Pentagon plans huge spending cuts amid budget deadlock fears | Former UBS officials say they were unaware of Libor issues | Fed gives U.S. a record $88.9B
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11 January 2013
CFA Institute: Financial NewsBrief
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Japan's Abe announces $116B stimulus plan to reverse deflation
Japanese Prime Minister Shinzo Abe, in his first major action since taking office, announced a $116 billion spending program aimed at reversing deflation and fueling economic growth. The Cabinet Office said the stimulus measures will create 600,000 jobs and increase gross domestic product by approximately 2 percentage points. Bloomberg (11 Jan.), Market News International (10 Jan.), NHK World (Japan) (11 Jan.)
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Pentagon plans huge spending cuts amid budget deadlock fears
U.S. Defense Secretary Leon Panetta ordered cuts to military spending because he has grown pessimistic about the chances of the White House and Congress agreeing to avert $52 billion of reduced spending for the Pentagon this year. Defense agencies have been told to freeze civilian hiring, scale back spending on office expenses, training and travel, and given authority to fire temporary workers. The Washington Post (tiered subscription model) (10 Jan.), The New York Times (tiered subscription model) (10 Jan.), Government Executive (10 Jan.)
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Former UBS officials say they were unaware of Libor issues
The former CEO of UBS, Marcel Rohner, told a U.K. parliamentary committee Thursday that he and other former top executives at the company did not know about the problems with the London Interbank Offered Rate while employed at the bank. Tracey McDermott, the U.K.'s Financial Services Authority's enforcement chief, said she was surprised by that assertion because her agency began requesting information on the matter during the executives' tenure. Financial Times (tiered subscription model) (10 Jan.), The Wall Street Journal (tiered subscription model) (10 Jan.)
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Fed gives U.S. a record $88.9B
The Federal Reserve paid the U.S. government a record $88.9 billion in 2012, a 17.9% increase from $75.4 billion in 2011. The central bank earned the money from the mortgage-backed securities and Treasury bonds it has bought. The previous record was $79.3 billion in 2010. The Washington Post (tiered subscription model)/The Associated Press (10 Jan.)
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Analysis: Lenovo becomes world's biggest computer company
The path that took China's Lenovo from its humble beginnings to recognition as the world's biggest computer company was a rocky one but it may achieve even greater success in the coming years, according to The Economist. "Lenovo does not simply churn out cheap goods. It is spending heavily on branding, distribution, manufacturing and product development," the magazine notes. "And alongside its cheap gizmos are many mid-range and some premium gadgets, such as the Yoga, a laptop that cleverly converts into a tablet." The Economist (subscription required) (12 Jan.)
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Reader Survey
Which has been the greatest investing lesson for you during the past five years?
Central banks and governments will continue to bail out troubled creditors  59.16%
Equity-market structures are having negative effects on market trust  23.72%
Institutional creditors will be more prudent in lending  9.51%
Systemically important financial institutions' boards are working to manage risks arising from the companies' complexity  3.80%
Financial regulations will prevent systemic failures in the future  3.80%
Poll analysis:
In a February 2009 speech at the Marcus Evans conference on "stress testing," Andrew Haldane -- then executive director for financial stability at the Bank of England -- noted his first run-in with market realism. He recounted a discussion he had been a part of, in which bankers were asked about the need for more severe stress-test scenarios than were currently in use by banks. Haldane says the bankers responded that "in that event, the authorities would have to step in to save a bank and others suffering a similar plight." Based on the results of this week's CFA Institute Financial NewsBrief Reader Survey, investors' expectations have not been changed by what legislators, parliamentarians, central bankers or regulators have done in the nearly five years since the failure of Bear, Stearns & Co. Asked about the most important investment lesson they've learned over the past five years, 59.5% of 999 survey respondents said it is that central banks and governments will continue to bail out troubled creditors. Even worse, slightly more than 9% of respondents believe that institutional creditors will be more prudent in their lending in the future. In the parlance of economics books, this situation sounds like a recipe for moral hazard. Just 3.6% of respondents agreed that financial regulations adopted since 2008 will prevent systemic failures in the future -- a similar percentage to that of a broader CFA Institute poll taken in July 2010, immediately after the passage of the Dodd-Frank Act. In the July 2010 survey, only one response apart from the statement on bailouts was seen as credible -- namely, that equity market structures are negatively affecting market trust (24%). -- James C. Allen, CFA, Head, Capital Markets Policy, CFA Institute
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Market Activity
Japan rises while other Asian-Pacific markets fall
Most Asian-Pacific markets fell Friday after China reported higher consumer inflation. Japan's Nikkei 225 bucked the trend in response to the falling yen, rising 1.4%. China's Shanghai Composite fell 1.8%. Hong Kong's Hang Seng Index slid 0.4%. South Korea's Kospi gave up 0.5%. Australia's S&P/ASX 200 edged down 0.3%. India's Sensex was flat at midafternoon. MarketWatch (11 Jan.), The Economic Times (India) (26 Feb.)
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Technology mishaps become more frequent on U.S. exchanges
Technology failures that unnerve investors have become almost a daily event as U.S. securities exchanges come under increasing pressure to process transactions at the ever greater speeds demanded by high-frequency traders. In recent weeks, technology glitches have become more frequent, said market data expert Eric Hunsader. The New York Times (tiered subscription model) (10 Jan.)
