Lebanon sailed through the financial crisis. Now it’s lunging toward Greek status, and signs of a crisis are everywhere.
On Friday, a near-riot broke out in a bank branch in the northern Lebanese town of Halba when customers complained that they couldn’t withdraw cash. Lebanon is running short of U.S. dollars, and banks everywhere have restricted their supply and put arbitrary limits on the withdrawal of Lebanese pounds. Lebanon’s National News Agency reported a 10-hour standoff at the Halba bank. At one point, security forces fired tear gas into the building, and one customer was taken to hospital.
The good times in the Middle East’s favourite playground are over.
The cranes are idle in Beirut. Corruption is rampant – always has been. The banks are in crisis, and the debt-choked government, whose annual fiscal deficit is running at 10 per cent of GDP, is starved for cash. Mass anti-government protests since mid-October have paralyzed the main cities and forced the resignation of prime minister Saad Hariri and his cabinet. There is no economic salvation plan.
Adding to the gloom is the possibility of war between Iran and the United States. Tiny Lebanon, bordered by Syria and Israel and not far from Iraq, where a U.S. missile strike killed Iranian General Qassem Soleimani on Jan. 3, lives in a rough neighbourhood.
The Lebanese stock market is in the tank. A recession seems imminent. Ratings agency Fitch predicts a default on some US$88-billion of public debt. An IMF bailout may be in the works. Financial collapse, while unlikely, is not out of the question. That’s because Lebanon, where the Iran-backed Hezbollah party and militia are formidable forces, doesn’t have a lot of friends at the moment. On Sunday, Hezbollah leader Hassan Nasrallah called for attacks on U.S. military sites in the Middle East. Would U.S. President Donald Trump support an IMF bailout of Lebanon? Probably not.
“I’m very pessimistic about the economy,” Kamal Hamdan, an economist and executive director of Beirut’s Consultation and Research Institute, said in an interview.
How did Lebanon’s apparently resilient, largely open and buzzy entrepreneurial economy reach the cliff edge? The country is largely the author of its own misfortunes, even if the long Syrian Civil War on its border – Lebanon took in more than a million refugees – didn’t help. An economic model based on massive consumption and borrowing was always unsustainable. It just took a while for the proof to arrive.
Mr. Hamdan says the roots of the crisis go back to the era of Rafic Hariri, the wealthy businessman and father of Saad Hariri who was prime minister from 1992 to 1998 – the first post-civil war leader – and again from 2000 to 2004 (he was assassinated in 2005). He dropped the income tax rate to 10 per cent and went on a reconstruction borrowing spree. At the same time, warlords-turned-politicians bought votes by spending and hiring recklessly in their constituencies.
Public expenditures exploded. Between 1993 and 2018, the government of this tiny country spent some US$240-billion. But the vast majority of it went to current expenditures such as salaries, not capital expenditures that could have created economic efficiencies. The number of public servants rose fivefold to 300,000. Then, of course, taxes had to rise as deficits widened.
At the same time, foreign direct investment fell as the Syrian war raged on. Angered by the rise of Shia Hezbollah, wealthy Sunni Arabs from Saudi Arabia and the Gulf states stopped investing in Lebanon and even curtailed tourist visits. Recently, dollar remittances from Lebanese expats also slowed as faith in the banking sector waned.
In recent years, the government has tried to fund itself through a system dismissed as a Ponzi scheme by some economists. To maintain the Lebanese pound’s costly currency peg to the U.S. dollar, the central bank pushed up deposit rates to crazy levels – as much as 10 per cent. Those deposits, in turn, were loaned to the central bank.
In 2019, as the inflow of dollars dried up, the commercial banks introduced informal capital controls, limiting cash withdrawals. Businesses began to suffer from a credit squeeze. The mass riots that started in October and triggered the downfall of Mr. Hariri’s government were in good part motivated by the banking and economic crises. The currency peg is in trouble, and a dollar fetches 2,000 Lebanese pounds on the black market; the official rate is 1,500.
The new government will have to come up with a rescue plan fast – the cabinet is to be appointed this week. If it doesn’t, an IMF bailout of as much as US$25-billion may be needed. The wild card is a war between Iran and the U.S. that could shatter all the economies in the region. For Lebanon, the timing of Gen. Soleimani’s assassination could not have been worse.
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CEO Pessimism About the Economy Is Getting Worse; Will This Affect U.S. Stocks? – CCN.com
- CEO pessimism is at the highest level since 2012.
