Markets & News

Europe’s biggest banks can be shut down in line with the bloc’s new bank failure rules without losses snowballing and causing wider mayhem, according to a European Central Bank study.

Based on confidential bank-by-bank data, the study shows that resolving any one of the euro area’s 26 largest banks by applying the tools of the new European Union’s new rule set — imposing losses on shareholders and creditors instead of resorting to state aid — wouldn’t bring down another lender. Spillovers among the top group would be small and those outside of the network “contained,” according to the study by four ECB economists and one from the University of Frankfurt.

germany“For most of the shock sizes considered, the direct contagion effect on banks within the network considered is subdued,” the authors said in the study. “This shows the effectiveness of low interbank cross-holdings of bail-inable debt and the advantage of dis-incentivizing interbank” holdings.

The results support the view that the EU’s new rules for how to deal with failing banks could work as advertised. The Bank Recovery and Resolution Directive foresees small banks going insolvent like non-financial companies. Big ones that could cause mayhem would be restructured and recapitalized under a separate procedure called “resolution,” with owners and creditors bearing losses.

The study applies shocks of different size — wiping out 1 to 12 percent of total assets — to the 26-strong group of banks that report a precise breakdown of their securities holdings to a confidential ECB database, allowing targeted analyses.

To deal with the shock, the study assumes the application of the BRRD’s “bail-in tool,” first absorbing the losses and then recapitalizing the bank to a level of 10.5 percent common equity Tier 1 capital by wiping out or converting into equity shareholders and creditors, according to their insolvency ranking.

Banks have reduced their exposures to peers. As a result, they would be unlikely to experience losses large enough to put them in violation of capital requirements if there’s a failure, preventing its proliferation. Looking at the broader banking system beyond the 26 giants doesn’t change the picture, the researchers say.

The BRRD’s bail-in tool was first applied to Austrian bad bank Heta Asset Resolution AG last year. In contrast, Italy is avoiding the method for Banca Monte dei Paschi di Siena SpA and instead using a provision in the BRRD that allows to revert to old-style state support in a bailout that is slated to cost 8.8 billion euros ($9.5 billion) of tax funds.

The study’s authors are Goethe University’s Anne-Caroline Hueser, ECB’s Grzegorz Halaj, Christoffer Kok, Cristian Perales, and Anton van der Kraaij.

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Markets & News

Uncertainty about the Trump administration’s dollar policy coupled with a drop in Treasury yields to further damp enthusiasm for the “stronger dollar” view that was an expected outcome of the Trump reflation trade.

Currency traders say players are more cautious about rebuilding USD long trades, and are also quick to book profits on shorts. “The reflation trade is old hat,” a trader in New York said. “We need a fresh driver.”

Trading flows were only modest in the session, with fresh positions avoided ahead of the January employment report set for release Friday. Non-farm payrolls are expected to rise by 175k, though Wednesday’s ADP report showing private payrolls rose 246k may present some upside risk to the jobs report given the recently closer correlation between the two reports.

The Bloomberg dollar index was down about 0.4%, with the greenback lower versus a majority of its G-10 peers. The dollar set fresh lows against the euro and the yen while remaining in the lower reaches of session ranges against most other peers save the pound

The dollar fell to fresh lows at the start of U.S. trading as further stale longs were unwound. The greenback was undercut by a drop in Treasury yields as well as the perception that the Fed is in no rush to hike rates after leaving policy on hold in its decision Wednesday.

  • EUR/USD rose to a fresh high 1.0829 before long-standing offers from real money capped the move; those longer-term accounts are looking at economics, not politics, in framing their views, said a trader in London who asked not to be identified because not authorized to speak publicly
  • Offers are in place up to 1.0850 and several traders have cited the Dec. 8 high at 1.0874 as key technical resistance
  • USD/JPY fell to a fresh low at 112.06 before profit-taking and option-related bids cushioned the drop; USD fell to 112.08 Tuesday before a snapback to near 114.00 Wednesday, marking levels ahead of 112.00 attractive for taking money off the table, the New York trader said
  • Stop-loss sell orders are in place below 112.00
  • GBP/USD fell to a fresh low at 1.2537 after trading above 1.2700 earlier in the day; profit-taking after the BOE left rates on hold was cited as the prime driver of flows amid sparse liquidity
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Wealth & Well-Being, Women Empowerment

There’s nothing worse than a rich person who’s chronically angry or unhappy. There’s really no excuse for it, yet I see this phenomenon every day. It results from an extremely unbalanced life, one with too much expectation and not enough appreciation for what’s there.

