Shaw Capital Management August Newsletter: Financial Markets Focusing Europe

(1888PressRelease) February 03, 2011 - The big fall in the euro in recent months is clearly having a significant impact on the performance of the euro-zone economy.

Shaw Capital Management, Korea - Investment Innovation & Excellence. We provide the information, insight and expertise that you need to make the right investment choices. Shaw Capital Management Korea typically offers its clients such services as asset allocation
and portfolio design; traditional and non-traditional manager review and selection; portfolio implementation; portfolio monitoring and consolidated performance reporting; and other wealth management services, including estate, tax, trust and insurance planning, asset custody, closely held business issues associated with the establishment or expansion of a family office, the formation of family investment partnerships or LLCs, philanthropy, family dynamics and inter-generation issues, etc.

Factory output expanded at a record pace in April, helped by investment spending associated with the export effort, and overseas demand for European capital equipment, and the trend appears to be continuing. The major beneficiary has been Germany, but other northern member countries are also involved.

However the situation is much less encouraging in Greece, Spain, and Portugal, because they are less competitive in export markets, and are being forced to introduce austerity measures to reduce their fiscal deficits.

Domestic demand across the entire euro-zone remains weak, and so, despite the export performance of some member countries, it seems unlikely that the overall growth rate for the zone this year will reach 2%. The European Central Bank remains reasonably optimistic about prospects; but fortunately it has not moved towards an "exit strategy" that might involve reversing the measures that were introduced to counter the recession.

Short-term interest rates have been left unchanged and close to zero, the programme to provide unlimited three-month loans to the banking system is continuing, and the bank is also still intervening in the markets to buy the bonds of weaker member countries that had been sold heavily because of fears about debt defaults. The bank is therefore continuing to provide support for the system; but it is not really doing enough to offset the concerns about the debt crisis.

Greece remains in the eye of the storm; but there have been increasing concerns about the situation in Spain; and the situation has been made worse by the latest warning from the Fitch Ratings agency that it may take further massive asset purchases by the European Central Bank to prevent the sovereign debt crisis in the area escalating out of control.

Shaw Capital Management August 2010: Financial Markets Focusing Europe - There are fears that Spain will need to follow Greece in requesting help from other member countries and the IMF to enable it to avoid a default, and that Portugal, and perhaps even Italy, may also need to be rescued.

The pressures on the euro will therefore be intense; and whilst there may well be further support from the Swiss National Bank and others, the future of the single currency system clearly remains very uncertain. The latest modest rally in the euro must therefore be treated with great care.

Sterling has recovered from the weakness that developed in May, and is ending the month higher. The economic background in the UK has not provided any real support, and the Bank of England is clearly intending to maintain short-term interest rates at very low levels; but there has been some movement of funds out of the euro into sterling, and the new coalition government in the UK has introduced measures to reduce the massive fiscal deficit that have been well received in the markets and led to an improvement in sentiment.

There is clearly a risk that these latest measures in the Budget will depress the level of activity still further, and fail to solve the fiscal problems; but for the moment it seems that the new government is being given the benefit of the doubt.

The evidence on the performance of the economy ahead of the Budget announcement was still pointing to a very slow recovery in activity.

The manufacturing sector is reasonably buoyant, with exports expanding rapidly; and retail sales also increased more quickly than expected.

But unemployment rose again to 2.47 million, and the latest survey from the CBI indicated that the value and volume of business in the services sector fell, and that further weakness was expected in the second half of the year.

However the situation has obviously been changed significantly by the latest Budget measures, and the latest estimates from the newly-formed Office for Budget Responsibility are that growth will now only be 1.2% this year, rising to 2.3% next year, and improving slightly in succeeding years.

The Bank of England has welcomed the decision by the new government to introduce measures to address the problems created by the huge fiscal deficit. The governor, Mervyn King, argued recently that they would "eliminate some of the downside risks…and are desirable to remove the risk of an adverse market reaction."

