U.S. stops pension contributions to preserve cash | Fitch warns it may downgrade U.S. if debt ceiling isn't raised | U.K. study says HFT is good for markets
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16 January 2013
CFA Institute: Financial NewsBrief
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Japanese airlines ground Boeing's 787 Dreamliner
All Nippon Airways and Japan Airlines grounded their Boeing 787 Dreamliner passenger jets after smoke from an electronics compartment was detected in the cockpit and cabin of an All Nippon plane, forcing an emergency landing. The incident is the latest in a string of mishaps involving the innovative aircraft that Boeing is counting on to boost its profit this year. Reuters (16 Jan.), The Seattle Times (15 Jan.), The News Tribune (Tacoma, Wash.)/McClatchy Newspapers (15 Jan.), Bloomberg (16 Jan.)
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U.S. stops pension contributions to preserve cash
The Treasury Department suspended contributions to a government retirement savings plan in an effort to conserve cash while the U.S. government waits for Congress to raise the national debt limit. Treasury Secretary Timothy Geithner said in a letter to congressional leaders that because of the statutory debt limit, he is "unable to invest fully" in the Federal Thrift Savings Plan's $158.52 billion Government Securities Investment Fund, commonly known as the G Fund. Pensions & Investments (free access for SmartBrief readers) (15 Jan.), The Washington Post (tiered subscription model) (15 Jan.)
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Fitch warns it may downgrade U.S. if debt ceiling isn't raised
Fitch Ratings said it "very likely" will cut the credit rating of the U.S. government if Congress doesn't raise the national debt limit soon. Fitch said the government's inability to meet all financial obligations, including Social Security and military pay, justifies a downgrade even if there is no default. The New York Times (tiered subscription model)/The Caucus blog (15 Jan.)
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U.K. study says HFT is good for markets
A study commissioned by the British government finds a whole host of benefits from high-frequency and algorithmic trading, including decreased transaction costs, improved liquidity and improved price delivery. The study does note that computer-based trading can worsen the speed and scope of feedback loops because it lacks common sense to slow them down. Risk.net (subscription required) (15 Jan.)
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Morningstar Direct White Paper in CFA Institute Selections Newsletter
We are very pleased to have been included on this "recommended reading" list. The paper discusses ways to quantify the results from portfolio-level decisions such as asset allocations, manager selections, timing decisions, and more.
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CFA Institute in the News
Reining in risk: Improving transparency around derivatives and hedging activities
A study from CFA Institute that examines the transparency of financial reporting for derivatives and hedging activities suggests that improving disclosure is crucial to allowing investors to make more informed decisions and to ensure that company financial reports communicate key information regarding economic risk exposure and risk management more clearly. Market Integrity Insights (15 Jan.)
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Market Activity
Japan leads drop among most Asian-Pacific markets
Most Asian-Pacific markets declined Wednesday, with Japan's Nikkei 225 taking the biggest fall at 2.6%. China's Shanghai Composite lost 0.7%. Hong Kong's Hang Seng Index dropped 0.1%. South Korea's Kospi edged down 0.3%. Taiwan's Taiex gave up 0.8%. India's Sensex was down 0.8% at midafternoon. Bucking the trend, Australia's S&P/ASX 200 ended up 0.5%. MarketWatch (16 Jan.), Bloomberg (16 Jan.), The Economic Times (India) (26 Feb.)
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Cheap stocks could make 2013 another record year for energy M&A
Last year set a record for energy mergers and acquisitions, and the price of energy stocks could drive such activity to a new high in 2013. It is cheaper for companies to buy proven oil reserves on the stock market than to find and develop reserves. The Wall Street Journal (tiered subscription model) (15 Jan.)
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Markets not yet roiled over debt-ceiling concerns
Despite the looming specter of a debt-limit fight, markets remain positive across the board. That stands in stark contrast to the 2011 political fight over the debt ceiling, when markets dropped rapidly and the Chicago Board Options Exchange's Volatility Index hit post-2008 highs. The Wall Street Journal (tiered subscription model)/MarketBeat blog (15 Jan.)
