US Debt Downgraded

 China just kicked the U.S. in the proverbial nuts. I hate to say it but we had it coming.

Last month China played the U.S. into leaving it off its list of “currency manipulators.” To show just how grateful they were, yesterday China unveiled its first report on the debt risks of 50 countries. And guess who was ranked below China?

The U.S. of A.! In fact our government debt was knocked down from the best in the world to a pitiful 13th place.

Was it self-serving? No doubt about it. But it’s the truth.  The only thing that’s surprising is that it took this long.

I saw this day coming. I’ve already talked a great deal about the U.S.’s runaway debt with you. Many will say it’s not a problem now. It’s in the future. To them I say the future is now.

The report was a warning to all investors: THE U.S.  government debt market is NOT the safe haven you think it is. The Dagong Credit Rating Company, a professional rating agency in China, says US debt is more risky than Singapore’s, New Zealand’s and Norway’s.

But this is China talking...you know, the county that executes a couple of dishonest businessmen a year in the futile effort to tamp down corruption and bribe-taking.

Grab a fast $350, $525, $850, Even $1,600 Using Wall Street’s Favorite “Cash Machine” Strategy This “cash machine” strategy is so powerful, it could have turned a modest $1,000 bankroll into $10,730 dollars in just 93 days. Best of all, it only takes 3 minutes anytime to set it up.  Find out how, starting with your FREE play which is ready now. Click here for all the details.

Can you believe a Chinese credit rating agency?

Or would you rather rely on Moody's, Fitch and S&P? These are the same head-in-the sand agencies that slapped triple-A ratings on subprime mortgage loans. They continue to rate US government debt AAA. Despite the deplorable state of our fiscal situation.

Me? I'm on board with Dagong. And I’m not the only one. In a recent survey of 440 executives from around the world commissioned by Royal Bank of Canada's capital markets unit.... 40% said they expect debt issued from companies will be considered safer than government debt.

Corporates safer than governments? I never thought I’d write those words. But think about it. Would you rather lend your money to a bankrupt organization (the US government) or a company with a strong balance sheet (like J&J for example)? I know where I’d rather invest. You need to take a look at corporate bonds.
More on that later.

Meantime, Dagong was founded 16 years ago to rate Chinese corporate debt. It is privately owned. But Dagong made its announcement on Sunday at the headquarters of the Xinhua News Agency. This is the ruling Communist Party's main propaganda outlet.

Make no mistake. The downgrade of US government debt was made with tacit approval from the Chinese government. Consider it an admonition from our biggest creditor to get our fiscal house in order.
Will we? Not with the pandering politicians we currently have in Washington DC.

One nation under debt

China’s concerns are legitimate. Consider…

Our national debt currently stands at $14 trillion. But $14 trillion is just for starters. According to the Federal Reserve we have another $2.5 trillion in state and local debt. Mostly municipal bonds. And according to Institutional Investor magazine nearly every state's pension fund is on the verge of running out of money. A federal bailout is all but inevitable. So tack on another $3 trillion.

But things really get ugly when you add in the government's obligations under Social Security and Medicare. The government doesn’t even take these obligations into account.  They should. Right now those entitlement programs consume around 14% of tax revenues.

In just 10 years these programs will consume almost 1/3 of revenues.  And if things don't change by 2030 it will be close to half. To meet these obligations the US government would have to have $106 trillion on hand right now. How much do we have? Not a penny.


So add on another $106 trillion unfunded liability. So while everyone thinks about our debt as $14 trillion.  The real number is more like nine times that amount.

Consider the words of the former Fed Chairman Alan Greenspan in a recent essay “The federal government is saddled with commitments for the next three decades it will be unable to meet.”

China gets it. Greenspan gets it. 40% of executives around the world get it.

So it’s come down to this. Lined up on one side are global executives and China deeply worried about the debt hole we’re digging. On the other side is the US government (with its deeply indebted European fellow-travelers) still believing that government spending is a good thing. 

And don’t expect this credit downgrade to change the government’s tune. They’ll call the Dagong downgrade politically motivated. They’ll continue to insist the only way out of this hole is to dig it deeper…more stimulus. 

But the handwriting is on the wall. Interest rates will move up.  Maybe not tomorrow or next month. But the stage has been set. Inflation will be making a big comeback.

The Best Way to Profit From Silver's Next Leg Up Our very own resource expert Dr. Russel McDougal has gone on the record stating that he expect silver to hit $24/ounce this year. that would be a 33% gain in only 6 months! But investing in the metal isn't even the most explosive way to potentially profit in the silver markets. I have prepared a special report below which tells an incredible story and on that could show you amazing gains when silver makes its next big leg up. Click here to learn more.

