to make it happen.
And finally, there is Europe itself, which is still a million
miles away from the fully functioning single market seen in
the US.
I cant see any of these constraints disappearing soon, but if
you are a UK tech start-up with ambitions to become a
$100billion company, wed be more than interested in
hearing from you. Sadly, my appeal is all too likely to be met
with a deafening silence.
Corporate responsibility
I yield to no one in my admiration for Amazon, one of the
most astonishing corporate success stories of the modern
age. Nor do I have any time for the public opprobrium it
receives for non payment of UK corporation tax.
This is a company that routinely sacrifices short-term profit,
as a matter of creed, for long-term growth. There is no
reason it should be paying tax if all revenues are reinvested.
Yet like a lot of e-commerce companies, a degree of
arrogance occasionally creeps into its behaviour which fair
makes the blood boil.
Take the following example. Investigations by the UK
Treasury and HM Revenue & Customs have revealed that
some Chinese suppliers that sell their wares on Amazons
Marketplace have found a way of not paying VAT, thereby
giving them an unfair price advantage over rivals.
Avoidance of corporation tax is one thing, but when you sell
goods in Britain, you must by law pay sales tax.
Unlike the corporation tax bill, its non-negotiable. Yet
Amazons response to these revelations was essentially to
wash its hands of the whole affair.
Marketplace sellers are independent businesses responsible
for complying with their own VAT obligations. We...dont
have the authority to review their tax affairs, a spokesman
told the Financial Times.
Amazon is not a shop, he seemed to be saying, but a mere
intermediary.
Er sorry, but no.
It is indeed Amazons responsibility to ensure compliance
among its suppliers, just as it would be Tescos responsibility
if it were to be found selling dodgy sausages.
And they wonder why public trust in big business is at rock
bottom.
Too often, e-commerce is being used as a way of avoiding
the social obligations that ordinary, old economy companies
are required to comply with. That some of these obligations
may be oppressive and unjustified is beside the point.
Companies can only operate with the consent of society. If
they kick against it, they invite an ultimately destructive
backlash.
Its time for the tech giants to accept that the same rules
apply to them as everyone else.
(Full article click - Telegraph)
---

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.

Liam Halligan
Another Lehman collapse is the biggest threat
we face
Taken from the Sunday Telegraph 3 January 2016

Our big banks, still largely unreformed since the financial

crisis in 2008, remain too-big-to-fail
Three days into 2016, youve no doubt read numerous my
predictions for the new year columns. Read mine anyway
as some of the economic viewpoints below will differ from
those youve read elsewhere.
Starting on a consensual note, I agree with Christine
Lagarde, the managing director of the International
Monetary Fund, when she said last week that the stuttering
global recovery will continue to be disappointing in 2016.
The world economy will expand 3.6pc this year, the IMF
estimates, up from 3.2pc in 2015, but still below the 4.1pc
annual average during the decade leading up to the 2008
financial crisis.
That pre-Lehman growth, in turn, pales into comparison with
the 1960s when world trade was expanding rapidly, and the
global economy surged 5.5pc a year.
The IMF is also right to highlight likely spillover effects
this year from the first rise in US interest rates since 2006.
There could, indeed, be a failed normalisation of rates,
with stock and bond markets reacting badly as some Western
central banks begin the long march back from ultra-low
borrowing costs. Financial turbulence could certainly wipe
out up to 3pc of global economic output by the end of 2017,
as the fund warned in its latest Financial Stability Report.
I dont agree with IMF economists, though, that the main
danger to the global financial system now stems from
companies across the emerging markets that have
apparently over-borrowed by $3,000bn (2,000bn) since
the mid-2000s.
Such companies are clearly more indebted than in the late1990s, the last time an Eastern crisis impacted the rest of
the world. And higher US rates will, of course, increase the
debt-service costs of dollar loans held by relatively young
companies in countries like Turkey and China.
Its also true that Brazil and Russia spent much of 2015 in
recession and will continue to struggle amidst relatively low
commodity prices in 2016. Having said that, both have very
low levels of government debt around 10pc and 60pc of
annual GDP respectively compared with 80pc to 100pc in
many developed countries.
Emerging market central banks have also considerably
increased their foreign exchange reserves since the late1990s, from 12pc to almost 40pc of national income on
average, according to the Bank of International Settlements.
Such nations now control three quarters of reserves across
the world which is why the West borrows so heavily from
them.
The greatest danger to global financial stability lies not in
emerging market corporate indebtedness, but elsewhere.
Across the US, UK and the eurozone, our big banks, still
largely unreformed since the last Western-derived financial
crisis in 2008, remain too-big-to-fail.
With interest rates already at rock-bottom and government
bond markets propped up by virtually printed money, the
advanced countries are actually in a pretty vulnerable
position if we do see another Lehman.
Im not saying there will be a financial crisis in 2016. I
certainly hope there wont. But I know plenty of highly
experienced Western investors now sitting on the sidelines
due to deep concerns that the post-Lehman story isnt
over.

