Ana_Idkit

The global economy may be close to a “tipping point” that could see it enter a slowdown so severe that it transforms the current period of rising inflation into a period of falling prices, the Bank for International Settlements said Monday.

In its annual report, the central bank for central banks said the impact of rising food and energy prices on consumers’ incomes, combined with heavy household debts and a pullback in bank lending, may lead to a slowdown in global growth that “could prove to be much greater and longer-lasting than would be required to keep inflation under control.”

“Over time, this could potentially even lead to deflation,” it said.

For central bankers from around the world gathered in Basel for the BIS annual meeting Sunday and Monday, the report made for chastening reading. Not only does it highlight the difficulty of the dilemma facing central banks confronted with slowing growth at a time when inflationary pressures are rising, it also lays much of the blame for their predicament at the feet of the central banks themselves.

The BIS said that in the early part of this decade, central banks had failed to set interest rates high enough to restrain an unsustainable credit boom.

It added that if a repeat of the current financial crisis is to be avoided in the future, central banks must be prepared to keep interest rates high even when there are no obvious signs that inflation rates are about to pick up. It also suggested that regulators make banks set aside more capital during boom times — an approach that could curb their risk-taking and lessen their need to pull back on lending during busts.

“By using macroprudential regulatory instruments as well as monetary tightening to lean against the upturn, the worst excesses could be avoided,” the BIS said.

Faced with growing financial problems, U.S. air carriers could start seeking foreign investments and pushing for a relaxation of U.S. airline-ownership laws, British Airways PLC Chairman Martin Broughton said in an interview.

BA, which flies more passengers to and from the U.S. than any other overseas airline, doesn’t envision being able to make a major investment in a U.S. carrier anytime soon, said Mr. Broughton.

However, the BA executive said an eventual relaxation of U.S. airline-ownership rules could spark a world-wide wave of cross-border deals in the next five to 20 years. That would help the troubled aviation sector function more like other industries, he added.

The U.S. forbids foreigners from holding more than 25% of the voting stock in a U.S. airline or from indirectly controlling any U.S. carrier.

Airlines and officials from the European Union have for several years pressed Washington to relax those rules, but Congress has opposed changing legislation to lift those limits. The EU limits non-EU ownership of its airlines to 49%.

Japan grants tax exemptions

By Michiyo Nakamoto, Financail Times story

Published: June 29 2008 21:50

Tokyo’s financial authorities have agreed the terms under which investments by offshore funds investing in Japan would be exempt from taxes in a bid to encourage fund managers to do business in Japan.

The Financial Services Agency, which regulates the industry, the Ministry of Finance and the National Tax Agency have agreed that offshore funds will not be subject to taxes if their assets in Japan are managed by independent asset managers.
EDITOR’S CHOICE
Shorting – an essential, endangered hedge – Jun-08
Waiting for the dust to settle – Jun-01
Landmark decision welcomed – Jun-01
Hong Kong feels a wind of change – May-25
Schemes say trustees are harder to recruit – May-11
Gloves off on fair value – May-11

The move reflects growing awareness within the Japanese government, which has been seen as hostile towards foreign funds, that the country’s economy and financial markets could benefit from a larger presence by foreign fund managers.

The Ministry of Economy, Trade and Industry has also begun unofficial negotiations with the Finance Ministry to reform Japanese taxes in order to encourage investment by foreign funds.

Under current rules, offshore investors investing in Japan through asset managers based in Japan could be subject to Japanese taxes if the asset management entity in Japan is deemed a “permanent establishment” of the offshore fund.

A change to the law this year allows such investors to avoid Japanese taxes if the asset management entity in Japan is considered “independent” of the offshore fund.

The latest agreement clarifies what constitutes an independent asset manager and represents an important step towards minimising the risk offshore investors face of being slapped with Japan’s high taxes. The move was broadly welcomed by the western financial community, despite some concerns that it failed to go far enough to encourage more fund managers to come to Japan.

Japan’s high taxes, at between 30 and 40 per cent, have discouraged funds from setting up operations in Japan.

Typically, in order to avoid Japanese taxes, even funds that invest primarily in Japan are set up offshore, in Singapore or Hong Kong, for example.

In order to be exempt from Japanese tax, offshore funds must prove that the asset managers in Japan have broad discretion over investment decisions, that more than half of the managers are not employees of the offshore fund, that remuneration is linked to the amount of the total assets to be invested or to investment income and that the asset manager has the capacity to diversify its

They score on simplicity and transparency in ACCA survey

By MICHELLE QUAH

(SINGAPORE) Singapore and Hong Kong have the fairest and most transparent tax systems, out of six major developed countries, says an international study of finance professionals.

