News Summary

News Summary
Hello from Hong Kong and here are the headline news
* Barrons Online posted a report that shares of Chinas
Alibaba could fall more than 50%
* Federal Reserve is set to announce the rate decision this
Thursday
* Jeremy Corbyn wins by landslide as the new leader of UK
Labour Party.
* Poland's finance minister Mateusz Szczurek said Euro is no
longer attractive
* No ones looking but we are edging closer to Greek elections
Barrons Online has published a report that Alibaba, Chinese
Internet giants stock has been plunging amid an array of
problems and it expects more trouble ahead. Alibaba, which
trades on the NYSE and sports a market value of $160bn, still
has plenty of fans. But it is time to get real. A decline of up to
50% looks far more likely. Alibaba shares trade at about 25
times the consensus earnings estimate for the year ahead, and
that should be closer to eBay s multiple of 15. Fresh selling
pressure on the stock could emerge later this month when
Alibabas final IPO lockup expires. Some 1.6 billion of its 2.5
billion shares will be available for sale for the first time.
Perhaps more troubling is the seeming improbability of the
growth numbers reported by the company over the three fiscal
years ending in March. Consider this: Alibaba claims to have
367 million usersabout the same as one government
agencys estimate of Chinas entire online-shopping
population. Or this: Alibaba claims its average shopper spends
26% more on its sites each year than the average U.S. online
shopper spends on all sites. Does that make any sense, given
American consumers far greater affluence and ability to avail
themselves of a vastly more developed e-commerce
ecosystem? Barrons Online report see on page 18.
The Fed Res is set to announce the decision from one of its
most anticipated policy-setting meetings of the year. Most
central banks have said it might be better for the Fed to get on
and raise rates than continue with destabilising uncertainty.
Market pricing suggests there is just a 28% chance of a rate
hike by FOMC. Financial Times said tightening policy at this
stage would not be ridiculous but core inflation has remained
below the Feds 2% and so, critically, have expectations of
inflation years into the future. Fed should not feel the need to
spend time with inflation above the target to counterbalance
the time spent below it, but such a persistent undershoot does
argue for caution in believing that the price level is suddenly
set to accelerate. Furthermore, the hurried movement by
China to allow the renminbi to weaken has raised fears both of
general weakening in global demand and of the quality of
leadership. Similarly, in The Sunday Telegraph, economists
say that the Fed Res will keep its rates on hold this Thursday,
but that Chairwoman Janet Yellen is expected to sound
hawkish, signalling that a rate rise will arrive before the end
of the year, reflecting a continued improvement in the labour
market and recent growth data. Barrons Online said this will
be a close call. If a rate hike was imminent, Fed officials would
have signaled it, the bond market would have priced it in, and
markets would remain calm when it was announced.
Mohamed El-Erian has put odds against a hike at an almost
absurd 51-49. What happens if the Fed does hike rates?
Markets could get ugly fast. Rates at the short end would rise
sharply, and riskier assetsjunk bonds and investment-grade
corporate bondswould get hit, and stocks, too. Theres a
chance longer term Treasuries might hold up better since they
are priced off inflation expectations, which would tumble.
Barrons Online agrees, a big reaction wwill depend on the
language in the Feds statement and Fed Chair Janet Yellens
comments at the press conference. CIBC Chief Economist

Avery Shenfeld said weve been running with a forecast for a
September Fed hike for the last few months, and well stick
with it given that the odds of such a move appear pretty close
to even at this point. If the Fed passes on a hike, it will further
tighten the language to reinforce expectations that a move is
still highly likely this year. If it raises rates, it might add a line
saying that it will be patient in terms of subsequent moves,
virtually ruling out an October move in the process. Some
worry that even a quarter point increase will set off an
irreversible global cataclysm. That fear seems less relevant
with equity markets looking calmer in recent days. Instead o
Fed should welcome signs of reduced froth in the riskiest
corners of financial markets, which could build to worrisome
levels if zero rates overstay their welcome. A hike will keep
Canadian dollar weak and aid exports (see pages 13-17).
Britains Labour Party has a new leader; left-wing radical
Jeremy Corbyn stormed to a landslide victory in the partys
leadership election. Corbyn won the election with 60 per cent
of the vote and the backing of more than 250,000 members.
Why is this important? Washington Post wrote election of
Corbyn represents a dramatic break with the recent history of
the Labour Party, a full and conspicuous rejection of the New
Labour philosophy of former PM Tony Blair. Corbyn
advocates a return to the kind of policies nationalization of
some industries and withdrawal from NATO. SMH said his
policies include new taxes on excessive bank profits,
renationalising the railways and printing money to pay for
new infrastructure. Head of Institute of Directors, Simon
Walker warned that Corbyn would promote damaging
economic policies and possibly push the Conservative
government to the right. He said From renationalising the
railways, to raising taxes on businesses and increasing
government spending, he has proposed policies in the
leadership campaign that we believe would undermine our
open and competitive economy. Meanwhile, many senior
figures have already indicated that they will boycott the front
bench. One Labour MP said New Labour is now dead and
buried. Sunday Telegraph said there were suggestions that
MPs angry at the result would try to remove Corbyn in a coup
(pages 2-5).
Polish Finance Minister Szczurek told CNBC that Eurozone
membership is no longer attractive. Poland may "needs to
calculate more on what needs to be done before Poland
considers joining the Eurozone." A June poll in by research
firm TNS Poland showed that half of Poles have a negative
opinion of the euro and suggested a growing number of euro
skeptics (page 5).
Some Singaporeans got to vote for first time in many years but
Greeks are doing it twice in less than 10 months! September
20, Greece holds its second parliamentary election. Support
for the ruling left-wing Syriza party has been crumbling, but
maintained a wafer-thin pre-election lead over conservative
New Democracy in three opinion polls on Saturday. Sunday
Observer said poll released by the Uni of Macedonia showed
ND trailing by just one point with 19%. Those polled said they
had been impressed by ND leader Meimarakiss performance
in a political leaders debate last week, compared to 13.5% who
favoured Tsipras. Eurogroup chief Jeroen Dijsselbloem said
on Saturday that next Greek government should not expect to
be in a position to renegotiate parts of its bailout agreement.
In Luxemberg, ESM Regling said the Greek bank review is on
track to finish up by the end of October and, if needed, banks
could access some recapitalization funds from Greeces bailout
relatively quickly (pages 8-11).
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
News on Britain
Eurozone offers olive branch to UK
Taken from the FT Sunday, 13 September 2015
The eurozone has offered an olive branch to Britain and other

non-euro countries by promising to more fully consult them
during crisis decision-making, a move aimed at mending
fences after an EU rescue fund that includes UK money was
used in Greeces recent bailout.
An informal agreement of principles, reached at a meeting of
EU finance ministers on Saturday, is aimed at what one
minister called harm mitigation after the July bust-up when
the EU-wide fund was used for a 7bn bridging loan for
Greece.
All the subjects that have a bearing, that have an influence,
on the non-members should be raised, said Pierre Gramegna,
finance minister of Luxembourg, holder of the EUs rotating
presidency. You have to go in-depth into the discussion so
that you can find out if there are implications or not.
Eurozone governments first discussed using the European
Financial Stability Mechanism, which relies on funding from
the EU budget that all 28 members contribute to, during the
high-stakes July summit that ultimately reached a Greek
bailout agreement.
British officials were incensed they were not consulted
beforehand particularly because David Cameron, the UK
prime minister, specifically won a 2010 promise not to tap the
EFSM in any future eurozone rescues.
Mr Cameron was forced to allow the EFSM to be used for the
Greek bridge loan after it became clear Britain would be
outvoted by other EU countries.
Two officials who attended Saturdays finance ministers
meeting said the need for better coordinating with the
eurozone outs was first raised by Jeroen Dijsselbloem, the
Dutch finance minister who chairs the committee of his 18
eurozone counterparts.
Mr Dijsselbloem, who is the co-author of a new blueprint of
eurozone reforms, acknowledged euro-area governments
should have been more proactive in keeping non-euro
countries in the loop during the Greek negotiations, the
officials said.
Later in the meeting, Mr Osborne raised the issue again,
officials said, urging the eurozone to be more transparent
and warning that their further integration efforts would raise
profound questions for non-euro countries.
We must recognise we will continue to have a multicurrency
union, so we must protect the interest of those out [of the
euro], one official quoted Mr Osborne as saying.
Two officials also said Mr Osborne warned his eurozone
counterparts not to force the UK into the common currency,
saying it would lead Britain to leave the EU a comment that
caused some head-scratching, since no government has ever
suggested Britain should join the euro.
A UK diplomat said Mr Osborne was heartened by the
discussion, arguing it showed eurozone ministers realised the
importance of one of the issues London has raised as part of
its EU renegotiation efforts.
It was welcome for us both that both ins and outs spoke
about these arrangements between eurozone and non-euro
countries, acknowledging theres work to be done, said the
UK diplomat.
In the meeting, both Mr Osborne and several of his eurozone
counterparts said they also wanted to make sure further
eurozone integration did not threaten the EUs common
market, which Mr Gramegna called a precious aquis of the
EU.
(Full article click - FT)
---
Jeremy Corbyn begins task of appointing

shadow cabinet
Taken from the FT Sunday, 13 September 2015
Jeremy Corbyns team will spend the rest of the weekend

finalising their line-up for the new leaders shadow cabinet in
the first test of Labours unity.
Fresh from his coronation as leader of the opposition, Mr
Corbyn knows that this will be a crucial test of his ability to
bring in talent from across the party.
Angela Eagle, former shadow leader of the Commons, has
been widely tipped for the role of shadow chancellor. It is the
duty of all of us to pull together, she said on Saturday
afternoon.
Other names in the frame for that crucial post include Owen
Smith, former shadow Welsh secretary, and John McDonnell,
a hard left ally of the new leader.
Labour MPs who could end up in senior positions include
Hilary Benn, currently shadow foreign secretary, Andy
Burnham, shadow health secretary and Chi Onwurah, a
Newcastle MP.
Many senior figures have already indicated that they will
boycott the front bench, including defeated leadership
candidates Liz Kendall and Yvette Cooper, as well as Tristram
Hunt and Rachel Reeves. Chris Leslie resigned as shaddow
chancellor.
They have refused to temper their hostility to Mr Corbyns
uncompromising anti-austerity and foreign policy stances
I will not seek to serve in the shadow cabinet, said Mr Hunt.
Jeremy deserves respect for his handsome victory. He needs
space to build his team.
One member of the shadow cabinet said he was torn over
whether to serve or not: its just a total absolute nightmare,
he said.
Some advisers and aides said on Saturday that they would be
looking for new jobs, making it harder for Mr Corbyn to run
an experienced political machine. Im f***ed, youre f***ed,
were all f***ed, said one just minutes after the result.
Mr Corbyns speech was greeted with roars of delight by his
supporters, but criticised by some party insiders. It was
laughably bad, he seemed to have barely done any
preparation, said one.
The new leader hopes that the scale of his victory will make it
much harder for rebels to destabilise him from the back
benches.
Although he had fewer than 20 supporters among Labour
MPs, it seems likely that he will be able to fill the opposition
partys nearly 100 front bench posts.
Louise Haigh, an MP who nominated him - but then backed
Andy Burnham - said that he had a huge mandate from party
members.
Hes now in a really strong position to lead the Parliamentary
Labour Party, she said. It will now be very difficult for
dissenters to get a foothold against the leader. No one has ever
before won in the first round of voting.
Clive Lewis, one of the new intake of MPs - and a key
supporter of Mr Corbyn - said that the scale of victory was a
huge demonstration of support.
There is going to be a big realisation that the party needs to
pull together, there were people in the room who werent
happy, some people are in shock, some are upset but I know
that Jeremy will be magnanimous, inclusive and conciliatory,
he said.
He insisted that Mr Corbyn was serious about wanting to
reach out to MPs who had not supported him during the
summer. They are not just words, he said.
Likewise Paul Richards, co-founder of Progress - a Blairite
group - urged others in his wing of the party to stay on the
front line of politics.
Modernisers need to stick with this, not flounce out into

internal opposition, they should take positions if offered, he
said. There are 100 roles and only 20 supporters of Corbyn so
he has to fill them with people who dont support him.
The new leader went straight from his coronation at the
Queen Elizabeth II centre on Saturday to a rally in support of
refugees.
He has cancelled an appearance on the BBC Andrew Marr
Show on Sunday morning, where he was expected to make a
pitch to the nation.
His first test in parliament will be on Monday when he seeks
to rally criticism of the governments trade union bill, which is
designed to crack down on industrial action.
He will confront his own MPs on Monday night when he
addresses the PLP at its regular meeting in the Commons.
Two days later will see his first head-to-head battle with David
Cameron during Wednesdays prime ministers questions.
Mr Corbyn is surrounded by a tight knot of aides from the
same hard-left faction of his party. They include Simon
Fletcher, who worked for Ken Livingstone at City Hall and was
Ed Milibands union liaison official.
Other key staff are Jon Lansman, a one-time adviser to Tony
Benn, Kat Fletcher, a former president of the National Union
of Students, and Harry Fletcher, former head of Napo, the
probation officers union.
Now comes the potentially tricky process of integrating Mr
Corbyns insurgent campaign into the Labour party machine
based at Brewers Green in Victoria, central London.
John Mills, one of Labours biggest donors, said that he would
keep giving money to the party under the new leadership.
We need to stay around to fight for our beliefs when it comes
to policy, Ill keep arguing that we need to appeal to Middle
England from the inside, said the veteran businessman.
One former shadow minister said that MPs had no choice
other than to unite around Mr Corbyn. Hes the leader, what
else can we do, he has a democratic mandate, he said.
But Mike Gapes, a long-standing Labour MP, said the mood
reminded him of the early 1980s.
Back then the far left came along, we had large rallies with
Michael Foot, we had massive numbers of people going on
anti-nuclear marches - but then had an appalling election
result where the vote went down and we lost badly, he said.
---
Bosses sound alarm as Corbyn romps home

Taken from the Sunday Times 13 September 2015
BUSINESS leaders reacted with dismay to the election of

Jeremy Corbyn as Labour leader yesterday, saying he would
promote damaging economic policies and possibly push the
Conservative government to the right.
The 66-year-old MP for Islington North in London won easily,
with 59.5% of the vote more than Tony Blair in 1994. In his
victory speech, Corbyn said: We need an economic strategy
that improves peoples lives. We cant do that if we do nothing
about the grotesque levels of inequality in our society.
Simon Walker, director-general of the Institute of Directors
(IoD), said: From renationalising the railways, to raising
taxes on businesses and increasing government spending, he
has proposed policies in the leadership campaign that we
believe would undermine our open and competitive
economy.
One FTSE 100 chairman, who asked not be named, said his
biggest fear was the effect on the Tories. There is a danger it
will allow the right wing of the Conservatives to have a greater
say. Big business is very concerned about immigration and the
European referendum, and a move to the right would not be
welcome, he said.
Business lobbies greeted the new Labour leader cautiously.
The CBI urged Corbyn to support a pro-enterprise agenda

that will spur growth and create jobs. The British Chambers
of Commerce urged him to take a pragmatic approach.
John Mills, founder of the retailer JML and a Labour donor,
said: What Jeremy Corbyn is very good at doing is
articulating what everyone wants to have: a growing economy,
less inequality, no queues outside food banks. But devising
policies to get you there, thats difficult.
Another Labour donor, Ecotricity founder Dale Vince, said he
was excited by Corbyns stance on fracking and green
energy.
Many business leaders were hostile. Nigel Green, head of the
financial advisory company deVere Group, said: So-called
Corbynomics, whereby everyone would pay more tax to fund
increased public spending, would backfire spectacularly.
Others were more circumspect. Sir Martin Sorrell, chief
executive of the advertising giant WPP, said: It will be
interesting to see what the electorate says at the general
election in 2020.
(Full article click - Times)
---
Winner Jeremy Corbyn is the 'Lefts Sarah