RelaxWithout gratitude and appreciation for what you already have, you’ll never know true fulfillment. But how do you cultivate balance in life? What’s the point of achievement if your life has no balance?

For nearly four decades, I’ve had the privilege of coaching people from every walk of life, including some of the most powerful men and women on the planet. I’ve worked with presidents of the United States as well as owners of small businesses.

 

Across the board, I’ve found that virtually every moment people make three key decisions that dictate the quality of their lives.

If you make these decisions unconsciously, you’ll end up like majority of people who tend to be out of shape physically, exhausted emotionally and often financially stressed. But if you make these decisions consciously, you can literally change the course of your life today.

Decision 1: Carefully choose what to focus on.

At every moment, millions of things compete for your attention. You can focus on things that are happening right here and now or on what you want to create in the future. Or you can focus on the past.

Where focus goes, energy flows. What you focus on and your pattern for doing so shapes your entire life.

Which area do you tend to focus on more: what you have or what’s missing from your life?

I’m sure you think about both sides of this coin. But if you examine your habitual thoughts, what do you tend to spend most of your time dwelling on?

Possible Not ImpossibleRather than focusing on what you don’t have and begrudging those who are better off than you financially, perhaps you should acknowledge that you have much to be grateful for and some of it has nothing to do with money. You can be grateful for your health, family, friends, opportunities and mind.

Developing a habit of appreciating what you have can create a new level of emotional well-being and wealth. But the real question is, do you take time to deeply feel grateful with your mind, body, heart and soul? That’s where the joy, happiness and fulfillment can be found.

Consider a second pattern of focus that affects the quality of your life: Do you tend to focus more on what you can control or what you can’t?

If you focus on what you can’t control, you’ll have more stress in life. You can influence many aspects of your life but you usually can’t control them.

When you adopt this pattern of focus, your brain has to make another decision:

Decision 2: Figure out, What does this all mean?

Ultimately, how you feel about your life has nothing to do with the events in it or with your financial condition or what has (or hasn’t) happened to you. The quality of your life is controlled by the meaning you give these things.

Most of the time you may be unaware of the effect of your unconscious mind in assigning meaning to life’s events.

When something happens that disrupts your life (a car accident, a health issue, a job loss), do you tend to think that this is the end or the beginning?

If someone confronts you, is that person insulting you, coaching you or truly caring for you?

Does a devastating problem mean that God is punishing you or challenging you? Or is it possible that this problem is a gift from God?

Your life takes on whatever meaning you give it. With each meaning comes a unique feeling or emotion and the quality of your life involves where you live emotionally.

I always ask during my seminars, “How many of you know someone who is on antidepressants and still depressed?” Typically 85 percent to 90 percent of those assembled raise their hands.

How is this possible? The drugs should make people feel better. It’s true that antidepressants do come with labels warning that suicidal thoughts are a possible side effect.

But no matter how much a person drugs himself, if he constantly focuses on what he can’t control in life and what’s missing, he won’t find it hard to despair. If he adds to that a meaning like “life is not worth living,” that’s an emotional cocktail that no antidepressant can consistently overcome.

relax-your-mindYet if that same person can arrive at a new meaning, a reason to live or a belief that all this was meant to be, then he will be stronger than anything that ever happened to him.

When people shift their habitual focus and meanings, there’s no limit on what life can become. A change of focus and a shift in meaning can literally alter someone’s biochemistry in minutes.

So take control and always remember: Meaning equals emotion and emotion equals life. Choose consciously and wisely. Find an empowering meaning in any event, and wealth in its deepest sense will be yours today.

Once you create a meaning in your mind, it creates an emotion, and that emotion leads to a state for making your third decision:

Decision 3: What will you do?