I would also venture that if we are to endure a systemic

moment over the next 12 months, its more likely to derive
from the eurozone and/or a more general realisation that
quantitative easing, on the scale weve pursued it, is
counterproductive, than from any particular country in Asia,
Eastern Europe or Latin America.
The IMF disagrees. Lagarde warns the emerging markets are
dangerous and the actions of their ambitious, fast-growing
companies could infect Western markets.
As a result, the argument goes, the European Central Bank
and Bank of Japan need to keep printing and, despite
widespread doubts among serious people, the IMF says thats
OK.
Such a narrative strikes me more as alibi-creation and preemptive finger-pointing than serious, financial analysis. We
shall see.
In terms of concrete predictions closer to home, I dont
think the Bank of England will follow the Federal Reserve
and raise interest rates this year. Britain and America
expanded at similar rates during 2015 2.4pc and 2.5pc
respectively and have comparable unemployment (around
5pc).
Yet UK fiscal policy is tighter and our pay growth remains
subdued (in part due to high immigration). Both factors
make a UK rate rise less likely as does the trend of credit
growth, which remains far less expansionary here than in the
US.
The Bank could be forced to raise rates sooner, though, if
our huge external deficit weighs on the pound and oil
bounces back, causing inflation to spike. The current
account shortfall for 2015 will come in at around 4pc of GDP,
by far the worst in the G7 group of leading economies,
driven not only by far fewer exports than imports but a very
sharp fall in investment income from abroad.
Such macro imbalances tend not to matter, until market
sentiment shifts and then, suddenly, they matter a lot.
Worrying aloud about trade and investment deficits is deeply
unfashionable, sounding like a 1970s throwback. Over the
coming year, that fashion could shift.
What of oil prices? Global markets are clearly flooded with
crude, as Saudi Arabia pumps aggressively in a bid to break
upstart US shale producers.
With Brent below $37 a barrel, close to 11-year lows, lots of
folk are predicting (and hoping) cheap oil is here to say. That
would certainly benefit Western oil importers such as the US
(and, increasingly, the UK).
Yet oil below $50 continues to contradict the long-term
fundamentals of ever-rising global demand and the
geological and logistic constraints on future increases in
supply.
The Chinese demand is falling story, for example, has been
ridiculously over-hyped. Yes, the economy of the Peoples
Republic has slowed, and will probably expand by just 6pc
this year, down from 7pc in 2015.
Yet even the Energy Information Agency, a branch of the US
government, points to a 2.8pc rise in Chinese oil
consumption last year and another 2.7pc increase in 2016.
In the US, the rig count of oil production facilities in
operation is down a huge 62pc year-on-year, while
inventories show signs of peaking. The old adage low oil
prices are reversed by low oil prices remains true, and not
just in the US.
Across the world, investment in oil exploration and
production nosedived to $550bn last year, from $700bn in
2014, creating the future shortages that will cause prices to
rise.
In the absence of a major financial meltdown, oil will
certainly end 2016 north of $60 a barrel, in my view. We

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.

could even see a relatively quick return to $80, if Saudi

succumbs to domestic financial pressures and the geopolitics
of Opec shift.
We should, anyway, be careful what we wish for. Cheap oil
boosts the West, while undermining the governments of
energy-exporting nations we view as recalcitrant such as
Venezuela and Russia.
Yet low crude has lately caused alarming distress levels on
junk bond markets, as heavily indebted small- and mediumsized US energy producers have fought to survive. Western
ratings agencies are finding it hard to suppress their
concern.
This is another unfashionable issue that could come to
prominence over the next 12 months.
My final fear for 2016 is that world trade slows further,
acting as an additional anchor on global growth.
Last year, trade grew by just 2.4pc, the lowest figure for
many years and down from 3.4pc in 2014.
The Doha trade round has just been officially abandoned,
the first failure of a multi-lateral negotiation since the
1930s. The danger now is that protectionism rises, and
diplomatic rancour grows. Clear-minded people across the
world must hope that doesnt come to pass.
(Full article click - Telegraph)

European News
EU's trillion euro bank bail-outs are over
Taken from the Telegraph Friday, 1 January 2016

Taxpayers will no longer have to foot the bill for failing

lenders as new bail-in laws call time on 'too big to fail'
Europe has called an end to the era of mass bank bail-outs as
new rules to stop taxpayers from footing the cost of
financial rescues come into force.
Private sector creditors will be forced to take the hit for
bank failures as the EU seeks to end the age of "too big to
fail", which has cost member states more than 1 trillion
since 2008.
The measures - which will come into force on January 1 and
apply to eurozone states - are designed to break the vicious
cycle between lenders and governments that bought the
single currency to its knees four years ago.
Senior bondholders and depositors over 100,000 will be in
line to be "bailed-in" if a bank goes bust, a departure from
the mass government-funded rescues seen in Ireland,
Portugal, Spain and Greece in the wake of the financial
crisis.
Brussels' tough new Bank Recovery and Resolution Directive
(BRRD) will require shareholders and bond owners to incur
losses of at least 8pc of their total liabilities before receiving
official sector aid. Britain will not be subject to the rules.
The EU's commissioner for financial stability, Britain's
Jonathan Hill, said: "No longer will the mistakes of banks
have to be borne on shoulders of the many".
Struggling banks in Italy, Portugal and Greece have rushed to
recapitalise themselves in a bid to avoid falling foul of the
new regime.
The rules resemble the bail-in of creditors first seen in the
eurozone during Cyprus' banking crash in 2013, where savers
were forced to endure losses as part of the international
rescue package.
More than 1.6 trillion (1.18 trillion) has been pumped into
troubled banks by member states between October 2008 and
December 2012, according to figures from the European
Commission. This amounts to 13pc of the bloc's total
economic output (GDP) and imperiled the public finances of
Ireland and Spain.
"We now have a system for resolving banks and of paying for
resolution so that taxpayers will be protected from having to
bail-out banks if they go bust", said Lord Hill.
A new eurozone wide insolvency fund, the Single Resolution
Mechanism, will also become operational on January 1. It
will build up contributions from the banking industry over
the next eight years to use in cases of financial collapse.
Europe's banks have been required to beef up their capital
buffers and comply with tough new regulations in the wake
of the financial crisis.
The European Central Bank has also assumed direct
supervisory responsibility for 129 "systemically" important
lenders in a bid to create a fully-fledged banking union in
the currency bloc.
However, analysts have warned Brussels' tentative steps
towards banking union remain incomplete and could cause
more uncertainty for ordinary depositors after January 1.
"Taking 8pc losses from creditors has never been tested in
reality", said Nicolas Veron, of think-tank Bruegel.
"The first few test cases will be very important . There is the
combination of uncertainty over how the SRM will work with
ECB, and then additional uncertainty over how creditor
losses will work in practice."
The problem of failing banks continues to plague a number
of southern eurozone states. Portugal's new left-leaning