Palin'
Taken from the Sunday Telegraph 13 September 2015
Jeremy Corbyn wins by landslide leaving Yvette Cooper and

Andy Burnham humiliated
Labour was plunged into crisis last night after the Left-wing
radical Jeremy Corbyn stormed to a landslide victory in the
partys leadership election.
Leading Blairites warned the party is now fighting for its life
as eight shadow ministers resigned from Labours front bench
within minutes of Mr Corbyns victory.
Mr Corbyn won the election with 60 per cent of the vote and
the backing of more than 250,000 members, crushing the
campaigns of the former cabinet ministers, Andy Burnham
and Yvette Cooper.
Mr Burnham and Mrs Cooper, who served in the governments
of Tony Blair and Gordon Brown, were humiliated and left
with just 19 per cent and 17 per cent of the vote respectively.
Lord Mandelson, one of the architects of New Labour,
warned: "Labour is facing the fight of its life to remain a viable
party of government."
David Blunkett, the former Home Secretary, said Labour
could be on the road to nowhere after he was harangued by a
Corbyn supporter shouting: Jeremy in; Blairites out.
In a further sign of Labours lurch to the left, Tristram Hunt, a
leading moderniser and critic of Mr Corbyns was jeered
outside the conference hall in Westminster where the
leadership result was announced. Mr Corbyns jubilant
backers chanted: Old Labour, not New Labour.
On Saturday Mr Corbyn was preparing to bring back a
number of hard-Left socialist MPs to the the partys front
bench, including Diane Abbott, the former minister Michael
Meacher, and John McDonnell, his campaign manager, who
wants to raise taxes on the middle-classes.
One Labour MP said New Labour is now dead and buried
and Liam Fox, the former Tory defence secretary, said that Mr
Blairs legacy has finally been laid to rest.
Ken Livingstone, the former Mayor of London, and Len
McCluskey, the leader of the Unite union, hailed their fellow
socialists victory amid fears of a catastrophic split in the
party.
His election was immediately welcomed by the ultra-left wing
governments of Greece and Argentina while Sinn Fein leaders,
Gerry Adams and Martin McGuinness sent their warmest
warmest congratulations.
The Conservatives warned that the extreme Mr Corbyn
represents a serious risk to national and economic security
as they moved to claim the centre-ground of British politics.
On Saturday night David Cameron called Mr Corbyn to

congratulate him on his victory.
The 66 year-old MP for Islington North came from obscurity
as a rank outsider in June to triumph in the contest.
Mr Corbyn won the leadership in large part thanks to votes
from people who paid 3 to become Labour Party 'members'.
He received 251,417of the 422,664 votes cast in the election.
He took 88,449 of the 105,598 votes from people who paid 3
to become registered members of the party.
As he accepted his new post in a rambling speech to
thousands of cheering supporters, Mr Corbyn declared that a
new movement had been born to fight for a more equal, a
more decent Britain.
Mr Corbyn said the campaign "showed our party and our
movement, passionate, democratic, diverse, united and
absolutely determined in our quest for a decent and better
society that is possible for all".
He went on: "During these amazing three months, our party
has changed. We have grown enormously, because of the
hopes of so many ordinary people for a different Britain, a
better Britain, a more equal Britain, a more decent Britain.
"They are fed up with the inequality, the injustice, the
unnecessary poverty. All those issues have brought people in
in a spirit of hope and optimism... The fightback now of our
party gathers speed and gathers pace."
After the official announcement at the Queen Elizabeth II
conference centre in Westminster Mr Corbyn and his team
went to a nearby pub, the Sanctuary House, where the new
leader drank lime and soda, and led his supporters in a
rousing chorus of the socialist anthem, The Red Flag.
Speaking to supporters in the pub, Mr Corbyn paid a warm
tribute to Mr McCluskey and his union, Unite, who had been
fantastic for providing office space and support for his
leadership campaign.
Mr McDonnell, the backbench socialist MP who ran Mr
Corbyns campaign, said he was almost in tears at the result.
The earth moved, he said.
Another world is possible. We want to bring this government
down. We want to install in Number 10 one of the best
socialists.
But the result opened up a vast rift between Labours
grassroots members and the partys MPs, the most of whom
did not back Mr Corbyn for leader and who believe he will
lead them to electoral oblivion.
Labour grandees, including Lord Mandelson and Mr Blunkett,
who both served under Tony Blair, warned that the party
under Mr Corbyn was facing disaster.
Speaking outside Labours special conference in Westminster,
Mr Blunkett said he was deeply fearful about Labours future
and warned that Mr Corbyns aggressive supporters must be
reined in.
One of them spoke to me in the conference and said Jeremy
in; Blairites out, he said.
Now if that is the attitude were on the road nowhere. We
need policies that mean something and are relevant to people
out there. The issue is whether there will be a Labour
government in 2020 which will be addressing the issues in
four and a half years time which are very different to the ones
Jeremy has been campaigning on today.
We cannot fulfil anybodys promises and we cannot help
those that need a Labour government most if we remain in
opposition. I am deeply fearful of the direction which we
might go.
Lord Soley, a former chairman of the Parliamentary Labour
Party, said he feared victory for Mr Corbyn "may have handed
the next election to the Tory party".
Comparing the choice of leader to that of Iain Duncan Smith
taking charge of the Conservatives in 2001, he said: "They very
quickly got rid of IDS. I do not see that happening as quickly

with Labour."
Mr Corbyns team hit back at their critics, declaring that New
Labours legacy was dead after the Blairite leadership
candidate, Liz Kendall, won just 4.5 per cent of the vote. One
of the new leaders advisers said: The Blairites didnt even get
five per cent of the vote - they are a historical anomaly.
Mr Corbyn now faces a huge struggle to unite the Labour
party in parliament behind his leadership. Only 15 per cent of
MPs many reluctantly agreed to nominate him so that his
name could be on the ballot paper in June.
A number did so saying that they would not be voting for him
and hoped he would not win.
Jamie Reed, the shadow health minister was the first to quit
yesterday, publishing his resignation letter while Mr Corbyn
was still on stage making his acceptance speech.
Within minutes of the result being announced, Mr Hunt quit
as Labours shadow education secretary, Rachel Reeves
resigned from her post as shadow work and pensions
secretary, and Emma Reynolds quit as shadow communitys
secretary.
Mrs Cooper, the shadow home secretary, Ms Kendall, who was
shadow care minister, and Chris Leslie, the shadow
chancellor, have also indicated that they will not serve under
Mr Corbyn.
Angela Smith, a shadow environment, also quit in protest at
Mr Corbyn's foreign policies.
Mr Burnham is said to be considering taking a post in Mr
Corbyns team.
Mr Hunt and Chuka Umunna, who withdrew from the
leadership race in May, have formed a group dubbed The
Resistance to oppose Mr Corbyn from within Parliament.
However, on Saturday they were keeping their own counsel,
with Mr Umunna publicly calling for the party to unite
following Mr Corbyns victory.
Ed Miliband, the former Labour leader, echoed calls for unity.
He said he would support Mr Corbyn and denied claims that
the leadership election had been decided by a huge influx of
radical socialist entryists who joined the party to vote in the
contest. More than 350,000 people signed up to the party
since the election.
Right across our party, party members, party supporters,
affiliated supporters, they voted for Jeremy Corbyn, Mr
Miliband said. "It is a massive opportunity for our party.
People wouldn't believe it was possible to have a political
party of 500,000."
Jeremy has won a very clear victory in all sections of the
party. I believe we should respect that mandate, Mr Miliband
said.
I hope and I expect him to do this, that Jeremy reaches out to
all parts of the party because he has a big job to do to unite the
party.
Mr Corbyn received messages of support from Left-wing
parties around the world, including Syriza in Greece and
Podemos in Spain. The President of Argentina, Christina
Fernandez de Kirchner, congratulated him, calling him a
great friend who actively supports the call for dialogue over
the future of the Falklands.
Appearing at a rally for refugees in Parliament Square, Mr
Corbyn said he would not join the clamour to bomb Isil
jihadists in Syria as this would lead to the mourning of the
loss of soldiers of all uniforms.
The Conservatives warned that Mr Corbyn posed a major
threat to Britains national security.
Michael Fallon, the defence secretary, said: Labour are now a
serious risk to our nations security, our economys security
and your familys security.
Writing in the Telegraph, Michael Gove, the Justice Secretary
called on everyone who recognises just what a risk Jeremy
Corbyn poses to our country to join the fight against Labour.

He would be a Prime Minister who believes his real friends
are the terrorists of Hizbollah and Hamas not the
governments of Denmark and Holland, a Prime Minister who
thinks the death of Osama bin Laden is a tragedy and our own
Armed Forces have had their day, Mr Gove said.
Tom Watson, who was elected as Labours new deputy leader,
warned Conservatives not to underestimate the new
Opposition team.
To all those Tories sniggering up their sleeves that we wont
win in 2020, I say simply this: Watch this space. Watch your
backs. Well be watching you and we will win in 2020, he
said.
There were suggestions that MPs angry at the result would try
to remove Mr Corbyn in a coup.
One senior figure in a rival leadership campaign said: Corbyn
has declared war on the parliamentary Labour Party. We will
be considering our response.
Mr Corbyn spent Saturday evening in Brewers Green
headquarters with the partys general secretary, Iain McNicol,
discussing shadow cabinet appointments and discussing how
to implement his radical policies, which include scrapping
nuclear weapons, renationalising the energy companies and
ending austerity.
(Full article click - Telegraph)
News from the EU

Euro not so attractive for us anymore:
Polish finmin
Taken from the CNBC Saturday 12 September 2015
Once upon a time, it looked likely that Poland would

eventually join the 19-country euro zone.Yet over a decade
after the Eastern European country joined the European
Union in 2004, Poland is doing just fine.
Arguably, the country is doing better than if it had joined the
the single currencysomething Poland's top finance official
hastened to point out on Saturday as a reason to stay on the
sidelines.
"The balance of risks and benefits (of joining the euro) has
changed," Poland's finance minister Mateusz Szczurek told
CNBC Saturday.
Speaking from the meeting of European finance ministers in
Luxembourg, the official said that his country may "need to
calculate more on what needs to be done before Poland
considers joining the euro zone."
Indeed, Poland is one of Europe's fastest growing economies,
expanding at a rate of 3.4 percent in 2014. This year, the
European Commission forecasts that Poland's gross domestic
product (GDP) to grow 3.3 percent, while it expects the euro
zone to see 1.5 percent GDP growth.
Such statistics, coupled with crises affecting euro zone
countries like Greece, have made joining the single currency
not as attractive as it once seemed for the Poles.
It has also made membership an increasingly tough sell to
make to the country's population. A June poll in by research
firm TNS Poland showed that half of Poles have a negative
opinion of the euro and suggested a growing number of euro
skeptics.
Poland first joined the European Union in 2004 and had
aspirations to join the then-fledgling and crisis-free euro zone.
More than a decade on, in which the bloc has been buffeted by
financial crises and political gridlock, Poland appears well
placed outside the euro zone.
"In 2004 when Poland was joining the EU, the strength and
maturity of the Polish economy compared to the euro zone
was completely differentat that time it looked like a nice,
quick upgrade to a developed market status," Szczurek said.
However, "at this time we have made the way already, while
the euro zone itself has diminished in terms of attractiveness,
so the balance of pros and cons has shifted," he said.
Before, Poland would have to fulfil certain budgetary criteria
before joining the euro. Now, the minister told CNBC that the
euro zone would have to evolve in order for Poland to sign up
and say goodbye to its zloty.
"First of all, after the years of crisis in the euro zone, we need
to have a mechanism to counter-balance the lack of interest
rate and exchange rate flexibility," he said. That means "much
more fiscal room for maneuver lower public debt, lower
deficitto react to business environment changes that are not
symmetric within the euro zone," he added.
Szczurek said: "The key is to make sure this is beneficial for
everyone, and if it's going to strengthen the economy and
improve stability then it's good."
(Full article click - CNBC)
---
Juncker obstructs investigation

Luxembourg tax shelters
into
THE president of the European Commission, Jean-Claude

Juncker, has been accused of obstructing an investigation into
Luxembourg-based corporate tax avoidance schemes that
were set up when he was prime minister of the grand duchy.
The European parliament is looking into deals that have
allowed multinationals to avoid paying billions of pounds in
corporate taxes to countries including Britain.
Juncker, 60, was finance minister of Luxembourg from 1989
until 2009 and its prime minister from 1995 to 2013. Details
of the schemes emerged last year in what became known as
the LuxLeaks scandal.
MEPs on the special committee set up to investigate the
arrangements have accused the commission of refusing to
divulge key evidence. It is shameless and illegal to withhold
this and it will further damage the credibility of Mr Juncker,
said Sven Giegold, the German spokesman of the committee.
We were denied access to key evidence by the commission, of
which Mr Juncker is in charge. We need these documents to
clarify the political responsibility. The parliament will not
stand for that. We will take legal action if necessary.
The evidence includes minutes from confidential meetings
between European Union finance ministry officials, Eurocrats
and industry representatives that helped to set up the
schemes.
Giegold claimed that the EU member states and companies
implicated had also failed to co-operate with the inquiry.
The scandal broke last year after Antoine Deltour, a former
employee of the accountancy firm PwC that helped companies
to set up in Luxembourg, copied internal files showing how
the practice flourished between 2002 and 2010.
They revealed that the Luxembourg tax authorities made more
than 500 secret deals with individuals and 300 with
multinationals, even though they did not actually conduct
much economic activity in the grand duchy.
Companies that used the favourable arrangements which
are legal included UK firms such as Dyson, the vacuum
cleaner maker, Shire, the drugs group, and the City trading
firm Icap.
Others included Amazon, Pepsi, Ikea, Accenture, Burberry,
Procter & Gamble, Heinz, JP Morgan and FedEx.
In a speech last week Juncker pledged to crack down on tax
avoidance, saying: The country where a company generates
its profits must also be the country of taxation.
MEPs have responded by accusing Juncker of hypocrisy for
his role in creating the Luxembourg arrangements. He is due
to be questioned by the special parliamentary committee on
Thursday.
This will put a lot of pressure on him and hopefully put the
spotlight on the scandal, said Giegold.
The European Commission said its refusal to hand over the
documents was based on legal concerns and confidentiality.
---
Bid to halt 6bn Worldpay float

