Financial Mirror 2015 11 18

FinancialMirror OREN LAURENT

KAUSHIK BASU

US getting ready for December liftoff PAGE

The poverty line’s battle lines 14

Issue No. 1160 €1.00 November 18 - 24, 2015

PAGE 19

Terrorism deaths at highest ever Global Terrorism Index: economic cost reached $52.9 bln - SEE PAGES 8 - 11

Time to consider properties in the Troodos area

SEE PAGE 13

November 18 - 24, 2015

2 | OPINION | financialmirror.com

FinancialMirror Solve the crisis on the ground, not in Europe Published every Wednesday by Financial Mirror Ltd.

EDITORIAL

www.financialmirror.com Tel. 22 678 666 Fax. 22 678 664 P.O. Box 16077, CY2085 Nicosia Publisher/Managing Editor Masis der Parthogh masis@financialmirror.com Editorial submissions: info@financialmirror.com Advertising inquiries: marketing@financialmirror.com Subscriptions: http://www.financialmirror.com/signup/index.html

COPYRIGHT

©

No part of the Financial Mirror newspaper, the Greeklanguage XÚ‹Ì· & AÁÔÚ¿, the daily XpressOIKONOMIKH electronic PDF edition or any of the contents of the website www.financialmirror.com, may be reproduced, stored in a retrieval system or transmitted in any form or by any means (electronic, mechanical photocopying, recording or otherwise) without prior permission of the publishers.

Any person or company found in violation will be prosecuted and financial damages will be sought as this implies theft of the intellectual property rights of the publishers, their associates and contributing services or agencies.

Last week’s double attacks in Beirut and Paris were, perhaps, the wake-up call needed to get the West truly interested in the turbulent Middle East. On the one hand, the French President declared an allout war on ISIS, on the other hand, large-scale bombardments will simply exacerbate the refugee crisis, straining the European Union’s tolerance even further.

In September, Noble laureate Jeffrey Sachs wrote that the ongoing bloodletting in Syria is not only the world’s greatest humanitarian disaster by far, but also one of its gravest geopolitical risks. “And the United States’ current approach has failed miserably. The solution to the Syrian crisis, including the growing refugee crisis in Europe, must run through the United Nations Security Council.”

Having numbered the US security establishment’s international failures in meddling in affairs to topple regimes deemed to be harmful to American interests, Sachs said that this model does not work. “What appears to be a ‘quick fix’ to protect local populations and US interests often devolves into chaos, anarchy, civil war, and burgeoning humanitarian crises, as has happened in Afghanistan, Iraq, Libya, and now Syria.

The risks of failure multiply whenever the UN Security Council as a whole does not back the military part of the intervention,” driven by rivalries that date back to the Cold War and Soviet (Russian) rivalries.

In the past month, however, Russia has shown

greater resolve to combat ISIS and keep its ally Assad in power, while America’s regional allies (Saudi Arabia, Israel, Turkey) leaned on President Obama to move on Assad, each with their own national interest and covert operations, and not the greater good of the region in mind.

Now that Francois Hollande seems to have taken the lead where no other European leader has so far, there could be a consensus for a quicker solution to the problem in Syria and, by extent, Iraq, before the refugee crisis erupts to a volcano-level with vast repercussions on continental Europe.

This is where the European Commission Vice President for foreign affairs Federica Mogherini has a chance to show her unifying skills, where her predecessor failed miserably by delaying any action or involvement when the Arab Spring started across northern Africa and the Middle East.

In hindsight, these problems should have been resolved by ensuring stability and security on the ground, through humanitarian aid, investment, health and education, thus preventing the problem of migrants growing to the uncontrolled scale it is today.

With Russian President Vladimir stating over the weekend that at least 40 states support ISIS or their actions, directly or indirectly, with some even members of the G20, it is time for the West to realise who is truly on their side and who has been conning them all this time. Only then will there be a genuine interest and effort to restore calm and a “Middle Eastern-type of democracy” in Syria and Iraq, which is far from the principles we believe in, but nevertheless the only solution possible.

THE FINANCIAL MIRROR THIS WEEK 10 YEARS AGO

BOC dives, budget deficit revised down Bank of Cyprus shared took a dive as shareholders rushed to sell and raise cash for the upcoming rights issue, while the government revised down its 2005 budget deficit to 2.5% of GDP, according to the Financial Mirror issue 645, on November 16, 2005.

BOC rights: Bank of Cyprus shares fell 2.4% to CYP 2.47 in anticipation of the one-for-six rights from which the bank aims to raise CYP 110 mln at an

20 YEARS AGO

No threat to offshores, Cyprus dithers on tourism The European Commission’s diplomat in Cyprus reassured the business community that the application to join the EU poses no threat to the offshore sector, while in tourism, officials were dragging their feet on incentives to lure British tourists as Malta said it would subsidise its exchange rate, according to the Cyprus Financial Mirror issue 136, on November 15, 1995.

Offshores: EC Ambassador Gilles Anouil told executives of the Offshore Enterprises Association (COEA) that their fears about the sector and its future

exercise price of CYP 1.40, while punters shrugged off the Moody’s “neutral” report on the basis of a shrinking pension fund liability, with prospects for a rating upgrade from the present “D+”.

Budget deficit: The government has revised down its forecast for the budget deficit in 2005 following a better-than-expected nine months and a small surplus of CYP 19.5 mln. But inflation, driven by a new fuel tax, could wreck the euro adoption plans.

SFS CyVenture: SFS announced a takeover bid to increase its stake in CyVenture Capital from 43.6% to

100%, by issuing new shares worth CYP 1.55 mln in the loss-making fund, but acquiring assets worth CYP 3.7 mln.

CAIR interest: A Turkish Cypriot hotelier, Aziz Kent, has shown interest to buy troubled Cyprus Airways, saying the national carrier could serve both parts of the island and act as a bridge.

Paphos marina: At least 40 companies have shown interest to bid for the BOT project to build the 1000-berth Paphos marina in Potima Bay, between Peyia and Kissonerga. Pre-selection ends in December with initial bids in March and final bids in November 2006 for the contract winner to begin work in April 2007.

were premature and unwarranted, as the economy is vital to Cyprus and “the EU does not want to destroy a potential member country’s economy”, while the adoption of single-market policies will help keep a level playing field in financial, services and shipping sectors, where the favourable 4.25% tax rate rules.

Tourism decline: Faced with a major decline in British tourists next year, Malta has decided to subsidise the forward exchange rate at which tour operators are allowed to buy the local currency, thus giving them a 10% discount, while Cypriot officials are desperately seeking alternatives in order to halt

the decline, estimated at 30% in 1996.

CB T-bills: The Central Bank of Cyprus has decided to proceed with a public auction of Treasury Bills in early 1996 as part of its gradual liberalisation of the capital markets. The plan is to introduce a 13week and 26-week auction and a one-year auction to be held every 15 days, possibly at a 6% coupon rate. A CB spokesman said “there is plenty of room to manoeuvre between the 6 and the 8.5% maximum lending rate.”

VLM expands: Planners at Voici La Mode have been pleasantly surprised by the first month results from the new Marks & Spencer store in Acropolis and are considering plans to expand the 12,000 sq.ft. premises, already labeled as the best performing in the brand’s 800-store worldwide network.

Like us on Facebook

Follow us on Twitter

November 18 - 24, 2015

financialmirror.com | CYPRUS | 3

Steinmeier: “We need to continue fighting ISIS in Syria” Cyprus-Germany have “almost identical policies” at Foreign Affairs Councils Foreign Minister Ioannis Kasoulides and his German counterpart, Dr Frank-Walter Steinmeier, on a working visit to the island, said that both countries have almost identical policies during their monthly Foreign Affairs Councils (FAC) meetings, especially on the situation in Syria and Libya, the Middle East Peace Process (MEPP) and the agreement reached with Iran on the nuclear issue.

Steinmeier, who also joked that is it not often that two foreign ministers meet for breakfast, lunch and dinner on the same day, as they also travelled from Brussels on the same flight, offered Germany’s experience and know-how on the political level, as his country marks the 25th anniversary of reunification this year.

“Our process of reunification also was not easy. We are happy to refer and share our experiences, if you so wish, and if it is needed,” he stressed.

Kasoulides said that the German Minister, who was also received earlier in the day by President Nicos Anastasiades, discussed regional security, migration and energy issues.

Steinmeier’s interest on the Cyprus problem is very strong, the Minister said, stressing that “we are looking forward to the help that we can get from our EU partners for arriving to this goal, as soon as possible,” as he also briefed his German counterpart on the progress made in the implementation of the Economic Adjustment Programme implementation and the expected exit from the programme in 2016.