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.

government has already split over providing another 2.2bn

taxpayer injection into struggling lender, Banif.
In Italy, many ordinary savers have been wiped out as
unsecured bondholders and shareholders have taken the hit
from the collapse of four small lenders in the last month.
Prime minister Matteo Renzi has come under fire following
the suicide of a retired man who hung himself after losing
110,000 in bonds issued by Banca Etruria.
"A monetary union with a half way banking union is much
more stable than with no banking union at all", said Mr
Veron.
(Full article click - Telegraph)
---

Pedro Snchezs Socialists hold key to power in

Spain
Taken from the FT Saturday, 2 January 2016

It is almost two weeks since Spain held its general election,

but for Pedro Snchez the battle for political survival is only
just beginning.
As the talks about forming the next government get under
way, the leader of the Spanish Socialists (PSOE) finds himself
under fierce pressure from political rivals on both the left
and the right.
His own party, meanwhile, is in a state of near-open
rebellion. Some of the PSOEs most powerful regional barons
have picked precisely this moment of weakness to make a
thinly veiled bid for the leadership. Worse still, they appear
to be doing their utmost to ensure that Mr Snchez enters
the current political talks in a state so weak that he is bound
to fail.
It all adds up to a lamentable spectacle, as Patxi Lpez, a
senior party official, admitted on public radio this week.
Mr Snchezs predicament is one strand of a devilishly
complicated political knot that is expected to take party
leaders months to unravel if it can be unravelled at all.
The December 20 election has left Spains parliament deeply
fragmented, with no obvious path towards a stable
government. For a country and a business community
that has enjoyed decades of solid governments and strong
majorities, it is all deeply unfamiliar territory.
Some of Mr Snchezs problems are clearly of his own
making. Last month, he led the Socialists to their worst
result in recent history, winning just 90 seats in the 350-seat
parliament. In the space of just two general elections, the
partys share of the vote has crashed from 44 per cent to 22
per cent. Over that period, more than 6m voters have turned
their back on a proud political movement that was once seen
as Spains natural party of government.
Much younger and more telegenic than his predecessor,
the Socialist leader promised voters a clean break with the
past, and a new beginning for a party that many Spaniards
continue to blame for the recent economic crisis. He tried to
position the PSOE as a trustworthy alternative both to the
ruling Popular party (PP) and to the upstart anti-austerity
Podemos movement. In the end, however, he failed to halt
the centre-lefts slide.
Still, for all its electoral travails, the PSOE now finds itself in
the paradoxical position of holding the keys to power.
Without their votes in parliament, it will be almost
impossible to form a new government. Unfortunately for Mr
Snchez, it is hard to see how his party might profit from
this privileged position: the Socialists can either join a broad
centrist alliance under the leadership of the PP, or attempt
to form a leftwing coalition that includes Podemos.
One path seems as improbable as the other, and both are
littered with obstacles and risks. A deal with the ruling PP
would alienate many Socialist voters, and ensure that
Podemos would claim the mantle as the leader of the

Spanish opposition. But siding with Podemos would unsettle

centrist voters and prompt gasps of shock from Spains
business community.
They are in a pretty impossible situation, says Andrs
Ortega, a political analyst who served as an adviser to the
last Socialist government. If they strike a deal with
Podemos, they lose half their electorate. And if they strike a
deal with the PP they lose the other half.
Doing nothing is not a safe option either. With the
momentum swinging towards Podemos in the final days
before the December election, there is every risk that a
second ballot will see the upstart party overtake the
Socialists as the leading force of the Spanish left. Pablo
Iglesias, the Podemos leader, rarely misses an opportunity to
remind the Socialists of this scenario making clear that he,
unlike Mr Snchez, has every reason to play hardball in the
complex political negotiations that lie ahead.
At a meeting of party leaders this week, the Socialist leader
set out his strategy in clear terms: the PSOE would under no
circumstances support the re-election of Mariano Rajoy, the
current prime minister and PP leader. And it would not seek
to form an alliance with Podemos as long as its far-left rival
remains committed to an independence referendum in
Catalonia, the Spanish region that has been marked by
secessionist tensions in recent years.
On substance, his bid to hold the centre ground of Spanish
politics met little opposition. The real question, however, is
whether he will be allowed to pursue it. Susana Daz, the
Socialist president of Andalusia and Mr Snchezs arch-rival
inside the party, wants the PSOE to hold a party congress as
early as February. That would give her the opportunity to
replace him as a leader either in the midst of coalition
talks or, possibly, just months before a snap election. To
most outsiders, it seems like a high-risk operation driven
largely by personal animosity. There are, at least on the face
of it, no discernible ideological differences between the two
leaders.
Everyone who now sits down with Pedro Snchez knows that
he may be kicked out the next day. That makes him and his
party very weak, says Professor Pablo Smon, a professor of
political sciences at the Carlos III University in Madrid. Even
if he prevails against his internal rivals, the damage might
already be done. All the polls show us that Spanish voters
punish parties that are divided. If they hold a divisive party
congress shortly before [repeat] elections, they are
condemned, adds Prof Smon.
Mr Ortega is bleaker still in his assessment: Starting a
succession debate at this moment looks like suicide to me.
(Full article click - FT)
---

I want to be the Hitler of Turkey, says Erdogan

Taken from the Times Saturday, 2 January 2016

President Erdogan has astounded Turkey by citing Adolf

Hitlers Germany as an example of the kind of political
system he wants to build.
The controversial leader, who is loved and loathed in equal
measure, hopes to change the countrys constitution to
transfer legislative powers from the parliament to the
presidency. That would concentrate power in his hands,
leading critics to fear that he will turn Turkey into an
authoritarian state and never leave office.
Mr Erdogan made the remarks in Istanbul when questioned
by a journalist on how the new system would operate.
There are already examples in the world. You can see it
when you look at Hitlers Germany. There are examples in
various other countries, he told the stunned reporters.
A government official later said that Mr Erdogans remarks
had been taken out of context.

