December 23rd, 2009 - Modest rate cut Hungary’s central bank
The Hungarian National Bank reduced its base rate by 25 basis points, which was less than the expected 50 basis points. Hungary’s central bank, Magyar Nemzeti Bank, cut its key interest rate from 6.50% to 6.25% in order to stabilize the economy as the circumstances are rather unstable and to control inflation , which is at the moment higher than the central bank’s target, matching the rate of June 2006. So far in 2009, the Hungarian National Bank has reduced the key interest rate by 375 basis points, including the recent reduction.
Hungarian National Bank
The Hungarian Forint climbed to the highest rate of 190.59 in 5 days versus the Greenback by 8.05 a.m. ET, which is a 1.3% rise in comparison to Friday’s closing rate of 193.05.
The lower than expected rate reduction implicates that the Hungarian National Bank could end its monetary easing sooner than experts had predicted. However, it’s likely that additional monetary measures will be taken in the next few months, according to Capital Economics. “We still believe that the conditions for interest rates priced into the market are too high,” Capital Economics declared. The market outlook for the base rate to climb to 6.5% in the third and fourth quarter of next year is not likely considering the volatility in the real economy.
Hungary’s economy
Hungarian inflation leaped from 4.7% in October to 5.2% in November, while the central bank medium term target is at 3%. In the meantime, core inflation declined slightly from 4.9% in October to 4.8% in November. The Magyar Nemzeti Bank estimates an inflation rate of 3.9% in 2010 and 4.2% in 2009. From July through September, the Hungarian economy shrank by 1.8%, as it contracted by 1.9% in the second quarter. Hungary’s economy will shrink by 6.7% in 2009, while it will contract by 0.6% in 2010, according to the Hungarian National Bank.
Improvement
Recently, several components of Hungary’s economy seemed to have become more stable, due to stimulus measures, such as a number of consecutive interest rate reductions. In December, economic conditions in Hungary improved due to a recovery in business and consumer confidence, according to GKI Economic Research. Trade recovered and the pessimistic situation of industrial output improved in October.
25 December 2009
Russia's Central Bank Cuts Refinancing Rate To 8.75% From 9%
December 25th, 2009 - MOSCOW (Dow Jones)--Russia's central bank cut key interest rates Friday for the tenth time this year in an attempt to stimulate lending and turn back the tide of speculative capital that has flooded the ruble in recent months.
The reduction in the refinancing rate, the benchmark to which commercial banks tie their deposit rates, to a record low 8.75% from 9% is effective Monday. Other key rates, such as the one-day repurchase rate on central bank loans, were cut as well.
The reduction in the refinancing rate, the benchmark to which commercial banks tie their deposit rates, to a record low 8.75% from 9% is effective Monday. Other key rates, such as the one-day repurchase rate on central bank loans, were cut as well.
24 December 2009
Deposits vs Commodities 1999 - 2009
The last ten years have been the decade to invest in commodities. Here is the 10 year price increase in commodities since 1999:
The ganjlik 10-year deposit will provide 250% increase, which is the top 5 commodities, without the volatility.
The ganjlik 10-year deposit will provide 250% increase, which is the top 5 commodities, without the volatility.
19 December 2009
Armenia - up to 10% on USD deposits, 9.5% on EUR
Armenia Development Bank offers up to 10% p.a. on USD deposits and 9.5% for EUR.
The AKA-Credit Agricole bank offers up to 9.5% on USD deposits.
Armenia is rated BB- and has a 10% withholding tax on interest.
The AKA-Credit Agricole bank offers up to 9.5% on USD deposits.
Armenia is rated BB- and has a 10% withholding tax on interest.
18 December 2009
Traders bet on Brazil interest rates to rise
Dec 18, 2009 - Brazil Interest Rate Future Yield Rises to Highest in 10 Months.
Traders are increasing bets the central bank will start lifting the benchmark Selic rate from a record low in March as economic growth accelerates.
14 December 2009
My comment on investing with International Bank of Azerbaijan.
The most common question asked to me, is how safe do I REALLY think placing a substantial amount of one's wealth with International Bank of Azerbaijan is. What are the risks that are not enumerated anywhere...
For example:
1. How good is IBA, how risky is it, what could possibly go wrong? How could I lose my money, is the only way to lose money is the bank closing down in full, or is there other ways, default but reopening, just not paying at all, anything?. Moody's, Fitch, S&P, all their comments are medium in simple terms right? Would you personally deposit large sums of money into Azerbaijan banks?
My honest reply is:-
There are two risks with a bank like IBA:
o Individual credit risk - default due to bankruptcy.
Unless the economy totally collapses this is most unlikely. As the Azerbaijan economy is almost exclusively based on oil and gas this is inconceivable. The bank is very well managed, with loans issued on a financial basis, not “to those well connected”. Its loan portfolio well diversified to various industries i.e. construction, manufacturing, trade, consumer consumption, utility development, infrastructure, etc. It’s the National Development bank of the country, which means its main aim is to provide loans which will develop the country’s economy according to the Governments strategy.