Views were also exchanged on Turkey, as well as on the issue of migration, on which Kasoulides commented that “we have to see between two margins: one is the compassionate and humanitarian nature of the EU and their societies, but on the other hand, is the need to guard our

On his part, Steinmeier noted that the main issues of discussion these two consecutive days were, on the one hand, the Cyprus problem, upon which Germany shows a great deal of interest in the efforts towards solving the decade-long conflict, and on the other hand, the tragic events in Paris.

“We need to enhance and, even more, closely cooperate between the security authorities in order to reduce the risk of such attacks from happening in the future.”

He added that “it is also clear that we need to continue fighting ISIS in Syria, but on the other it is very important a process of talks has been initiated in the past months in Vienna towards the diffusion of crisis in Syria, which,” as he said, “is a hopeful development towards the ending of the conflict that is been ravaging Syria.”

Referring to bilateral relations, Steinmeier said that “there are plenty of opportunities in the field of Frank-Walter Steinmeier with former Turkish Cypriot leader Mehmet tourism, but also in the field of energy, not as conventional forms of energy, but also the issue of Ali Talat (left) and President Nicos Anastasiades at a reception renewable energies.” borders and not to allow people to abuse our compassionate Meanwhile, British Foreign Secretary Phillip Hammond nature.” will visit Cyprus on Thursday for “high-level meetings to As regards to the situation in Ukraine, the Cypriot Minister discuss the settlement and bilateral issues”. said that “we have always supported and we still support Hammond will be received by President Nicos Germany and France in their efforts to complete with a Anastasiades and will have a meeting with Foreign Minister satisfactory conclusion the Minsk process agreed in the Ioannis Kasoulides.

Normandy format”, adding that Cyprus’ position in the FAC He will also meet with UNSG Special Envoy Espen Barth regarding the issue of the sanctions, “will depend on what Eide and Turkish Cypriot leader Mustafa Akinci as well, after will be the recommendation coming from Germany and which the British Foreign Secretary will visit the Committee France”. on Missing Persons.

November 18 - 24, 2015

4 | CYPRUS | financialmirror.com

Anastasiades, El-Sisi to brief each other on regional issues President Nicos Anastasiades and his Egyptian counterpart, Abdel Fattah el-Sisi, have agreed to remain in regular contact on issues of regional cooperation after a long telephone conversation they had on Tuesday afternoon.

Government spokesman Nikos Christodoulides said President Anastasiades expressed his regret for the recent tragic event in the Sinai Peninsula and briefed his Egyptian counterpart on the content and the results of his recent meetings in Jordan, Israel and Palestine.

The two leaders said that common problems and challenges can be addressed more successfully through cooperation of the states in the region, for the benefit of the people.

At the same time, Anastasiades and President elSisi exchanged views on bilateral issues, with special emphasis on the energy sector and other issues of common interest.

Banks need to speed up rate of restructuring NPLs President Nicos Anastasiades will ask the Bank of Cyprus, the Hellenic Bank and the Cooperative Central Bank to speed up the pace of restructuring their nonperforming loans (NPLs), which have been described as the banking sector’s greatest challenge.

In statements after a meeting with Central Bank Governor Chrystalla Georghadji, Government Spokesman Nicos Christodoulides said it was largely “a preparatory meeting” ahead of the meeting with the three credit institutions on Thursday.

Anastasiades and Georghadji exchanged points of view on NPLs, he said, adding that according to the briefing the President had by the Central Bank Governor, the rate of restructured bad loans is increasing.

This is something the President welcomes, Christodoulides said.

At the same time he said that President Anastasiades and the Central Bank Governor also discussed a study conducted by a consultancy on behalf of the Central Bank regarding the structure and governance of the Central Bank and added that they agreed to cooperate on the matter and in particular as regards the need to promote specific legislative amendments.

Replying to a question as to which banks will be called on to take part at the meeting on Thursday he said it has been decided to invite the heads of Bank of Cyprus, Hellenic Bank and the Cooperative.

Georghagji, he said, will be abroad on Thursday but the Central Bank will be represented at the meeting.

Asked whether a probe on the possibility of a conflict of interest of Georghadji with regard to her post was discussed at the meeting, he said the matter was not discussed, adding at the same time that when there are developments on the matter a relevant statement will be made on the part of the presidency.

Investment funds assets drop by 2% The total assets of the Cyprus investment funds (CIFs) have decreased by 2% to EUR 2.908 bln in September, compared with EUR 2.963 bln in June, according to the investment funds quarterly statistics released by the Central Bank of Cyprus.

This is due to the decrease of the number of reporting entities, following the revocation of their license, the report said A total of 78 CIFs submitted data at the end of June and 67 at the end of September. According to Central Bank figures, the total deposits of the 67 CIFs amounted at the end of the third quarter to EUR 216.1 mln and their loans amounted to EUR 28.9 mln.

Moreover, the data for reference months March and June have been revised.

Troika: “You’re getting there, but you’re too slow” Cyprus seems to be doing well as regards the implementation of of the economic reform programme, but still needs to overcome three major hurdles in order to secure the next tranche of financial aid from the Troika of international lenders.

Auditors from the Troika of international lenders (EC, ECB, IMF) issued their report after concluding their visit to Nicosia on November 3-13 to review Cyprus’s economic reform programme, saying that economic activity has continued on a positive trend since early 2015, while the banking system continues to heal.

Although there is evidence that the slow pace of debt restructuring is picking up, non-performing loans (NPLs) remain high and the pace of lending is subdued, they said, adding that the fiscal targets for the third quarter of 2015 were met with substantial margins. In addition, the authorities are making progress on their structural reform agenda.

Looking ahead, increasing the pace of reform under the programme will be essential to entrench the progress achieved.

Reducing the excessive level of NPLs remains the number one priority, the Troika report said. It is a necessary condition for a sustainable stabilisation of the banking system and the resumption of lending. In this context, the teams took note of the recent adoption of a law to facilitate the sale of loans, which is a key programme commitment.

“A preliminary assessment indicates that the law contains a number of favorable elements. The final assessment will be based on the consolidated official version and implementing regulations. Going forward, the authorities should take all necessary actions to effectively implement this legislation, as well as the insolvency and foreclosure frameworks, in order to decisively reduce NPLs,” the report said.

Moreover, continued sound public finances are needed to ensure that the public debt ratio returns to an acceptable level while steering public spending toward growth-enhancing activities. Finally, moving decisively ahead with structural reform — including, first and foremost, the privatisation process, electricity sector unbundling and the public administration reforms — is critical to cement the improvements in public finances and support sustained economic growth and job creation.

Conclusion of the reviews is subject to the approval processes of both the European Union and the IMF, which is expected to be initiated in January 2016.

“The economic recovery has started, but unemployment remains high,” the report said.

Growth returned to positive territory in the first quarter of 2015, led by professional services and tourism and, on the demand side, private consumption, partly supported by lower energy prices, lower interest rates and the euro depreciation.

The labour market shows signs of stabilisation, but unemployment remains high, hovering at around 16%. Prices

continued declining, largely reflecting declines in the energy and tourism sectors. Growth is expected to settle at 0.5% this year, gradually regaining strength in 2016.

The fiscal developments continue to exceed expectations, with a primary surplus of 1.2% of GDP at end-June 2015, about 0.9pp of GDP better than envisaged in the sixth review.

“The financial situation of the banks is gradually improving, but a stronger implementation of financial sector reforms is needed to guarantee a sustainable stabilisation of the banking system. Even if there are some early signs that the rise of nonperforming loans is levelling off, a decisive reversion of the NPLs trend has still to materialise.”

The report added that the reform of corporate and personal insolvency laws is being implemented.

Some progress has been noted on important growthenhancing reforms, but firmly moving ahead - including the privatisation process and the public administration reforms - is critical to restore sustained economic growth.

Further criticism came on the long delays in reforms and implementation of certain bills.

“Other reforms have suffered from delays. The law on the state-owned enterprises’ corporate governance, which aims at ensuring a more effective monitoring of the functioning of SOEs and minimising fiscal risks, has not yet been adopted.

Also, the reform of the health sector has not progressed much since the last mission. The implementation of the Immovable Property Tax reform has been postponed to 2016 due to late adoption of the design of the new tax system. The public employment service still lacks capacity to fully handle its task.

Efforts to reduce the significant title deed issuance backlog need to be accelerated, notably via a comprehensive streamlining of the issuance procedures.”

The report said that “progress has been generally slow in developing a comprehensive strategy to restore Cyprus’ growth potential, even if important growth-enhancing steps have been taken on various fronts.”

Three prior actions were set for the granting of the eighth disbursement, relating to delayed steps of importance to reducing the level of NPLs and to key structural reforms. The first prior action concerns the adoption by the House of Representatives of legislation to solve the backlog of title deeds transfer.

“Moreover, even if not a prior action, adoption of the legislation regarding to the sale of loans is expected to take place before the release of the next tranche of financial assistance. The second and third prior actions relate to adoption by the Council of Ministers of legal proposals for the corporatisation of the Cyprus Telecommunications Authority (CyTA) and for the horizontal reform of the public administration.”