What to do now

Can you take advantage of the growing confidence in corporate versus government debt? Sure. Add corporates to your portfolio. Stick to short maturities and don’t consider anything less than investment grade.
If you’d like help selecting the right bonds I highly recommend Steve McDonalds Bond Trader service.

Finding the best corporate bonds is what Steve does best. He already has an impressive winning percentage of over 97%. Click here to find out how Steve can get you off the stock market rollercoaster and into the new “safe haven” of corporate bonds.

Source: Investors Daily Edge

Protecting bondholders vital; Ball in the Court for Pesaka Astana and other defendants

Protecting bondholders vital

Plain Speaking - By Yap Leng Kuen

THE “landmark’’ judgment handed by the High Court that the adviser and arranger of bonds are just as liable as the issuer for losses suffered by bondholders is significant in the development of the local bond market.

The judgement by Justice Datuk Mary Lim, based on a RM149mil lawsuit filed by 10 local financial institutions against issuer Pesaka Astana (M) Sdn Bhd, is an old case for which the oral judgment came out in early July.

In the light of recent corporate scandals, it is a timely reminder that high priority should also be placed on the investors, without whom there will be no bond market.

“In most emerging countries, the issuer side is normally regarded to be more crucial in ensuring the success of the bond market,” said an industry player. Corporates will be asked to issue more bonds, while details such as structure and size will be scrutinised.

However, to ensure continued demand and confidence in the market, investor protection is also vital to drum in the message of a high standard of care.

A high degree of investor protection and other favourable factors have led Malaysia’s bond market to grow by leaps and bounds since the markets faced its major stress test in the Asian financial crisis of 1997/98.
“When we get the buy side going, the issuers will come in droves,” said the industry player.

“We do not want the bond market to go in the same way as the equity market where in so many cases, we see that minority shareholders are not protected. This judgment is certainly critical and provides comfort to bondholders that at the end of the day, investor protection is still granted in this market.”

Already, the smaller issues are struggling in the sense that investors with risk averse appetite are not attracted to these bonds.

A case like this where the company had defaulted in September 2005 on RM140mil worth of Islamic debt securities issued in April 2004, dampens the sentiment even more.

No longer can an arranger just collect the fees and leave the buyer to fend for himself under the “buyer beware” kind of environment. If something goes wrong, he may get a joint suit from the parties involved and not just the bondholders.

“We can also have a situation where during an economic downturn, investors may suddenly decide to sue the arrangers and other parties that have money,” said another industry player.

“Big arrangers may find this worrying as it becomes their responsibility to prove that they are not liable.”
Industry watchers want to see if this represents a blanket judgment which will then have major implications on parties like trustees and rating agencies.

They will have to be responsible throughout the life of the bond. 
Of course, there are possibilities of appeal and the decision could well be uplifted, varied or even reversed. That is yet to be seen.

Senior business editor Yap Leng Kuen believes that the point has been made and market players have heard it loud and clear.
For latest Bursa Malaysia indices, charts and other information click here

Ball in the court for Pesaka Astana and other defendants

By FINTAN NG
fintan@thestar.com.my

PETALING JAYA: Now that the High Court has ruled in favour of bondholders in the suit brought against Pesaka Astana (M) Sdn Bhd as well as the arranger and trustee of the bond issuance, it is up to these three defendants how they want to respond to the judgment.

According to a source, the ball is now “at their side of the court”.

He said it was now up to Pesaka Astana, KAF Discounts Bhd and Mayban Trustees Bhd on how they want to divide the payment of the RM149mil sought by the 10 bondholders, who filed the suit in 2005.

Pesaka Astana supplies fire-fighting and military vehicles to the Defence Ministry.

The Singapore Business Times had, on July 2, carried a story which said the judgment would “radically raise the bar on standards governing private debt issues in Malaysia” as the arranger and trustee were just as liable for losses suffered by the bondholders.

High Court Justice Datuk Mary Lim, in a verbal judgment, had said the plaintiffs, which included CIMB Bank Bhd, had depended on the information memorandum provided by KAF to make informed investment decisions.

She said the information was in the memorandum and “therefore it is KAF’s liability in the event of any misstatement therein.’’

The newspaper said the suit underscored a newly-found ruthlessness in Malaysian financial litigation as at least two of the litigants on both sides of the suit were government-linked companies.