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by Momtchil Pojarliev, CFA, and Richard M. Levich
Research Foundation Publications (December 2012)

The authors of this book examine the rationale for investing in currency. They highlight several features of currency returns that make currency an attractive asset class for institutional investors.
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Economics
World Bank cuts global growth forecast for 2013
Warning that most of the world's economies are struggling to recover, the World Bank scaled back its forecast for global economic growth this year to 2.4%. In June, the bank predicted a 3% expansion in 2013. The bank expressed concern about "unusual weakness" in U.S. industrial activity and investment. CNBC/Reuters (15 Jan.), China Daily (Beijing) (16 Jan.), Market News International (15 Jan.)
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December retail-sales growth surprises economists
Retail sales in the U.S. increased more in December than many experts had expected as consumers set aside worries about higher taxes in January. Retail sales rose 0.5% from November, the Commerce Department said. Economists surveyed by Reuters had anticipated a 0.2% increase. Reuters (15 Jan.), Shopfloor blog (15 Jan.)
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Germany has budget surplus despite falling GDP
The eurozone debt crisis was a setback for Germany's economy, but the government still managed to shift its budget to surplus in 2012 for the first time since 2007. Gross domestic product expanded 0.7% last year, the Federal Statistical Office said. The economy contracted 0.5% in the fourth quarter. Spiegel Online (Germany) (15 Jan.)
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Crop insurance could cost Americans a record $16B
U.S. taxpayers could be hit with a record $16 billion bill to cover crop insurance. Thomas Zacharias, president of National Crop Insurance Services, says most farmers will be able to recover from last year's record drought because of the program. Critics say most of the benefits go to insurers and big farms. The New York Times (tiered subscription model) (15 Jan.)
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Analysis: Lew would hold U.S. economy in his hands
U.S. President Barack Obama's pick for Treasury secretary, Jack Lew, would have the formidable responsibility of keeping the nation out of financial and economic disaster, according to The Economist. "Firms and investors have come to trust Mr Obama and Congress to dodge disaster, usually at the very last minute," the magazine notes. "Whether Mr Lew can fulfill that trust will determine the fate of the economy this year, and with it his own reputation." The Economist (tiered subscription model) (12 Jan.)
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The Gold Standard: A Fifty-Year History of the CFA Charter
An exclusive book offer from CFA Institute
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Geopolitical/Regulatory
U.S. plans to negotiate international services deal
The U.S. says it will discuss a services deal with Japan, the EU and other developed and emerging economies. The U.S., the EU and others have been considering starting talks on an international services agreement, but the idea has faced opposition from Brazil, Russia, India and China. Reuters (15 Jan.)
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Credit rating firms face European restrictions
The European Parliament is set to pass a plan to make it more difficult for credit rating agencies to adjust sovereign-debt ratings. The proposal seeks to implement a specific calendar for when agencies can adjust sovereign-debt ratings and to prevent rules written after 2020 from referencing ratings. The Wall Street Journal (tiered subscription model) (15 Jan.)
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Experts call for FATCA clarity
When rules of the U.S. Foreign Account Tax Compliance Act are released this month, experts hope they will shine a light on murky administration issues. Although the regulations were drafted a year ago, the Internal Revenue Service has not made clear how they will be implemented or how they will interact with intergovernmental agreements. Risk magazine (subscription required) (15 Jan.)
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Juncker: Euro's strength threatens economic recovery
Eurogroup Chairman Jean-Claude Juncker says the strength of the euro risks derailing recovery. Juncker is the latest European leader to express confidence that the eurozone crisis has been defeated and that attention should be turned to economic growth. Bloomberg (16 Jan.)
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Financial Products
Riverbridge launches U.S. multicap-stock fund
Riverbridge Partners has introduced its first mutual fund. The Riverbridge Growth Fund buys U.S. stocks of any market capitalization. For investor-class shares, the minimum initial investment is $2,500. Star Tribune (Minneapolis-St. Paul, Minn.) (14 Jan.), Bloomberg (15 Jan.)
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