- The stock market will likely keep rising as CEOs continue authorizing stock repurchases.
- The Federal Reserve will keep pumping liquidity and keep the longest bull market alive.
Business consulting firm PricewaterhouseCoopers (PWC) recently released its 23rd Annual Global CEO Survey. The poll asks chief executives around the world about their global economic outlook for the next 12 months. Last year, nearly 30% responded that global economic growth would decline in the next 12 months. A year later, these CEOs were right on the money.
The International Monetary Fund reported that the global economy grew 2.9% in 2019. That’s a significant decrease from 3.7% growth in 2018.
This year, more CEOs believe that the global economy will slow down in the next 12 months. Despite the pessimism, the U.S. stock market will likely extend its historic bull run.
CEO Pessimism on Global Growth Reaches Highest Level Since 2012
More than half of the 1,581 CEOs polled in over 80 countries believe that the global economy will decline in the next 12 months. According to Liz Ann Sonders, chief investment strategist at Charles Schwab, the proportion of chief executives predicting a growth decline has surged ten-fold since 2018.
In the U.S., that number is higher; 62% of U.S.-based CEOs believe that the rate of expansion will slow in the next 12 months.
While PwC’s survey may sound alarming, the results won’t likely translate into U.S. stock market losses. The U.S. has a secret weapon that can keep the party going.
Stock Buybacks and Billions from the Fed to Keep the Longest Bull Market Alive
CEOs in the United States are likely not worried that the economy will tank soon. Why would they be?
These big wigs have access to billions of dollars courtesy of the Federal Reserve. They can simply borrow money from the Fed to pump share prices through stock buybacks. These CEOs also approve generous dividends to stockholders to keep them from dumping their shares.
Blockchain pioneer Nick Szabo shares the same sentiment. He believes that CEOs are incentivized to pump their company’s stock because they receive handsome compensation for share price growth.
This is not just a baseless theory. VanEck strategist Gabor Gurbacs took to Twitter to illustrate that the money supply grew by over $8 trillion since the financial crisis but the rate of spending declined by 30%. The new money didn’t trickle down to the average Joe because it made its way to the stock market.
Stock Buyback Growth Coincide With U.S. Stock Market Surge
Pessimistic or not, chief executives will continue buying back company shares. Yardeni Research revealed that the S&P 500 began to show signs of recovery in 2009 just as buybacks and dividends started to rise. Interestingly, this is around the time that the Federal Reserve launched the first round of quantitative easing.
The global economy might slow down this year. It might impact efforts to buyback shares as companies often use their free cash flow to repurchase stocks. Nevertheless, the music will likely keep on going as long as the Federal Reserve keep pumping billions into the repo market.
Disclaimer: The above should not be considered trading advice from CCN.com. The writer does not own any stocks in the S&P 500.
This article was edited by Sam Bourgi.
Trump slams impeachment trial, touts U.S. economy at World Economic Forum – Global News
Trump called a surprise news conference Wednesday to mark a “tremendous two days” at the glitzy summit of world leaders and financiers in Davos, which has served as a respite from the trial underway in Washington.
“It’s such a hoax,” Trump said of the impeachment case against him. “I think it’s so bad for our country.”
Trump gave his legal team high marks after more than 12 hours of arguments on procedural motions Tuesday in which Republicans blocked Democratic efforts to immediately call witnesses and subpoena documents. But Trump said he wanted to see his aides, including former national security adviser John Bolton and acting chief of staff Mick Mulvaney, testify in the Senate.
“Personally, I’d rather go the long route,” he said, referring to calling witnesses in the Senate trial, before suggesting that there were “national security” concerns to allowing their testimony.
A resolution passed early Wednesday by a party line vote allows the Senate to consider calling witnesses only after both sides in the impeachment trial present their cases.
“I thought our team did a very good job,” Trump said, saying he watched some of the proceedings. He praised White House Counsel Pat Cipollone’s ”emotion“ on the Senate floor, adding, ”I was very proud of the job he did.“
Lawmakers argue rules, evidence as Trump impeachment trial begins
Trump repeated his attacks on Democratic House managers serving as prosecutors in the trial, saying that he’d like to “sit right in the front row and stare at their corrupt faces” on the Senate floor during the trial but that his attorneys might have a problem with it.
Democrats say Trump abused his power in his dealings with Ukraine and obstructed Congress in its investigation. Trump denies doing anything wrong.
Trump opened his news conference with triumphant talk on the American economy and said he is pushing for “very dramatic” changes to the World Trade Organization. He called on Roberto Azevedo, the director general of the international organization, who said “has to be updated.”