Although Pesaka Astana and related companies had entered into a consent judgment in favour of the bondholders back in 2008, KAF and Mayban Trustees had chosen to go to trial.

KAF treasury head Manimakudam Karuppiah told StarBiz the company was reviewing the case and would decide on its next course of action soon.

“However, despite the judgment, there is no impact on the bank as we’re well-capitalised with shareholders’ fund close to RM1bil,” he added.

Manimakudam said the company had also made full provisions to absorb the penalty and that business had not been affected.

“We were also recently rated AA by Malaysian Rating Corp Bhd,” he said.

Mayban Trustees, which the bondholders argued had failed to exercise the necessary care and due diligence expected of a trustee, said in a statement last week that it was “actively considering the next course of action”.

It said the judgment “has no impact to the business operations of the company” and that it had in place “a strong team of professionals with priority chiefly on protecting the interest of all stakeholders and upholding best standards of service and management practice.”

IT gender pay gap getting worse

Skills Survey 2009: Female techies not pocketing the biggest bonuses either...

The IT gender pay gap is getting worse, according to results from the 2009 silicon.com Skills Survey.

More than a third (35 per cent) of female IT workers responding to this year's survey said they were on the bottom rung of the tech pay ladder, earning less than £25k, compared to just under a third of women (32 per cent) last year. And only 14 per cent of male IT workers are in the lowest pay bracket this year, down from 20 per cent in 2008.

A slightly larger proportion of women than men also take home the second lowest pay packet, of between £25,001 to £40k: 27.5 per cent of women versus 25.5 per cent of men. However when it comes to earnings of more than £40,001, men consistently dominate - and in the highest pay brackets the proportion of men to women is more than double.


Image credit: Natasha Lomas/silicon.com Nearly a quarter (23 per cent) of male respondents reported earning £40,001 to £55k this year, compared to less than a fifth (17.5 per cent) of female respondents; while 17 per cent of male respondents reported earning £55,001 to £70k, versus just 12.5 per cent of women. In the top two earnings brackets there is a significant hike in the proportion of men versus women: 15 per cent of male respondents reported earning £70,001 to £110k this year, compared to just five per cent of women; while 5.5 per cent of men claimed to pocket £110,001+, only 2.5 per cent of women did.

When it comes to bonuses, while a larger proportion of female techies reported getting a bonus this year than male techies (42.5 per cent of women versus 35 per cent of men) - a change on last year when the sexes were equally likely to get extra cash - men tended to take home bigger bonuses than women.

The majority of female bonuses this year fall in the less-than-£5k category: 65 per cent of female respondents, versus 47 per cent of men.

For bigger bonuses men were the clear winners: no female IT workers responding to the survey reported receiving a bonus of more than £20,001, yet 10 per cent of male respondents took home the biggest bucks - including one per cent that reported getting a bonus of more than £100k. And while 43 per cent of men reported a bonus of between £5,001 and £20k, only 35 per cent of women did so.

In April this year the government published the Equality Bill which includes measures to strengthen the law on pay equality in the public sector. According to the latest figures from the Office for National Statistics, women still earn on average 22 per cent less per hour than men - a marginal improvement on last year when the gap stood at 22.5 per cent.

Newscribe : get free news in real time 

Women in IT: Tech has an image problem

Is the UK tech industry ageist?

• IT skills shortage squashed by recession?
• Recession hitting low paid IT jobs
• Pay for IT chiefs weathers the storm

There are 4 comments. Join the discussion

1. 
   

   1. anonymous

   Statistics. All this proves is that the women spend more time filling in questionaires whilst the men ignore them as they are not very interested. I constantly see more and more females being promoted up the ladder to balance out but a lot are promoted above thier ability and then make a mess of things making it more difficult for women to shine in the future. Promotions should be on talent alone and no other reason and stats like these should be complied properly.
   
   
   • 4 December 2009 10:41
   • Add comment
2. 
   

   2. anonymous

   While I don't necessarily agree with the previous poster, these stats prove nothing. We don't know the ages of the respondents, how many women choose to leave the profession early to do other things (leaving perhaps more in junior posts), or even if it was a statistically fair sample.
   
   For example we have few female techies but several female ex techies in senior positions
   
   So a good start a debate, but there is nothing here that can be relied upon to provide any real information.
   
   
3. 
   

   3. blogger123

   Most statistics are made up.
   
   
4. 
   

   4. NLondon

   Latest figures from the Office for National Statistics show women still earn on average 22 per cent less per hour than men.