Australia, the United Kingdom and the United States fared less well – being ranked as having complex tax systems with their volume of laws, directives and regulations.

The study, by the Association of Chartered Certified Accountants (ACCA) surveyed members in Australia, Canada, Hong Kong, Singapore, the UK and the US – a spread of different types of economies with varying levels of complexity in their tax systems.

Respondents ranked the various tax regimes according to how ‘fair’ they were, relative to one another, looking at the ’simplicity’, ‘transparency’ and ‘burden’ of each regime.

For the purposes of the survey, ACCA defined ’simplicity’ as the ease by which one could calculate one’s tax liability, the number of tax rates and allowances and the number of loopholes in the system. ‘Transparency’ referred to the extent to which the tax system is designed to be easily understood and accessed. And ‘burden’ referred to the extent to which certain groups, such as businesses and families, may pay disproportionately more tax.

The Singapore group said ‘compassion’ should be included as a characteristic of a fair tax system. They thought the S’pore tax system was more compassionate.

Respondents in Singapore and Hong Kong had an overall positive view of the fairness of their tax regimes.

They ranked the two regimes tops, in terms of simplicity and transparency – agreeing that compliance requirements in their jurisdictions were clearly communicated.

That’s as compared to the view from respondents in the UK, Australia and Canada, who felt their regimes were less fair and somewhat complex. Respondents in the US felt the tax regime there was complex, but not necessarily unfair.

The results showed an overwhelming belief from all countries that it is the volume of directives, laws and regulations that has the greatest effect on tax complexity. ‘The message from our research is for governments to reduce the volume of laws, directives and regulations that contributes most to complexity,’ observed Professor Francis Chittenden, ACCA Professor of Small Business Finance at Manchester Business School, who wrote the survey report with colleague Hilary Foster.

‘There is a fundamental issue for governments around the world to decide the purpose and structure of tax systems, and importantly to communicate the rationale behind these decisions.’

Focus group discussions conducted by ACCA with members from the six countries also threw up interesting findings.

UK participants felt taxes in their country are unfair, too complex and lack transparency. They also said there is inadequate communication from the tax authorities – which is leading to a breakdown of trust in the system.

The US group felt the tax system was complicated and burdensome, but not necessarily unfair. The overall view of the Australian group was that their tax system is complex, with fairly high taxes and compliance costs.

The Hong Kong group believed that their tax rules are simple but that the way in which the tax authorities interpret them has created uncertainty and led to unfairness. They said commercial transactions are becoming more complicated and their tax system needs to keep up to stay equitable.

The Singapore group said that ‘compassion’ or ‘empathy’ should be included as a characteristic of a fair tax system. They thought that the Singapore tax system was more ‘compassionate’ compared to other systems in the region.

They said it was less aggressive towards taxpayers and was generally seen to be sympathetic towards the man on the street and empathetic with local culture and practices.

The report concludes that trust is crucial for a tax system to work in any country, that is, governments should create an environment in which citizens believe they have played a part in setting the system and that the system treats them with respect. More taxpayers will feel inclined to comply, reducing evasion and associated administrative costs.

ACCA also believes governments should explore the creation of flexibility in their tax structures to allow for a swift response to changing economic conditions.

www.tradingsuccess.com/blog/

Hi All! It’s great to be back if only for one issue this week. Next week, I’ll be back back to writing Monday to Friday.

Before I look at the ES, I want to thank all who dropped me a ‘get well note’. As soon as I can sit for more than 20 minutes at a time, I’ll reply to each of you individually.

Secondly, I want to thank Ana Wang for doing a sterling job while I was away. Just four more days, Ana, and you’ll be off the hook. Thanks too to all who have assisted Ana with contributions.

Thirdly, I subscribe to Steve Briese’s ‘Commitment of Traders’ newsletter. There is a timely warning at

http://CommitmentsOfTraders.ORG/?p=37. I recommend you have a quick read of this post.

Let’s turn to the ES.

Friday’s price action is a warning to the Bears not to become complacent. Let’s see why.

The current trend is a sideways market. Figure 1 shows (all figures basis cash):

1. The boundaries of congestion: 1440 to 1256

2. The Value Area: 1399 to 1318

3. The Primary Buy Zone: 1258 to 1281

4. The Primary Sell Zone: 1440 to 1418

5. Friday’s Bar Range of 17.45 was at the lower end of normal BUT its volume was at the higher end of normal. This is a Negative Development Buy Signal (see Nature of Trends).

Given Friday’s small range/large volume day, the market is warning of a possible rally. This is one side of the picture. On the flip side, notice that the average daily volume on the way down has been around 457,000. I’d have been more comfortable buying if this volume would have been less than that. In this congestion, volume of this magnitude has resulted in breach of the previous lows (on 01/23/08 and 03/17/08).