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Weekly stock mutual inflows hit $7.5B, highest since 2001
During the week that ended Jan. 9, U.S. investors put $7.53 billion into stock mutual funds, the biggest amount since May 2001, according to data from Thomson Reuters' Lipper service. Over the same period, inflow for exchange-traded funds that buy stocks totaled $10.78 billion. Reuters (10 Jan.)
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Fidelity may start daily NAV reporting for money funds
The biggest provider of money market funds in the U.S., Fidelity Investments, said it may join other industry leaders in reporting the net asset value of its money funds daily. Stephen Austin, a spokesman for the company, said Fidelity is seriously considering making the change already embraced by BlackRock, Goldman Sachs and JPMorgan Chase. InvestmentNews (free registration) (10 Jan.)
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IPO slowdown blocks exits for private equity deals in China
Private equity deals in China in the past have depended primarily on initial public offerings, but that's becoming a problem now that the government is intensifying its scrutiny of IPOs. A recent report found that of the 10,000 private equity deals in China between 2001 and 2012, 7,500 still are "unexited." The New York Times (tiered subscription model) (10 Jan.)
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Investing in a Changing Arab World
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Economics
Jobless claims point to steady labor market improvement
The latest data from the U.S. Labor Department points to a steady improvement in the job market. First-time claims for unemployment benefits rose slightly by 4,000 last week, but continued claims by those who previously applied for benefits fell by 127,000. The Christian Science Monitor/Paper Economy blog (10 Jan.), Reuters (10 Jan.), Nasdaq.com/Dow Jones Newswires (10 Jan.)
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Financial advisers closely monitored by wealthy clients, survey finds
The high-net-worth clients of financial advisers today rarely give advisers full control of their assets, according to a survey by the Institute for Private Investors. Among wealthy families with less than $50 million in assets, only 32% favor giving advisers full discretion over portfolio management. Only 1 in 5 families with more than $200 million worth of assets give complete discretion to advisers. InvestmentNews (free registration) (10 Jan.)
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ECB leaves rate unchanged with a view to 2013 recovery
With the outlines of a more normal financial situation discernible, the European Central Bank is indicating that more interest rate cuts are probably not in store. The ECB left its rate Thursday at 0.75%. At a monthly news conference, however, President Mario Draghi noted that a strong economic recovery still hasn't materialized, although he said he expects improvement later in the year. Reuters (10 Jan.), The New York Times (tiered subscription model) (10 Jan.), Bloomberg (10 Jan.), The Wall Street Journal (tiered subscription model) (10 Jan.)
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BoE leaves interest rate unchanged
The Bank of England's Monetary Policy Committee left its rate unchanged Thursday at its first meeting of the year. "Most members of the committee are probably pretty happy to keep things as they are and see how the [government's Funding for Lending Scheme] evolves and how the economy picks up," said Vicky Redwood of Capital Economics. The Telegraph (London) (tiered subscription model) (10 Jan.), Bloomberg (10 Jan.)
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Food costs help push China's inflation rate up 2.5%
Consumer prices in China were 2.5% higher in December than in the same month a year ago, largely because of a 4.2% increase in food costs, according to its National Bureau of Statistics. The figure was above November's 2% inflation rate but well below the inflation rate of 4% or higher that China experienced a year ago. CNNMoney (10 Jan.)
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Geopolitical/Regulatory
9 candidates compete for WTO director-general's job
The impending departure of Pascal Lamy as director-general of the World Trade Organization has triggered a hotly contested competition for the job. The outcome could influence the resolution of several trade issues that have serious consequences for the U.S. economy. Nine WTO member states have nominated candidates for the post. The Washington Post (tiered subscription model) (10 Jan.), New Business Ethiopia/Devex.com (10 Jan.), Xinhuanet.com (China) (11 Jan.)
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FBI doggedly pursues Libor cases -- from Washington, D.C.
The FBI's Washington, D.C., field office is driving the U.S. investigation into the London Interbank Offered Rate scandal and other benchmark rigging. "We've got an enormous amount of resources devoted to this," said Timothy Gallagher, head of the Washington criminal division, who is overseeing the probe. "People think that financial fraud is pursued in New York, but we're pursuing it vigorously here," Gallagher said. "There's more than enough to go around." Bloomberg (10 Jan.)
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SEC considers whether BATS glitches are affecting other exchanges
Recent trading glitches at BATS Global Markets have led the Securities and Exchange Commission to speculate that the same problems may be happening at other exchanges. Joe Ratterman, CEO of BATS, said Thursday the problems are "indicative of complexity in the markets." Regulators, he suggested, should study how that complexity is leading to mistakes. The Wall Street Journal (tiered subscription model) (10 Jan.)
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Financial Products
Lyxor rolls out Europe's first gold stock index ETF
Lyxor brought to the NYSE Euronext Paris exchange the first index-linked exchange-traded fund investing in gold stocks available to European investors. The Lyxor ETF MSCI ACWI Gold ETF tracks the MSCI ACWI Gold with EM DR 18% Group Entity Capped Index, which includes gold stocks from a mix of developed and emerging markets. IndexUniverse.eu (10 Jan.)
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