TWO French and German technology giants are this weekend

vying to buy their larger British rival Worldpay but it looks
likely to escape their clutches by floating on the London
market.
Competing bids yesterday drove up the price of Worldpay to
6.7bn about 4bn more than when the payments
processor was spun off from Royal Bank of Scotland five years
ago.
Battling to acquire it are Ingenico of France and Wirecard of
Germany, with a longshot private equity consortium of
Hellman & Friedman and Blackstone on the fringes.
The Worldpay board meets tonight to make the crucial
decision on whether to spurn the bidders and float instead.
The company would become a member of the FTSE 100.
The directors decision is important for the London market,
which is hoping for a string of high-value floats before the end
of the year. The brick maker Ibstock and the spread-betting
company CMC are primed to go.
A float announcement from Worldpay was expected late on
Friday. However, its owners the private equity firms Advent
International and Bain Capital delayed the decision to
consider a late flurry of bids.
The float was described as almost done by insiders
yesterday. Worldpay, Advent and Bain declined to comment.
Worldpay processes more than 26m transactions a day. RBS
was forced to give up control of the business in 2010 for
roughly 2bn under the conditions of its state bailout. The
bank sold its remaining stake three years later.
Senior sources said the management, including chief executive
Philip Jansen, were determined to lead the company onto the
stock market and then start buying rivals.
They were said to be keen to do deals in North America, where
Worldpay wants to expand. A transatlantic deal would come
before possible takeovers of Ingenico and Wirecard, both
smaller than the British company.
A float would give the company a market value of up to 6.6bn
and generate huge fees for its advisers, which include
Goldman Sachs, Bank of America Merrill Lynch and Morgan
Stanley.
---
Clock ticking for 1bn Moto bidder

A MINORITY investor in one of Britains biggest motorway

services operators has been given until the end of the month
to see if it can hatch a 1.1bn takeover.
The Moto chain of about 60 services sites is being sold by
Australian bank Macquarie, which bought it and a clutch of
food outlets from Compass at the height of the boom in 2006
for 1.8bn.
Equity Partners Infrastructure Company, a New Zealand
investor with a 17.5% stake in Moto, is thought to be trying to
exercise its right to make the first offer.
City sources said it was trying to bring in investors, including
Korean and British pension money as well as Chinese funds.
There is competition from a consortium formed by Morgan
Stanley, 3i Infrastructure and Deutsche Bank.
The sale reflects soaring appetite for assets with stable cash
flows and dominant market positions. Investment bank Citi is
running the sale.
---
Jeremy Warner
A German 'racket' that shows no sign of
abating
Germany has taken over from China as the big "sinner" in the
global economy
With characteristic lack of tact, Nicolas Ridley, a long standing
member of the Thatcher cabinet, once described the European
Union as just a Germany racket. In the subsequent fall-out,
he lost his job. Such are the penalties of speaking the truth.
Another record in the German trade surplus, announced last
week even as Britain reported a further deterioration in its
almost equally jaw dropping deficit, somewhat confirms Mr
Ridleys observation.
Angela Merkel, the German Chancellor, has played a blinder
by offering to take Syrian refugees in their hundreds of
thousands.
Widely blamed for the macro-economic imbalances at the
heart of the eurozone crisis, and the wrong headed, not to say
vindictive, policy response to it, shes at a stroke managed to
turn the tables and assume the moral high ground. Germany
has rebranded itself a warm, cuddly, welcoming and
compassionate nation.
And no doubt on many levels it is. However, when it comes to
the global economy, it is increasingly hard to see this
European superpower as a benevolent force.
In July, Germany recorded a record 25bn trade surplus, with
exports surging 6.3pc. Some would see this as a mark of
competitive success, as indeed Germans are prone to argue.
Germany makes great products that lots of people want to
buy. But this success is enormously assisted by the fact that
Germany shares a currency with 18 others.
The upshot is that Germanys inflation adjusted exchange rate
may be undervalued by anything up to 40 per cent, making its
products very much more competitive than otherwise.
Admittedly, the trade surplus with other eurozone nations has
declined somewhat since the onset of the crisis, but this is
largely due to the depression like conditions that eurozone
policy has imposed on much of the region, causing imports to
collapse in the afflicted nations.
The imbalances are still basically there.
As for the current account surplus with the rest of the world,
Germany has taken over where China left off. It used to be
China that kept its exchange rate undervalued to promote
exports.
Germany now finds itself accused of the same mercantalism,
with a current account balance of 7.6 per cent of GDP last
year, forecast by the IMF to rise to an awesome 8.4 per cent in
2015.
The European Commission has got rules the so-called
Macroeconomic Imbalance Procedure to deal with
persistent offenders, but somehow they never get
implemented with quite the same vigour applied to member
states that disobey German inspired fiscal disciplines.
Theres a shameful asymmetry in the EUs approach. Germany
insists that everyone else stays in line, but is strangely
uncompliant on its own side of the bargain. And they wonder
why the EU is seen as a German racket.
---
Why warring France and Germany are still

the biggest threats to an EU superstate
Competing visions for the future of economic and monetary

union are set to tear apart a single currency in flux
With just a week to go before its second general election in
just nine months, Greece's political and economic turmoil has
faded into the background of Europe's endless institutional
drama.
Engulfed by a refugee crisis that represents the biggest
movement of humanity since the Second World War on its
shores, the EU's troubled elites are now grappling with a
humanitarian disaster which far eclipses talk of debt write-offs
or fiscal discipline in the Mediterranean.
But the appetite to drive home integration in the face of such
flux remains undimmed in Brussels.
With events in Greece reaching a satisfactory denouement for
the eurozone's creditors, talk has now moved to shoring up the
single currency's institutional foundations and finally
"completing" economic and monetary union.
In a rambling and often inchoate "State of the Union" speech,
European Commission president Jean-Claude Juncker
warned that Brussels' vision for its landmark political project
could no longer be just "empty words".
"I want them to provide real orientation" he said. "There is not
enough Union in this Union."
Whose 'Fiscal Union' will win out?
Juncker's appeal hinted at competing visions for the future of
the single currency held by its founding member states:
France and Germany.
Although both speak of the urgent need to move towards a
"fiscal union", the term conceals contrasting notions of what
the eurozone should look like.
For Berlin, a fiscal union has always involved tougher
budgetary rules, automatic spending cuts, and strict
punishment mechanisms to shield member states from
market contagion and financial chaos.
Paris however, has long harboured grander visions for the
euro project.
It is pushing for a true economic government of Europe with
investment rather than austerity enshrined at its heart.
This Franco-German tussle has come to define EMU - an
orphan currency torn between a latter-day Gold Standard and
a genuine global reserve currency, wrote Yanis Varoufakis,
former Greek finance minister and trenchant critic of
Brussels' institutional setup.
Greece's crisis has only catalysed these divisions. In the last
month, a chorus of France's leading lights have called for an
end to the austerity dogma that has defined the single
currency since the financial crisis hit.
The next major step on the path of integration, they say, must
be the creation of a joint euro treasury, pooling member state
cash to fund flagging investment and provide a solid
institutional basis to fight "asymmetric shocks" across its 19
disparate economies.
This direction of travel is welcomed by the EU Commission.
Juncker has said he is not willing to pick sides in the FrancoGerman debate, but Brussels' "Five President's Report" setting
out the course for eurozone reform has already been dubbed
as a dangerous slide into a discretionary EU superstate in
Berlin.
German finance minister Wolfgang Schaeuble made German
discontent clear this week, calling the Commission's drive for
greater risk-sharing and a common bank insurance scheme as
"unacceptable".
"Schaeuble, the German government and wider public, don't
want to have an economic government in Europe, but an
economic constitution," says Michael Wohlgemuth, director of
Open Europe in Berlin.
"This is a rules-based stability framework where major

decisions making would be taken out of the hands of hands of
politicians and dealt with by specialists."
A broken locomotive
With the euro's institutional settlement in a state of flux, other
members of the union are urging for a new method of
consensus to shape the single currency's future.
"It has always been France and Germany as the locomotives
pulling the train", said Belgian finance minister Jan van
Overtveldt this week. "The model doesn't work any more."
"Until a decade ago, the two countries were more or less on an
equal footing. Germany was economically more powerful,
France had political and diplomatic clout. France has been
going downhill economically at such an astonishing rate,
certainly compared to Germany, and it can not longer
compete. The two countries are in a different league."
Others note that the EU's visions for political and fiscal union
can never be realised without the true democratic consent of
its citizenry.
'Integration by crisis' has proved effective, but it no longer
inspires the support of the citizen (if it ever did)" said Benoit
Coueure, executive board member of the European Central
Bank.
This perennial problem has plagued the European project for
even longer than French and German clashes. It is one that
Europe's elites have no answer to.
"You cannot build a well-functioning, durable monetary
union, without the members accepting a loss of sovereignty.
It's one of the other", said Mr van Overtveldt.
"The acceptance of the necessity to let go part of your national
sovereignty is still a huge problem. I don't think we can solve
it even in the medium term because it is so deeply engrained
in the national character of some of the most important
countries."
The most likely outcome to the current reform debate is set to
be another classic EU "fudge", with a veneer of democratic
legtimacy through a greater oversight roles for the European
parliament, say analysts.
But after seven years of lurching from crisis to crisis, it is a
response which will not fulfill the dreams of the euro's
founders, be they French or German.
Greek News
Eurozone waits for elections, rules out
renegotiation
Taken from the Kathimerini 13 September 2015
Eurozone officials were calm on Saturday about the potential

outcome of the general elections in Greece but made it clear
that the next Greek government should not expect to be in a
position to renegotiate parts of its bailout agreement.
For the first time in around seven months, the Eurogroup
meeting that took place in Brussels was not mostly focused on
Greece. In fact, the official statement at the end of the talks
made only a small reference to the Greek program.
[The Eurogroup] is confident that the new government,
which will be formed after the general elections later this
month, will work constructively with its euro-area partners
and the institutions to implement Greeces new economic
adjustment program, agreed in August, it said.
Eurogroup chief Jeroen Dijsselbloem underlined the need for
preparations to continue while Greece waits for a new
government to be elected so there will be no significant delay
in the review process.
I think that its important that in Greece the preparations
continue while the political situation is of course unclear at
the moment, said Dijsselbloem, who is also Dutch finance
minister.
The work needs to continue as much as possible and the
same would go for the institutions, he said.
He was adamant that renegotiation of the deal sealed last
month is not possible.
Caretaker Finance Minister Giorgos Houliarakis assured his
counterparts that any non-legislative work is being done in
Athens so that no time will be lost once a new government is
in place, sources said.
European Economic Affairs Commissioner Pierre Moscovici
noted that Greece has a lot of milestones to meet in October,
particularly drafting a plan for pension reform and the budget
for 2016.
We must be ambitious on the timing of the first Greece
program review, without being any less ambitious on the
substance, said Moscovici.
(Full article click - Kathimerini)
---
Greece's Syriza, New Democracy still hard

to separate, polls show
Taken from the Reuters News Sunday 13 September 2015
The leftist Syriza party of former Greek prime minister Alexis

Tsipras maintained a wafer-thin pre-election lead over
conservative New Democracy in three opinion polls on
Saturday, with a fourth putting them level-pegging.
The two parties have been hard to separate in the run-up to
the Sept. 20 ballot, and Tsipras and his center-right
counterpart Vangelis Meimarakis have spent much of their
campaigns trying to protect their vote, trading accusations
over Greece's economic crisis, migration and corruption.
In surveys published in the Sunday editions of four
newspapers, Syriza led by between 0.3 percent and 0.7
percent in three, hovering around 26 percent of the vote.
A fourth, by Public Issue poll in Avgi that included the
preferences of undecided voters, put both parties on 31
percent.
In the other polls the undecideds, invariably the third largest
bloc in surveys published this month, came in at between 10.4
and 14.1 percent
Pollsters expect some of those voters to come off the fence
after a televised head-to-head debate between Tspiras and
Meimarakis on Monday, though a seven-party debate
broadcast on Wednesday had little impact on voting

intentions.
(Full article click - Reuters)
---
Greek polls point to conservative leader as

surprise winner of national elections
Taken from the Sunday Observer 13 September 2015
Vangelis Meimarakis, leader of pro-European New

Democracy, poses a real threat to Syrizas Alexis Tsipras as
popularity soars
Mustachioed, tall and in many ways resembling a Cretan
warlord, Vangelis Meimarakis, the man never meant to be a
leader, may emerge as the surprise winner of the Greek
elections next week.
Opinion polls are showing that almost nothing about the snap
ballot, the third this year, is reminiscent of previous votes
starting with Meimarakis, who fortuitously has found himself
heading the conservative New Democracy party. Under his
watch, the pro-European force has come within a whisper of
former prime minister Alexis Tsiprass Syriza.
A poll released by the University of Macedonia on 11
September showed New Democracy trailing by just one point
with 19%. Those polled said they had been impressed by
Meimarakiss performance in a political leaders debate last
week, compared to 13.5% who favoured Tsipras.
A survey by Palmos Analysis on Saturday reinforced the
findings, with the conservatives gathering 23.7% of voter
support, compared with 24.9% for the leftists. He has an
emotional intelligence [and speaks] common sense, said
political analyst Dimitris Kerides.
He has also managed to unite the partys various factions,
move it to the centre and, in so doing, appeal to a wider
audience, he told the Observer. He is the great surprise of
this election.
In July, data released by polling company Metron Analysis
revealed a 25-point gap between New Democracy and Syriza,
with the leftists leading at 42%. Assured of victory, Tsipras
called the snap election on 20 August, hoping to tighten his
grip on power after a mutiny of hardliners opposing the
tough terms of a third bailout for the debt-stricken nation in
effect stripped him of a parliamentary majority.
But mirroring the unpredictability of life in a country that only
narrowly survived euro exit when creditors agreed in July to
extend an 86bn financial lifeline to Athens after months of
acrimonious negotiations, little has gone to plan. Nearly six
years after the eruption of the financial crisis, the express
election, while shorn of the bellicosity of previous polls, has
revealed Greeks to be in a fickle mood.
With many blaming the leftists for months of political and
economic turmoil culminating with Tsiprass shock decision
to put the demands of creditors to popular referendum and
the imposition of debilitating capital controls the backing
for Syriza has dropped dramatically.
The euphoria that greeted Tsiprass stunning victory in
January has instead been replaced by political cynicism. The
erstwhile firebrands decision to roll back on the promise to
eradicate austerity by accepting further reforms, including
spending cuts and tax increases as the price of averting default
and remaining in the euro, has alienated many.
First-time voters, Syrizas traditional core supporters and
young Greeks hit by unemployment of more than 50% all of
whom had rushed to vote no in the referendum, only to see
their vote turned into a yes feel particularly betrayed. It
seems pointless to vote when my ballot seems so worthless,
said Ilias Papazoglou, describing himself as an unemployed
entrepreneur. What we are being asked to do is vote for a
government that will pick up the phone when Merkel calls and
do whatever Germany says.
Berlin, the main provider of the bailout funds that have

propped up the moribund Greek economy, has made clear
that it would like to see a grand coalition that could
implement the tough measures the rescue package demands.
It is much better that Tsipras is in the government enforcing
policies, said one EU official. If he is in opposition he is on
the street fomenting trouble.
With no party set to win an absolute majority, Meimarakis,
who took over New Democracy as an interim leader when
Antonis Samaras, his predecessor resigned in July, has been
unusually consensual, saying collaboration is crucial to
enforcing reforms.
Indicative of the tough times that lie ahead, schools
nationwide failed to open on Friday citing budget cuts and
lack of staff. Rising poverty levels has stoked similar concerns
that Greece could be heading towards its harshest and most
explosive winter yet.
(Full article click - Observer)
---
ECB Review of Greek Banks Under Way,