“These are key structural reform commitments that have not progressed sufficiently,” the Troika report concluded.

November 18 - 24, 2015

financialmirror.com | CYPRUS | 5

Moody’s raises bond rating to B1 Outlook stable, as bank rating upgrades could follow Moody’s Investors Service upgraded Cyprus’ government bond rating by two notches to B1 from B3 on Friday, maintaining a ‘stable’ outlook, with the short-term rating affirmed at Not-Prime (NP).

As is common in such cases, a Moody’s upgrade of the long-term ratings of the three main banks could follow. The Bank of Cyprus long term rating is Caa3, issued on May 28, Hellenic Bank’s rating is Caa2 issued on June 12, and RCB carries a rating of Caa1 issued in November last year.

The rating agency said that the key drivers for the bond rating upgrade are the faster than expected economic recovery and the expectation of a continued more broad-based growth that extends beyond exports. Moreover, the economy has demonstrated resiliency to external risks, emanating from Greece (Caa3, stable) and Russia (Ba1, negative). After three years of contraction, real economic growth is expected to reach 1.2% in 2015 and 1.4% in 2016.

Moreover, medium-term growth is expected to be more balanced, supported by a recovery in domestic demand helped by a stabilisation of the financial sector, improved competitiveness and the implementation of structural reforms.

Moody’s added that consistent outperformance on fiscal targets have led to a quicker reversal in the public debt ratio. A combination of better than expected growth and also strong budget execution underscore fiscal outperformance. The rating agency expects fiscal discipline to continue post programme exit and through parliamentary elections next year.

Under Moody’s baseline scenario, the government debt burden will now reach below 100% by next year and around 80% of GDP by 2020. Moreover, it expects the country to successfully exit the economic adjustment programme (financed by the European

Stability Mechanism, ESM, and the IMF) by mid2016, further supported by the build-up of significant liquidity buffers.

Concurrently, Moody’s has raised the localcurrency and foreign-currency bond ceilings to Baa1 from Baa3. The short-term foreign-currency bond ceiling has been raised to Prime-2 (P-2) from P-3, while the short-term foreign-currency deposit ceiling has been raised to P-2 from NP. The more balanced growth pattern is also driven by the stabilisation in the financial sector, which has resulted in a slight uptick in corporate credit growth this year. While still very weak (with a weighted average Baseline Credit Assessment of caa3), the financial sector reflects stable liquidity trends and increasing prospects for a return to profitability. Importantly, deposits remain stable at a systemic level despite the full lifting of capital controls on April 6.

Moody’s also expects that recent laws implemented in the financial sector, namely the insolvency and foreclosure framework, will support the gradual reduction of non-performing loans (NPLs) in the system, which are currently at a high 47% of total loans. That said, Moody’s notes that both the corporate and household sectors continue to have high, albeit reducing debt burdens.

Downward pressure on Cyprus’s B1 government bond rating could emerge if the government’s commitment fiscal discipline reduces, especially once the EC/IMF programme concludes. Evidence that the banking sector needs further recapitalisation support from the government would also exert downward pressure on the rating.

The Cooperative Central Bank announced last week that the government-owned lender, bailed out with a EUR 1.5 bln injection last year, may need a further EUR 150-200 mln in fresh capital from the 99% shareholder.

Qualco launches debt management services in Cyprus Qualco Group, an Athens-based service provider of credit and debt collection services using model-driven, technologyenabled solutions, is opening a Cyprus office to assist with the growing credit and debt management market.

The foreclosures and insolvencies laws recently passed by parliament, as well as the latest bill regulating the sale of distressed loans and mortgages, has opened the floodgates to service providers keen to support financial services and fund companies that will handle the nonperforming loans sector, currently burdening the balance sheets of local banks.

Qualco claims it is a “leading software solutions and advisory service provider in the credit and debt management industry, servicing over 70 clients and processing EUR 175 bln of debt.” Debt management has become both a crucial challenge and a priority of significant importance for banks, financial institutions and utilities.

Qualco’s complete offering ranging from state of the art technology, business process outsourcing (BPO) services and advanced predictive modelling, aims to provide optimal solutions to its customers addressing end-to-end, all debt related business and operational requirements.

November 18 - 24, 2015

6 | COMMENT | financialmirror.com

SEASONAL FOOD – 1 As far as our beloved retail stores are concerned, Christmas is imminent. So, I suppose, thoughts must soon turn to the catering aspect. Turkey has become “Bird of Choice” – the only problem for me is that it seems to last for weeks! If you are making traditional things like Christmas cakes or puddings, now’s the time and a classic cake recipe follows. To detract thoughts of the catering to come, or delay them, I begin with a simple and very tasty lunch dish. Some chefs serve this as a starter. It’s one of a few delicious things you can do with our excellent fresh chicken livers.

Chicken Livers with Commandaria Ingredients for Four Servings 500g / 1 Ib 2 oz chicken livers 50 cl / 16 fl oz Commandaria 2-3 tbsp olive oil for frying Sprigs of chopped fresh oregano, thyme and rosemary Salt and pepper 50cl/16fl oz milk 2 -3 pinches of corn flour Method 1. Remove any gristle or choggy bits from the chicken livers.

2. Marinate the chicken livers in the milk for two hours, then remove and drain them.

Discard the milk.

3. Heat the oil in a large frying pan and fry the chicken livers, on medium heat turning from time to time until they are pink but cooked through (around 10-12 minutes). Watch out for spitting livers, though!

4. Mix Commandaria with corn-flour until smooth.

5. Add herbs, salt and pepper, lower heat of pan and stir.

6. Finally stir in the Commandaria mixture and let simmer for 3-4 minutes, until the sauce thickens reasonably.

7. Serve on a bed of rocket leaves.

Fish Pie

For those desirous of putting off the moment when you have to consider Christmas cooking still further, here is a lovely dish for a wet or cold winter’s night.

Ingredients for six servings 500g / 17.5 oz of filleted fish (cod, haddock, hake, saithe etc) 5 eggs – hard boiled, shelled and quartered 750 ml / 24 fl oz full-cream milk (which includes milk used to poach the fish) 60g / 2.5 oz salted butter 2 heaped tbsp plain flour 800g – 1 kilo of potatoes, peeled and cut into small chunks A little extra milk and butter for the potatoes Salt and pepper for seasoning Grated hard cheese and a small handful of breadcrumbs (optional) Method 1. Lightly poach the fish in milk for about 8 - 10 minutes. Remove from pan on to a serving dish or large plate, and separate flakes to remove any bones, skin etc. Keep the juice and aside.

2. In a medium-large saucepan, melt the butter; add the flour and stir into a roux.

3. Add a little milk, stirring into a smooth thinnish paste. Add the rest of the milk, including the juice from poaching the fish, and return to the heat. Stir continuously, (I recommend a plastic spatula for best results) otherwise your sauce will go lumpy. After as few minutes or so the sauce will begin to thicken.

4. Reduce the heat and continue stirring until the liquid is fairly thick, then remove from

FOOD, DRINK and OTHER MATTERS with Patrick Skinner heat.

5. Fold in gently the fish and hard boiled eggs, shelled and roughly cut into chunks.

6. Stir and pour into an ovenproof dish.

7. Put in the oven at low temperature to keep warm.

8. Boil the potatoes until cooked through (around 11 minutes), drain and dry on heat 9. Add black pepper, half a cup (125ml) of milk and a good knob of butter and mash well until smooth.

10. Gently spoon the mashed potato over the fish mixture, brush with some melted butter, then “corrugate” the top with a fork, making the surface quite crumbly. As an alternative joy, instead of melted butter at the finish, mix together some finely grated hard cheese and bread crumbs and sprinkle them over the top and gently fork over (see my picture). Put under a hot grill until golden, or, better still, in the top of a very hot oven, until the top is crisp and golden and the sides are beginning to bubble.

Serve with a crisp green winter vegetable: cabbage, sprouts, broccoli or curly kale.

Last year, about this time, I offered you the recipe for a very rich Christmas cake. This year, I am offering the recipe for a decidedly festive cake which is not quite as rich. Ice it, decorate how you will, or just serve it with some sliced almonds on the top, it makes a lovely seasonal bite. It also makes a good dessert, accompanied by some vanilla ice-cream.

Dundee Cake For this handsome and delicious cake you will need a 20 cm / 8 inch diameter round cake tin (one with a removable base is best). You will also need grease-proof paper or baking parchment. Getting it ready takes about half and hour and baking it requires three hours or so in an oven heated to 150C (300F).