Even if the bank makes some bad decisions regarding loans which impair its capital requirements, the international credit rating companies all acknowledge that the State would assist. The State obviously has the financial muscle to assist as it has $25 billion foreign reserves and banks total liabilities are a fraction of that. Throughout history everywhere in the world, the State always assists a National Development bank it controls because if that bank had to collapse, then the entire banking system would collapse. The bank currently has capital tier ratio approximately double the international normal banking requirements, meaning it is financially very strong.
High interest deposit rates in IBA’s case is not due to its frantic requirement for assets. It’s just in Azerbaijan since the Soviet days, high loan rates have remained, and therefore the bank can afford to offer high savings rates.
IBA’s speculative grade rating is due to the ceiling of its Sovereign rating. It’s just defined that no company can be higher than its Sovereign country rating.
o Sovereign risk - prevention of foreign debt repayment by State
It costs Azerbaijan $15 per barrel to extract oil. Anything above that will grow the economy. Even this year when oil collapsed to $30, its economy grew by 4%. Normal growth in past 5 years has been 30% per annum and I expect it to grow by double digits again in the near future. Even if war had to break out with Armenia the conflict would be limited to the outlying territory of conflict, just as in 1992. Political tension is the sole reason for its credit rating grade being one notch below investment grade. With $25 billion foreign reserves and virtually no outstanding bonds, the country can withstand turbulence.
See this report.
RISK REWARD PROFILE
The interest rate of 13% -16% p.a. is a unique arbitrage opportunity which may not be around for long. Russia banks used to offer 11%- 12% for USD deposits in 2001, now they offer rates at 3% - 5%. IBA support of the bank just adds value. Its economy is based on a better commodity than minerals (or property like Dubai!) I am very comfortable to recommend substantial portion of ones assets in Azerbaijan due to its risk-reward profile.
For example:
1. How good is IBA, how risky is it, what could possibly go wrong? How could I lose my money, is the only way to lose money is the bank closing down in full, or is there other ways, default but reopening, just not paying at all, anything?. Moody's, Fitch, S&P, all their comments are medium in simple terms right? Would you personally deposit large sums of money into Azerbaijan banks?
My honest reply is:-
There are two risks with a bank like IBA:
o Individual credit risk - default due to bankruptcy.
Unless the economy totally collapses this is most unlikely. As the Azerbaijan economy is almost exclusively based on oil and gas this is inconceivable. The bank is very well managed, with loans issued on a financial basis, not “to those well connected”. Its loan portfolio well diversified to various industries i.e. construction, manufacturing, trade, consumer consumption, utility development, infrastructure, etc. It’s the National Development bank of the country, which means its main aim is to provide loans which will develop the country’s economy according to the Governments strategy.
Even if the bank makes some bad decisions regarding loans which impair its capital requirements, the international credit rating companies all acknowledge that the State would assist. The State obviously has the financial muscle to assist as it has $25 billion foreign reserves and banks total liabilities are a fraction of that. Throughout history everywhere in the world, the State always assists a National Development bank it controls because if that bank had to collapse, then the entire banking system would collapse. The bank currently has capital tier ratio approximately double the international normal banking requirements, meaning it is financially very strong.
High interest deposit rates in IBA’s case is not due to its frantic requirement for assets. It’s just in Azerbaijan since the Soviet days, high loan rates have remained, and therefore the bank can afford to offer high savings rates.
IBA’s speculative grade rating is due to the ceiling of its Sovereign rating. It’s just defined that no company can be higher than its Sovereign country rating.
o Sovereign risk - prevention of foreign debt repayment by State
It costs Azerbaijan $15 per barrel to extract oil. Anything above that will grow the economy. Even this year when oil collapsed to $30, its economy grew by 4%. Normal growth in past 5 years has been 30% per annum and I expect it to grow by double digits again in the near future. Even if war had to break out with Armenia the conflict would be limited to the outlying territory of conflict, just as in 1992. Political tension is the sole reason for its credit rating grade being one notch below investment grade. With $25 billion foreign reserves and virtually no outstanding bonds, the country can withstand turbulence.
See this report.
RISK REWARD PROFILE
The interest rate of 13% -16% p.a. is a unique arbitrage opportunity which may not be around for long. Russia banks used to offer 11%- 12% for USD deposits in 2001, now they offer rates at 3% - 5%. IBA support of the bank just adds value. Its economy is based on a better commodity than minerals (or property like Dubai!) I am very comfortable to recommend substantial portion of ones assets in Azerbaijan due to its risk-reward profile.
12 December 2009
Australia heading for fourth interest rate rise in Feb 2010
Australia's central bank is likely to raise interest rates again when it next meets in February, say analysts who are all in awe of how strong a comeback the economy is making right now.
11 December 2009
05 December 2009
The simple carry trade - all in one currency
Borrow USD at say 6% with an equity mortgage on your property. Place proceeds on deposit with International Bank of Azerbaijan paying 16.3% p.a. Net 10% per year.
Venezual bonds - 14.5%
December 2009 - Bonds in Venezuela are now yielding 14.5% after Chavez threatened to nationalize some banks. Compare the return on this risk compared to the 16.3% interest from the oil rich State controlled International Bank of Azerbaijan.
