Foreign Exchange Markets 2010 Part 3: Shaw Capital Management

The recent State of the Union message to Congress by President Obama included a request for the approval of a further fiscal stimulus package this year amounting to around $100 billion to help to tackle the unemployment problem, and he has also presented a $3.8 trillion budget for fiscal 2011 that is likely to maintain the overall deficit around the $1.35 trillion level expected this year.

Foreign Exchange Markets 2010 Part 3: Shaw Capital Management - Much will depend on the attitude of overseas holders, and especially on the attitude of the Chinese and Japanese authorities. For the present they seem to be prepared to maintain and even increase their dollar exposure; and if this continues, and the problems of other major currencies remain unresolved, it should be enough to allow the dollar to “improve”. The euro struggled to recover in the early part of January from the big fall that occurred in December; but the recovery did not last very long, and it has subsequently fallen sharply again, to leave it value against the dollar around 10% below the level in early- December.

There has been no significant change in the underlying economic background, although there is some evidence that the fragile recovery that was developing is losing some momentum.

Foreign Exchange Markets 2010 Part 3: Shaw Capital Management Korea - But there has been a serious deterioration in the financial background as the fears have increased that Greece and some other periphery countries in the euro-zone may be unable to fund their massive fiscal deficits, and service their sovereign debts. There is also considerable uncertainty about the intentions of the European Central Bank and the stronger countries if conditions continue to worsen, and so overseas holders have started to withdraw funds from the European capital markets to await developments.

The present lack of urgency at the central bank and amongst the key politicians suggests that this trend will continue, and that the euro will fall still further; but there is still some hope that the seriousness of the situation will finally produce a support operation that will ease the situation.

Shaw Capital Management News - All the available evidence continues to point to a slow, two-speed recovery in the euro-zone economy. Germany and France appear to be performing reasonably well, although there are some signs of slowdown in Germany; but Greece, Portugal, Spain, Ireland, and even Italy are struggling to escape from recession, and are expected to keep overall output in the euro-zone this year around the 1% level.

Shaw Capital Management News - There is also considerable uncertainty about the intentions of the European Central Bank and the stronger countries if conditions continue to worsen, and so overseas holders have started to withdraw funds from the European capital markets to await developments.

Retail sales remain depressed, and fell by 1.2% between October and November to reflect the continuing caution of consumers; and industrial orders in Germany rose by much less than expected in November, after a very disappointing result in October, to indicate some weakness in export prospects that had been expected to provide significant momentum to the economy.

Shaw Capital Guide to Interest-Free SBA ARC Loans for Debt Relief

Shaw Capital Management and Financing – Avoid debt and interest scams. Recovery Act Emergency Loans to $35,000 for Small Business. If your small business is struggling to pay debts, you may qualify for a new type of interest-free loan in amounts up to $35,000, guaranteed by the U.S. Small Business Administration. The temporary emergency program, called America’s Recovery Capital, or ARC, was authorized under the economic stimulus law passed earlier in the year and is now being launched by the SBA.  

For borrowers, ARC loans will be interest-free, and with no SBA fees attached. But as with all SBA financing programs, the ARC loans will be made by private, commercial lenders, not SBA directly. Lenders, of course, won’t make loans for free, so the SBA will pay lenders monthly interest on the ARC loans on your behalf. And that’s basically free money for you and a good chance to get a little breathing room if you’re facing burdensome debt payments.

ARC loans are deferred-payment loans available to established, viable, for-profit small businesses that are suffering hardship right now and need short-term help to make principal and interest payments on existing debt.  These loans are interest-free to the borrower (you), and 100 percent guaranteed by the SBA.

Shaw Capital Management and Financing - Here’s How it Works. In addition to the loans being zero interest and fully guaranteed by the government, you don't have to make any payments until a year after you receive the last of the funds, which will be disbursed within a period of up to six months. After the initial 12-month payment-free grace period, you'll have five years to pay it off. 

Banks and other financial institutions that make small business loans should have information on the program available soon, and it will be up to them whether or not to participate. Meanwhile, details and updates on the program will be available at the SBA’s special Economic Recovery Act website at www.sba.gov/recovery. Keep in mind that proceeds from an ARC loan must be used specifically to make payments of principal and interest on existing business debt. But that includes a wide range of different types of loans, leases and lines that you might have.

Here are the types of debt that will qualify:

1.      Commercial mortgages on a building or property that your business owns.
2.      Conventional term loans, including secured and unsecured.
3.      Revolving lines of credit.
4.      Capital leases.
5.      Credit card debt.
6.      Notes payable to vendors, suppliers and utilities.
7.      First mortgages loans under SBA’s 504 Development Company Loan Program.
8.      Any SBA guaranteed loans made after Feb. 17, 2009 (but not SBA-backed loans made prior to that date).

For many business owners, paying down high-interest credit card debt would be the best use of ARC funds. But you will have to prove that the debt was incurred for specific business purposes, and the documentation requirements to use ARC funds for credit card debt could be stringent.

The loan application process, however, is designed to be rather quick. Once lenders submit the application, SBA is promising turnaround within 5-10 business days.

The “Viable” Business Standard
The key to qualifying for and receiving an ARC loan is whether your business is considered "viable" and is facing “immediate financial hardship.”   While the standards don’t seem to present a major hurdle for existing businesses that have had success in the past, the viability measure might rule out newer businesses that haven’t turned a profit. And ARC loans are specifically not intended for startups.