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.

There are good and poor examples of presidential systems

and the important thing is to put checks and balances in
place, the official told Reuters. Nazi Germany, lacking
proper institutional arrangements, was obviously one of the
most disgraceful examples in history.
It is not the first time that Mr Erdogan has made a gaffe
relating to Nazi Germany. In October, he told Angela Merkel,
the German chancellor, We are not your concentration
camp after she asked Ankara to help stop the flow of
refugees and migrants from Turkey to Greece.
Turkey was a major trading partner of Nazi Germany during
the 1930s, and took an ambiguous position in the Second
World War, signing a nonaggression pact in 1941 in an
attempt to maintain a position of neutrality. It finally
declared war on Germany in February 1945, just three
months before the conflict ended.
Mr Erdogans plan to change the Turkish constitution was put
back on the table after his party, the AKP, won a landslide
victory in parliamentary elections in November.
A previous election in June had given the AKP the biggest
share of the vote, but not the overall majority needed to
govern alone. After weeks of failed coalition negotiations, a
second election was called. In the interim, Turkey was
rocked by two huge Isis-linked terror attacks and a surge of
violence in the Kurdish-majority southeast. Mr Erdogans
critics say he deliberately stoked the chaos in order to win
the nationalist vote in Novembers poll.
Opposition parties agree on the need to change the
constitution, drawn up after a 1980 coup and still bearing
the stamp of its military authors, but do not back the
presidential system envisaged by Mr Erdogan, fearing that it
will consolidate too much power in the hands of an
authoritarian leader. The Turkish president, nicknamed the
Sultan by his detractors, has ordered crackdowns on the
media, the judiciary and the police in recent months.
(Full article click - Times)
---

David Smith
Economic Outlook: Brexit vote is biggest danger
to economy
Taken from the Sunday Times 3 January 2016

THE easiest thing to do when looking ahead is to assume

more of the same. That, to let you into a dirty little secret,
is how economic forecasting generally works and it is why
economists are not bad at identifying trends but not good at
predicting turning points.
It also keeps forecasts within realistic limits. With inflation
having ended the year at close to zero, you would put a very
low probability on it rebounding to 10% over the next 12
months. Britains twin deficits the red ink on the budget
and current account are not going to turn to surplus
between now and the end of 2016.
The Bank of Englands monetary policy committee (MPC),
similarly, will continue to adopt an ultra-cautious approach.
After nearly seven years pondering whether the time was
right for a quarter-point rise in interest rates, the MPC will
not suddenly start jacking them up as if there was no
tomorrow.
Things do change in unexpected ways, however, even when
they are flagged in advance. Britains continued
membership, or not, of the EU will come into focus this year.
Even that, of course, is subject to uncertainty. We do not
know for sure whether the EU referendum will be held in
2016, even though a summer vote appears to be David
Camerons clear preference.
Assuming the referendum is held this year, will it be an
economic non-event or the biggest challenge for Britains

economy since the global financial crisis? Swap opportunity

for challenge and you have both sides of the debate
encapsulated. More on that in a moment.
As for the world beyond Britain, the two biggest economies
will, unsurprisingly, have the biggest influence. It may be
that Americas presidential election is just a bunch of
unelectable Republicans providing entertainment before
Hillary Clintons stately passage into the White House, but it
cannot be ignored.
The Federal Reserve will raise interest rates further, perhaps
as many as four times this year. Markets celebrated last
months first Fed hike for nine years. They might not do that
every time, though if the Fed feels confident enough to
continue the process of normalising rates, it shows it is
reasonably sanguine about the American and global
economies.
As for China, its landing was hard enough last year to hit
commodity and stock markets but in recent weeks the
numbers have looked better. If you believe the official
figures, growth should stabilise around the current level of
slightly below 7%. That will provide a little support for oil
prices. I cannot see a sustained drop in oil to $20 a barrel
though I would be surprised to see a recovery to much more
than $50.
America and China are not the whole of the world economy
but they suggest a picture of reasonable growth;not as
strong as the 4% trend rate of global expansion, but 3.5% is
achievable.
What about Britain? Before returning to the EU and the
referendum, two things. The first is the argument that this
recovery is so long in the tooth that we should be ready for
the next downturn. We are now into the seventh year of a
recovery that began in the middle of 2009. It sounds like a
long time but the recovery that preceded it ran for more
than 16 years. The one before that, in the 1980s, lasted
more than nine years. Given how far the economy fell in
2008-9, it is much too early to be calling time on the
recovery.
The second thing to deal with is the end-of-year flurry of
nonsense about Britain being in the middle of some kind of
debt-fuelled consumer boom. In the national accounts
released just before Christmas, the Office for National
Statistics reported that aggregate wages and salaries in the
third quarter were 4.6% up on a year earlier, pushed higher
by both pay rises and employment growth at a time of zero
inflation. Real household disposable incomes were up by 4%.
Consumer spending growth of 3% over the same period looks
modest by comparison.
And, while household borrowing has picked up a little, it
remains remarkably restrained. Overall borrowing has risen
by less than 5% over the past seven years, and is significantly
lower in real terms and relative to income than it was before
the crisis. Unsecured borrowing is 15% lower in cash terms
than before the crisis.
So what is in prospect? The big question about the EU
referendum is not just the result but whether the
uncertainty leading up to it has a significant impact, such as
postponed or cancelled investment projects. My judgment is
that there will be a little of this, but not too much. Despite
the closeness of some polls, most businesses are assuming
that voters will not choose Brexit. If that assumption, which
I tend to agree with, turns out to be wrong, the EU will be
the big story for Britains economy this year. And, whatever
your view of the long-term consequences of EU exit, the
short-term effects would be significant, and negative.
In the absence of that, what is the outlook? The preChristmas GDP figures suggested a slowdown, and if you took
them at face value you would expect even slower growth in

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.