Could Be Done End-October
Taken from the Bloomberg News Sunday, 13 September 2015
European Central Bank President Mario Draghi told euro-area

finance ministers that a review of Greek banks is under way,
according to Jeroen Dijsselbloem, the Dutch representative
and leader of the group.
As a result, the bank review is on track to finish up by the end
of October and, if needed, banks could access some
recapitalization funds from Greeces bailout relatively quickly,
said European Stability Mechanism chief Klaus Regling. He
and Dijsselbloem spoke to reporters after the finance
ministers met in Luxembourg.
This is a complex exercise, Regling said of the review, which
includes a balance sheet assessment and stress test for
Greeces four systemically important banks.
The euro areas single supervisor, the ECB, will tell the ESM
how much is needed from the public funds. The bailout deal
includes as much as 25 billion euros ($28 billion) for bank aid,
which could be mitigated by private investors, Regling said.
Ive no clue at the moment on what will be the result of that,
what is the capital need for these four Greek banks, Regling
said.
Greece received an 86 billion-euro bailout package, its third
since 2010, in August after months of difficult, all-night
deliberations that threatened the nations membership in the
common currency. The tension wreaked havoc on Greeces
financial system, as the country imposed capital controls and
questions rose over the fate of its four biggest lenders,
National Bank of Greece SA, Piraeus Bank SA, Eurobank
Ergasias SA and Alpha Bank AE.
Euro-Area Approval
When the euro area agreed to the bailout deal, it required the
bank review to be completed this year and also said that
senior bank bondholders should not be shielded from losses if
banks are recapitalized. Current EU rules require junior bank
creditors to absorb losses if banks receive state aid, and new
rules that take effect Jan. 1 will extend to senior creditors.
The new bailout arrangement includes two aid installments
earmarked for bank recapitalization. None of the money can
be released without a recommendation from ECB supervisors
and ESM approval.
An initial 10 billion euros has already been set into a
segregated account at the ESM. To tap that money after a
central bank request, the euro-area finance ministry deputies
who serve as the firewalls directors must approve a
disbursement. In some cases, those directors might be
required to consult their parliaments or legislative
committees.
Once the ECBs supervisory arm seeks that aid, it could be

released quickly, Regling said. In addition to euro-area
approval, release of the funds also requires permission from
the European Commissions competition division, which
reviews infusions of public money into private firms.
Capital Controls
A 15 billion-euro portion of the bailout package must be used
by mid-November and is tied to the first overall review of
Greeces aid program.
Regling said this second installment faces more conditions for
its release. There is an understanding that this might be
made available then. But its not available yet.
ECB Executive Board member Benoit Coeure said at the press
conference that completing the bank review is of urgent
importance. He said it will be crucial that Greece can tap bank
funds in November if needed, and that its up to the Greek
government to decide when to lift remaining capital controls.
(Full article click - BBG)
---
Greeks scavenge for hope but the public

sector remains off the leash
A tale of two sectors: private business is starving while state

workers remain well fed
Down a side road off the central square of the small sleepy
town of Lechena in the south-western corner of Greece,
Panagiota Tsagkou runs a veterinary clinic. Like all businesses
in Greece, hers has been affected by the debt crisis that has
brought the country to its knees. She just about manages to
get by financially, but on one front she struggles to cope: the
number of stray and abandoned dogs in and around Lechena
has soared over the past few years.
This is a tightly knit community, where everyone seems to
know everyone and they all know that Panagiota (known as
Giota) will take in strays. Many dogs arrive at her clinic having
been poisoned or worse found shot in the head.
Giota treats these dogs for free, sterilising them to prevent
them from breeding. But she has reached breaking point.
Demand is too high and the scant resources generated by her
private practice wont stretch that far. The government
certainly hasnt paid her for any of the work she has carried
out for the community.
So when a group of vets in the UK offered to help, she jumped
at the chance. For seven days, a team of four vets and nurses
led by veterinary surgeon Dr Hugo Richardson of the London
Vet Clinic (LVC) in Marylebone, has been spaying and
neutering dogs at Giotas practice, free of charge. The work
was only made possible by generous donations from clients at
LVC.
Animal health is, understandably, far down the priority list for
most Greeks, many of whom struggle to feed their own
children, let alone their pets. Its not exactly top of the agenda
for the state, either, when hospitals lack basic supplies and
police forces dont have the funds to even fill up their cars.
But a surging stray dog population does present risks to
humans, says Dr Richardson, and early intervention is crucial
and more cost-effective.
One of the biggest threats is diseases which spread from
animals to people. Rabies would be a massive human health
issue if it got into the stray dog population. Parasites such as
Leishmaniasis, which most of the dogs here carry, pose risks
to humans, too.
This problem is just one of the many unintended
consequences of the debt crisis in Greece.
And as people prepare to go to the polls on September 20, for
the sixth time in eight years, they hope for stability and for
real change.
That will be hard for any government to pull off.
Giota, who is 41 and a mother of three, is sombre about the

prospects in her country: I dont see a future here for my
children, she says. Six years on in the crisis and nothing has
improved. I wont vote. Theres no point. I voted Syriza last
time, but nothing changed. All politicians are the same.
She points out that all the young have left or are leaving
Greece an exodus of talent. My generation is now the
young. Students go abroad because there is nothing here for
them.
Tryfon Siklis, Giotas husband, is an anaesthetist, and his
work has fallen by half since 2010.
Hospitals are in a bad situation. They dont have the basics
like syringes, swabs and dressings, he says. Many people I
know cant make it through the month. They rely on parents.
In the private sector workers wait months before getting
paid.
Charalampos Anastopoulos, a 25-year-old structural engineer,
says that when he returned to Greece to work at his fathers
firm after studying in the UK, it was a very different market.
The phone just didnt ring any more. Customers could not
pay.
He reckons Greece is looking at a decade or two of austerity,
and says all of his friends are unemployed.
Everything has fallen apart. We had a basketball competition
here, and you had to pay two euros to take part. I have friends
who could not even afford that.
Will he vote next week? Yes, he says, but for a smaller party
because I dont believe in miracles.
I was disappointed with the last elections, but understand
why people were drawn to a promise-maker like Alexis
Tsipras. And the government before Syriza squandered the
bail-out funds. The best outcome now is for a coalition. I hope
that as a unified country the parties can work together with
the Troika.
His views are shared widely in Lechena. A coalition is the
only way, agrees Tryfon. If the parties can come together
and implement the reforms the Troika has demanded, then we
have a chance.
Agriculture is the biggest industry in the municipality. Fertile
land and favourable weather make it an ideal place in which to
cultivate melons, watermelons, tomatoes and olives.
Takis Lainas, president of Geoplant, an agricultural supplies
company, says all he wants is stability.
I dont mind if its left or right, just as long as its stable, but
the politicians in Greece are not big on collaboration, he says.
Vassilis Pantazis, who heads Agrofrut, a major fruit producer,
wants a government that will start solving problems, rather
than making hollow promises.
The biggest destruction for Greece was Syriza. The only way
is if different parties work together.
Down the road, Vassia Pantazi runs sister business Pantazis
Fruit: For Greece the critical thing is political cooperation,
she says.
The other thing most people in the area seem to agree on is
that the biggest impediment to progress is the size of Greeces
public sector.
The country has a population of 10million, of which 2.5
million are pensioners, one million are government employees
and two million work in the private sector. A further 1.7
million are unemployed. The rest are children or students.
So you can see why the current situation is unsustainable,
says Tryfon. The only solution is for the public sector to be
cut back. But every government since the crisis has chosen to
raise taxes, while doing little to stimulate the private sector
because they only want to protect votes.
Greek politicians, he complains, care only about themselves.
They have no experience in business or the real world, he
says.
Public-sector workers, like those in the private sector, have

seen their salaries cut significantly. But at least they get paid.
Public sector employees and pensioners are the first to get
paid and the only ones to get paid on time. We need
investment into the private sector, but there is no motivation
for companies to come to Greece. Who would want to?
And that's what's so tragic about the situation: this is a nation
with huge potential: strong agriculture and industry, a good
tourism and service sector and a highly educated population.
But a company would be nuts to invest in a politically unstable
country, creaking under debt and crippled by an incredibly
punitive tax regime.
What business will invest in a Greece when it takes six
months to set up a company compared to Cyprus where it
takes 15 minutes? asks Dimitris Karkavitsas, an investment
banker-turned-strawberry farmer.
Its not politically popular to be pro-business, he says, and
that has resulted in a raft of daft legislation targeting the
private sector to raise tax receipts.
Syriza, for instance, repealed a tax break on company cars. But
it ended up destroying the auto industry and sectors that
relied on it, such as mechanics. In effort to fill its coffers, the
government drained them even more.
Meanwhile, corporation taxes are going up and companies are
now forced to pay tax one year in advance, making cash flow a
real issue for businesses already affected by the capital
controls.
Things are much more difficult now because we cannot plan
long-term. We dont know what legislation will come in, says
Vassia Pantazi.
Charalampos, the young engineer, says everyone who tries to
make it in the private sector gets strangled. The tax is killing
us, he says.
Vassilis says turnover at Agrofrut has doubled since 2009, but
a lack of financing from the banks is holding back the
company.
In the meantime, the public sector remains a massive beast.
Anecdotally, you hear how some workers in the public sector
are paid without going to work, and how others are raking in
12 different pensions.
Everyone knows what the problem is, but no one is willing to
implement public-sector cuts because of the huge political
cost, says Dimitris, the strawberry farmer.
Dimitris plans to vote for the New Democracy party or for a
smaller party made up of business-minded people.
Things were getting better at the beginning of 2014, it looked
as if Greece could hit its targets. But since the election in
January, when Syriza came to power promising to end
austerity, new words were introduced into our vocabulary:
default, Grexit, bankruptcy, he says.
All the plans I had made to expand are on ice. We knew
Syrizas promises didnt add up. It was simple mathematics.
The party was unprepared to negotiate with the lenders and
attempted to hold them to ransom, but you can't hold the
IMF, ECB and European Commission to ransom.
But does he resent the Troika for setting stringent conditions
to which Mr Tsipras eventually signed up in July after six
months of tense negotiation in order to get the 86bn bailout
funds?
Not really. Dimitris does believe that the budgetary surplus
targets Greece signed up to are ridiculous and laments the
fact that the new bailout terms are worse than the previous
ones. He says that the creditors did make some mistakes in
the beginning and that the six-month negotiation badly
affected the economy. But he is generally supportive.
"If you look at other countries that were bailed out, like
Ireland and Cyprus, things are better there. But here, when
they asked us to implement reforms, we never did, or did it
half-heartedly. We call the Troika loan sharks, but they have

been lending us money at just 0.5pc.
All the previous loans we got from the ECB and IMF, instead
of using them to grow the economy and invest in
infrastructure, we used them for political gain and to expand
the public sector to engineer our budgets.
Charalampos agrees: The debt is lethal, but I cannot be too
angry with the Troika because they are the way out of this. If
we can show goodwill, I am hopeful.
And Vassia is fatalistic about the situation: We are the
debtors. We have to obey. The main thing is to keep the
market alive, increase productivity.
In some ways it might be best if the Troika came and
governed Greece. They know what they are doing, says
Tryfon.
Despite the miserable mess, Greeks remain hopeful. George
Galatis, president of the Lechena community, thinks things
will improve.
Since ancient times we Greeks have been through a lot of
wars and famines, but we always overcome these problems
and we need to do the same thing again. We will succeed, he
says.
News Americas
FT View: Homegrown reasons for the US
Fed to stay put on interest
Taken from the FT Saturday 12 September 2015
The US central bank should keep interest rates on hold next

week
For some time, meetings of the US Federal Reserves open
markets committee (FOMC) have been fairly perfunctory
affairs, the only interest for Fed-watchers coming in the
tweaks made to the statement released along with the
decision. But, having left rates on hold for nearly seven years,
its meeting next week is the first time for a while that a rise is
seriously being contemplated.
Tightening policy at this stage would not be ridiculous. The
US, if not necessarily the global economy, is in its best shape
in a long while. The financial markets currently think there is
a higher than 50 per cent probability that the Fed will raise
rates before the year end, suggesting that a rise will not come
as a hugely destabilising shock.
Growth has been strong and the unemployment rate has
consistently fallen. The proportion of adults who are
participating in the labour market either working or looking
for work has fallen to its lowest level in nearly four decades.
A large number of Americans leaving the labour force
altogether suggests wage inflation will kick off at a lower level
of employment.
But it would be a brave and perhaps foolhardy policymaker,
given the dislocations to which all economies have been
subjected since the global financial crisis, who took a strong
view on the capacity constraints of the economy without
evidence that inflationary buffers were actually being hit.
Wage growth, which in any case had been picking up only
mildly, has recently slipped back: the rise in compensation in
the second quarter of 2015 was the slowest since 1982.
Core inflation has remained below the Feds 2 per cent target
and so, critically, have expectations of inflation years into
the future. The Fed should not feel the need to spend time
with inflation above the target to counterbalance the time
spent below it, but such a persistent undershoot does argue
for caution in believing that the price level is suddenly set to
accelerate.
In any case, credit conditions in the US have already tightened
in the past few weeks, largely because of turmoil in world
financial markets, so the economy has hit stronger headwinds
even without a rise in official rates. And while the Fed is not in
the business of targeting the currency, or indeed reacting to
one-off price level changes rather than medium-term
inflationary pressure, the strong dollar will help keep a lid on
inflation for a while to come.
Perhaps counter-intuitively, the situation in the global
economy, which might have been expected to keep the Fed on
hold, is a rather weaker argument for doing so. The recent
hurried movement by China to allow the renminbi to weaken
has raised fears both of general weakening in global demand
and of the quality of leadership in the worlds second-biggest
economy.
Nonetheless a chorus of emerging market policymakers (not
including China, admittedly) has said it might be better for the
Fed to get on and raise rates than continue with destabilising
uncertainty. Yet the Feds best contribution to the global
economy is to keep the US economy growing steadily, not to
attempt to micromanage financial markets elsewhere. There
may be costs in super-low interest rates in encouraging rapid
inflows to emerging market economies and creating volatility
in financial markets, but they are considerably outweighed by
the benefit of having America leading global growth.
It should be clear that this is not an open-and-shut decision.
The US economy showed signs of returning to somewhere
near normality, yet rates remain near zero. But after so long
with no serious signs of inflation, there is no compulsion to
move now. The Fed should sit on its hands next week.
---
Federal Reserve to leave door open for

interest rate rise despite 'Black Monday'
turmoil
The worlds most powerful central bank will signal that it is