So how would I handle this situation? Recall that I trade the 18-d and it has signaled the probability of a down trend:

• An Upthrust Change in Trend affirmed by the Whole Point Count (WPC) and other filters.

• What is missing to confirm the down trend is a series of lower lows and lower highs.

So I would not initiate long positions until the downtrend signals are invalidated. But, if short, I would take profits on some of the positions. I’d also be on the lookout for how the market behaves on a breach of 1256. If the market shows signs of facilitating trade to the downside, I’d look for a place to initiate some new shorts.

FIGURE 1 S&P Cash

Key economic data for the week starting June 30th, 2008.

ALSO links to Article & Radio at end of post.

Numbers shown are consensus estimates and prior value.

Monday:
	09:45 Chicago PMI Jun 48.5 49.1

Tuesday:
	10:00 ISM Index Jun NA 49.6

Wednesday:
	10:00 Factory Orders May 0.6% 1.1% 10:30 Crude Inventories 06/28 NA 830K

08:30 Initial Claims 06/28 NA 384K
08:30 Nonfarm Payrolls Jun -50K -49K
08:30 Unemployment Rate Jun 5.4% 5.5%
10:00 ISM Services Jun 51.5 51.7

John Mauldin, Best-Selling author and recognized financial expert, is also editor of the free Thoughts From the Frontline that goes to over 1 million readers each week. For more information on John or his FREE weekly economic letter go to: http://www.frontlinethoughts.com/learnmore

Slow motion recession

mwo062708

LISTEN TO RADIO ON SOUND INVESTING:

show442_56k

History of Archimedes (below)

My personal Mind-map as follows:

HOW to Multi-task was my dilemma

I must thank my mentor for pointing the best way to keep track of our day’s routine. He has always been advocating the use of Mind-maps ; it has rubbed off on me now. Whenever I do not know how, when ,where to proceed, I will resort to a mind-map.

Lately,as most readers are aware, I have been assigned to act as Moderator for my mentor in view of his THR. With my own busy schedules as per Mind-map attached, I find that by thinking through my added responsibilities, using a Mind-map , helps me to crystallize and implement my plans for the day.

Even with the help of a Mind-map, there are still sub-functions which come to mind as we go through the day. For example, I am constantly thinking of a topic for his blog for the next day. I do not want to presume to write too much on technical analysis being a newbie myself on his blog which is being visited by advance traders as well. So, this compounds my scope of topics which will be fine in my own newsletter IDkit but to cross reference my articles to STC/blog, I need to weigh on the target audience which is more advanced than mine. Since I need to write for my weblog too, I kill two birds with one stone by cross referencing my posts to STC/blog. The only thing that bothers me is I have to factor in the more sophisticated audience that will be reading STC/blog. So, I decided to take a break this morning, and go for my séance de toilettage.

In the case of Archimedes, he was so excited about hitting the principle in his bath, that he screamed: ‘Eureka’ and shot through the streets in his birthday suit, one story went!

Aside: BACKGROUND HISTORY OF ARCHIMEDES:

Archimedes’ principle : states that a body immersed in a fluid is buoyed up by a force equal to the weight of the displaced fluid. The principle applies to both floating and submerged bodies and to all fluids, i.e., liquids and gases. It explains not only the buoyancy of ships and other vessels in water but also the rise of a balloon in the air and the apparent loss of weight of objects underwater.

In determining whether a given body will float in a given fluid, both weight and volume must be considered; that is, the relative density, or weight per unit of volume, of the body compared to the fluid determines the buoyant force.

KISS – Keep it simple, student (stupid was the orginal). While this is generally the way to go, it cannot be too simplistic.

There are those who think too much details in our plans can confound and complicate. I feel personally that at best, we cannot be 100% sure of what events will turn out, but we have at least a roadmap to show us what to do for the day.

We learn at the early stage of trading that the Formula of Success is:

Plan x Money Management x Winning Psychology

With a Mind-map, we can integrate not only plans, but also how to manage money and to know our psyche to succeed in trading.

It does not mean that we should go into social paralysis just because we left out some events that we do not foresee easily.

Being a human being rather than a robot, we still have our Right Brain to guide us through a solution if we can see the big picture with the help of a Mind-map.

CONCLUSION – my thinking:

The advantages out-weigh the disadvantages of having a detailed plan; so using a Mindmap gives us a roadmap to base our day’s routine effectively.

As you can see from my Mind-map, I do need one with all my commitments to my trading, my continual education, my other investments portfolio, my added civic responsibilities, my social obligations, not forgetting accepting new assignments as a freelance Feature Finance Writer.