2016. But I did not take them at face value, so growth of

about 2.5% is on the cards for this year.
Inflation should rise very slowly, as some of the helpful
base effects drop out, but we may still be below 1% at the
end of the year. I shall go for 0.75%.
Does that mean the Bank of England will leave interest rates
unchanged? I am tempted to say yes, conscious of the fact
that for the past six years at this time the Bank has been
expected to raise rates over the course of the following 12
months, only to do nothing. But, while fearing another error,
there is a limit to which the Bank can ignore Fed rate hikes
without at least a token move. So, with trepidation, I will
forecast one move, to 0.75%.
Unemployment should continue to fall, to 0.7m, or just
under 5% on the wider Labour Force Survey measure. The
current account deficit will still be with us, as noted, but
should dip to about 60bn from nearly 80bn last year.
All that assumes the economy in 2016 will be much the same
as the economy in 2015. Meanwhile, the big issues
including productivity, the budget deficit, the EU and trade
will continue to exercise us in the coming months.
PS: Thank you, again, to the many people who took time to
respond to my seasonal quiz. Now for the results. There
were three questions. 1: How many people have served on
the MPC since independence in 1997? A very large number of
you said 37, requiring me to check a few times, but the
answer is 38. 2: How much longer would George Osborne
have to serve to be the longest-serving Tory chancellor in the
modern era? Sir Michael Hicks Beach, chancellor from June
29, 1895, to August 11, 1902, did the job for seven years and
a month. In 1885-86, he did it for seven months. Osborne has
held the post for five years and eight months, so he has
roughly 17 more months to match his predecessors single
term or two years to match his total. 3: Which central
banker, whose memoirs were published this year, has a day
named in his honour in his home town? Ben Bernanke.
From a gratifyingly large entry, I picked two winners. Geoff
Hope-Terrys tie-breaker sentence on why the MPC should or
shouldnt raise rates was: If unsustainable build-up of debt
is the illness; protracted low interest rates are not the
cure. Anthony Smiths tie-breaker was: The Bank should
raise rates because the next cut needs to be from a higher
level.
Signed copies of my latest book, Something Will Turn Up, will
be on the way to them, with my hearty congratulations.
(Full article click - Times)

News Americas
Seneca Capital latest hedge fund to close to
outsiders
Taken from the FT Saturday, 2 January 2016

Seneca Capital has become the latest hedge fund to remove

external investors, as volatility and investor pressure in 2015
took its toll on parts of the sector.
Founder Douglas Hirsch decided to return outside money
after the event-driven fund recorded losses of about 6 per
cent this year, according to a letter to partners dated
December 21. He will continue to manage his own money.
I am no longer able to continue making the commitment
and sacrifices required to run outside capital, wrote Mr
Hirsch, who also co-founded the Sohn Investment
Conference, a closely watched New York investor event.
Despite negligible redemption requests and increasing
market opportunities that are the result of a challenging
year in event-driven investing, I cannot in good faith start
next year with the dedication required to manage your
capital, he added.
Mr Hirsch is hardly alone. In December, $1.5bn LionEye, an
event-driven fund run by Stephen Raneri and Arthur Rosen,
said it was closing due partly to market conditions and losses
of almost 20 per cent through to the end of November.
Lucidus Capital Partners closed its $900m fund after
significant investor redemption requests in October.
Michael Platts BlueCrest also pushed out external investors,
saying the industrys conventional 2 and 20 fees model
whereby hedge funds take an annual 2 per cent of an
investors assets and a fifth of any trading gains was no
longer a particularly profitable business. Like George Soros,
Steve Cohen and Stanley Druckenmiller, he has converted his
business into a family office.
According to Hedge Fund Research, 257 hedge funds were
liquidated in the third quarter of 2015, bringing the total
closures for the first nine months of the year to 674,
compared with 661 in the same period in 2014. During the
same period 785 funds started, down from 814 the previous
year.
While the absolute number was not materially greater,
there was a higher number of high-profile closures, with a
lot in the commodity sector, plus a definite trend to
converting to family offices, says Emma Bewley, Connection
Capitals head of fund investment.
Market volatility, spurred by shocks in almost every asset
class, drove dispersion among hedge funds: performance on
the aggregate has been lacklustre up 0.3 per cent to the
end of November and that masks a growing gap between
the top and bottom-performing funds.
For the year ended September 30, the top 10 per cent of
funds in the HFRI Fund Weighted Composite index gained an
average 23.4 per cent while the bottom 10 per cent lost 29
per cent. That divide of 52.4 per cent is up from 46.9 per
cent in 2014.
Investors have been frustrated by style drift, when funds
stray from their original mandate.
While that is sometimes driven by poor liquidity and a lack
of opportunities, those funds that did as they advertised may
have an easier time retaining clients.
Additionally, client risk tolerance fell sharply in the third
quarter, spurring more liquidations, according to Kenneth
Heinz, president of HFR.
He added: Fund selection will take on increased
significance in 2016, especially in light of experience in 2015
where some large funds with strong, long track records
experienced atypical volatility.

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.