still on course to raise its interest rates this year, despite the
market turbulence of recent weeks.
Economists say that the Federal Reserve will keep its rates on
hold this Thursday, but that its chairman Janet Yellen will
stress it is still set to increase these before the new year rolls
in.
Less than a month ago, markets were betting that the Fed
would opt to raise its rates by 0.25 percentage points at this
weeks meeting.
But the events of Black Monday, when concerns about
Chinas economic health knocked billions off the worlds stock
markets, have set back hopes of higher rates.
The Feds rates have remained static at 0pc to 0.25pc since
December 2008, when policymakers lowered them to support
the economy in the depths of the global financial crisis.
Market pricing now suggests there is just a 28pc chance that
the Federal Open Maket Committee (FOMC) - which decides
on monetary policy - chooses to hikes rates on Thursday.
Paul Mortimer-Lee, an economist at BNP Paribas, said: Some
risks previously on the Feds radar have become real. These
developments will likely keep the Fed very cautious next
week.
Energy prices have resumed their decline, the dollar has
appreciated further, the growth outlooks in emerging markets,
particularly China, have darkened, he said.
The Feds chairman is expected to leave the door open for a
hike in October or December, rather than allow for a decision
to raise rates to be pushed back into 2016.
She is expected to sound hawkish, signalling that a rate rise
will arrive before the end of the year, reflecting a continued
improvement in the labour market and recent growth data.
Stronger GDP figures for the second quarter will also see the
FOMC upgrade its growth projections for 2015 from 2pc to
2.5pc, analysts said.
The Fed - which has a dual mandate for inflation and
unemployment - has previously hinted that it is still looking
for prices to rise more swiftly.
Stanley Fischer, the Feds vice chairman, said last month:
The problem is not with the part thats unusual in the dual
mandate, namely employment, thats doing just fine. Its with
the inflation part.
On the inflation measure the Fed tracks, prices rose by just
0.3pc in the year to July, well below its 2pc target. Yet
unemployment has tumbled to 5.1pc, and is now at the point
the Fed believes is the equilibrium level for the economy.
Michelle Meyer, an economist at Bank of America Merrill
Lynch, suggested that the natural jobless rate could lie below
5pc. She expects that the Fed will say that unemployment
could fall further still without generating excessive inflation.
---
Fed Rate Hike Is Too Close to Call
Taken from the Barrons Online Sunday, 13 September 2015
Will they or wont they? Opinions on what the FOMC will or

will not do point all over the place.
In an ideal world, there would be a pretty clear consensus
ahead of a Federal Open Market Committee meeting about
what policymakers were likely to decide. If a rate hike was
imminent, Fed officials would have signaled it, the bond
market would have priced it in, and markets would remain
calm when it was announced.
None of those things are likely to happen this time around.
The FOMC meets Wednesday and Thursday and there is no
clear consensus on Wall Street about whether it will raise
rates. Fed officials have been mixed in their comments, and
market strategists have been all over the map about what they
think is best.
In a Friday Bloomberg commentary, Mohamed El-Erian, chief
economic adviser at Allianz SE, put odds against a hike at an
almost absurd 51-49. It is that close for the September policy
meeting, he wrote.
Only the bond market has been unequivocal: It doesnt want
or expect a rate hike. Traders have kept rates low at the short
end of the yield curve. Fed-funds futures signal a less than
30% chance of a September move. The reigning bond king,
DoubleLine Capitals Jeffrey Gundlach, invoked The Rocky
Horror Picture Show when he said recently, Dammit Janet,
dont raise rates, while pointing to a host of reasons for
waitingslowing China, crashing commodities, scant
inflation, to name just a few.
What happens if the Fed does hike rates for the first
time in nine years? After all, a 25% chance is still pretty decent
odds, notes Anthony Valeri, an investment strategist with LPL
Financial.
Markets could get ugly fast. Rates at the short end would rise
sharply, and riskier assetsjunk bonds and investment-grade
corporate bondswould get hit, and stocks, too. Theres a
chance longer term Treasuries might hold up better since they
are priced off inflation expectations, which would tumble.
However, yields are already low, so dont bet on it. There
would be few places to hide, Valeri says.
Jim Kochan, Wells Fargo Asset Managements chief fixedincome strategist, also sees risk. The Treasury market is not
well-positioned for rising short-term rates, he says, noting
that Treasuries saw weak bids in August even when the stock
market was tanking and fears that China would spark global
recession were highest. That could be a warning that if there
were some selling pressure, the market reaction might be
more adverse than expected, he says.
A BIG PART OF THE REACTION will depend on the
language in the Feds statement and Fed Chair Janet Yellens
comments at the press conference Thursday afternoon. If the
Fed raises rates but indicates there wont be another move for
a while, markets may take the news calmly, says Jim Caron, a
fixed-income portfolio manager at Morgan Stanley Asset
Management. Conversely, if they dont hike, but signal a rate
hike is coming soon, markets may remain skittish.
Caron is all for waiting until December. Why throw wood on
the fire? he says. Why stoke the flames of uncertainty?
Eventually, as long as the U.S. economy continues to perform,
the Fed needs to get off a zero interest-rate policy. It may hike
by 25 basis points now, or 50 down the road, which could
cause more volatility, says Dan Heckman, a senior fixedincome strategist at U.S. Bank Wealth Management. If the Fed
hikes now, there might be some short-term indigestion, but I
think the market would appreciate getting the first fed-funds
increase out of the way, he says.
Since odds are the Fed wont raise rates, its not a good idea to
position your portfolio as if it will, says Valeri. Caron, for one,
is keeping his fund neutral in terms of interest rates, given

heightened uncertainty.
With so little consensus, the best advice is also the most
obvious: Dont take on extra risk ahead of the Fed meeting.
And, if you have cash on the sidelines, keep it there until the
week is over.
(Full article click - Barron's)
---
Avery Shenfeld: A Tie Goes to the Runner

Taken from the CIBC Research September 14-18
In economic outlooks, as in baseball, a tie goes to the runner.

Weve been running with a forecast for a September Fed hike
for the last few months, and well stick with it given that the
odds of such a move appear pretty close to even at this point.
The difference to the economy of having the first rate move in
September, October or December is negligible. If the Fed
passes on a September hike, it will further tighten the
language to reinforce expectations that a move is still highly
likely this year. If it raises rates, it might add a line saying that
it will be patient in terms of subsequent moves, virtually
ruling out an October move in the process. For anyone other
than money market traders, these are not radically different
outcomes.
The clarion cries to eschew a hike from prominent economists
including ones we respect like Larry Summers, Paul
Krugman and Olivier Blancharddont give enough credit to
the FOMC. They understand fully well that there is no
inflation threat just round the corner. Those on the Fed who
are ready to tighten this year just differ on tactics.
Stanley Fischer, who comes from the same school of economic
thought as those critics, sees greater safety in leaving time for
an extremely gradualist path that gives the
Fed opportunity to reverse course if need be, relative to
waiting until inflation is evident and hiking multiple times in a
short burst, and hoping it can choose the right magnitude in
total. When Fischer served as head of the Israeli central bank,
he showed no hesitation to bump rates up and then down
again, with no fewer than eight turns in direction in Israels
base rate during a period in which the Fed altered direction
only once.
Although the yield curve is fully priced for a rate hike before
year end, some still worry that even a quarter point increase
will set off an irreversible global cataclysm. That fear seems
less relevant with equity markets looking calmer in recent
days. Instead of fretting that equities have cooled and fixed
income spreads have widened, the Fed should welcome signs
of reduced froth in the riskiest corners of financial markets,
which could build to worrisome levels if zero rates overstay
their welcome.
For Canada, a Fed hike will have a contagion impact in
pushing up longer term yields.
But it will help keep the loonie on the weak side, supporting
exports. And of course, the healthy US growth needed to
justify a Fed hike is critical to sparking exports from its
northern neighbor.
Of greater importance to Canada is that policy elsewhere in
the world remains very stimulative. Any recovery in oil and
other resource prices will be dependent on maintaining
newfound momentum in Europe, and turning the corner on
weakness in the likes of China and other emerging markets. A
policy failure in those economies would be of much greater
risk to Canadas 2016 outlook than exactly when the Fed
chooses its lift-off.
(Full article click - CIBC)
---
US Fed about to show its cards
Taken from the Nikkei Sunday, 13 September 2015
The U.S. Federal Reserve Board on Wednesday begins a twoday Federal Open Market Committee meeting, during which it
is to make a decision on whether interest rates need to be
raised for the first time in nine years.
If the Fed carries out an immediate hike, Japanese stocks
could fall and the yen could strengthen because market
players would not have fully taken into account any such
move.
The Bank of Japan, meanwhile, starts a two-day monetary
policy meeting on Monday. It will try to glean what the Fed
committee will do later in the week as well as carefully
consider how the recent volatility in global financial markets
will affect Japan's economy.
Speculation among market participants that the Fed will raise
interest rates this month is fading. An index that gauges the
likeliness of the Fed taking immediate action shows the odds
of this at 20% to 30%.
Either way, markets around the world will react.
If the Fed decides to raise interest rates this month, it would
convince investors to avoid stock market risk, especially with
global stock prices already swinging so wildly from day to day,
mostly in reaction to the market volatility in China.
"The Nikkei Stock Average would slip to the 17,000 level," said
a senior representative of Dai-ichi Life Insurance. The index
closed Friday at 18,264.22.
But experts are split on what direction the yen would take.
Minori Uchida, an analyst at the Bank of Tokyo-Mitsubishi
UFJ, said the yen would strengthen by 2 against the dollar if
stock investors become risk-averse.
Tohru Sasaki of JP Morgan Chase Bank, however, said a U.S.
interest rate hike would weaken the yen to 124 against the
dollar. On Friday, it took about 120.5 yen to buy a dollar.
The Fed could also decide not to immediately raise interest
rates but announce that it will do so before the end of the year.
This would positively affect Tokyo stocks; it would show that
the Fed is heeding the global turmoil while also showing
confidence in the U.S. economy.
Akio Yoshino, chief economist at Amundi Japan, said that in
this case, Tokyo would become a destination market and the
Nikkei average would climb to the 20,000 level.
(Full article click - Nikkei)
---
The Feds Policy Mechanics Retool for a

Rise in Interest Rates
Taken from the NY Times Sunday, 13 September 2015
Its easy to take for granted the Federal Reserves ability to

raise interest rates. Even among the legions who doubt that
Fed officials will pick the ideal moment to start increasing
rates for the first time since 2008, few question the Feds
technical competence. The central bank has a long history.
The engine is known to work.
So it may come as a surprise to learn that the old engine is
broken. When the Fed decides that its time to lift off
perhaps this week, but more likely later this year it will be
relying on a new system, assembled from spare parts, to make
interest rates rise.
There is a general agreement among economists and market
analysts that the Feds plans make sense in theory. A team led
by Simon Potter, a former academic who now heads the Feds
market desk in New York, has been testing and fine-tuning the
details by moving billions of dollars around the financial
system.
If something is going to go wrong, I havent been able to
figure out what, but theres a lot of reason for caution, said
Stephen G. Cecchetti, the former chief economist at the Bank
for International Settlements. Weve never done this before.
The stakes are huge. The Fed is in charge of keeping economic

growth on an even keel: minimal unemployment, moderate
inflation. It tends to operate conservatively and to change very
slowly because when it errs, the nation suffers.
Yet the Fed has found itself forced to experiment. The
immense stimulus campaign that it started in response to the
2008 financial crisis changed its relationship with the
financial markets. It has pumped so many dollars into the
system that it cannot easily drain enough money to discourage
lending, its traditional approach. Instead, the Fed plans to
throw more money at the problem, paying lenders not to make
loans.
The Fed, embedded in the banking system, has also concluded
that working through the banks is no longer sufficient to
influence the broader economy. It plans to strengthen its hold
by working directly with an expanded range of lenders.
Fed officials have repeatedly expressed confidence that the
plan will work. The committee is confident that it has the
tools it needs to raise short-term interest rates when it
becomes appropriate to do so, Janet L. Yellen, the Feds
chairwoman, told Congress earlier this year, referring to its
policy-making body, the Federal Open Market Committee.
And if the new approach does not work at first, Mr. Potter said
in a recent speech, then his team of monetary mechanics
stands ready to innovate until it does.
Freezing, Not Draining
The markets desk at the New York Fed has put monetary
policy into practice since the mid-1930s. In the decades before
the Great Recession, the desk exercised its remarkable
influence over the American economy through its control of
an odd little marketplace in which banks could come to
borrow money for a single night.
The Fed requires banks to set aside reserves in proportion to
the deposits the banks accept from customers. The reserves
can be kept in cash or held in an account at the Fed. Banks
that need reserves at the end of a given day can borrow from
banks that have a surplus. Before the crisis, the Fed controlled
the interest rate on those loans by modulating the supply of
reserves: It lowered interest rates by buying Treasury
securities from banks and crediting their accounts, increasing
the supply of reserves; it raised rates by selling Treasuries to
banks and debiting their accounts.
As the crisis hit in 2008, the Fed pressed this machine to its
limits. It bought enough securities and pumped enough
reserves into the banking system to drive interest rates on
short-term loans to nearly zero. The federal government now
pays about a dime to borrow $1,000 for one month.
Companies with good credit pay about a dollar to borrow
$1,000 from money market funds and other investors.
But the Fed didnt stop there. It kept buying Treasuries and
mortgage bonds to eliminate safe havens, forcing money into
riskier investments that might generate economic activity. As
a byproduct, the Fed kept expanding the supply of reserves.
One result is a banking system almost comically awash in
money. In June 2008, banks had about $10.1 billion in their
Fed accounts. The total is now $2.6 trillion. Picture all of the
money in June 2008 as a single brick; the Fed has added 256
bricks of the same size. On top of that first brick, there is now
a stack five stories tall.
Bank of America, for example, had $388 million in its Fed
account at the end of June 2008. Seven years later, at the end
of June 2015, it had $107 billion. The bank could double in
size and double again and still have more reserves than it
needs.
To switch metaphors, the old monetary-policy machine sits at
the bottom of a lake of excess reserves. The Fed would need to
sell most of the securities it has accumulated before shortterm rates would start to rise. Selling quickly could roil
markets; selling slowly could allow the economy to overheat.