The actions you take are powerfully shaped by the emotional state you’re in. If you’re angry, you’re going to behave quite differently than if you’re feeling playful or outrageous.

If you want to shape your actions, the fastest way is to change what you focus on and shift the meaning to be something more empowering.

Two people who are angry will behave differently. Some pull back. Others push through.

Some individuals express anger quietly. Others do so loudly or violently. Yet others suppress it only to look for a passive-aggressive opportunity to regain the upper hand or even exact revenge.

Where do these patterns come from? People tend to model their behavior on those they respect, enjoy and love.

The people who frustrated or angered you? You often reject their approaches.

Yet far too often you may find yourself falling back into patterns you witnessed over and over again in your youth and were displeased by.

It’s very useful for you to become aware of your patterns when you are frustrated, angry or sad or feel lonely. You can’t change your patterns if you’re not aware of them.

Now that you’re aware of the power of these three decisions, start looking for role models who are experiencing what you want out of life. I promise you that those who have passionate relationships have a totally different focus and arrive at totally different meanings for the challenges in relationships than people who are constantly bickering or fighting.

It’s not rocket science. If you become aware of the differences in how people approach these three decisions, you’ll have a pathway to help you create a permanent positive change in any area of life.

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Markets & News
Barclays specialist trader Michael Pistillo shouts out a price just after the opening bell on the floor at the New York Stock Exchange, March 15, 2013. REUTERS/Brendan McDermid (UNITED STATES - Tags: BUSINESS) - RTR3F1A6 The market can remain irrational longer than you can explain that President Donald Trump is going to have a hard time keeping his economic promises.

It’s not quite as catchy, but it’s probably what John Maynard Keynes would have to say about the Dow’s run-up in response to the election if he were around today. Indeed, as Bloomberg’s Matt Levine points out, markets seem intent on taking Trump’s inflammatory proposals seriously but not literally — that is, hoping he’ll stick to tax cuts and infrastructure — at the same time that he is literally doing what they seriously don’t want him to. This is a close cousin of “alternative facts.” It’s selective ones. The question, then, is how long Trump’s, I guess, fourth honeymoon will last if markets figure out that there’s a little more to governing than just tweeting.

Now, there’s a long list of things markets don’t like, but somewhere on it are building a wall along the Mexican border, banning refugees from Muslim countries and threatening to start a trade war. All of them signal, in political, economic or moral terms, that the United States will no longer underwrite the liberal international order that has helped make the world so rich the past 70 years. Which, to say the least, are not the priorities Wall Street was hoping for. They thought this was all just campaign rhetoric that, like Trump’s pledge to “drain the swamp,” was meant to win friends at the polls but not influence people making policy. After all, Trump had gone from bashing bankers before Nov. 8 to turning his cabinet into a Goldman Sachs reunion after it. Didn’t that show that Trump’s promises to the big banks were more equal than his promises to everybody else?

Well, maybe not. It’s not just that Trump has backed up his tough talk about trade and immigration like Wall Street hoped he wouldn’t. It’s that he might have a tough time cutting taxes and boosting spending like they hoped he would. Take corporate tax reform. It might seem like a sure thing that a Republican White House, Senate and House of Representatives would be able to agree on this, but it’s a lot less so when their plan might actually increase taxes for retailers like Walmart. That’s because it would start taxing imports so that it could stop taxing profits quite so much. Economists, of course, say that this would make the dollar rise enough that imports would be less expensive and the tax on them wouldn’t be an increase for anyone, but CEOs aren’t willing to bet their bonuses on it. Wall Street shouldn’t either. There aren’t many examples of political parties potentially raising taxes on some of their donors to pay for tax cuts for some of their others.

It’s the same story with infrastructure. Trump’s ideological consigliere Steve Bannon wants a trillion-dollar infrastructure package that would be “as exciting as the 1930s,” but the rest of the Republican Party isn’t too enthused about this. They’d rather focus on the things they’ve been waiting years to do, like repealing Obamacare and slashing the safety net and coming to terms on some tax cut for the rich. The Democrats, for their part, want to rebuild our roads and bridges, but they don’t want to do it the way Bannon does. They’d rather have the government spend the money directly on what it thinks the most important projects are than give private companies tax breaks to do what it thinks the most profitable ones are.