(Full article click - FT)

---

Obama to take unilateral action on US gun

violence
Taken from the BBC News Saturday, 2 January 2016

President Obama has said he will take unilateral action to

tackle the problem of gun violence in the US.
In his first weekly address of 2016, Mr Obama said he would
meet Attorney General Loretta Lynch to discuss actions he
could take.
He said he was using his executive powers as president
because the US Congress has failed to address the problem.
Analysts say there will be a backlash from gun activists and
Republicans.
But Mr Obama told Americans that he had received too many
letters from parents, and teachers, and children, to sit
around and do nothing.
"We know that we can't stop every act of violence," the
president said. "But what if we tried to stop even one? What
if Congress did something - anything - to protect our kids
from gun violence?"
He has admitted that his inability to win Congressional
backing for what he called "common sense gun laws" was the
greatest frustration of his presidency.
The BBC's Laura Bicker in Washington says the president
could use his executive authority in several areas, including
expanding new background check requirements for buyers
who purchase weapons from high-volume dealers.
However he is likely to face stiff opposition to his plans, our
correspondent says.
Couple shop for a Christmas present at gun shop in Pompano
Beach, Florida, 23 December 2015Image copyrightGetty
Images
Image caption
Guns are popular presents for some people at the holiday
season
However he is likely to face stiff opposition to his plans, our
correspondent says.
The National Rifle Association has already launched a video
series attacking gun control activists.
And in Texas, a new "open carry law" will allow Texans with a
permit to wear handguns on their hips in holsters - openly
displaying the fact they are armed.
Last month a Texas police chief warned the president that
trying to disarm Americans could spark a revolution.
Previous efforts to introduce stricter gun control laws have
repeatedly foundered despite the large number of people
dying in gun attacks.
A joint Democrat-Republican bill following the 2013 shooting
of 20 children and six adults at a primary school in
Connecticut failed to get the 60 votes needed to broaden
background checks and ban assault weapons.
(Full article click - BBC)
---

Irwin Stelzer
American Account: Same again for last years
losers - and more of Trump
Taken from the Sunday Times 3 January 2016

LAST year was a bad one for Warren Buffett, oil and natural
gas producers, American coal companies, taxi firms,
currency traders who thought the yuan could only go up, the
New York Giants, Marissa Mayer, university administrators
and Trump haters.
Here are some guesses as to how these 2015 losers will fare
in this new year.
Shares in Buffetts Berkshire Hathaway are down about
10%. The nature of its old-economy portfolio railways,
energy and car insurance, with accidents rising in response
to more driving while texting means it will have a hard
time regaining much lost ground.
Oil producers watched prices fall (from about $60 to $35
per barrel). They and natural gas producers, Russia included,
will continue to struggle with low prices as the Saudis keep
pumping to maintain market share, Iran returns to the
market with perhaps 500,000 barrels of crude a day, and
domestic fracking production holds up better than expected.
The Saudis are predicting $29 crude this year.
Coal companies were losers in Barack Obamas war on
fuels, and their own battle with low natural gas prices. They
will continue to lose markets to natural gas and suffer from
the tightening regulatory noose that Obamas Environmental
Protection Agency has looped around their necks, while
international use of coal continues to rise as more and more
power stations come on line in India and China.
Taxi companies and the banks holding their IOUs will
continue to surrender market share to Uber, although labourmarket regulators will make the disrupters life more
difficult by getting courts to rule that drivers are employees
entitled to benefits rather than independent contractors.
The Chinese regime manipulated (it prefers managed)
the yuan down last year, and will continue to hold it down to
stimulate export industries as growth slows, banks holdings
of IOUs from state-managed enterprises remain on balance
sheets, and workers grow restive.
The New York Giants are ending an abysmal season today,
and Tom Coughlin will soon join Jose Mourinho, Chelseas
former leader, among the ranks of the once-lauded coaches
whose bosses are unhappy with their recent efforts.
Marissa Mayers plans for Yahoo were shot down by the
market. By the end of this year, she will have tried
shareholder and board patience to breaking point, and
collected a munificent going-away gift.
College administrators had to grovel before students who
didnt want to be exposed to anything that might upset
them, and 2016 will bring worse. The administrators will
reap the rewards of bending to pressure from violent,
incoherent students and either share power with the rabble
or retire.
Donald Trump deserves a lengthier mention. The punditry
here in America is no longer dismissive of the at-times vulgar
businessman. Nor can experts reasonably continue repeating
the refrain, He is tapping into the anger of the American
voter, which makes it sound as if all of his support comes
from frothing-at-the-mouth irrational rednecks, bigots and
Tea Partiers. Not true, although some such are surely among
his supporters. Trump has promised to build a wall to keep
out illegal Mexican immigrants, which is merely an easy-tovisualise version of the border control favoured by other
candidates. He has promised to keep out Muslim refugees, to
the disgust of liberals who are not ever likely to live near
one, much less meet one except for a photo opportunity, but

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.

to the approbation of most Americans. He has promised to

make trade a fairer proposition for Americans and eliminate
special tax advantages for hedge fund operators, positions
also taken by Hillary Clinton. Most of all, he has promised to
make America great again, which resonates with voters
who feel the country has lost its way in the world and we are
witnessing an immiseration of the middle class. How he will
do these things is less important than that he wants to. Like
it or not, this year you will see more of Trump, especially
now that he has decided to use some of his unspent budget
for a $2m-a-week television campaign in the first three
primary states Iowa, New Hampshire and South Carolina.
Film clips are certain to be picked up and aired by a
repulsed and fascinated international media.
This does not mean that Trump will win his partys
nomination, or even prevail in the Iowa caucuses on
February 1. Pollsters have him running neck-and-neck with
Texas senator Ted Cruz, so its anyones game. Or that it is
probable that The Donald will be calling in the Trump Tower
design team to redo the White House in the style to which
he has grown accustomed. After all, his support from about
one-third of his partys primary voters looms so large in part
because the balance is spread across so many other
candidates. Bernie Sanders, the socialist challenging Clinton
for the Democratic nomination, is polling about as well as
Trump, but the absence of other contenders leaves Clinton
with about 50%, whereas Trumps nearest rival can muster
only 18%.
Once Republicans select the candidate they believe can beat
Clinton, the real campaign will begin in earnest. Polls have
Clinton trumping Trump, but about even in face-offs with
Cruz or Florida senator Marco Rubio. Both are sons of Cuban
exiles, but have little else in common. Cruz is what in Britain
would be called a political bruiser, disliked by his Senate
colleagues (a point of pride for him). Rubio is thoughtful,
more willing to commit American resources to the
destruction of Isis, and the candidate of the Republican
establishment now that Jeb Bush is unable to whip up
enthusiasm for his campaign (polling 3%) and, I am told, is
looking for a graceful exit from the race, probably after the
third primary (South Carolina, February 20).
The election campaign will take place against the
background of an economy growing steadily but slowly, and
will be dominated by the fight against Isis, rising healthcare
costs, income inequality, what to do about Wall Street, and,
oh yes, the personalities of the candidates and whatever
now unforeseeable event might occur. Of that uncertainty I
am certain.
(Full article click - Times)
---