Ingredients 225g /8oz plain flour Pinch of salt 225 g / 8 oz butter 225 g / 8 oz caster sugar 4 large eggs 350 g / 12 oz sultanas 350 g / 12 oz currants 17 5 g / 6 oz chopped mixed peel 125 g / 4 oz small glace cherries Grated rind of half lemon 75 g / 2 oz whole almonds, skins removed and blanched.

Method 1. Grease with butter the insides and base of the cake tin.

2. Cut two pieces of grease-proof paper: a circle for the base and a long straight piece to fit around the inside of the tin.

3. Spread soft butter thinly with a spatula or pallet knife on both sides of the paper pieces.

4. Line the tin with the paper.

5. Sift together the flour and salt.

6. In a bowl or you food processor, beat the butter until soft and creamy.

7. Then add the sugar and cream until light and fluffy.

8. Add the eggs a little at a time, beating well.

9. Now steadily put in the flour.

10. When well mixed fold in the sultanas, currants, peel, cherries and lemon rind.

11. Chop half of the almonds and add to the cake mixture.

12. Mix for the last time and then spoon the mixture into the tin. With your spatula or knife smooth the top to make it evenly flat.

13. Split the remaining almonds lengthways, and arrange them, rounded side up, over the levelled cake surface.

Bake just below the centre of an oven for about two hours. If the cake shows signs of browning too quickly, cover the top with a sheet of damp greaseproof paper, and reduce the heat to 140C/275F for the last hour. Remove the cake from the oven when a skewer comes away clean from the cake.

Cool in the tin for 30 minutes, then turn out and cool on a wire rack. Wrap the cake in foil, leaving the greaseproof paper in place. Put into a storage tin or cake keeper. Ideally, the cake should “rest” for a good week before serving. It will keep a month or more months stored this way, even after slices have been taken from it. In our house, though, it doesn’t last that long.

Good cooking – and good eating!

Go to www.eastward-ho for more recipes, food and wine news and notes.

November 18 - 24, 2015

COMPANY NEWS | 7

Xenia Georgiou joins Horwath board Xenia Georgiou has been appointed as a member of the board of directors of Horwath DSP Ltd., an accountancy firm offering audit, tax, risk and advisory solutions through its offices in Nicosia and Limassol.

Xenia joined the company in October 2009 and has been responsible for audit and assurance assignments. She is a member of the Institute of Chartered Accountants in England and Wales (ICAEW) and the Institute of Certified Public Accountants of Cyprus (ICPAC). Xenia holds a degree in Accounting from the University of Cyprus.

She joins Managing Director Ioannis Demetriades, and fellow directors Andreas Pifanis, Marios Agathangelou, Chrysis Pegasiou and Emilios Ayiomamitis.

“Over the years, Ms Georgiou has consistently demonstrated excellent leadership skills, partnerlevel judgment and provided valued service to clients. In addition, she demonstrated collaborative and business-minded qualities that have earned her widespread recognition within the firm,” said Ioannis Demetriades.

The firm was first established in 1987 as Demetriades & Shakos, by Ioannis Demetriades and Vassos Shakos who subsequently withdrew from the partnership in December 1999 to take up a position as finance manager of a major hotel group in Cyprus.

In January, 1994 Andreas Pifanis joined the partnership, and the firm was renamed Demetriades Shakos Pifanis (DSP) and two years later DSP became a member of JHI, a worldwide association of accountants, tax and management consultants.

In October 2000 DSP opened an office in

PwC trainees continue to excel in ICAEW and ACCA exams

Limassol, while in January 2006 DSP resigned from JHI to become a Horwath Business Alliance Associate, and on September 1 of the same year a full member of Horwath International.

Horwath DSP Limited was established on November 30, 2006, and all the activities of the partnership were transferred to the new company on January 1, 2007.

On April 2, 2009 Horwath International became Crowe Horwath International.

Irene Kyriacou, trainee accountant at PwC, achieved a worldwide distinction in the September 2015 examinations of the Institute of Chartered Accountants in England & Wales (ICAEW). She achieved first place worldwide in the “Financial Accounting and Reporting” examination and was awarded the “Spicer & Pegler” prize. This is the second time that Irene has excelled in the ICAEW examinations, as she had also achieved the first worldwide place in Audit and Assurance of the Professional Stage examinations in December 2014 and was awarded the “Watts” prize”.

The PwC trainee accountants’ participation in the ICAEW examinations has so far achieved a 96% success rate in “Financial Accounting and Reporting” and 84% in “Financial Management”. The global average for these examinations was at 86% and 83%, respectively.

Additionally, in the June 2015 examinations of the Association of Chartered Certified Accountants (ACCA), Panagiotis Tryfonos achieved first place in Cyprus in the “Taxation” examination, George Theofanov achieved first place in Cyprus in the “Corporate Reporting” examination and Rafaella Groutidou achieved third place in Cyprus amongst the trainees that have completed their examinations.

The trainees are pictured here with CEO Evgenios Evgeniou and Philippos Soseilos, Head of Human Capital.

November 18 - 24, 2015

8 | COMMENT | financialmirror.com

Deaths from terrorism increased 80% last year to highest level ever 2015 Global Terrorism Index: economic cost reached all-time high of $52.9 bln - 32,658 people were killed by terrorism in 2014 compared to 18,111 in 2013: the largest increase ever recorded - Boko Haram and ISIL were jointly responsible for 51% of all claimed global fatalities in 2014 - Boko Haram has overtaken ISIL as world’s deadliest terrorist group - Countries suffering over 500 deaths increased by 120% to 11 countries - 78% of all deaths and 57% of all attacks occurred in just five countries: Afghanistan, Iraq, Nigeria, Pakistan and Syria - Iraq continues to be the country most impacted by terrorism with 9,929 terrorist fatalities the highest ever recorded in a single country - Nigeria experienced the largest increase in terrorist activity with 7,512 deaths in 2014, an increase of over 300% since 2013 The number of lives lost to terrorism increased by 80% in 2014, reaching the highest level ever recorded at 32,658. This compares to 18,111 in 2013, according to the third edition of the Global Terrorism Index (GTI) released this week, the largest yearly increase in deaths ever recorded. The report also highlights the dramatic rise in terrorism over time, with deaths increasing by nine-fold since the year 2000.

The report, developed by the Institute for Economics and Peace [http://economicsandpeace.org] and based on data from the Global Terrorism Database of START, reveals that just two terrorist groups, ISIL and Boko Haram, are now jointly responsible for 51% of all global fatalities from claimed terrorist attacks.

Boko Haram, which pledged its allegiance to ISIL as the Islamic State’s West Africa Province (ISWAP) in March 2015, has become the world’s deadliest terrorist group, causing 6,644 deaths compared to ISIL’s 6,073.

Terrorism is also highly concentrated: just five countries Afghanistan, Iraq, Nigeria, Pakistan and Syria - accounted for 78% of all deaths in 2014. Iraq continues to be the country most impacted by terrorism, with 3,370 attacks killing 9,929 people. This is the highest number of terrorism incidents and fatalities ever recorded by a single country. Nigeria recorded the largest increase in deaths from terrorism, rising by over 300% to 7,512 fatalities.

Moslems in India shout slogans against the Islamic State of Iraq and Syria (ISIS) condemning the deadly terrorist attacks in Paris and expressing solidarity with France during a protest in Mumbai

However, terrorism spread significantly in the past year.

The number of countries that suffered more than 500 deaths has more than doubled, increasing from five in 2013 to 11 in 2014. The new additions were Somalia, Ukraine, Yemen, Central African Republic, South Sudan and Cameroon.

The economic cost of terrorism reached its highest ever level in 2014 at $52.9 bln, an increase of 61% from the previous year’s total of $32.9 bln, and a tenfold increase since 2000.

“The significant increase in terrorist activity has meant that its ramifications are being felt more widely throughout the world. What is most striking from our analysis is how the drivers of terrorism differ between more and less developed countries. In the West, socio-economic factors such as youth unemployment and drug crime correlate with terrorism. In non-OECD countries, terrorism shows stronger associations with ongoing conflict, corruption and violence,” said Steve Killelea, Executive Chairman of IEP. “Ten of the eleven countries most affected by terrorism also have the highest rates of refugees and internal displacement. This highlights the strong interconnectedness between the current refugee crisis, terrorism and conflict.”

The flow of foreign fighters into Iraq and Syria since 2011 is the largest influx in modern times. Current estimates now range from 25,000 to 30,000 fighters, from roughly 100 countries. Half of the foreign fighters travelling to Iraq and Syria are from neighbouring MENA countries and a quarter from Europe and Turkey. The flow of foreign fighters does not appear to be diminishing, with over 7,000 arriving in the first six months of 2015.

Statistical analysis of the patterns of terrorist activity since

1989 found that there were two factors most closely associated with terrorism. These are the levels of political violence committed by the state, and the level of armed conflict within a country. The report finds that 92% of all terrorist attacks between 1989 and 2014 occurred in countries where political violence by the government was widespread, while 88% of all terrorist attacks between 1989 and 2014 occurred in countries that were experiencing or involved in violent conflicts.