03 December 2009
Unicredit Bank in Serbia - 12% AER p.a for EUR
02 December 2009
Deposits vs.Bonds
Investors looking for high yields invariably look at high yield bonds, nicknamed junk bonds. [Reverse convertibles are also an alternative but carry equity risk.]
However high yield bonds are notoriously volatile easily moving by 20% a day in value depending on market or political events. The surprising fact is that in the long-term, say 10 years, these junk bonds only marginally outperform investment grade bonds. When one looks at all the high yield benchmark indices that bonds funds compare themselves to, one sees that these indices yield about 5% - 7.5%.
A Nov 2009 article in the Wall Street Journal Are You Too Late for the Junk-Bond Party? discusses the non outperformance of junk bonds in the longer term...
This reaffirms my opinion that in the long-term a 10-year deposit paying 13.35% compounded annually is a significantly superior investment to high yield bonds.
However high yield bonds are notoriously volatile easily moving by 20% a day in value depending on market or political events. The surprising fact is that in the long-term, say 10 years, these junk bonds only marginally outperform investment grade bonds. When one looks at all the high yield benchmark indices that bonds funds compare themselves to, one sees that these indices yield about 5% - 7.5%.
A Nov 2009 article in the Wall Street Journal Are You Too Late for the Junk-Bond Party? discusses the non outperformance of junk bonds in the longer term...
Considering its risk, junk's average returns over recent years have been a mixed bag. Steven Huber, manager of T. Rowe Price Strategic Income fund, points out that when you include their 26% loss in 2008, junk bonds have returned an annual average of just under 6% since the beginning of last year -- the same as top-quality corporate bonds and only a whisker more than Treasurys. Extend the comparison back a full decade and the results are the same: The returns on high-yield bonds have been no higher than those of safer bonds. Of course, the same could be said for stocks. "With hindsight, it's hard to justify having taken any risk over the past 10 years, since it didn't pay off," says Martin Fridson of Fridson Investment Advisors. "Over the long term, you do get paid to take risk. It's a question of how long the long term is for you."
This reaffirms my opinion that in the long-term a 10-year deposit paying 13.35% compounded annually is a significantly superior investment to high yield bonds.
Azerbaijan - USD Certificate of Deposit 25% p.a.
November 2009 - The International bank of Azerbaijan (IBA) Ganjlik 10-year deposit is 25% flat annual, ie. 13.35% compounded for USD and 19% flat annual i.e. 11.24% compounded for EUR / GBP.
The average house price in the USA was US$8,500 in 1950. As an indication how high this deposit rate is, if house prices rose the same rate since 1950, the average house would cost US$15.7 million today.
If the DOW JONES index rose by that rate from today, it would surpass 800,000,000 in the year 2100. (no mathematical error there!)
Ford paid his assembly line workers US$5 a day in 1914. If wages increased at the same rate of the IBA deposit rate, those workers would be receiving wages of US$740,000 per day.
In May 1626, the Dutch bough New York from the Indians for goods worth 60 Guilders, generally converted to US$24. Had those dollars been invested at the IBA ganjlik deposit rate, it would mature today for 1.7 billion trillion. Consider the global GDP is less than $70 trillion.
Even recent examples reflect how high the IBA deposit rate is. In November 1972, the Dow Jones reached 1,000 for the first time. Had it increased by the same rate as the IBA deposit rates, today it would exceed 103,000.
A main advantage of this deposit compared to other fixed income investments such as bonds is there is zero volatility, an unheard of measurement in other fixed income investments. Also absolute returns are ensured whereas absolute return funds often produce negative periods. The returns on this deposit outperform the 5-year performance of any bond index, even high yield benchmarks.
It's unlikely that many investments will outperform the IBA long term deposits unless hyper-inflation returns in the next 10 years.
The average house price in the USA was US$8,500 in 1950. As an indication how high this deposit rate is, if house prices rose the same rate since 1950, the average house would cost US$15.7 million today.
If the DOW JONES index rose by that rate from today, it would surpass 800,000,000 in the year 2100. (no mathematical error there!)
Ford paid his assembly line workers US$5 a day in 1914. If wages increased at the same rate of the IBA deposit rate, those workers would be receiving wages of US$740,000 per day.
In May 1626, the Dutch bough New York from the Indians for goods worth 60 Guilders, generally converted to US$24. Had those dollars been invested at the IBA ganjlik deposit rate, it would mature today for 1.7 billion trillion. Consider the global GDP is less than $70 trillion.
Even recent examples reflect how high the IBA deposit rate is. In November 1972, the Dow Jones reached 1,000 for the first time. Had it increased by the same rate as the IBA deposit rates, today it would exceed 103,000.
A main advantage of this deposit compared to other fixed income investments such as bonds is there is zero volatility, an unheard of measurement in other fixed income investments. Also absolute returns are ensured whereas absolute return funds often produce negative periods. The returns on this deposit outperform the 5-year performance of any bond index, even high yield benchmarks.
It's unlikely that many investments will outperform the IBA long term deposits unless hyper-inflation returns in the next 10 years.
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