So the Fed decided to find another way.
Instead of draining all that excess money, the Fed decided to
freeze it.
Paying Banks Not to Lend
For the last seven years, the Fed has encouraged financial
risk-taking in the service of its campaign to increase
employment and economic growth. By starting to raise
interest rates, the Fed intends to gradually discourage risktaking.
The straightforward part of the plan is persuading banks not
to make loans.
In a serendipitous stroke, Congress passed a law shortly
before the financial crisis that let the Fed pay interest on the
reserves that banks kept at the Fed. Written as a sop to the
banking industry, it has become the new linchpin of monetary
policy.
Say the Fed wanted to raise short-term interest rates to 1
percent, meaning that it did not want banks to lend at lower
rates. Because the glut of reserves is so great, the Fed could
not easily raise rates by reducing the availability of money.
Instead, the Fed plans to pre-empt the market, paying banks 1
percent interest on reserves in their Fed accounts, so banks
have little reason to lend at lower rates. Why would you lend
to anyone else when you can lend to the Fed? Kevin Logan,
chief United States economist at HSBC, asked rhetorically.
This is not a cheap trick. Since the crisis, the Fed has paid
banks a token annual rate of 0.25 percent on reserves. Last
year alone, that cost $6.7 billion that the Fed would have
otherwise handed over to the Treasury. Paying 1 percent
interest would cost four times as much. The Fed has sent
roughly $500 billion to the Treasury since 2008. As the Fed
raises rates, some projections show that it may not transfer a
single dollar in some years. Instead, the Fed will pay banks
tens of billions of dollars not to use the trillions it paid them
previously.
At first, Fed officials thought that paying interest to banks
would establish a minimum rate for all short-term loans,
exerting the same kind of broad influence as the old system. It
soon became clear, however, that rates on most such loans
remained lower than 0.25 percent. Even banks that needed
overnight loans found they could borrow more cheaply. The
average rate in July was 0.13 percent about half of the Feds
new benchmark rate.
The rest of the financial system is also awash in cash, and
lenders like money market mutual funds put downward
pressure on interest rates as they fight to attract borrowers.
And heres where the Feds plans got a little less orthodox.
The Fed lacks the legal authority to pay these lenders a
minimum interest rate on deposits, as it does to the banks.
But two years ago, Lorie Logan, one of Mr. Potters top aides,
suggested the Fed could achieve the same goal by borrowing
from these companies at a minimum interest rate.
The resulting deals, known as overnight reverse repurchase
agreements, signal a significant break from the Feds history
of working through only the banking industry.
Were pushing more activity out of the regulated banking
sector, and so monetary policy has to take account of the
unregulated sector, said Jon Faust, an economist at Johns
Hopkins University who until recently served as an adviser to
Ms. Yellen, and before that to her predecessor, Ben S.
Bernanke. The world is changing, and I think the bigger risk
is not changing along with it.
When liftoff arrives, however, the Fed plans to place this
machinery inside the familiar language of the old system. It is
likely to announce that it is raising the federal funds rate, the
interest rate that banks pay to borrow reserves, from its
current range of 0 to 0.25 percent to a new range of 0.25 to
0.5 percent. The Fed does not plan to emphasize that this rate
is now a stage prop or that the real work of raising rates will
be done outside the limelight by its new tools.
Mission Control
On weekdays at about 12:45 p.m., the New York Feds trading
portal, known as FedTrade, plays three musical notes F-E-D
signaling that Mr. Potters shop is open for business. So
begins another day of training camp, another test of the Feds
plans to borrow money from nonbank financial companies.
The Feds traders sit at terminals in a converted conference
room. Along one wall are five chairs and five sets of computer
monitors beneath five historical photographs of the trading
desk: men answering phones, men writing bids in chalk on a
long board and, in the most recent photograph, from the
1980s, a glimpse of a woman in the background. On another
wall is a screen that links the room in New York by
videoconference with a backup trading room at the Chicago
Fed.
Potential lenders a preapproved group of 168, including a
bevy of money market funds and the housing finance
companies Fannie Mae and Freddie Mac have 30 minutes
to offer the Fed up to $30 billion each. At 1:13 p.m., a warning
message starts blinking red. At 1:15 p.m., the Fed closes the
auction and accepts up to $300 billion in loans at an interest
rate of 0.05 percent.
During two years of experiments, the Fed team has adjusted
the rates it pays, the amounts it accepts and the time it enters
the market, among other variables. Mr. Potter and his
lieutenants have also held lunch meetings with investors on
the other side of the portal to solicit advice and complaints.
The size of the program poses the most obvious risk. Fed
officials limited daily borrowing to $300 billion because they
didnt want to freeze more money than necessary. They also
worry about exacerbating market downturns by giving
investors a new place to flee. These concerns were heightened
by reports that some investment companies were interested in
creating money market funds that would be advertised as the
safest place to park money because the money would be
parked at the Fed.
Last year, at the end of September, shortly after the cap was
imposed, lenders offered the Fed $407 billion on a single day.
Demand was so high that instead of asking for interest, some
lenders offered to pay the Fed to take the money. The Fed
ended up borrowing at zero percent and turning away $107
billion in loans.
A cardinal rule of central banking is that you dont starve
financial markets during panics, and the Fed has been leaning
in the direction of doing more. It has already announced that
it is willing to borrow at least $200 billion through a parallel
program at the end of September this year, for a total of $500
billion. It has also suggested that it may raise the cap during
liftoff. My sense is were better off making sure we can
maintain control, James Bullard, president of the St. Louis
Fed, said in a recent interview.
Unpredictable Reactions
This is where the nutty people on the bond-trading desks
have control, joked Alan Blinder, a former Fed vice chairman,
when asked if the Feds plan would work.
Mr. Blinders point was that markets ultimately determined
the cost of borrowing money, particularly for longer-term
loans like mortgages and corporate bonds. The Fed can be
precise in its planning, but the market is unpredictable in its
reactions.
Fed officials have emphasized that they do not want the liftoff
to surprise investors. This has probably been the most
telegraphed 25-point rate hike in history, said Wayne
Schmidt, chief investment officer at Gradient Investments in
Arden Hills, Minn. I think when they actually do something,
it will be more of a nonevent.
But there are at least three reasons markets are becoming less
predictable.
The rise of an interconnected global financial system has
weakened the Feds influence over interest rates. When the
Fed last raised short-term rates, beginning in 2004, officials
were surprised that long-term rates failed to rise because
foreign money was pouring into the housing market and other
domestic investments. This time, there are plenty of warnings
that the weaknesses of other developed economies could once
again make it harder for the Fed to raise domestic interest
rates.
Financial market conditions have come to depend
increasingly not only on developments at home but also on
developments abroad, William C. Dudley, the president of
the Federal Reserve Bank of New York, said in a February
speech in which he cautioned the Feds control over those
conditions had been loosened.
The Feds audience also increasingly consists of computer
programs that will start buying and selling securities before
people have time to read the first words of the Feds policy
statement, creating the potential for new kinds of chaos.
On Oct. 15, for example, automated trading programs drove
up the price of 10-year Treasuries in a burst of buying so
intense that a government report later found the machines
bought more than 10 percent of the securities from their own
firms. Then, just as quickly, the computers turned around and
drove prices back down.
The 12-minute spree was among the largest price movements
ever seen in one of the worlds most liquid markets, yet the
government report found no clear cause.
Finally, investors say regulatory changes are keeping some
large traders on the sidelines, making it harder to buy and sell,
even in the highly liquid market for Treasuries. That can
exacerbate market movements because when people are in a
hurry to buy or sell, they tend to chase the best available
offers. The depth of the market is not what it used to be, said
Tad Rivelle, chief investment officer for fixed income at TCW,
a Los Angeles investment firm that manages some of the
worlds largest bond funds. You can get the same trades done,
but it takes more time.
Other observers, however, urge a broader perspective.
People are very concerned about those 12 minutes last year,
said Mr. Cecchetti, now a professor of finance at the Brandeis
International Business School. Im very reassured by the fact
that there were only 12 minutes.
Moreover, Mr. Cecchetti said that removing some liquidity
was a good thing because much of that liquidity was a result of
public subsidies for the banking system that had encouraged
undue risk-taking.
Does it mean that theres going to be more high-frequency
volatility? Sure, he said. It means the Simon Potters of the
world are going to have to be much more careful about what
theyre doing. But that seems to me to be kind of O.K.
Volckers Messy Lesson
Mr. Potter has worked at the New York Fed since the late
1990s, but he spent most of his career there in the research
department before taking over the markets desk in 2012. He
became more involved in the practical side of the Feds work
during the financial crisis. In a 2012 speech at New York
University, Mr. Potter said the experience particularly
during a four-week period at the peak of the crisis had
impressed upon him the limits of theory, the need to
understand what investors are thinking and the value of
flexibility in policy making.
For economists who did not have the opportunity to observe
the panic up close as I and most of my colleagues had, the
developments in this four-week period must have been
bewildering, given how widely events on the ground and
theory diverged, he said.
That perspective may come in handy. The last time the Fed
shifted the basic mechanics of monetary policy was in the
early 1980s, when Paul Volcker was its chairman. That
campaign is remembered as a triumph of central banking. Mr.
Volcker succeeded in driving inflation down toward modern
levels, ending a long period in which governments had
floundered helplessly to prevent rising prices.
But Mr. Faust, the Johns Hopkins economist, says the
messiness of Mr. Volckers triumph is often overlooked. The
Feds initial plans did not work and were revised and did not
work and were revised again and still didnt work.
He said the Volcker episode was a reminder that monetary
policy is not figure skating. The Fed is likely to flail, he says,
but it will be measured by its success in getting interest rates
to rise, not by the grace of its performance.
If youre into the internal plumbing, I suspect there will be
times when that looks messy because this is new, Mr. Faust
said. But central banks can raise interest rates, and they will.
And as long as that happens, from the standpoint of the
broader economy, everything is fine and the rest will be
forgotten or become a footnote of history.
(Full article click - NYT)
---
The Fed's got a 'third' mandate, and it could

determine what ultimately happens on
Thursday
Taken from the Business Insider Sunday, 13 September 2015
The Federal Reserve has a dual mandate: maximum

employment and price stability.
But the Fed also seeks to foster financial stability, the
unspoken third mandate the Fed has seemed sensitive to in
the wake of the financial crisis.
And while this goal is not an explicit mandate, much has been
made about how much the Fed will concern itself with this
objective, particularly in light of the relative instability we've
seen in markets lately.
Currently, the Fed judges the economy can sustain maximum
employment with an unemployment rate between 5% and
5.2%. "Price stability" is judged as inflation running near 2%
per year. Right now, the unemployment rate is at 5.1%; the
Fed's preferred measure of inflation core PCE is running
at around 1.2% per year.
And so with interest rates currently pegged at 0%-0.25%,
where they've been since the financial crisis, the Fed is
maintaining a crisis-era positioning and the question
hounding financial markets over the last several months is
when and if the Fed will raise rates.
Looking at its employment goals, the Fed has a strong case to
raise interest rates in its policy announcement set for
Thursday, September 17. But still sitting shy of its inflation
target, the Fed can also make a strong case to keep interest
rates right where they are.
Recent events in financial markets, however, have led some
economists including those at Barclays and Deutsche Bank
to abandon calls for earlier Fed action. And these calls are
more or less explicit nods towards the Fed's un-mandated but
still-mostly-clear goal of ensuring financial stability.
The question, of course, is whether financial stability means
ensuring that the biggest banks in the US don't pose a
systemic risk to the US and world economy and financial
system, or whether financial stability means ensuring
unabated price appreciation across financial markets.
Many Fed officials have spoken on concerns of financial
stability in recent years, but looking at two speeches from
high-ranking Fed officials on the topic is instructive when
trying to decode what this really means to the Fed.
Last December, Fed governor Lael Brainard, a voting member
of the Federal Open Market Committee (FOMC) which votes
on monetary policy decisions, said: "Although its founding
statute makes no explicit mention of financial stability, the

Federal Reserve was created in response to a severe financial
panic, and safeguarding financial stability is deeply ingrained
in the mission and culture of the Federal Reserve Board."
Fed vice chair Stanley Fischer in speech earlier this year
addressed the problems the Fed faces in ensuring financial
stability among nonbank institutions for example, AIG was
perhaps the largest source of instability during the financial
crisis and said that the Fed need be attentive to something
that many Americans learned about in panicked conditions
back in 2008: liquidity and solvency.
Liquidity concerns questions regarding an institution's ability
to gather funds to meet its current obligations; solvency
concerns questions about whether an institution could ever
meet those obligations.
And so it isn't that questions regarding financial stability are
new in the post-crisis Fed, but that amid relative instability
the recent 12% decline the S&P 500 and mixed signals from
China, the world's second-largest economy how committed
will the Fed to not upsetting financial markets any further
than they've already been.
In a note to clients this week, Joe LaVorgna at Deutsche Bank
moved his expectations for a Fed rate hike back to maybe the
October or December meeting.
And basically, LaVorgna's argument was that the Fed won't
act until the market gives them permission, writing:
Most importantly, the financial markets have to be
discounting a reasonably high probability of an interest rate
hike. In other words, the Fed will not surprise the financial
markets with a tightening in policy. (Unfortunately, this is
how monetary policymakers have conditioned the financial
markets over the years.)
In other words, we're going to need calmer markets. Or the
Fed will.
And when LaVorgna writes about markets "discounting a
reasonably high probability of an interest rate hike," he's likely
referencing data from the Fed Funds futures market, which
indicated this week that markets expect a roughly 30% chance
of a rate hike at the September meeting.
This data provides an easily digestible number regarding the
likelihood of a Fed rate hike next week, but it also overlooks
other measures that suggest markets have already priced in a
rate hike.
In a note to clients this week, Sven Jari Stehn, an economist at
Goldman Sachs, argued that the market has already done the
Fed's "dirty work" for it, as the recent tightening of financial
conditions is equivalent to three rate hikes.
Stehn wrote that this will likely keep the Fed on hold until
December.
Though under an alternative interpretation, the Fed could
raise rates "for free," meaning that it would not, in fact, upset
financial markets that are already bracing for a rate hike.
And if you look at measures like the 2-year Treasury note,
markets have clearly started to act as if higher interest rates
are coming.
Again, though, the case for the Fed raising rates is still mixed.
It is not as if the unemployment rate is 0.5% below the Fed's
target while inflation is running over 2%: we've just crossed
one of the Fed's two thresholds.
But raising rates from a crisis-era stance to a very-slightly-less
easy position isn't the kind of thing that should really rock
markets. And what's more, the Fed has been clear that it will
not be raising rates aggressively once it does decide to move.
The case could be made that even the threat of Fed action is
precisely what has created this instability that may make the
Fed loathe to act. And this is exactly the "box" folks talk about
when they fear the Fed has put itself in an impossible
situation it will never get out from under.
But for the last year, however, markets have been bracing for
Fed action, and the Fed has made clear rate hikes are coming.
The questions about when, and why, still remain stubbornly
out of reach.
(Full article click - BI)
---
Apple Shares Could Rally 50% on New