Steve Killelea commented, “Since we can see a number of clearly identifiable socio-political factors that foster terrorism, it is important to implement policies that aim to address these associated causes. This includes reducing state-sponsored violence, diffusing group grievances, and improving respect for human rights and religious freedoms, while considering cultural nuances.”

Lone wolf attackers are the main perpetrators of terrorist activity in the West, causing 70% of all deaths over the past ten years. Islamic fundamentalism is not the main driver of terrorism in Western countries: 80% of lone wolf deaths are by political extremists, nationalists, racial and religious supremacists.

While many countries experience no terrorist activity, the number of countries to experience at least one or more deaths from terrorist activity has increased from 59 in 2013 to 67 in 2014. This includes OECD countries such as Austria, Australia, Belgium, Canada and France.

Importantly, over 60% of the countries in the report experienced no deaths from terrorism. Since 2000, less than 3% of terrorist deaths occurred in the West. Thirteen times as many people are killed globally by homicides than die in terrorist attacks.

November 18 - 24, 2015

financialmirror.com | COMMENT | 9

We are at war

By Dominique Moisi Ever since the terrorist attacks in January on the satirical magazine Charlie Hebdo and a kosher supermarket, Parisians knew that barbarism lurked around the corner, and that it would strike again. But it is one thing to know something, to anticipate it, and another to be confronted with the grim reality. On Friday night, reality struck us with a vengeance. We are at war. It would be wrong – even dangerous – not to admit it. And to win will require clarity, unity, and firmness.

Clarity of analysis is what we now need the most. We barely know our enemy, except for the intensity of his hatred and the depth of his cruelty. To understand his strategy, we must recognise him for what he is: an intelligent – and, in his own way, rational – adversary. For too long, we have despised and underestimated him. It is urgent that we now change course.

In the last few weeks, the Islamic State’s strategy of terror has brought death to the streets of Ankara, Beirut, and Paris, and to the skies over Sinai. The identity of the victims leaves no doubt about the message. “Kurds, Russians, Lebanese Shia, French: You attack us, so we will kill you.”

The timing of the attacks is as revealing as the targets’ nationality. The more the Islamic State is defeated on the ground and loses control of territory in Syria and Iraq, the more it is tempted to externalise the war to deter further intervention. The synchronised attacks in Paris, for example, coincided with the Islamic State’s loss of the Iraqi city of Sinjar.

Of course, the terrorist cell that struck Paris was not

“To be European means to confront together the scourge of barbarism, to defend our values, our way of life, and our way of living together, despite our differences” created in the wake of the Islamic State’s recent battlefield losses. It was already in place, waiting to be activated (as others may be). That demonstrates the Islamic State’s tactical flexibility, not to mention the availability of people willing to commit suicide.

If ISIS chose this time, in Paris, to target people who are not satirists, policemen, or Jews, it is precisely because their “ordinariness” left them unprotected. This time, the attackers chose “quantity” over “quality” (if one may be pardoned for such a crude formulation). The goal was to kill as many people as possible.

This strategy is possible because the territory controlled by the Islamic State provides a sanctuary and training ground.

The self-proclaimed caliphate’s territories represent for the group what Taliban-controlled Afghanistan meant for Al Qaeda in the 1990s.

It is imperative to regain control of this territory. And destroying the Islamic State’s “provinces” in Libya, Sinai, and elsewhere must become the number one priority of the international community.

Beyond analytical clarity, there is a need for unity, beginning in France, where citizens would reject their political class were its members to continue to behave

divisively at such an obvious historic turning point.

Unity must also be achieved within Europe. We are repeatedly told that Europe is in the midst of an identity crisis, in need of some new project. Well, now Europe has found one. To be European means to confront together the scourge of barbarism, to defend our values, our way of life, and our way of living together, despite our differences.

Unity is also required of the Western world as a whole.

President Barack Obama’s statement after the Paris attacks demonstrates that what unites Europe and the United States is much more significant than what divides us. We are in the same boat, faced with the same enemy. And this sense of unity must go beyond the European and Western world, because ISIS threatens countries such as Iran and Russia, not to mention Turkey, as much – if not more – than it does the West.

Of course, we must be realists. Our alliance of circumstance with these countries will not overcome all problems between them and us. So, beyond clarity and unity, we need firmness, both in confronting the threat of ISIS and in defending our values, especially adherence to the rule of law.

The Islamic State expects from us a combination of cowardice and overreaction. Its ultimate ambition is to provoke a clash of civilisations between the West and the Muslim world. We must not fall prey to that strategy.

But clarity comes first. When Paris is attacked as it was last Friday, one must speak of war. No one wants to repeat the errors of the US under President George W. Bush; but to use those errors as an alibi to avoid confronting the world as it is would merely be an error of a different sort. Europe’s response must be tough, but it must not deviate from the rule of law. We are, after all, engaged in a political battle with the Islamic State, one in which our love of life must prevail over their love of death.

Dominique Moisi, a professor at L’Institut d’études politiques de Paris (Sciences Po), is Senior Adviser at the French Institute for International Affairs (IFRI) and a visiting professor at King’s College London. © Project Syndicate, 2015. www.project-syndicate.org

November 18 - 24, 2015

10 | COMMENT | financialmirror.com

France under attack Marcuard’s Market update

by GaveKal Dragonomics

In the worst days of the Northern Ireland troubles, British policymakers spoke of a “tolerable level of violence”. It was taken for granted that senseless and murderous acts would be committed, but what mattered was ensuring that these did not “get out of hand”.

In the past year, France has experienced three such acts: the Charlie-Hebdo and kosher supermarket murders of January, the botched (thanks to a French civilian, three US soldiers and a 62-year old British IT manager) mass-shooting attempt on an Amsterdam-Paris train, and Friday’s multipronged attack against entertainment areas in the French capital. Of the three, Friday’s attacks were the most shocking as their careful planning, meticulous execution, and the grim death-toll involved makes it clear that this was not the work of “lone-wolves”, but an orchestrated operation a la 9/11.

Continuing the analogy with the Irish Republican Army, or even Al-Qaeda, leaves one with an uncomfortable feeling as at least the Irish terrorists, and even the nihilists at Al Qaeda, had political goals. The first wanted to see the British leave Northern Ireland; the second wanted to see an end of the US military support to Saudi Arabia. Today, what are the political goals of ISIS vis a vis France? What is the aim of these killings?

For the past few years, the Middle East has been gripped by a civil war (broadly pitting Sunnis against Shias, but also secularist Sunnis versus fundamentalists, as well as Kurds against Turks) that is more complicated than the Spanish Civil War (where communists liquidated anarchists, before being in turn put to the sword by Franquists, themselves divided between fascists and catholic traditionalists). Still, if for Spain the broader arch of the civil war was Franquists (supported by fascist Germany and Italy) against the popular front (very loosely supported by Britain, France and then the Soviet union), the broader arch of the Middle Eastern civil war has been Shias led by Iran, and supported by Russia, against Sunnis which are supported by Saudi Arabia and Qatar.

And this is where it gets complicated because of all the Western powers, France has undeniably been the one leaning the most aggressively against the Shias in favour of the

Sunni side of the ledger (the side of the civil war ledger that ISIS itself emanates from). It was France which revealed that Assad had crossed the “red line” of using chemical weapons, and it was France that agitated to intervene against Assad’s regime before President Obama and the British Parliament decided that letting the Russians handle the situation was a better course of action.

And so today, as the Middle Eastern civil war leaks over into Europe, one is forced to confront the question of ISIS’s political goals in attacking France. Clearly, ISIS does not subscribe to the old “the enemy of my enemy is my friend” mantra. And so the only possible answer to the question of what ISIS is trying to achieve by attacking France is “nothing”.

The Islamists simply attack us because they hate us. And the only goal to be achieved with these killings is to cower an entire population into changing its way of life, whether that be imposing restrictions on free speech (depicting the prophet Mohammed, or even discussing the more disturbing part of the prophet’s biography), or now, simply going out and letting loose on a Friday night. In that respect, the choice of entertainment venues as attack points is surely not coincidental.

Indeed, when Al-Qaeda attacked the World Trade Centre, the goal was to bring US finance to its knees (and from there the US economy). When, a year later, Al-Qaeda attacked Spanish trains on the eve of Spain’s election, the aim was also clear: tip the electoral scale away from the People’s Party which had supported the deployment of US troops in Afghanistan and Iraq in favour of the Spanish Socialist Workers’ Party, which did not support the deployments.

With Friday’s attack on Paris, ISIS has clearly shown that its goal is nothing short of upending our entire way of life.