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Shaw warns FSA stance on mutuals could force mergers - New Model Adviser® Edition - Citywire

Martin Shaw, chief executive of the Association of Financial Mutuals has warned that the Financial Services Authority's stance on friendly society's use of with-profits funds will force societies to merge or demutualise in order to survive.

The FSA has sent a 'dear CEO' letter to friendly societies repeating its warning that with-profits funds cannot be used as capital.

The regulator has sent the letter following its 'Project Chrysalis' investigation into the liquidity of mutuals, following a similar letter in October last year.

Shaw (pictured) said the FSA's stance represented a 'fundamental challenge' to the business model of mutuals.

'I received a letter from the FSA...that essentially risks undermining the whole business model of our membership by saying that a with-profits policy fund that has built over a 100 years may need to be disposed of in the next ten years,' he said.

'Where you are using that as your only form of capital...that is a fundamental challenge to your business,' he said. 'The reality is that friendly societies do use it [with-profit funds] for new business but they pay it back.'

Shaw said the FSA wanted friendly societies to prove what portion of with-profits funds belonged to members and what was capital.

He added that friendly societies would have to merge, demutualise or find a new source of capital in order to survive under the FSA's requirements.

Gareth Thomas, Labour MP for Harrow West said he was deeply disturbed by the FSA's letter. 'What we have just heard about the letter from the FSA to friendly societies is deeply disturbing,' he said.

'What has gone wrong in terms of the way the sector is being regulated is the lack of understanding from the FSA and within the Treasury which is allowing this situation to develop,' he added.

The D. E. Shaw group | Who We Are

The D. E. Shaw group is a global investment and technology development firm with more than 1,300 employees; approximately $19 billion in investment capital as of January 1, 2011; and offices in North America, Europe, the Middle East, and Asia. Since its organization in 1988, the firm has earned an international reputation for financial innovation, technological leadership, and an extraordinarily distinguished staff.
The firm has a significant presence in many of the world's capital markets, investing in a wide range of companies and financial instruments within both the major industrialized nations and a number of emerging markets. Its activities range from the deployment of investment strategies based on either mathematical models or human expertise to the acquisition of existing companies and the financing or development of new ones.

IFAs in move to meet FSA deadline. - Money Management | HighBeam Research - FREE trial

Sales of pension switching advice software increases following review

Providers of pension advice software have seen increases in demand for their products in 2009 in response to the FSA's review of pension switching.

This news follows on the heels of the FSA's December 2008 report 'Quality of advice on pension switching'. To re-enforce this report - following written communication and support workshops - the authority proposed to review a number of firms to ensure that any pension switches being recommended were compliant with their regulations.

O&M Systems, which markets Pensions Profiler, a program that assists advisers …

Read all of this article with a FREE trial

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Mutuals warn of legal action against FSA over with-profits funds - Citywire

The Association of Financial Mutuals (AFM) has warned the Financial Services Authority’s (FSA) stance on friendly societies' use of with-profits funds as capital could trigger a legal challenge.

The FSA has written to the chief executives of mutuals telling them they must wind up with-profits funds if they are no longer writing new business.

In its ‘Dear CEO’ letter, the regulator said it was concerned that the capital of closed with-profits funds would not be shared with the dwindling number of policy holders despite the fact that as members, they are owners.

FSA head of supervision Jon Pain said in the letter that with-profits funds run by mutual societies belong predominantly to members.

But mutual societies have argued that with-profits funds, which are used as working capital, do not solely belong to the policy holders.

AFM chief executive Martin Shaw (pictured) warned that this could be ‘catastrophic’ for mutuals adding that the FSA’s interpretation of the law could be challenged through a judicial review.

‘We feel that the general position adopted by the FSA is wrong,’ said Shaw. ‘The options are still open for individual firms to launch a judicial review against the FSA…it is not a route firms will go down lightly.’

‘Our argument is that it is not your reasonable expectation [as a policy holder] that all of the capital that has built up in [an] organisation over 200 years should suddenly be shared out to you and the other people who happen to have a policy today,’ said Shaw.

He added that mutual societies would be forced to merge or demutualise in order to survive due to the FSA’s stance.