Azevedo acknowledged that “the system has not been functioning properly in many areas.”
“We are committed to effect those changes, and this is something we are serious about,” he added.
Trump had announced the unexpected availability during a meeting with Iraqi President Barham Salih.
Trump legal counsel says rules for impeachment trial ‘fair way to proceed’
Trump also said the United States is moving to add more countries to its travel ban list, but gave no other details, saying the changes would be announced soon,
The Trump administration is planning to add seven countries — Belarus, Eritrea, Kyrgyzstan, Myanmar, Nigeria, Sudan and Tanzania – to the list, U.S. media reported on Tuesday.
Trump arrived in Davos on Tuesday. He addressed the forum and over two days has held meetings with leaders from the European Union, Iraq and Pakistan, among others.
The Republican president said in most of his meetings that trade was on the agenda.
-With files from Reuters
© 2020 The Canadian Press
Spooked consumers suggest economic impact of Australia bushfires to grow – National Post
SYDNEY — Australians are beginning to tighten their purse strings because of the country’s deadly bushfires, according to a survey released on Wednesday, a sign that the economic impact of the crisis is likely to deepen.
As authorities warned that a days-long respite from high fire danger was coming to an end, economists said the cost to Australia’s A$1.95 trillion ($1.33 trillion) economy could be as high as A$5 billion ($3.4 billion).
That would shave around 0.25 points off gross domestic product in the December and March quarters, a development that some economists said could prompt the country’s central bank to cut rates as early as February and lower its growth projections.
Consumer sentiment in January was a hefty 6.2% lower than a year earlier, according to the Melbourne Institute and Westpac Bank survey released on Wednesday. Consumer sentiment data is considered a leading indicator, running ahead of actual spending data.
“The risk is that as economic loss from the bushfires materializes, consumers could still become more cautious in February,” said Citi economist Josh Williamson.
The huge bushfires have cut through the country’s east coast during the peak summer months when many businesses usually rake in earnings from both domestic and foreign tourists. Agricultural sectors, particularly the dairy industry, have also been hard hit.
The deepening financial woes intensify pressure on Prime Minister Scott Morrison, who has faced criticism over his handling of the crisis and his conservative government’s stance on climate change.
Australia is one of the world’s largest carbon emitters per capita due to its reliance on coal-fired power plants, and the bushfires have become a global talking point with regard to climate change politics. Morrison has repeatedly rejected calls for Australia to increase its carbon emission reduction targets, insisting such a step would it would do too much damage to the country’s economy.
Late on Tuesday, Morrison reiterated his view that preemptive burning of bushland to remove flammable vegetation was as important as reducing emissions to prevent bushfires, a position that has been rejected by fire services chiefs.
Temperatures in New South Wales and Victoria states began to rise on Wednesday after several days of cool weather, leading authorities to renew “extreme fire danger” warnings in some areas where existing fires could be intensified or new blazes sparked into life.
Here are today’s key events in the bushfire crisis: * The wildfires have killed 29 people, destroyed more than 2,500 homes and razed 11 million hectares (27 million acres) of wilderness – an area one-third the size of Germany – since September.
* Scores of fires were burning in New South Wales and Victoria states on Wednesday. Temperatures in Victoria were expected to top 32 degrees Celsius (89.6 Fahrenheit) on Wednesday, leading officials to declare “extreme fire danger” in some areas. Temperatures in NSW were forecast to hit 40 degrees C (104 F) on Thursday.
* A Reuters analysis shows that Australian animals living in specific habitats, such as mountain lizards, leaf-tailed geckos and pear-shaped frogs, are battling the threat of extinction after fierce bushfires razed large areas of their homes.
* The air in Sydney is expected to again reach hazardous pollution levels on Thursday as smoke drifts over the city, the NSW state government said. Sydney, Melbourne and Canberra have all been periodically blanketed in smoke over the past several weeks, giving all three some of the worst air quality ratings in the world.
* Players at the Australian Open tennis tournament continued to make pledges of financial assistance. Among the latest were the seventh seed, German Alexander Zverev, who said he would donate A$10,000 for each match he wins and pledged his entire prize money of A$4.12 million if he wins the tournament. American John Isner has pledged 25% of all his prize money and A$100 for every ace he serves.
($1 = 1.4620 Australian dollars) (Reporting by Colin Packham and Swati Pandey in Sydney; editing by Jane Wardell)
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