In other words, all the stimulus the market thought would help the economy in the short-term might not materialize, but all the isolationism that would hurt it in the long-term is already starting to.

Sad.
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Financial Planning, Investments, Trading & Wealth Management

With thousands of stocks, bonds and mutual funds to choose from, picking the right investments can confuse even the most seasoned investor. But if you don’t do it correctly you can undermine your ability to build wealth and a nest egg for retirement.

So instead of stock picking, you should start by deciding what mix of stocks, bonds and mutual funds you want to hold. This is referred to as your asset allocation.

What Is Asset Allocation?

Young stylish businessmanAsset allocation is an investment portfolio technique that aims to balance risk and create diversification by dividing assets among major categories such as cash, bonds, stocks, real estate and derivatives. Each asset class has different levels of return and risk, so each will behave differently over time.

For instance, while one asset category increases in value, another may be decreasing or not increasing as much. Some critics see this balance as a recipe for mediocre returns, but for most investors it’s the best protection against a major loss should things ever go amiss in one investment class or sub-class.

The consensus among most financial professionals is that asset allocation is one of the most important decisions that investors make. In other words, your selection of stocks or bonds is secondary to the way you allocate your assets to high and low-risk stocks, to short and long-term bonds, and to cash on the sidelines.

We must emphasize that there is no simple formula that can find the right asset allocation for every individual – if there were, we certainly wouldn’t be able to explain it in one article. We can, however, outline five points that we feel are important when thinking about asset allocation:

1. Risk vs. Return

The risk-return tradeoff is at the core of what asset allocation is all about. It’s easy for everyone to say that they want the highest possible return, but simply choosing the assets with the highest “potential” (stocks and derivatives) isn’t the answer.

Happy-FamilyThe crashes of 1929, 1981, 1987 and the more recent declines of 2007-2009 are all examples of times when investing in only stocks with the highest potential return was not the most prudent plan of action. It’s time to face the truth: Every year your returns are going to be beaten by another investor, mutual fund, pension plan, etc. What separates greedy and return-hungry investors from successful ones is the ability to weigh the difference between risk and return.

Yes, investors with a higher risk tolerance should allocate more money into stocks. But if you can’t keep invested through the short-term fluctuations of a bear market, you should cut your exposure to equities.

2. Don’t Rely Solely on Financial Software or Planner Sheets

Financial-planning software and survey sheets designed by financial advisors or investment firms can be beneficial, but never rely solely on software or some pre-determined plan. For example, one old rule of thumb that some advisors use to determine the proportion a person should allocate to stocks is to subtract the person’s age from 100. In other words, if you’re 35, you should put 65% of your money into stocks and the remaining 35% into bonds, real estate and cash. More recent advice has shifted to 110 or even 120 minus your age.

But standard worksheets sometimes don’t take into account other important information such as whether or not you are a parent, retiree or spouse. Other times, these worksheets are based on a set of simple questions that don’t capture your financial goals.

Remember, financial institutions love to peg you into a standard plan not because it’s best for you, but because it’s easy for them. Rules of thumb and planner sheets can give people a rough guideline, but don’t get boxed into what they tell you.

3. Determine Your Long- and Short-Term Goals

We all have our goals. Whether you aspire to build a fat retirement fund, own a yacht or vacation home, pay for your child’s education or simply save for a new car, you should consider it in your asset-allocation plan. All these goals need to be considered when determining the right mix.

For example, if you’re planning to own a retirement condo on the beach in 20 years, you don’t have to worry about short-term fluctuations in the stock market. But if you have a child who will be entering college in five to six years, you may need to tilt your asset allocation to safer fixed-income investments. And as you approach retirement, you may want to shift to a higher proportion of fixed-income investments to equity holdings.

4. Time Is Your Best Friend

The U.S. Department of Labor has said that for every ten years you delay saving for retirement (or some other long-term goal), you will have to save three times as much each month to catch up.