Stephen Lewis, chief economist at ADM ISI, said that Fed

policymakers would regard the mildness of the response to
their action as a tribute to their success.
While the main US index, the S&P 500, closed lower in 2015
as a whole its first annual loss since the financial crisis
economists have not attributed this to the Feds move.
The markets have drawn comfort from the Fed, said Mr
Lewis after officials at the central bank said they believed
economic developments would warrant only gradual
increases in the federal funds rate.
However, Mr Lewis said further rises presented a major
uncertainty hanging over both the Fed and markets.
All territory is now uncharted, he argued, as the US
central bank attempts to raise rates from historically low
levels, while the banking system is flush with cash.
He added: The Fed and other major central banks have
maintained emergency policy-settings for so long that the
global economy cannot be presumed to react in standard
fashion to a rise in interest rates, however small that might
be.
Decembers monthly job growth would be a slowing from
2015s typical pace of 210,000 jobs a month. But with the US
jobless rate at a seven-year low of 5pc, the gains are
expected to make the jobs market more competitive, as
bosses are forced to offer better pay to attract and retain
staff.
Annual wage growth is expected to have picked up from
2.3pc to 2.8pc in December, generating inflationary
pressures.
Central bank watchers will also pay close attention to the
minutes of the Feds December meeting, being released on
Wednesday. These will show how confident policymakers are
in returning inflation to target.
The Fed has a mandate to promote full employment and to
steer inflation towards 2pc. The inflation measure tracked
by US policymakers stood at just 0.4pc in the year to
November.
Analysts at Barclays said that they expected to see
disparate views on the current state of inflation and they
would be attentive to how this impacts on different
views on the most likely path of monetary policy in 2016.
(Full article click - Telegraph)

US jobs growth clears course for Fed to raise

interest rates again
Taken from the Sunday Telegraph 3 January 2016

Data to confirm that the US central bank can safely continue

increasing interest rates in early 2016
Robust jobs growth in the US will clear the way for the
Federal Reserve to raise interest rates again this March, in
another sign that Americas economic recovery has matured.
The central bank, which last month raised its rates for the
first time in nearly a decade, is expected to embark on a
path of rate rises throughout the year.
Jobs data on Friday is expected to show that the US
economy added 200,000 jobs in December.
The central bank, led by chairman Janet Yellen, plans to
keep increasing rates by quarter-point increments after
raising rates by a quarter of a percentage point from their
0pc to 0.25pc range last month.
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.

News Asia
China Manufacturing Picks Up
Taken from the WSJ Friday, 1 January 2016

Chinas PMI rose slightly in December, but economists dont

expect significant rebound in economy
An official gauge of Chinas manufacturing sector edged up
in December, helped by robust infrastructure spending,
signaling a slight gain in momentum for the worlds secondlargest economy.
The modest uptick in Chinas official purchasing managers
index reported Friday was below economists expectation,
however, suggesting that there wont be a significant
rebound in Chinas economy anytime soon, economists said.
The economy will continue to muddle through, said
Australia and New Zealand Banking Group Ltd. economist LiGang Liu. In the coming year, were not going to see any
turnaround in the economy. Chinas economy is weighed
down by large debt and will continue to slow.
The National Bureau of Statistics said Chinas PMI rose
slightly to 49.7 in December from 49.6 a month earlier. This
was below the median 49.8 level forecast by a Wall Street
Journal poll of 10 economists and marked a fifth straight
month of contraction. A PMI reading above 50 signals an
expansion in manufacturing activity, while a reading below
points to a contraction.
Subindexes measuring new orders, production activity and
inventory rose, while the subindex tracking employment fell.
Large companies fared better than small companies in
December,
suggesting
that
Beijings
stepped-up
infrastructure spending is helping large state-owned
companies disproportionately, analysts said.
When theres top-down spending, more goes to the big
state-owned firms, said IG Markets Ltd. analyst Angus
Nicholson. Small companies really suffer with access to
capital.
Chen Qiaoqi, owner of export-import company Shanghai
Shuttle Bridge Developments Co. said 2016 looks bleak as
demand weakens and lower labor costs in neighboring
countries make China less competitive. Of course well
have to cut workers, she said.
Ms. Chen said that despite Premier Li Keqiangs pledge to
make borrowing easier for entrepreneurs, banks dont want
to lend to small companies so real borrowing costs remain
high, forcing her to mortgage her personal real estate
holdings to raise capital. Another challenge: competing
against state-owned companies that enjoy preferential
payment terms with suppliers and easy access to funding.
They can continue operating even when they lose money,
said Ms. Chen.
Zhao Qinghe, an economist with Chinas statistics agency,
said that plummeting commodity prices and a year-end
shortage of funding has hindered the operations of some
companies.
Fridays data follows weak readings for other parts of the
economy. In November, foreign-exchange reserves declined
more than expected, exports fell for the fifth consecutive
month and industrial profits contracted as industrial
overcapacity and Chinas swooning real-estate market
continued to weigh on the economy.
But there are some signs of improvement as well. Chinas
official nonmanufacturing purchasing managers index, a
gauge of activity beyond the factory floor, rose to 54.4 in
December from 53.6 in November, the statistics agency said
Friday. Retail spending in November held up well, while
industrial production data that month also was better than
expected, even as it remained weak.