I am at my desk at 8 am, with morning coffee as breakfast, and by the time I finish the day, it is not facetious if I say I work 16 -18 hours each week day, leaving weekends for indulgence in shopping and recharging.

This is to clarify to some friends who cannot understand why I am so busy when I am not being gainfully employed. To them, I say: when you work from home, for yourself, and being a one-man show, you do work longer hours.

ANA aka IDKIT

Ag Moderator

A NUGGET OF TRADING WISDOM TO SHARE WITH YOU

Fig: SP500 Daily that is close to a collapse in volatility of price bars, (in rectangle) leading to strong down move

What is market volatility?

Volatility is a measure of dispersion around the mean or average return of a security. One way to measure volatility is by using the standard deviation which tells you how tightly the price of a stock is grouped around the mean or moving average (MA). When the prices are bunched together, the standard deviation is small. When the price is spread apart, you have a relatively large standard deviation.

Another way to measure volatility is to take the average range for each period, from the low price value to the high price value. This range is then expressed as a percentage of the beginning of the period. Larger movements in price creating a higher price range result in higher volatility. Lower price ranges result in lower volatility.

The stock market is a volatile place to invest money. The daily, quarterly and annual moves can be dramatic, but it is this VOLATILITY that also generates market returns.

Market Performance and Volatility
There is a strong relationship between volatility and market performance. Volatility tends to decline as the stock market rises and increases as the stock market falls. When volatility increases, risk increases and returns decrease. Risk is represented by the dispersion of returns around the mean. The greater the dispersion of returns around the mean, the larger the drop in the compound return.

Market behaviour is predictable to a degree, but no one can predict what a specific market will do at a precise time. The market business is not one of predictions but one of probabilities. As one TV ad rightly declared: If you want a fortune-teller, the place to go is to the circus.

When we have enough experience, we will know that price history repeats itself. From price history, one can extrapolate predictable patterns of price behaviour because they are fractals as I mentioned in an earlier post about the Golden Mean and fractals occurring in markets as well.

Having said this, there is a pattern which I recall that my mentor Ray Barros has once pointed out to me to watch out for. It is the pattern known as a ‘collapse in volatility’. This collapse in market price volatility occurs when trading ranges narrow substantially, so that the price chart bars of whatever time frames suddenly get smaller. These price bars should be at least three in a row and do not need to get progressively smaller in each bar.

However, we should not confuse a collapse in volatility with a trading range or congestion or sideways pattern. A trading range has some support or resistance levels, which are also longer in duration than a collapse in volatility. The bars are also not so narrow.

What happens next is a probable trigger of a significantly bigger price move – which could be up or down. Sometimes, the use of additional technical indicators may help us see which direction the market is likely to go.

Suffice for me to say, when you observe such a collapse in volatility in price movements in a chart of any time frame, be forewarned of a bigger price move to come, which could either go north or south.

Morning Call: June 25
Decline Of The Superrich…In The US, Anyway

For all you agoraphobes out there, get thee to a clinic quick and find the medicine that will get you comfortable living out east. And we’re not talking about the East Coast, either. We mean India, China or Russia. Brazil is also an option for any diehard southies. But other than that, you’re going to be hard-pressed, statistically and comparatively speaking, to transform yourself into a millionaire (if you’re not one already) while residing in the U.S. Not that it’s all about the money, but, hey, if you’re doing a good job, why not get properly paid for it? The latest on where to go to get the most bang for your buck.

Governments would be “foolish” to limit participation in commodity markets and curb speculation because prices are based on supply and demand, London Metal Exchange Chief Executive Officer Martin Abbott said.

Rising demand from emerging markets and a lack of investment by suppliers have created a “structural change” in commodity markets, fueling higher prices, Abbott said yesterday in an interview in New York. Increasing regulation to limit speculative interest won’t lower prices and may hamper the market’s role in price discovery, he said.

“There is in the commodity space as a whole something going on which cannot be ascribed to simply hot money coming through exchanges,” said Abbott, who heads the world’s largest marketplace for copper, aluminum and other base metals. “It would be very foolish of any government to stifle participation in markets.”

Surging prices for commodities such as crude oil, corn and copper have prompted lawmakers including U.S. Senator Joseph Lieberman to suggest more regulation is needed to limit the role of speculators in the markets. Billionaire investor George Soros has labeled the jump in energy prices a speculative bubble.

“Why would an elected politician have a better idea of what the price is than the summation of the entire world’s oil industry trading across an open exchange?” Abbott said. “For a government to try and determine a good price for something is nonsense.”

“We didn’t invest in plants, we didn’t invest in deposits, and there’s no wonder that the markets have caught up,” Abbott said. “What’s going on here is a structural change.”