Like the Taliban which banned sports events, music, and celebrations, the ISIS nihilists offer a vision of the world so foreign to any of us as to be incomprehensible. And this nihilist vision now presents the French government with a genuine “how to respond” challenge. With the obvious answer being that the terrorist safe-haven that is the ISIS “state” in Syria and Iraq, and the source of much of the destabilisation currently unfolding in Europe, must now be taken out.

Conceptually, could the scale of these attacks mean that France would be able to request the help of its NATO allies in an “Article 5” retaliation against ISIS? After all, if Churchill could do a deal with Stalin against the Nazi nihilists (and state in the House of Commons: “If Hitler invaded hell, I would, at the very least, make a favourable reference to the

A French policeman inspects a suspect car in the heart of Paris that was later removed for further investigation

“Like the Taliban which banned sports events, music, and celebrations, the ISIS nihilists offer a vision of the world so foreign to any of us as to be incomprehensible. And this nihilist vision now presents the French government with a genuine “how to respond” challenge.” devil in this house”), then surely the Quai d’Orsay now has to hold its nose and switch its focus from removing Assad to wiping out ISIS? With that in mind, and in the context of the broader Middle Eastern civil war, this weekend’s tragedy is good news for Russia and Iran, and bad news for the Gulf states as attention will increasingly shift to neutralising the source of the fundamentalist ideology. One immediate result of the Paris attacks was to win support for accelerated US-Russian backed talks between all the main regional powers that aim for a resolution to the Syrian civil war.

Last weekend’s military-style terrorist act in Paris will hopefully turn out to be ISIS’s “Operation Barabarossa”, an action marking the apex of its powers, but one which sparks a coordinated response leading to its eventual liquidation.

November 18 - 24, 2015

financialmirror.com | COMMENT | 11

Terrorism and trust

By Lucy P. Marcus As the world comes to terms with the wider implications and consequences of the terrorist atrocity in Paris, an important story risks being lost in the welter of coverage and analysis: The increasingly vital role that private companies play in planning for and responding to emergencies. And there’s more to the story than that.

As the wave of synchronised attacks unfolded, people around the world followed it in real time via Twitter, and Parisians reached out to those who found themselves stranded by posting offers of safe havens with the hashtags #PorteOuverte and #OpenDoor. Those who wanted to be assured of the safety of family and friends looked to Facebook’s new Safety Check feature. Google announced that calls to France were free of charge via Google Hangouts.

Governments around the world communicated with their citizens using social-media platforms: the United Kingdom’s embassy in France tweeted information for travellers, and the United States’ embassy there provided updates via Facebook.

But it wasn’t just technology companies that stepped up.

Ride-sharing companies get a lot of press nowadays, but when people needed to make their way safely out of areas where attacks were taking place, it was Paris taxi drivers who responded to the emergency by making their services available for free, supplementing public transportation.

More and more in our daily lives – communications, transportation, health care, energy, and much else – depends on services provided by the private, rather than the public, sector. These companies have become a part of the fabric of our societies. Emergencies merely call attention to it.

But with great power comes greater responsibility, and companies continue to find it difficult to grapple with this.

They have a responsibility to prepare for crises, including natural and manmade disasters, more diligently than ever before. They have a responsibility to ensure that they are part of solutions to broader national and international challenges.

They have a responsibility, in short, to fulfill the obligations that arise from our dependence on them and from the trust we place in them, implicitly or explicitly.

The challenge is that the extent of companies’ responsibility has become clear at a time of growing distrust toward the private sector. There are strong concerns about

The U.S. authorities like Facebook’s user data Facebook’s most recent transparency report reveals that the amount of government requests for user data is surging. Requests were up 18% from 35,051 in the second half of 2014 to 41,214 in the first half of 2015.

As usual, U.S. authorities were the most hungry for Facebook’s user data, with India and the UK following a distant second and third. Facebook said that it was able to comply with some data in just under 80% of requests between January and June of this year. (Source: Statista)

the amount of personal data we give to Facebook, Google, and other companies, enabling them to know too much about where we go, what we do, and whom we talk to. And it isn’t just technology companies. There are also the companies we depend on to make safe and reliable cars, generate our energy, and mine the raw materials to produce the things we use every day.

According to unpublished Ipsos MORI research that was made available to me recently, when it comes to judging a company, honesty and integrity are more important than ever. Consumer confidence is being steadily eroded by a number of factors that lead people to question the extent to which they are valued. So, even as we need companies to provide more and more vital services, from transportation to health care to evacuation plans, we trust them less and less.

That is hardly an overreaction to a few rare cases. On the contrary, people are justifiably shocked at the steady stream of stories calling into question whether the companies that provide so many essential services in countries around the world deserve their confidence.

Most disturbing is the extent to which companies, so often stalwart defenders of the rule of law when it comes to their own rights, deliberately flout the law – heedless of the consequences – when it comes to maximising profits. The case of Volkswagen continues to beggar belief. How could a major multinational company incorporate criminal behaviour into its business strategy? The recent investigations into whether Exxon Mobil deliberately covered up that it knew more about the risks of climate change are similarly damning.

As the responses to the terrorist attacks in Paris demonstrated, companies can do so much good and be responsible corporate citizens. But there is an almost Jekyll and Hyde quality to them: The companies that make our low-cost clothes may produce them in dangerous sweatshops. And the people companies helped so capably and generously during the emergency in Paris are the same people they betray and conceal information from at other times.

Of course, the attacks in Paris should be viewed, above all, in terms of geopolitics and security. But there is a lesson for business – and the rest of us – as well. We will all be better off when companies’ impulse to do the right in the worst of times defines how they behave all the time.

Lucy P. Marcus is CEO of Marcus Venture Consulting. © Project Syndicate, 2015 - www.project-syndicate.org

November 18 - 24, 2015

12 | PROPERTY | financialmirror.com

Maryland, Florida top states for August distressed home sales ByPaul Ausick - 24/7 Wall St.com U.S. sales of distressed homes totaled 9.3% of all homes sold in August of this year, according to CoreLogic data. That is a 2.3 percentage point drop compared with August of 2014 and down 0.4 percentage points compared with July of this year.

A distressed sale is a transaction involving a real estateowned (REO) property or a short sale. In August, REO sales accounted for 6% of all home sales, and short sales accounted for 3.3% of all sales in the month. At the peak of distressed sales in January 2009, 32.4% of all sales were distressed, including REO sales, totaling 27.9% of all sales.

The CoreLogic report noted that “while distressed sales

play an important role in clearing the housing market of foreclosed properties, they sell at a discount to non-distressed sales, and when the share of distressed sales is high, they can pull down the prices of non-distressed sales. There will always be some level of distress in the housing market, and by comparison, the pre-crisis share of distressed sales was traditionally about 2%. If the current year-on-year decrease in the distressed sales share continues, it would reach that ‘normal’ 2% mark in mid-2018.”

The five states with the largest percentage of distressed sales were Maryland (20.8%), Florida (20.3%), Michigan (19.9%), Connecticut (19.1%) and Illinois (18.7%). North Dakota posted the smallest share of distressed home sales at just 2.7%. Nevada had a six-point drop in its distressed sales share from a year earlier, the largest decline of any state, and California had the largest improvement of any state from its

peak distressed sales share, falling 58.7 percentage points from its January 2009 peak of 67.4%.

Among the 25 largest metropolitan areas, these five posted the largest percentage of distressed sales: Orlando-Kissimmee-Sanford, Fla. (23.4%); Tampa-St. Petersburg-Clearwater, Fla. (21.9%); Miami-Miami Beach-Kendall, Fla. (21.9%); Baltimore-Columbia-Towson, Md. (21.2%); Chicago-Naperville-Arlington Heights, Ill. (21.1%).

Las Vegas-Henderson-Paradise, Nevada, had the largest year-on-year drop in its distressed share, falling by 5.9 points from 21.8% in August 2014 to 15.9% in August 2015.

Riverside-San Bernardino-Ontario, California, had the largest overall improvement in its distressed sales share from its peak value, dropping from 76.3% in February 2009 to 11.4% in August 2015.

CTO promotes Cyprus golf at Spanish exhibition The Cyprus Tourism Organisation took part in the International Golf Travel Market IGTM 2015 in Tenerife, Canary Islands, one of the leading golf tourism exhibitions in the world which attracted more than 1,400 business stakeholders including more than 500 exhibitors golf courses, national tourism organisations, hotels, etc., as well as 325 golf tour operators.

The Cyprus exhibitors at IGTM included the CTO, the main golf course operators of Aphrodite Hills, Eléa, Minthis Hills and Secret Valley, as well as the hotels Aphrodite Hills Resort, Kanika Hotels & Resorts, Thanos Hotels & Resorts, Columbia Hotel & Resort, Anemi, and Capital Coast Resort & Spa. CTO representative Maro Kazepi had meetings with more than 40 golf tour operators and journalists in an effort to

Greater mortgage competition in Holland will boost lending and affordability As new players have entered the Dutch housing market, competition has intensified resulting in more lending activity, a sustained housing market recovery, Moody’s Investors Service said. Lending shot up by 36.5% over the first nine months of 2015.