Having time not only allows you to take advantage of compounding and the time value of money, it also means you can put more of your portfolio into higher risk/return investments, namely stocks. A couple of bad years in the stock market will likely show up as nothing more than an insignificant blip 30 years from now.

5. Just Do It!

Once you’ve determined the right mix of stocks, bonds and other investments, it’s time to implement it. The first step is to find out how your current portfolio breaks down.

It’s fairly straightforward to see the percentage of assets in stocks versus bonds, but don’t forget to categorize what type of stocks you own (small, mid or large cap). You should also categorize your bonds according to their maturity (short, mid or long term).

Mutual funds can be more problematic. Fund names don’t always tell the entire story. You have to dig deeper in the prospectus to figure out where fund assets are invested.

The Bottom Line

There is no single solution for allocating your assets. Individual investors require individual solutions. Furthermore, if a long-term horizon is something you don’t have, don’t worry. It’s never too late to get started.

It’s also never too late to give your existing portfolio a face-lift. Asset allocation is not a one-time event, it’s a life-long process of progression and fine-tuning.

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Markets & News

Federal Reserve officials left interest rates unchanged while acknowledging rising confidence among consumers and businesses following Donald Trump’s election victory.

“Measures of consumer and business sentiment have improved of late,” the Federal Open Market Committee said in its statement Wednesday following a two-day meeting in Washington. Policy makers reiterated their expectations for moderate economic growth, “some further strengthening” in the labor market and a return to 2 percent inflation.

The Fed provided little direction on when it might next raise borrowing costs, as officials grapple with the uncertainty created by a new presidential administration. Policy makers in December penciled three rate hikes into their 2017 forecasts, but committee members differ over assumptions regarding the extent to which tax cuts, spending and regulatory rollbacks proposed by Trump and Republicans might boost growth and inflation.

6407270781_5287c9b6df_b_Federal-Reserve“There is nothing in the statement that leads me to believe that their forecast has changed much,” said Roberto Perli, partner at Cornerstone Macro LLC in Washington. “I don’t think there is any reason to question whether they are thinking about doing less or more than they were thinking in December.”

The FOMC repeated that it anticipates interest rates will rise gradually. The statement said job gains “remained solid” and the unemployment rate “stayed near its recent low,” a tweak from December’s language that the rate “has declined.”

“Inflation increased in recent quarters but is still below the committee’s 2 percent longer-run objective,” the Fed said. Market-based measures of inflation compensation are “still low,” the central bank said, after saying in December that such measures had “moved up considerably.”

Consumers, Investment

Consumer spending “has been rising moderately,” while business fixed investment “has remained soft,” the Fed said in language similar to the previous meeting.

Surveys of consumers and businesses have shown significant increases in optimism for the economy following Trump’s November win, though in some cases sentiment is divided along party lines. The University of Michigan’s gauge of consumer sentiment rose last month to a 13-year high, while the National Federation of Independent Business’s index of small-business optimism soared in December by the most since 1980.

The decision to leave the target federal funds rate unchanged in a range of 0.5 percent to 0.75 percent was unanimous and widely expected by investors. Fed Chair Janet Yellen, who doesn’t have a press conference scheduled after this meeting, will have a chance to explain the decision further during her semiannual monetary-policy testimony to Congress in mid-February. The FOMC next meets on March 14-15.

Before the latest statement, investors saw a roughly 38 percent chance that the first interest-rate increase of 2017 would come at the Fed’s March meeting, based on trading in federal funds futures. The odds rose to about 52 percent for the subsequent gathering in early May and 75 percent for mid-June.

The committee left unchanged its stated intention to continue reinvesting its maturing debt holdings until “normalization” of the benchmark rate is “well under way.” The Fed’s balance sheet stands at about $4.5 trillion.

The FOMC’s only move in 2016 came when it raised rates by a quarter percentage point in the last meeting of the year. Officials had repeatedly signaled their intention to lift borrowing costs gradually, only to hold off until December amid political and economic uncertainty in the U.S. and abroad.

Labor Market

In recent months, confidence in the economy has grown amid continued strong hiring, with employers adding an average 200,000 jobs a month since June. The unemployment rate stood at 4.7 percent in December, near or below most estimates for its lowest sustainable level.