Here's how the SBA defines “viable” for getting one of these loans:

"A viable small business is one that has been profitable in the past, but is just beginning to struggle with making loan payments, and can reasonably project that it can get back on track with the infusion of ARC loan funds and the benefit of deferred payments."

Examples of financial hardship offered by the SBA include declining sales or revenues, or difficulties in paying the operating expenses of the business. ARC loans will be available through SBA-approved lenders as long as the money holds out, or through September 30, 2010.  Daniel Kehrer is Editor and Director of Content Development for Business.com, and write the What Works for Business blog.

Shaw Capital Management News -Foreign Exchange Markets 2010 Part 4

Prospects therefore remain disappointing, and are being made worse by the differences that exist between member countries. The European Central Bank therefore faces a difficult situation. It continues to forecast “moderate” growth and “moderate” inflation; but it is being severely criticised for failing to address the problems of a two-speed economy, and for its unwillingness so far to face the threat that the deteriorating situation in Greece could quickly begin to destabilise other member countries and have serious consequences for the financial stability and growth prospects of the entire area.

It is not surprising therefore that investors and speculators have started to reduce their exposure to the euro.

Shaw Capital Management News - Foreign Exchange Markets 2010 Part 4: - The critical question therefore is whether the fall of the euro is now over. Since the currency is unlikely to receive any real support from the general background situation in the euro-zone, everything depends on the developing debt situation, and particularly on the situation in Greece; and also on the possibility of support operations from stronger member countries and from the European Central Bank, and the European Commission. The situation remains uncertain. The central bank appears to be reluctant to offer help, and the German government, which might have been expected to become involved, has also made no response so far.

Shaw Capital Management News - But the European Commission has endorsed the latest plans by the Greek government to introduce an across-the-board freeze on public sector wages and cuts in allowances that are expected to reduce the overall public sector wage bill by around 4%.

This may encourage support from elsewhere; however the Commission has warned that it will not tolerate any slippage from the target and will if necessary demand tougher action from the government to ensure that it stays on course.

But it is far from clear that the Greek government can obtain the necessary support in parliament even for the present proposed measures, and so the uncertainty will continue.

It is therefore likely that there will be further falls in the euro over the coming weeks.

Sterling has improved slightly over the past month, helped by the weakness of the euro.

Shaw Capital Management News - The background situation in the UK remains unattractive, and there have already been threats that its AAA credit rating is at risk unless there are credible measures to reduce the massive fiscal deficit after the forthcoming general election is over.

Shaw Capital Management News - Foreign Exchange Markets 2010 Part 4: - The European Central Bank therefore faces a difficult situation. It continues to forecast “moderate” growth and “moderate” inflation; but it is being severely criticised for failing to address the problems of a two-speed economy, and for its unwillingness so far to face the threat that the deteriorating situation in Greece could quickly begin to destabilize other member countries and have serious consequences for the financial stability and growth prospects of the entire area.

But the UK is not constrained by membership of the European single currency system, and so there is no immediate risk of a default on its sovereign debts.

It has therefore been able to benefit from the problems affecting some other European countries.

Shaw Capital Management News - Foreign Exchange Markets 2010 Part 4: - The latest figures from the Office of National Statistics indicate that the UK just managed to move out of recession in the final quarter of last year. The estimate of growth of only 0.1% in the quarter was a considerable disappointment, and it is expected that it will be revised higher; but clearly the economy is not performing very well.

Government spending remains strong and there was a surge in retail sales in the run-up to Christmas; but the anecdotal evidence suggests that consumers became much more cautious again in January.

The latest meeting of the Monetary Policy Committee of the Bank of England was concerned by the poor reaction so far to the dramatic measures that have been introduced to counter the recession, and reacted to this situation by leaving UK base rates unchanged once again at 0.5%.

Shaw Capital Management News - Foreign Exchange Markets 2010 Part 4: - It clearly has no intention of moving to an “exit strategy” until there is convincing evidence that a sustainable recovery in the economy is underway.

It did announce that purchases of market securities under the quantitative easing programme would now be discontinued after the £200 billion target has been reached; but its main priority is to continue to provide support for the fragile economic recovery.

Fiscal policy is also likely to remain unchanged until after the election, because the necessary measures to reduce the huge deficit will be unpopular, and might influence the outcome of that election.

Sterling is therefore receiving no real support from the domestic background situation, and in other circumstances might have been expected to move lower.

Shaw Capital Management News - Foreign Exchange Markets 2010 Part 4: - But the problems affecting the other major global currencies, and particularly the problems affecting the euro, have at least delayed any further falls. The yen has improved over the past month, despite a generally unfavourable domestic background situation, and some attempts by the Japanese authorities to prevent its appreciation against other currencies.

It has achieved an enhanced “safe haven” status in the current storm in the currency markets, and on the back of the relative success of its exports. But conditions in the Japanese economy remain very weak, and there has even been the threat of a downgrade of its credit rating unless measures are introduced to reduce its massive fiscal deficit.

However it does not appear that this threat will prevent the new Japanese government from introducing further measures to stimulate the economy, and urging the Bank of Japan to intervene in the markets to weaken the yen, and so its prospects remain very uncertain.