“Home purchases, as opposed to mortgage refinancings, are the main driver of the increased lending volume, and we expect that house prices will rise by up to 5% in 2016, supporting the housing market’s recovery,” said Jeroen Heijdeman a Moody’s analyst and co-author of the report.

“Low interest-rates and increased competition will continue to reduce mortgage rates, benefiting loan affordability, but overall CPR rates will stay low and issuance of Dutch RMBS will stay flat into 2016,” added Heijdeman.

Moody’s observed that the sustained recovery is broadly driven by house price increases in key urban cities and other regions. With the exception of Zeeland, house prices grew in all Dutch provinces in 2015.

Moody’s says tight underwriting criteria will especially affect single-income homeowners. However, low doubleincome homeowners seem less affected, as the maximum loan-to-income (LTI) ratio will increase to 3.2x in 2016 from 2.9x in 2015.

“These developments are credit positive for Dutch RMBS, as rising house purchases together with higher home values will result in higher recoveries. This will lower the likelihood of losses for noteholders,” explained Greg Davies, an Assistant Vice President at Moody’s.

Well-established market players are driving the issuance of Dutch residential mortgage-backed securities, and the rating agency expects that these issuers will continue to rely on a diverse funding base which will result in a similar RMBS issuance in 2016 relative to 2015.

highlight the competitive advantages of the island in an effort to promote Cyprus as a golfing destination.

The island’s main golf markets include the UK, the Nordic countries, Germany, Austria, Switzerland, France, the Netherlands, and others.

Cyprus aims to promote itself as a “golf paradise” in an ideal climate especially during the winter when most golf courses in central and northern Europe are closed.

More than 70% of golfers from these markets travel for golf holidays and 75% of golfers are looking for new destinations.

Undoubtedly, golf tourism can contribute towards the lengthening of the tourist season and the attraction of winter tourism since 80% of the total number of over 100,000 annual golf rounds on the island is played during the non-summer period of September to May.

Adonis Beach Villas offers exclusive luxury seafront homes Adonis Beach Villas is an exclusive modern and luxury beachfront development by Leptos just a short drive from Paphos harbour and the beautiful resort of Coral Bay, offering investors a remarkable premium way of living with private pools, landscaped gardens, large verandas with outdoor living areas, and modern architectural designs with the latest technology and quality finishes.

There is a hint of Cypriot traditional villas with materials and earthly colours, while contemporary facilities include thermal insulation, modern kitchens and bathrooms and underfloor heating, as well as practical living areas, simple interior designs with functional connectivity, green with cross ventilation for natural climate and for energy efficiency.

November 18 - 24, 2015

financialmirror.com | PROPERTY | 13

A turn towards the Troodos villages µy Antonis Loizou Antonis Loizou F.R.I.C.S. is the Director of Antonis Loizou & Associates Ltd., Real Estate & Projects Development Managers

Recently we are witnessing a growing interest in country homes, mostly in the Troodos area villages. Even though demand is mainly for housing of a certain type or character, there is also some interest, albeit limited, for plots suitable for construction where we must all pay attention to the new regulations for individual housing in non-residential areas.

Platres is certainly the most popular village for such an investment, but the supply of houses and land for development is next to nil. Also, Platres has three specific areas which are in primary demand: the upper road (Aidonia street), the middle road and the lower road. Anywhere outside of these three areas, the demand drop drastically, while land situated on an uneven topography has extremely high development costs.

Rising and until recently neglected villages for cottages or village houses is Kalopanayiotis, Pedoulas and certainly Prodromos. The general rise in climate is one of the reasons that potential buyers want to invest at a higher altitude than the villages at a lower elevation like Moniatis or Trimiklini.

The profile of the potential buyers is usually mid-income pensioners, people who have a special interest in nature, those who like to read, seek peace and quiet, and the occasional company. This has helped to create certain “neighborhoods” of pensioners from similar professional or work backgrounds, whereas in nearby villages one can find “outsider” residents (mainly from Nicosia) who have their own groups. This trend seems to be on the rise with the rate determined by the availability of housing for sale. In many villages an amount of about 25% of homes is abandoned or in a very poor state. There is an intention for supply, but owners who do not believe they will find buyers or are afraid of village gossip, will not put up “for sale” signs, which ultimately limits the demand as well. Perhaps the village “mukhtars” ought to take up the initiative to attract new buyers as this will not only contribute to tourism in the area and improve the income of villagers, but will also help to find funds to renovate some of these houses. Until now, the pioneers in this field had been foreign buyers (mainly British) in villages mostly of the Paphos district where some of these villages have enjoyed an obvious upgrade. Perhaps a small estate agents office should take action and the degree of success will depend on locating such houses available for sale. To this end, the government houses in the Troodos area that are expected to be offered on the market for sale or long term lease as part of the privatisation process, will be of great interest.

In addition, prospective buyers should also consider the impact of the weather conditions on these homes and the availability of handymen or small contractors who would be necessary for repairs, broken pipes, power failure, etc. The

maintenance costs of such holiday homes is particularly high, as is evidently the lack of supply of suitable technicians; for example, if the refrigerator breaks down, it is most likely that someone will have to come from the nearest town and not a nearby village. Also, investors should consider that the construction costs are very high and could rise to twice that of building a house in town.

There is a growing trend by some city romantics to make their own wine or zivania, which is an occupation for far greater experienced people than amateurs who want to be occupied with such a hobby. Alternatively, pastimes include nature trails, visits to byzantine churches and monasteries, all of which add to the quality of life. At the same time, very few villages provide facilities such as supermarkets, retail shops and restaurants in the winter months, so retirees (even those visiting just on weekends) would need to travel from one village to another to find what they want. Only a handful of villages have managed to maintain some level of such facilities, such as Omodos and Platres.

When it comes to costing, consider the following: • Buying land suitable for construction of a house will cost EUR 50 to 500 per sq. m. depending on the village, location and elevation or levels.

• Buying a ready house in a “habitable condition” could be EUR 2,000 to 3,500 per sq.m. depending on the village, type of construction and location of the property.

• Also, calculate a maintenance cost of at least EUR 1,000 a year, depending on the mishaps that will arise from malfunctions and construction wear.

So, buying a village house in the mountains is not a cheap affair and one needs to have a decent-sized wallet even after the renovation of the building, while the ideal age to live in such a property should not exceed 75 years, depending on the person’s state of health, and due to increased medical

COMMERCIAL BUILDING PLOT FOR SALE IN NICOSIA Suitable for retail/office construction. Located in a very desirable location, opposite Marks & Spencer and within 50 mtrs of Acropolis Park.

Plot Area: 556 sq.m.

Max. Building Cover: 50% Max. Building Height: 24 meters Max. No. of Floors: 6 Road Frontage: Approx. 24 meters Price: €650,000 For more info please contact us at: 99317468

need, physical strain from frequent walks up and down steps and villages built on uneven levels.

A friend of mine recently told me that he only walks “downhill from the monastery of Trooditissa to Phoini. My wife waits for me at the end the journey in the car, because sometime my back aches.” Another friend built an external elevator, only that one day it broke down when he was init and he had to wait for six hours for the maintenance man and the fire service to get him out. These are some of the problems one will face and although I fully understand the romantic at heart and the desire to return to village roots, the real living conditions should be seriously taken into account.

As regards public infrastructure, most all villages undertake some level of improvement works, such as conference or exhibition centres, the adventure park for children and a sports centre in Platres, and various projects in Kalopanayiotis, a commendable initiative from the last mukhtar and the village council.

Typical Cypriots as we are, we must not forget our favourite pastime - eating, for which allow me to submit the following suggestions: • Souvla - Prodromos and Platres; • Homemade food – Platres; • Trout - Phoini, Platres, Kakopetria; • Entertainment – Omodos; • Supermarkets – Moniatis; • French cuisine quality – Phoini.

If you are still interested in buying a holiday home in the mountains, rent a house for a period, not only to see if in the end this is your dream, but also to consider building and maintenance costs, as well as facilities in the area. www.aloizou.com.cy ala-HQ@aloizou.com.cy

November 18 - 24, 2015

14 | MARKETS | financialmirror.com

US economy readying for December liftoff hike. There is a slew of data between now and December 16 to consider, but all signs are clearly pointing in the direction of a rate hike sooner, rather than later. An unemployment rate of 5.0% is a good sign, and strong October non-farm payrolls growth certainly gave plenty of impetus to the December liftoff.

The US dollar index closed the trading week on Friday at 98.80. This is an important barometer of overall USD strength as measured against other currencies including the SEK, the CHF, the GBP, the CAD, the JPY and the EUR. US GDP has steadily been increasing from 2009 when it topped out at $14,418.7 bln to the 2014 figure of $17,419 bln.