Economists said they expect China to cut interest rates as

early as January, pare required bank reserves and ramp up
infrastructure spending in a bid to counter higher debt levels
and continued economic weakness. Chinas finance minister,
Lou Jiwei, said earlier this week that China will make its
fiscal policy more proactive and raise the target for its
fiscal-deficit as a percentage of the nations gross domestic
product. The target was 2.3% in 2015, up from 2.1% in 2014.
The Chinese economy is unlikely to show improvement until
the second half of 2016, and the first quarter could be very
difficult, said Zhang Yiping, an economist with China
Merchants Securities Co.
(Full article click - WSJ)
---

North Korean Leader Threatens Sacred War,

Pledges Economic Growth
Taken from the WSJ Friday, 1 January 2016

Kim Jong Uns New Year speech included his usual saber
rattling, with no mention of the Norths nuclear weapons
North Korean dictator Kim Jong Un indicated in a New Year
speech that he remains committed to a military
confrontation with other nations while continuing to try to
boost the economy through state management.
Mr. Kim also blamed South Korea for poor cross-border
relations but said he is willing to hold new talks.
The North Korean leaders speech is dissected every year for
hints of new policy directions but has remained little
changed since his first annual address in 2012. This years
speech contained no specific reference to Pyongyangs
nuclear weapons program, but Mr. Kim said the country
should develop more varied means of military strikes.
North Koreas efforts to enhance its military over the past
year include tests of submarine-launched missiles, as well as
the enlargement of the launchpad at its main land-based
missile launch site.
The 30-minute televised address at midday local time
showed Mr. Kim in his familiar black Mao suit, reading the
speech for the first time with spectacles. The addition of
eyeglasses gave Mr. Kim a closer resemblance to his
grandfather and North Koreas first ruler, Kim Il Sung, who is
still widely respected by many North Koreans.
Mr. Kim is generally assumed to have modeled his
appearance on his grandfather, including his hairstyle and
bulky frame.
The speech included typical bombastic rhetoric widely seen
by experts as intended to perpetuate a siege mentality
among North Koreans to bolster support for the leadership.
If aggressors and provocateurs touch us even slightly, we
will not hesitate to respond with a merciless sacred war for
justice and national reunification, Mr. Kim said.
The speech also contained a heavy emphasis on economic
development. For the first time, the television broadcast
was spliced with still images of projects such as dams, steel
mills and mines. After taking power at the end of 2012, Mr.
Kim introduced a policy known as the byungjin-line which
set twin policy priorities of economic and nuclear weapons
development.
Outsiders have been watching closely to see whether Mr. Kim
would open up the economy similarly to Chinas reform
process from the late 1970s, to boost growth. Defectors and
academics have reported some modest experiments in
agricultural and industrial reform, but Mr. Kims speech gave
no indication the state was willing to step back further from
tight political controls on economic activity.
The death earlier this week of Pyongyangs point man on ties
with Seoul had raised some speculation that Mr. Kim might
signal a more hawkish inter-Korean policy, but he said he
wanted to restart stalled talks.

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.

The two sides should make continued efforts to seek

dialogue and not take any further steps backwards, he said.
Following an armed standoff in August, the two Koreas
agreed to hold high-level dialogue but talks have stalled due
to differing priorities held by each side.
In her own New Year speech, South Korean President Park
Geun-hye said the door for inter-Korean dialogue remains
open.
North Korea watchers are now closely watching a ruling
party congress due in May, the first since 1980, for further
indications about the policy course of Mr. Kim.
(Full article click - WSJ)
---

of countries productive knowledge and output, not least in

India.
(Full article click - WSJ)

India Will Be Fastest-Growing Economy for

Coming Decade, Harvard Researchers Predict
Taken from the WSJ Friday, 1 January 2016

Its already expected to have been the worlds fastestgrowing economy in 2015. But India also has the best growth
prospects for the coming decade, based on the increasing
variety and sophistication of the products it exports.
In new forecasts by economists led by Ricardo Hausmann at
Harvard Universitys Center for International Development,
Indias 7% projected annual growth rate through 2024 would
continue to put it ahead of China, where similar advances in
productive know-how propelled the countrys rise over the
past decade but are now closer to being exhausted.
Chinas output growth is forecast to be just 4.3% a year on
average for the next decade. Meanwhile, East African
countries like Uganda, Tanzania and Kenya are projected to
grow at around 6%. Several Southeast Asian countries also
fare well in the forecasts: The Philippines, Malaysia,
Indonesia and Vietnam are expected to see expansion of
between 4.75% and 5.7%.
The economists predictions are based on research that
suggests a countrys prosperity is most consistently
determined, not by political institutions, years of schooling
or the ease of doing business, but by the ability to make
stuff that few others can.
This kind of collective knowledge is captured by measures,
developed by Mr. Hausmann and others, of economic
complexity. Nations that export a wide range of advanced
productseverything from jet engines to medicines to
soybeansscore highly on these, whereas those that produce
a few, largely ubiquitous itemssuch as cotton, crude oil or
sesame seedsdo not.
If a countrys per-capita income is low relative to others at a
similar level of complexity, then that suggests there is
opportunity to grow and catch up. In India, average incomes
are nearer to Sub-Saharan African levels than to East Asian
ones, yet the country has built up world-class companies
that export pharmaceuticals, autos and auto parts,
petroleum products and more.
The other side of the coin is that more-advanced countries
are less likely to diversify further. Germany, an innovative
industrial powerhouse, was found to be the worlds secondmost complex economy, according to 2014 trade data. But
that is partly why its projected annual growth rate through
2024 is just 0.35%, below Cubas and Libyas. U.S. growth is
predicted to be 2.6%.
Economic expansion, in this model, is also harder in nations
that are relatively rich despite being fundamentally limited
in productive capability. Greece is in this category, as are
countries dependent on mineral wealth: Venezuela, Qatar,
Russia, Saudi Arabia.
One limitation of the Harvard research is that it only uses
data on trade in goods. Services such as business
outsourcing, finance and software constitute a growing share
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.