Gareth Thomas MP said he was deeply disturbed by Pain’s letter. ‘What has gone wrong in terms of the way the sector is being regulated is the lack of understanding from the FSA and within the Treasury,’ he said.

Pain pointed in the letter to the statement made by then minister for corporate affairs Jonathan Evans MP in 1995 who had argued for with-profits funds to employ a 90/10 split in favour of policy holders over shareholders.

But Evans criticised Pain over the ‘selective’ use of his statement and said it did not apply to mutuals. ‘We were setting out the fact we had a shareholder interest on one side and the policy holder interest on the other, while when you are dealing with a mutual you have got…members who are also the policy holders,’ said Evans, Conservative MP for Cardiff North.

Shaw Capital Management: South Koreas Economy

South Koreas output is continuing to accelerate, and the government
needs to exit from its accommodative economic policies earlier than anticipated. The HSBC Koreas purchasing managers index (PMI) rose from 55.6 in January to 58.2 in February the highest since December 2007. New orders are coming in, and there are rising backlogs of unfulfilled orders.

Shaw Capital Management: South Koreas Economy - Employment too is rising suggesting that the current pace of growth will be sustained for the next several months. Inflation paced a little with consumer prices up 3.1% in January from a year earlier. But inflation in Korea is likely to remain stable for some months.

The central bank is expected to tighten its monetary policy by starting to raise interest rates from the current record low of 2% in the later part of the second quarter as the government retains its focus on job creation and growth.

Shaw Capital Management: South Koreas Economy - Exports expanded 31% year on year, better than Reuters forecast of 22.7%. South Korea posted a much larger-than-expected
trade surplus of $2.33 billion in February as ship deliveries boosted exports, while imports fell as holidays reduced crude oil and natural gas demand.

The government expects a monthly trade surplus of more than $1 billion from March as demand improves. The current-account surplus is most likely to dwindle to around $17 billion this year from $42.7 billion in 2009 as imports rise. A new Bank of Korea governor, widely expected to be a more pro-government figure, will not rush to raise rates after taking office
in April.

Exports grew 31% from a year earlier to $33.27 billion, faster than the expected rise of 21%, while imports climbed 36.9% to $30.94 billion, exceeding a forecast of an expansion of 34.0%.

South Korea, which is heading the G20 group of leading economies wants to leave an imprint of its presidency.

Shaw Capital Management: South Koreas Economy - It is trying to introduce a system of international currency swaps which it hopes will reduce global imbalances by lessening the need for countries to accumulate reserves, seen as one of the causes of last years financial and
economic crisis.

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Before Shaw Capital launched the open architecture revolution, investors had to make the unhappy choice between selecting an advisor who was independent, but unsophisticated (the traditional pension and endowment consulting firms), or selecting an advisor who was sophisticated but had conflicting interests (global banks, trust companies, money management firms).

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Matters like asset allocation and manager search are simply too important to be left in the hands of young analysts.

We are proud of our role in leading the open architecture revolution, and look forward to introducing you to its benefits.

Shaw Capital Management February Newsletter: Government bond Markets 3 of 3

Shaw Capital Management Korea February Newsletter:  Article three of three - The markets are assuming that the more powerful members of the eurozone will support the weaker members in order to prevent defaults that might threaten the single currency structure; but the yield spreads have widened considerably to reflect the increased risks. Our tentative view is that the markets will “muddle through”, and that defaults will be avoided; but higher overall yield levels seem unavoidable. Prospects in these markets are therefore very unattractive. The gilt edged market has also come under pressure over the past month; short-term yields have remained basically unchanged, but there have been increases in medium and longer-term yields that has produced a much steeper yield curve.