iPhone Plan
Leasing phones and offering annual upgrades could win big

and pit the company against wireless carriers.
Apple likes to keep customers guessing about its latest
products, but investors are rarely surprised by what they hear.
Except for last week, that is, when Apple went off script.
The company announced that its latest iPhone would soon be
available through monthly payments, starting at $32, with
customers getting free upgrades every 12 months. The leasing
and upgrade news overwhelmed the companys long list of
new products, including a 12.9-inch iPad Pro, a sophisticated
stylus, a revised Apple TV, and the refreshed iPhone.
Those devices were never likely to move Apples stock (ticker:
AAPL). Thats why the iPhone upgrade announcement makes
things interesting for investors, especially as iPhone sales
accounted for 56% of Apples revenue last year. It takes what
could have been negative sentimenta sell-on-the-news event
and potentially turns it positive, says Peter Karazeris, a
senior equity analyst for Thrivent Asset Management, which
owns $400 million worth of Apples shares.
That, it did. Apples shares finished the week up 4.5%, to
$114.21, although the stock is still down 14% from its summer
peak, making a cheap stock even more compelling. If the
leasing program proves to be popular, Apple could soar 50%
in the coming year.
At its current price, Apple trades for 11.8 times earnings
projections for the next 12 months. Back out the companys
$150 billion in net cash, and the forward multiple drops to
just 9.1.
That multiple is roughly in line with future profit-growth
estimates. Wall Street expects Apples earnings to jump 34%
in the fiscal year that ends this month, to $53 billion, or $9.12
a share, on sales of $233 billion. But analysts are forecasting a
gain of only 6.5% in fiscal 2016, to $9.71 a share. Apple has a
habit of beating estimates, however.
To be fair, Apples shares consistently have been cheap.
Apple has been undervalued for six years, says Mark
Mulholland, portfolio manager of the $609 million Matthew
25 fund (MXXVX).
But the leasing program could be a game changer for the
stock. Mulholland thinks Apple shares are worth $170, 49%
above their current quote, based on a multiple of 11 times
enterprise value to estimated 2015 pretax profit.
The leasing program attacks the primary bear case on Apple
slowing iPhone growth. Amit Daryanani, an analyst with RBC
Capital Markets, estimates that the upgrade cycle for iPhones
has stretched to 26 months from 22 months in 2013. After
getting a jump-start from the larger iPhone 6 this year,
analysts expect iPhone sales to flatline at 235 million units in
2016. The iPhone Upgrade Program, Apples official name,
has the potential to reverse the trend, and more.
You essentially create a certain group of your user base that is
going to be on a 12-month upgrade cycle, Daryanani says.
The big question is how large that group becomes.
APPLES LEASING offer puts it in retail competition against
the wireless carriers, which all offer their own installment
plans for iPhones and other smartphones (see table). But
Apples model takes advantage of its 266 U.S. stores, a better
retail experience than anything offered by the carriers. Apple
is also including its AppleCare warranty program as part of
the monthly fee. (The carriers effectively have ended their
subsidies for smartphones, so the days of a $199 iPhone are all

but over.)
Apples program provides unlocked phones, so leasing
customers, in theory, can move between carriers as often as
they like. Over time, it is conceivable that Apple could add
other perks, as well, although the company didnt respond to a
request for comment. Think: priority access to new phones, or
iCloud storage, which improves the iPhone experience but
carries little incremental cost.
Its all vintage Apple, the kind of ruthless business deal Steve
Jobs loved to make. Youre taking the stickiness away from
the carrier and putting it on Apples ecosystem, which is
phenomenal, Daryanani says. When I run the math, this is a
very gross-margin-accretive investment for Apple.
Heres that math, according to Daryanani: A typical iPhone
sells for $700 (a portion of which was previously subsidized
by the carrier) and costs $350 to make, for a gross margin of
50%.
In the first year of the leasing program, a new iPhones
revenue will come to $384 ($32 times 12 months), against a
cost of $175. (He amortizes the full cost over two years.) Thats
a 55% margin, or 500 basis points better than Apples status
quo.
The bigger difference comes in year two, after the leasing
customer returns the phone to Apple in exchange for a new
model. Apple can then refurbish and sell this phone for about
$500, Daryanani estimates. The cost of goods sold is
[another] $175, for a year-two gross margin of 65%, he says.
Thus, in a two-year time frame, each could phone could
produce $884 in revenue, with a 60% gross profit margin.
More phones sold at better marginsthats nirvana for Apple
investors. The refurbished models could also become a good
way for Apple to service emerging markets, since it will have a
larger inventory of cheap phones. Apple runs the risk of
flooding the used-phone market, and thereby reducing the
value of its refurbished inventory. But the company has
always been masterful at protecting its brand value, and
theres little reason to think that will change.
Mulholland, of the Matthew 25 fund, is bullish on the upgrade
plan, although he says he has never worried about the balance
of power between Apple and the wireless carriers. Apple
represents 14% of his funds assets. This completely takes
away the risk of carriers not underwriting the cost of phones,
Mulholland says.
Investors could get a peak at the programs success in the
coming weeks, when the new iPhone 6s goes on sale. Preorders started on Sept. 12, and the new model hits shelves on
Sept. 25. Any positive news about the leasing program would
be a catalyst for Apple shares, especially since it would also
drive additional traffic into Apple stores.
Today, Apples fair price is $170-plus, Mulholland says.
Three to four years down the line, it is easily $200 to $250.
And these arent aggressive numbers.
News Asia
Alibaba: Why It Could Fall 50% Further
The Chinese Internet giants stock has been plunging amid an

array of problems. Expect more trouble ahead.
It has been a wild ride for investors in Alibaba Group Holding.
After the largest-ever initial public offering of stock, a year ago
this week, shares of the Chinese Internet giant surged 75% in
their first two monthsonly to begin a long spiral downward.
They fell all the way to the initial price of $68 and then some,
recently trading at about $64. The descent probably isnt over.
Alibabas shares could fall much further as Chinas economy
struggles, competition in e-commerce increases, and the
companys culture and governance draw scrutiny.
Just last week, Alibaba (ticker: BABA) disclosed that its
transaction volume will be lower than expected for the quarter
ending this month. Growth in volume already had declined
markedlyto 34% in the June quarter from 50%-plus in
recent years. The company, which runs two huge retail
Websites, cited slower consumer spending, and that may only
worsen as Chinas economic growth drops to its lowest pace in
six years.
Alibaba, which trades on the New York Stock Exchange and
sports a market value of $160 billion, still has plenty of fans.
To them, the company founded and led by the charismatic
Jack Ma remains the ultimate China Dream stock, surfing the
wave of surging Chinese middle-class growth and the eventual
transition from the nations export model to one favoring
domestic consumption of goods and services. Forty-five of the
52 brokerage analysts covering the company still have Buy
recommendations on the stock, according to Bloomberg. Five
rate it Neutral, and just two rate it a Sell. The average price
target of this crowd: $95.50, up nearly 50% from the current
level.
Its time to get real. A decline of up to 50% looks far more
likely. Alibaba shares trade at about 25 times the consensus
earnings estimate for the year ahead, and that should be closer
to eBay s (EBAY) multiple of 15. Both outfits match sellers
and buyers on the Web, and eBay has ample emerging-market
exposure. Wed also give the earnings estimates a haircut
Wall Streets optimism looks overdone in the face of the
challenges.
History certainly isnt on Alibabas side. Widely hyped Chinese
IPOs like Alibaba often flame out like supernovas as growth
rates and profit margins suddenly decline. Thats what
happened to a business-to-business predecessor to Alibaba
Group. On the Hong Kong Stock Exchange in 2007, Mas
Alibaba.com rocketed from its IPO price of 13.50 Hong Kong
dollars to nearly HK$40 several months later before
beginning an ugly descent to under HK$10 over the
succeeding five years. The company was ultimately taken
private in 2012 at HK$13.50.
Fresh selling pressure on the stock could emerge later this
month when Alibabas final IPO lockup expires. Some 1.6
billion of its 2.5 billion shares will be available for sale for the
first time. The company has taken pains to assure
shareholders that the owners of 1.45 billion shares have
pledged not to sell their holdings. Moreover, the company is
planning a $4 billion stock buyback to counter any selling
pressure. But its still unclear exactly how it will play out.
THERES NO QUESTION THE COMPANY faces some
big issues. Competition from Chinese e-commerce rivals like
JD.com (JD) is heating up quickly, eating into the market
shares of Alibabas two main WebsitesTaobao, which allows
small merchants to sell their wares to Chinese consumers, and
Tmall, a platform for global brands and retailers to reach the
same folks.
Many of Alibabas investments beyond online shoppingin

areas like media, entertainment, logistics, and cloud
computingseem aimed more at beguiling investors than
improving earnings. Youku Tudou (YOKU), a YouTube-like
site for videos, lost some $140 million last year. Alibabas
movie-production arm also runs in the red. As a result of such
performances, the two retail Websites are still thought to
account for the huge bulk of profits.
Perhaps more troubling is the seeming improbability of the
growth numbers reported by the company over the three fiscal
years ending in March.
The value of transactions moving across its platforms$409
billion in the 12 months through Junehas compounded at an
annual rate of 55% for the past three fiscal years, while
Alibaba revenues have surged yearly at an average of 56%.
That kind of growth is exceptional, well ahead of the threeyear average revenue growth of Google (20%), Amazon.com
(23%), and Facebook (49%).
Anne Stevenson-Yang, founder of Chinese research firm
JCapital Research, has closely tracked the mainland ecommerce industry in general and Alibaba specifically. She
finds the growth numbers puzzling. She observes that
Alibabas financial reports have broken free of verifiable
reality and have reached an escape velocity that doesnt
comport with Chinese government figures of overall retail
sales, consumer spending, or online commerce.
Consider this: Alibaba claims to have 367 million usersabout
the same as one government agencys estimate of Chinas
entire online-shopping population. Or this: Alibaba claims its
average shopper spends 26% more on its sites each year than
the average U.S. online shopper spends on all sites. Does that
make any sense, given American consumers far greater
affluence and ability to avail themselves of a vastly more
developed e-commerce ecosystem?
Alibaba Vice President of International Media Robert Christie
denies that the companys figures are inflated in any fashion.
He attributes the gaudy growth numbers to such factors as the
rapid adoption of smartphones for online buying and the
companys fast user expansion into second- and third-tier
cities and into Chinas hinterlands. Maybe so, but those
growth numbers are still awfully large.
SO, TOO, IS Jack Mas fortune. Even after the stocks sharp
pullback, Ma has a net worth of almost $30 billion, according
to Bloomberg, and the stocks descent doesnt seem to have
impinged on his lifestyle. Recent published reports say he was
the purchaser of a trophy property in Hong Kong overlooking
Victoria Harbour for a reported $193 million. This would be in
addition to his recent $23 million acquisition of a home and
large acreage in upstate New York, replete with a maple-syrup
operation.
Wall Streets faith in Ma is testimony to his undeniable
magnetism and salesmanship. His life story, which he has
related with gusto in numerous interviews and speeches, is
spellbinding. A poor boy from the city of Hangzhou, he hung
around tourist hotels in the city in order to learn idiomatic
English by taking American tourists on free tours of the city.
One of them even prevailed upon him to change his first name
from Ma Yun to Jack because the latter was easier for
Westerners to pronounce.
By the late-90s, he relates, he had become entranced by the
commercial potential of the Internet, despite, by his own
admission, having no programming ability or technical
knowledge. It was in his cramped apartment near a Hangzhou
lake in 1999 that he met with 17 friends to map out a course
whereby Alibaba could become pre-eminent in the thenfledgling Chinese e-commerce industry. The apartment has
since become a corporate shrine to which company executives
often retire for meditation and brainstorming.
Jack, the name he uses in all SEC filings, is a consummate

performer, projecting disarming humility and a beguiling
vision of Alibabas future. The 51-year-old has a selfdeprecatory sense of humor, often comparing himself
physically to the Spielberg character E.T. But theres nothing
humble about his ambition for the companyto become the
platform for two billion users worldwide, up from the claimed
367 million Chinese who use Alibaba today.
Growth isnt the companys only message. In its SEC filings
and public statements, Alibaba talks endlessly about integrity,
transparency, passion, and always putting the interests of the
customer first. But some merchants and government officials
have raised questions about the companys commitment to
such values.
Complaints about Alibabas alleged failure to crack down on
the sale of product knockoffs on its sites have been chronic
throughout its history. A lawsuit in May filed by Kering
(KER.France), the parent of Gucci and Yves Saint Laurent, in
New York Federal District Court is seeking monetary damages
and an injunction against Alibaba for alleged violations of
trademarks and racketeering laws arising from counterfeit
goods selling on Alibaba sites. The company says the suit is
without merit and is fighting it. More recently, a hectoring
letter was sent to Ma on the same subject by the American
Apparel & Footwear Association.
Although the U.S. Trade Representative removed Alibaba
from its list of notorious marketsmarkets rife with
counterfeit merchandisein 2012 in light of progress made on
that score, Alibabas home regulator, the State Administration
for Industry and Commerce in China, last January released a
white paper charging the company with an alleged failure to
properly control the sale of counterfeit goods and other
alleged illegal activities in Alibabas Chinese marketplaces.
The company denied the charges in the white paper, and
mysteriously, the paper was retracted within days.
When Barrons asked the company about these accusations,
Alibabas representative replied, We are committed to the
protection of intellectual property rights to eradicate
counterfeit merchandise that may appear on our
marketplaces. The company says it uses sophistical
algorithms and random checks, among other things, to
identify malefactors and expunge them from its sites.
ALIBABAS TREATMENT of its shareholders, meanwhile,
hardly meets best-in-class corporate governance. The
company itself acknowledges in SEC filings that the interests
of founder Ma and his confederates may conflict with the
interests of Alibaba shareholders.
Just consider how the company is structured. Shareholders of
Alibaba Group dont actually own the businesses that make up
the company; Ma and his close associate Simon Xie do. Under
a legal agreement with Ma and Xie, the fruits of the
businesses, including cash flow and profits, are transferred to
the holding company. But the Ma team gets to select a
majority of the holding companys board of directors.
This form of virtual ownership for shareholders of Chinese
companies like Alibaba is aimed at getting around government
prohibitions against foreign ownership of Chinese companies
in industries deemed sensitive, like the Internet. The fact
that Alibaba Group is some 90% owned by Americans and
other overseas investors makes it a Wholly-Foreign Owned
Enterprise under Chinese law. Yet Alibaba is allowed to
operate in China because its businesses are entirely owned by
mainland Chinese.
At least in one instance, Ma was widely criticized both in and
out of China for, in the words of the respected business
magazine Caixin, failing to abide by that contract with
Alibaba shareholders. This occurred in early 2011, when Ma
quietly transferred ownership of fast-growing payment
processor Alipay out of a Chinese company that was part of
Alibaba Groups virtual ownership structure and into a

