Emerging Markets: MIKTA, Goats And The Yummy

Giles Merritt at Project Syndicate sees a Post-Russian world order forming as a result of their land grab in Crimea.  “The first result of the West’s standoff with Russia is that is spells the end of BRICS…The more important outcome, though, will be how Russia’s former BRICS partners realign with other major emerging economies in the G-20.  Cue the arrival on the world stage of MIKTA — a new group made up of Mexico, Indonesia, (South) Korea, Turkey, and Australia…What the MIKTA countries share are rapid economic growth and increasing influence outside of their own borders.  They have development problems, but they are also models of economic dynamism and innovation with a substantial stake in the way post-WWII global institutions and rules should be reshaped.”  Meanwhile, the G8 is now officially the G7: “If Russia did not change its behaviour, the G7 threatened to up the ante considerably by introducing ‘sectoral sanctions’ including the targeting of Russia’s vital oil and natural gas industries.”  “German Chancellor Angela Merkel said ‘at the moment the G8 does not exist either as a summit or as a format.” Meanwhile, Gary Shilling tries to separate the herd of emerging markets: “When the smoke clears, the securities of the sheep economies (possibly South Korea, Mexico, China and Australia?) may be cheap enough to be interesting.  Still, I don’t expect growth in North America and Europe to be strong enough to absorb the sheep’s exports.  The goats (Brazil, Russia, India, Indonesia, South Africa, Turkey and Argentina) may not collapse, because their government debt is mostly in local currencies, not dollars and other hard currencies, as was the case in the late 1990s.”  Finally, make way for the Yummy: “Yummy stands for ‘Young Urban Male’ and denotes a new ‘metro-sexual shift’ in men’s shopping habits that is set to drive spending on luxury goods for years to come…While HSBC thinks that the shift is a world-wide phenomenon, emerging markets will be the engines of growth in the luxury sector as urbanisation and GDP growth propel social change.  In fact, the ‘metro-sexual shift’ coincides with another trend; luxury goods buyers are getting younger.”

Federal Reserve: Large Legal Costs On The Horizon; “Prime Broker” In Repo Market

$151 billion.  That’s the amount of “operational risk” (legal costs) the Fed deducted from hypothetical future bank balance sheets last week as part of their stress test.  “An official said the Fed decided to increase the deduction by about 45 per cent because of the higher-than-expected negotiated settlements over the last couple of years.”  While mortgage backed securities litigation may be easier to calculate, there is some difficulty with estimating total future legal costs when you consider the recent interest rate/foreign exchange manipulation lawsuits, hiring “princelings” in Asia etc.  Meanwhile, reverse repo at the Fed may be working too well: “Since September, the Fed has been providing bonds from its balance sheet to lenders of cash in the repo market, who take the bonds as collateral and earn money from such activity.  It has now captured a 17 per cent share of daily trading, thus depriving established banks of a significant chunk of their business.”  Furthermore, one broker “says it looks like the Fed has become the ‘prime broker’ – providing a range of trade-related services – to the banking industry.  He adds that shadow bankers are happy to tell their clients they have the Fed as a counterparty.”  Says one Citigroup strategist, “while supporting the shadow banking system in times of crisis is potentially welcome, if it amounts to crowding out dealers and an associated reduction of liquidity in the market, that would at a minimum be a significant offset.”

Those Meddling Investors

A new study suggests that “when companies move their annual meetings a great distance from headquarters, they tend to announce disappointing earnings results and experience pronounced stock market underperformance in the months after the meeting.  Companies appear to schedule meetings in remote locations when the managers have private, adverse information about future performance and wish to discourage scrutiny by shareholders, activists and the media.”  Meanwhile, a chief justice in Delaware is calling for (alt) “a rollback of shareholder powers to prevent a ‘deluge’ of corporate governance votes that he says are distracting managements and costing companies a small fortune.”  Furthermore, without taking his proposals (e.g. “limiting the frequency of say-on-pay votes and charging investors to submit proposals to a company’s annual shareholder meeting”), Justice Strine thinks investors could “turn the corporate governance process into a constant ‘Model United Nations’ where managers are repeatedly distracted by referenda on a variety of topics proposed by investors with trifling stakes.”

EU: Interactive Chart: How Europe Can Replace Russian Gas

EM: Secret Handshakes In India Rackets Fuel Inflation

“The [Reserve Bank of India] in January cited agriculture market cartels for exacerbating price spikes as Governor Raghuram Rajan raised the benchmark repurchase rate to 8 percent.”

EU: France’s Far-Right National Front Party Makes Gains

USA: Nearly 33% Of Americans Have Been Banking Without The Branch

“The survey specified that using an ATM didn’t count as having gone to a bank.”

USA: A Look At Case-Shiller By Metro Area

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