Shaw Capital Management Korea February Newsletter:  Article three of three - There has been evidence of a modest improvement in the economic background; and the Bank of England is proving to be a stabilising influence at a difficult time; but a very disappointing Pre-Budget Report has indicated that there will be no attempt to address the problems of the huge fiscal deficit until after the election. Our tentative view is that the markets will “muddle through”, and that defaults will be avoided; but higher overall yield levels seem unavoidable. Prospects in these markets are therefore very unattractive. Funding pressures will therefore continued to increase; and so, although there does not appear to be any real danger that the UK might join the list of countries that could default on their sovereign debts, annual debt issues in excess of £200 billion cannot continue for long if this is to be avoided. It is no surprise therefore that investors have reacted by reducing their exposure to the market.
Shaw Capital Management Korea February Newsletter:  Article three of three - There is still some doubt whether the UK economy has moved out of recession. The pace of contraction in the third quarter of the year has been slightly reduced, and since then the pace of job losses has declined, and consumer spending has held up fairly well. But business investment and manufacturing activity remains weak, and so there may have been no overall improvement in the final quarter of last year. The Bank of England has therefore kept short-term interest rates at 0.5%, and maintained its quantitative easing programme, and this has provided support for the market, since the bank has been a major buyer of gilts in recent months.
Shaw Capital Management Korea February Newsletter:  Article three of three - However it has not been enough to prevent a very adverse reaction to the Pre-Budget Report from the UK Chancellor. The market did not really expect any significant action on the deficit ahead of the forth-coming general election; but was still surprised by the apparent lack of realism. The government is prepared to allow the deficit to continue to accumulate, and is relying on the gilt edged market to provide the funds to finance that deficit in the hope that this will enable it to win the election, and has produced no real indications of how the deficit might be reduced even after the election is over. It is not surprising therefore that investors have reacted by reducing exposure, that 10-year yields have risen to 4% and longer-term yields to 4.5%, and that there are even suggestions that the country could face a capital flight and a full-blown debt crisis in the coming months. We do not share these extreme views; but clearly the prospects for the market are very unattractive, and higher yields appear unavoidable. Investors have reacted by reducing exposure... and there are even suggestions that the country could face a capital flight and a fullblown debt crisis in the coming months.
Shaw Capital Management Korea February Newsletter:  Article three of three - The Japanese bond market is basically unchanged over the past month; but there are fears that present yield levels are unsustainable. A sharp reduction in the growth estimate for the third quarter of last year, and weaknesses since then have raised the possibility of a move back into recession and a further period of deflation. The government has reacted by launching its fourth fiscal rescue package since the economic crisis began last year. It amounts to the equivalent of a further $81 billion to be spent in the regions and on subsidies for consumer durables, and is expected to lift the debt issuance this year to a record $835 billion, despite the indications that bond investors may be becoming increasingly unwilling to finance such a high level of new bonds, and the warning from the IMF that the government is risking a significant increase in debt funding costs. Since overseas involvement in the bond market is at a very low level, such a development is unlikely to affect bond markets elsewhere directly; but it could be a warning to other countries of the dangers of placing too much pressure on their own markets.
Shaw Capital Management Korea - Investment Innovation & Excellence.  We provide the information, insight and expertise that you need to make the right investment choices. Shaw Capital Management based in Korea typically offers its clients such services as asset allocation and portfolio design; traditional and non-traditional manager review and selection; portfolio implementation; portfolio monitoring and consolidated performance reporting; and other wealth management services, including estate, tax, trust and insurance planning, asset custody, closely held business issues associated with the establishment or expansion of a family office, the formation of family investment partnerships or LLCs, philanthropy, family dynamics and inter-generation issues, etc.
Every investor will achieve better long-term risk-adjusted results by working with a true open architecture advisor.

Shaw Capital Management February Newsletter: Government bond Markets 3 of 3 | Clipmarks

Shaw Capital Management Korea February Newsletter:  Article three of three - The markets are assuming that the more powerful members of the eurozone will support the weaker members in order to prevent defaults that might threaten the single currency structure; but the yield spreads have widened considerably to reflect the increased risks. Our tentative view is that the markets will “muddle through”, and that defaults will be avoided; but higher overall yield levels seem unavoidable. Prospects in these markets are therefore very unattractive. The gilt edged market has also come under pressure over the past month; short-term yields have remained basically unchanged, but there have been increases in medium and longer-term yields that has produced a much steeper yield curve.