Inflation has also crept closer to the Fed’s 2 percent target. The central bank’s preferred measure of price gains, excluding food and energy, rose 1.7 percent in the 12 months through December.

Gross domestic product expanded at a 1.9 percent annualized rate in the fourth quarter, slightly below expectations amid an increase in the trade deficit, according to data released last week. Consumer spending increased at a 2.5 percent pace, in line with forecasts, and business investment picked up.

The annual FOMC rotation among regional Fed presidents saw three officials take voting seats for the first time since their appointments: Philadelphia Fed President Patrick Harker, Dallas Fed chief Robert Kaplan and Neel Kashkari in Minneapolis. Chicago’s Charles Evans also became a voter for the year.

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Markets & News
© Reuters. FILE PHOTO - A money changer counts U.S. dollar bills, with Turkish lira banknotes in the background, at an currency exchange office in central IstanbulThe dollar slipped to its lowest levels since mid-November on Thursday after the Federal Reserve disappointed investors hoping for a more hawkish policy stance, while the Australian dollar rallied after data showing a record trade surplus.

The dollar index, which tracks the U.S. currency against a basket of six major rivals, slipped 0.2 percent to 99.457 (DXY), after earlier dropping as low as 99.427, its lowest since Nov. 14.

Against the yen, the dollar skidded 0.6 percent to 112.62 <jpy=>, moving closer to Tuesday’s low of 112.08, while the euro added 0.2 percent to $1.0793.

The yen extended gains and touched its session high as the 10-year Japanese government bond yield rose to 0.115 percent, its highest since January 2016, following slack demand at an auction of the maturity. [JP/]

“We’re still seeing long-term guys buying the dollar on dips, expecting it to eventually recover on interest rate differentials between Japan and the U.S.,” said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

“But sometimes, it’s a short-term market.”

The Fed on Wednesday presented a relatively upbeat view of the U.S. economy at its first meeting since President Donald Trump took office, though the dollar came off session highs overnight when policymakers noted some market-based measures of inflation were still low.

While the Fed refrained from giving any explicit rate-hike signals or the timing of its next move, it said job gains remained solid, inflation had increased and economic confidence was rising.

But its relatively brighter view came against a backdrop of concern about the potential impact of Trump’s protectionist stance, as well as his recent comments about currencies.

On Tuesday, Trump and a top adviser strongly criticized Japan, China and Germany, claiming they had all devalued their currencies to benefit their own countries.

“As the U.S. economy accelerates, some believe it can tolerate a stronger dollar, but I don’t think that’s true. I don’t think the U.S. government will tolerate it,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities.

While the dollar initially rallied after Trump’s election as markets seized upon his promises for stimulus steps, tax reform and deregulation, it has tended to slump whenever he has talked about withdrawing from international trade agreements.

“It’s still a tug-of-war between protectionism and stimulus hopes,” Yamamoto said.

Data on Wednesday reinforced views of economic improvement. U.S. factory activity accelerated to more than a two-year high last month.

The ADP National Employment Report also showed private employers added 246,000 jobs in January, up from 151,000 in December.

The nonfarm payrolls report on Friday is expected to show employers added 175,000 jobs last month, according to the median of 102 economists polled by Reuters.

The Fed has forecast three rate increases in 2017. While economic improvement would prompt it to raise interest rates, the market is pricing in less than a 50 percent chance of a hike until the Fed’s June meeting, according to the CME Group’s FedWatch Tool.

“If the Fed does move in March, we could see as many as four hikes in 2017, and as long as data remains supportive, very likely three hikes,” BlackRock Inc’s (N:BLK) chief investment officer of global fixed income Rick Rieder said in a note.

The Aussie, meanwhile, surged 0.7 percent to $0.7639, after earlier scaling $0.7651, its loftiest peak since November 2016.

Data from the Australian Bureau of Statistics showed a trade surplus of A$3.51 billion ($2.68 billion) in December, handily outpacing forecasts of A$2.2 billion, as surging commodity prices showered the resource-rich nation in cash.

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