separate private partnership that Ma controlled, thereby
eliminating Alibaba Groups right to Alipays earnings. The
reason for the move, according to Ma, was that a change in
licensing requirements by Chinese banking regulations
required nonbank payment processors to be domestically
owned.
That claim seems somewhat flimsy since Alipay was
domestically owned both before and after the transfer. Whats
more, Ma made the transfer of Alipay without the approval of
the Alibaba board and without the knowledge of the
companys two largest shareholders, Yahoo! (YHOO) and
Japanese conglomerate SoftBank Group (9984.Japan). Both
kicked up a storm.
There have since been several settlement agreements due to
changing circumstances. Today, Alibaba Group is entitled to
37.5% of profits from Alipay (which is now part of Ant
Financial Services) in perpetuity. And should Alipay or its
parent go public, which is widely expected, the holding
company would be entitled to the same 37.5% equity value.
Estimates of Alipays value run as high as $50 billion. So the
difference between Alibabas former 100% interest in Alipay
and todays 37.5% piece is huge. In the latest SEC filing, Ma
says he will reduce his unspecified ownership share in Ant
Financial Services by giving them to employees of Ant and
Alibaba. But it would be more sporting of him to give those
shares back to Alibaba shareholders whence the stock came
rather than to employees of Ant and Alibaba.
A RAFT OF RELATED-PARTY transactions involving Ma and
the company are also cause for concern. For example, Ma has
40% control of three investment funds sponsored by an outfit
he helped found called Yunfeng Capital; these funds show up
as co-investors with Alibaba in a number investments. It is
probably confusing for Ma to keep track of his roles as both a
general partner of the funds and as Alibaba CEO. Alibaba and
the funds may at times have different investment goals.
Alibabas annual report informs us of Mas intention to
donate all distributions he may receive by virtue of his 40%
indirect interest in the Yunfeng funds to the Alibaba
Foundation charity.
Nor do Ma and friends seem to be shy about using Alibaba
Groups balance sheet to make private investments. Case in
point: an April 2014 investment made by a partnership
controlled by Ma and online-gaming magnate Yuzhu Shi. The
deal for a 20% interest in the Internet streaming company
called Wasu Media Holding (000156.China) seemed fairly
straightforward initially. Alibaba Group financed the purchase
of the shares by a third party, Simon Xie, a limited partner, by
giving him a $1 billion loan.
But a year later, the optics changed. The $1 billion primary
loan was assumed by an unnamed Chinese bank, but Alibaba
was hardly off the hook. It provided the partnership with a
$300 million loan to cover the interest payments that Xie
faced on the bank loan. Alibaba also had to deposit $1.1 billion
in the same bank as collateral on the loan. So in all, Alibaba
shareholders are on the hook for $1.4 billion to finance the
private investment made by the Ma partnership.
In its filings with the SEC, Alibaba concedes that this
transaction raises the specter of potential conflicts of interests
between the company and Ma, Xie, and the other general
partner, Shi. Among other things, there is no assurance that
Simon [Xie] will have sufficient resources to repay the loan in
a timely manner, or at all, an Alibaba filing says.
An Alibaba spokesman attributed the complex structure of the
Wasu deal to government prohibitions against foreign
investments in the nations media and entertainment
industry. This claim seems stretched. Wasu trades on the
Shenzhen Stock Exchange, where foreigners can purchase its
shares. And Alibaba itself, though deemed a foreign-owned
enterprise, was able to buy a 16.5% interest in Youku Tudou,

another Chinese Internet streaming company, which trades on
the New York Stock Exchange. Alibaba declined to discuss
those issues.
So, much of the China Dream magic surrounding Alibaba rests
on the turbocharged growth in transaction volume, or GMV,
that the company has reported in recent years. And here,
some incongruities are troubling.
Take, for example, Alibabas claimed growth in user numbers,
which has compounded at an annual rate of 39.1% over the
past four years, from a June 2011 total of 98 million to 367
million as of June 2015. Yet over roughly the same period, a
biannual national survey conducted by the Chinese Internet
Network Information Center, an official agency, shows that
Chinas online-shopper population has a compound growth
rate of 23.5%, rising from 173 million in June 2011 to 361
million this past December. An Alibaba spokesman says the
agencys figures are too low.
The discrepancy in growth rates could perhaps be explained if
users were increasingly gravitating to Taobao and Tmall,
Alibabas two main Websites, at the expense of their
competitors. But that doesnt conform with other surveys. A
study by a Financial Times research service showed that, as of
this years first quarter, 44.9% of respondents most regularly
use JD.com, surpassing the 36.3% favoring Tmall and nearly
catching up to the 50.6% notched by Taobao. Four years ago,
there was a yawning gap in popularity between Taobao and
JD.com where the former waxed the latter by about 52% to
28%.
THE OTHER COMPONENT OF Alibabas GMV, average
annual spend per user, likewise invites a measure of
skepticism. For the past seven quarters, that number has
stood at about $1,215, well above the $963 annual average for
U.S. online shoppers. But the U.S. is significantly more
developed and affluent; per capita gross domestic product in
the U.S. is about 7.5 times that of China.
That $1,215 average spend at Alibaba also seems high in view
of the total average annual per capita expenditure in China,
online and at physical stores; that stands at about $2,260. It
strains credulity that the average Alibaba user would spend
over half of his consumer outlays on Taobao and Tmall, given
that the sites have a negligible presence in categories that
account for the bulk of consumer spending, like food and
beverages, housing, transportation, home health products,
and restaurant dining.
Alibaba attributes the apparent discrepancy on the lessdeveloped bricks-and-mortar retail sector in China forcing
consumers onto the Internet, not only for aspirational
purchases, like fashion goods, but also household necessities.
Still, youd have to buy a lot of light bulbs and detergent to
close the gaps in those numbers.
PART OF ALIBABAS ALLURE, particularly to offshore
investors, who constitute nearly 90% of its owner base, is that
the company casts a wide shadow over so many digital areas
beyond e-commerce, such as social media, chat, instant
messaging, smart television, and entertainment.
In fact, the company has been on an investment rampage
since 2014, spending billions. Yet it has in the main kept its
investments stakes under 50%, meaning it doesnt have to
include the results of those businesses in its operating profits.
That has insulated its results from the losses coming from
businesses like Youku Tudou and Alibaba Pictures Group
(1060.Hong Kong).
Things could get tougher for Alibaba and Jack Ma. User
growth is no longer matching the extraordinary pace of recent
years, and economic times are getting harder. Also,
competition from JD.com and others is forcing Alibaba to
abandon its asset light model of little inventory and few
warehouses. Its building warehouses, fulfillment operations,
and delivery networks to match the faster delivery times of

rivals.
In the end, gaudy financial reports can only work for so long
before reality intrudes. This hard lesson figures to be driven
home to Ma and his trusting investors in the coming years,
and it wont be pretty.
---
New deal to facilitate China auto export to

Arab countries
Taken from the Xinhua News Sunday, 13 September 2015
A Chinese trade association and a firm has signed an

agreement with a Jordanian company to facilitate the export
of Chinese automobiles and parts to Arab countries.
The deal was reached between the China Council for
Promotion of International Trade, Ningxia Silk Road ePath
Co. and Aqaba National Real Estate Projects, which was
headquartered in south Jordanian city of Aqaba.
Under the agreement, Chinese auto exporters will be able to
store cars and components in a bonded area in Aqaba owned
by the Jordanian company before selling the goods to the Arab
markets.
"We welcome Chinese automakers to build assembling
factories in our bonded area in Aqaba, which can save tariffs
for them," Sharif Kamal, board member of the Jordanian
company told Xinhua.
Ningxia Silk Road ePath, a cross-border e-commerce
platform, will work out ways to connect online and offline
businesses between China and Arab countries.
"The specific cooperation model is yet to be discussed, and our
cooperation will be far beyond the auto business," said Feng
Hejin, vice general manager of the Ningxia company.
The three parties will seek for more cooperation opportunities
in the future, according to the agreement.
This deal was signed on the China-Arab States Auto
Cooperation Forum, a major part of the ongoing China-Arab
States Expo.
(Full article click - Xinhua)
---
China consumer confidence drops for 3rd

month
Taken from the Xinhua News Sunday, 13 September 2015
China's consumer confidence declined for a third month in

August partly due to a weak stock market, according to a latest
index.
The Bank-card Consumer Confidence Index (BCCI), compiled
by Xinhua News Agency and China UnionPay, a national bank
card association, declined 0.6 point from July to 82.07 in
August, the third month-on-month drop in a row.
On a year-on-year basis, the index dropped 1.69 percent. A
lower reading shows a drop in consumers' desire to spend.
Spending on non-necessities dropped sharply, with a plunge
of 13.55 percent for plane tickets, and a decline of 8.6 percent
for large home appliances, including air conditioners and
fridges.
The BCCI drop came as sharp fluctuations on the stock market
eroded Chinese people's personal wealth. A stock market rout
since June 12 had led to a 38 percent plunge in the benchmark
Shanghai Composite Index by the end of August.
A report came along with the index said the BCCI may
continue to see fluctuations as official data pointed to weak
economic activity.
Manufacturing purchasing managers' index for August came
in at 49.7, falling under the boom-bust line of 50 for the first
time in six months, according to data released by the National
Bureau of Statistics.
The BCCI, first released in April 2009, is based on bank card
transaction data and analyses of changes in urban
consumption.
(Full article click - Xinhua)

---
Tony Abbott facing inevitable leadership

challenge from Turnbull
Taken from the Australian Sunday, 13 September 2015
Immigration Minister Peter Dutton has launched a strong

defence of Tony Abbott, who he says is a better man and
more intelligent than Bill Shorten, amid reports a leadership
challenge against the Prime Minister is mounting.
Frontbench MPs pushing for the return of Communications
Minister Malcolm Turnbull to the leadership claim a challenge
is inevitable, according to a report in The Sunday Telegraph,
with some ministers even refusing to rule out a contest this
week.
Mr Dutton, who was first elected to parliament in 2001,
refused to weigh in on party room speculation but said Mr
Abbott had the strong support of his colleagues.
I believe that Tony Abbott is a better man than Bill Shorten,
Mr Dutton said on Sky Newss Australian Agenda program.
I think he is a more intelligent person, I think he has a
greater capacity to lead and to make tough decisions in tough
times.
Ive seen lots of speculation around leadership over the years
that Ive been in politics but I do believe that in the run up to
an election, people will not vote for a government dominated
by the CFMEU and other union bosses. I do believe that
people see better character traits in Tony Abbott than they do
in Bill Shorten.
Social Services Minister Scott Morrison said he wasnt part of
any push to see off the Prime Minister.
Im not part of anything that I would know about. I support
the Prime Minister and everybody knows that. So I suspect
that theyre (Liberal MPs in the Turnbull camp) not talking to
me, Mr Morrison told the Ten Network.
This is just this incessant insider speculation and outsider
speculation and gossip and I dont propose to entertain it or
give it any oxygen. The Prime Minister knows where I stand
and I think so do the Australian people.
While many observers interpreted a news report in The Daily
Telegraph last Friday as a sure sign that Mr Abbott was
planning a reshuffle, others have noted that the report only
helped fuel uncertainty about the Prime Minister and
undermined his work that day in meeting with community
groups to talk about settling 12,000 refugees one of his
significant policy moves last week.
The result has been an outbreak of speculation over who was
seeking to apply pressure on Mr Abbott to overhaul his
cabinet and replace key allies such as Defence Minister Kevin
Andrews and Trade Minister Andrew Robb.
The Weekend Australian revealed yesterday that Mr Abbott
had assured Mr Andrews and Mr Robb in private meetings in
the past few weeks that they would not only stay in their
portfolios but would be needed in their jobs after the next
election.
A similar assurance was given to Mr Dutton.
Mr Dutton said he believed the Liberal Party could win
Saturdays Canning by-election in Western Australia but not
if were talking about ourselves.
He also said the government could win the next federal
election if his colleagues get back on to our core messages
and allow people to judge our record.
When we get into an election context, I think when people
start to focus on the alternative, which is what election
campaigns are about, I believe that we can defeat Labor, Mr
Dutton said.
I think we can do it successfully if we are able to focus on the
wins that we have and on the strengths of our Prime
Minister.
(Full article click - Australian)
---
Japan Pension Fund CIO Says Government

Has Done Well Attracting Foreign Investors
Taken from the Dow Jones News Sunday, 13 September 2015
Prime Minister Shinzo Abe's administration has done a good

job attracting foreign investors with economic and financial
stimulus, but it has to show investors how it will lift growth in
Japan to ensure investor confidence, the chief investment
officer of Japan's $1.2 trillion public pension reserve fund said
Sunday.
"They have to prove the third arrow is working," said
Hiromichi Mizuno, CIO of the Government Pension
Investment Fund at a conference in Tokyo on Sunday,
referring to the structural changes proposed by Prime
Minister Shinzo Abe's administration to put Japan on a longterm path to growth. "It's a kind of moment of truth."
It was Mr. Mizuno's first public appearance since taking his
position in January. The GPIF is the largest pension fund in
the world of its kind.
Mr. Abe's economic policies, including a dramatic overhaul of
the GPIF's portfolio into more equities, have drawn more
foreign investors to Japan's once-overlooked stock market.
The GPIF announced in October that it would roughly double
its allocation to Japanese stocks to 25%. At the end of June,
domestic stocks were 23.39% of its total portfolio.
Mr. Mizuno said the GPIF's portfolio changes had helped
draw foreign investors because they knew that GPIF had
increased its stock allocation, but said that the Japanese
government needed to create an environment in which
foreigners would be confident to invest "without the sense of
security that the GPIF is going to buy into the equity market."
He said he was "generally positive that structural reform is
happening in Japan."
He added that participation from foreign investors would be a
way to give Japanese investors confidence to make more longterm investments in Japan stocks.
(Full article click - WSJ)

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comments at the press conference. CIBC Chief Economist

The eurozone has offered an olive branch to Britain and other

Jeremy Corbyn begins task of appointing

Jeremy Corbyns team will spend the rest of the weekend

Modernisers need to stick with this, not flounce out into

Bosses sound alarm as Corbyn romps home

BUSINESS leaders reacted with dismay to the election of

The CBI urged Corbyn to support a pro-enterprise agenda

Winner Jeremy Corbyn is the 'Lefts Sarah

Jeremy Corbyn wins by landslide leaving Yvette Cooper and

On Saturday night David Cameron called Mr Corbyn to

quickly got rid of IDS. I do not see that happening as quickly

Corbyn poses to our country to join the fight against Labour.

News from the EU

Once upon a time, it looked likely that Poland would

Juncker obstructs investigation

Taken from the Sunday Times 13 September 2015

THE president of the European Commission, Jean-Claude

Bid to halt 6bn Worldpay float

TWO French and German technology giants are this weekend

Clock ticking for 1bn Moto bidder

A MINORITY investor in one of Britains biggest motorway

Why warring France and Germany are still

Competing visions for the future of economic and monetary

"This is a rules-based stability framework where major

Eurozone officials were calm on Saturday about the potential

Greece's Syriza, New Democracy still hard

The leftist Syriza party of former Greek prime minister Alexis

broadcast on Wednesday had little impact on voting

Greek polls point to conservative leader as

Vangelis Meimarakis, leader of pro-European New

Berlin, the main provider of the bailout funds that have

ECB Review of Greek Banks Under Way,

European Central Bank President Mario Draghi told euro-area

Once the ECBs supervisory arm seeks that aid, it could be

Greeks scavenge for hope but the public

A tale of two sectors: private business is starving while state

Giota, who is 41 and a mother of three, is sombre about the

Public-sector workers, like those in the private sector, have

half-heartedly. We call the Troika loan sharks, but they have

The US central bank should keep interest rates on hold next

Federal Reserve to leave door open for

The worlds most powerful central bank will signal that it is

Fed Rate Hike Is Too Close to Call

Taken from the Barrons Online Sunday, 13 September 2015

Will they or wont they? Opinions on what the FOMC will or

is keeping his fund neutral in terms of interest rates, given

Avery Shenfeld: A Tie Goes to the Runner

In economic outlooks, as in baseball, a tie goes to the runner.

US Fed about to show its cards

Taken from the Nikkei Sunday, 13 September 2015

The Feds Policy Mechanics Retool for a

Its easy to take for granted the Federal Reserves ability to

The stakes are huge. The Fed is in charge of keeping economic

markets; selling slowly could allow the economy to overheat.

The Fed's got a 'third' mandate, and it could

The Federal Reserve has a dual mandate: maximum

statute makes no explicit mention of financial stability, the

Apple Shares Could Rally 50% on New

Leasing phones and offering annual upgrades could win big

subsidies for smartphones, so the days of a $199 iPhone are all