In the quarter ending September 30, GDP growth was measured at 1.5%. This came in marginally under expectations of 1.6%. Another GDP forecast will be announced on November 24 with Q3 as the reference point.

The consensus estimate is 1.5%. The all-important core inflation rate increased to 1.9% in September, from 1.8% in August. This is inching ever closer to the 2% threshold set by the Fed.

By Oren Laurent President, Banc De Binary

Current global conditions have created an atmosphere conducive to a Fed rate hike in December. However, the vice-chairman of the Federal Reserve Bank, Stanley Fischer, has indicated that various pressures are being brought to bear on the economy including global economic weakness and a strong USD. Regardless, the general impression is that a Fed rate hike is going to take place in December.

An overwhelming number of economists polled are expecting rates to increase within the next month; 92% of Keynesian economists surveyed by the Wall Street Journal are of the opinion that the benchmark Federal Funds Rate will rise at the next FOMC meeting on December 15/16.

That the USD has been consistently strong is the reason why the rate increase was delayed several times. The obtuse language used by the Fed and its policymakers has been hard to read by economists and analysts. However, the slew of data about the rate hike has confirmed expectations of rates being raised within a month. The U.S. economy has endured several shocks as a result of China weakness and the concomitant commodity price rout. Strangely though, only specific sectors of the U.S. economy have been feeling the effects of global weakness. It is the very use of monetary policy that is capable of achieving the economic objectives as set out by the Fed. This is done by way of monetary expansion or monetary contraction, oftentimes in tandem with fiscal policy measures such as variations in government expenditure or taxation.

FED DECISION DELAYED TO PROMOTE GLOBAL STABILITY Since the USD has been performing strongly of late, as is evident by the US dollar index, the Fed has enacted monetary expansionary measures to counteract the negative impact of a strong USD. By flooding the market with more dollars, the demand for dollars declines and its exchange rate falls accordingly. In this particular instance, a strong US dollar has not been counteracted by further monetary expansion; rather it has been counteracted by inaction vis-a-vis interest-rate hikes.

Sometimes, the impact of not taking action has just as much of an effect on the overall outcome as taking decisive action.

Had the Fed decided to act in 2014, the USD would have

strengthened a lot quicker and this would likely have caused irreparable damage to the U.S. economy and the global economy too.

The most obvious concerns for policymakers include USD strength and global economic weakness. Those are precisely the reasons why a September rate hike was rejected.

However, by October 28, the Fed statement neglected to mention anything about ongoing global economic events or related developments in the financial world.

The December 15/16 meeting is different on many levels; the US economy has now proven itself to be resilient and it is performing well. As such, the FOMC appears to be satisfied with the progress being made on multiple fronts. This includes price stability, and maximum employment. That the Fed has been targeting an inflation rate of 2% is well known, and many of the economic indicators reflect strong progress being made towards that target.

KEY PLAYERS WEIGH IN ON FED RATE HIKE There is no doubt that global growth is being hurt by weakness in China. Ultimately, the synergy between different components of the global economy will impact on U.S. economic performance. Realistically, the US has very little leeway in terms of what it can do with the current level of interest rates. The adverse effects of poor global performance will be difficult to counteract with interest rates at 0.25%. As such, there has been a greater emphasis on cautionary economic actions.

New York Fed president William Dudley has also been tightlipped about what he sees happening with the Fed decision in December. He agrees that rate hikes are likely to take place, but he’s expecting this to unfold slowly. The future remains uncertain and Dudley readily admits to the difficulty involved in monetary policy decisions. Had the inflation rate kept up with expectations, the decisions on the ground would have been that much easier to make.

Even though his comments are dovish, William Dudley has alluded to now being very close to the time for a rate

A CONTRARIAN PERSPECTIVE: HOW RATE HIKES HURT THE U.S. ECONOMY The Fed has been toying with the notion of raising interest rates for quite some time. However, the decision to raise rates is an important one since it has far-reaching implications on the domestic economy and the global economy. For starters, full employment will not be possible and production will start to decline. As it stands, housing prices are inflated, as are bond and equity markets. By keeping interest rates at the abnormally low levels they are at, the Fed can accommodate economic growth by removing barriers to growth.

But it is impossible to keep interest rates at their current level for too long. If there is nothing to be gained by holding money in a fixed interest-bearing account, credit will be shunned. Savers will be completely discouraged if they believe that no yields will accrue from their accounts.

The Fed has been shifting the goalposts every time it gets close to raising interest rates and this tactic is widely used by central banks the world over. Third time’s a charm? That much will be revealed in the not too distant future.

Please note that this column does not constitute financial advice.

The Financial Markets Interest Rates Base Rates

LIBOR rates

CCY USD GBP EUR JPY CHF

0-0.25% 0.50% 0.05% 0-0.10% -0.75%

Swap Rates

CCY/Period

1mth

2mth

3mth

6mth

1yr

USD GBP EUR JPY CHF

0.20 0.51 -0.15 0.04 -0.79

0.28 0.54 -0.11 0.05 -0.79

0.36 0.57 -0.10 0.07 -0.79

0.60 0.74 -0.02 0.12 -0.76

0.93 1.03 0.07 0.22 -0.68

CCY/Period USD GBP EUR JPY CHF

2yr

3yr

4yr

5yr

7yr

10yr

0.95 0.98 -0.09 0.10 -0.97

1.22 1.19 -0.03 0.10 -0.90

1.44 1.36 0.09 0.12 -0.79

1.62 1.51 0.22 0.16 -0.67

1.89 1.73 0.50 0.27 -0.34

2.16 1.94 0.90 0.46 -0.01

Exchange Rates Major Cross Rates

CCY1\CCY2 USD EUR GBP CHF JPY

Opening Rates

1 USD 1 EUR 1 GBP 1 CHF 1.0665 0.9376

100 JPY

1.5205

0.9877

0.8116

1.4257

0.9261

0.7610

0.6496

0.5337

0.6577

0.7014

1.0125

1.0798

1.5395

123.22

131.41

187.36

0.8217 121.70

Weekly movement of USD

CCY\Date

20.10

27.10

03.11

10.11

17.11

CCY

Today

USD GBP JPY CHF

1.1278

1.1012

1.0965

1.0690

1.0604

0.7286

0.7171

0.7107

0.7075

0.6990

134.63

132.63

132.18

131.59

130.74

GBP EUR JPY

1.0770

1.0791

1.0810

1.0724

1.0712

CHF

1.5205 1.0665 123.22 1.0125

Last Week %Change 1.5110 1.0690 123.10 1.0032

-0.63 +0.23 +0.10 +0.93

November 18 - 24, 2015

financialmirror.com | MARKETS | 15

Wicksell and capital misallocation Marcuard’s Market update

by GaveKal Dragonomics

Accepted opinion among investors is that, when it eventually comes, the Federal Reserve’s first interest rate increase in almost nine and a half years will have been signalled so well in advance and will be so small — effectively from zero to 25bps — that it will have little or no effect on either the financial markets or the real economy.

Unfortunately, given the monetary policy settings that have prevailed since 2010, we are not convinced the accepted wisdom is correct. Sure, in the Keynesian doxa, the standard idea is that if interest rates are held low enough for long enough there will be a capital spending boom. However, the Wicksellian idea is totally different: if rates are kept low enough for long enough, it will lead to a financial boom followed by a financial bust, and at the end of it all the economy will be poorer. If this view is right then investors have good reason to be apprehensive ahead of the Fed’s decision next month.

Let us assume that the expected average marginal return on newly invested capital is 6% per year. We all know that out of ten new projects, nine will return much less than expected and the tenth will deliver ten times the return projected in the business plan. In short, there is a huge element of risk involved in investing in new ventures in capitalism.

Further, let us assume that the return on invested capital for existing investments is 4%. If the T-bill yield is at zero, and the interest rate at which the “normal” investor can borrow is at 2%, then investors have a choice: either invest at 6% with high uncertainty, or invest at 4% with almost no uncertainty. Unsurprisingly, risk-weighted capital will be channeled towards buying existing assets, rather than towards creating new assets.

As a result, the price of existing assets will go up and the ROIC for a new buyer will fall — say to 3%. But as long as the borrowing rate remains at 2%, some investors will be willing to leverage up to buy existing assets, because the leveraged return is above zero. The music will only stop when the ROIC on existing assets falls to 2%, and the expected return on the leveraged play drops to zero. Similarly, any listed company with an internal ROIC on its existing assets greater than 2% has a powerful incentive to issue debt with which to buy back its shares and retire equity, as interest payments are taxdeductible, while dividends are not.

The upshot will be an increase in debt accompanied by a big rise in the value of existing assets. But there will be very little investment in new assets. As a result, productivity will fall, the structural growth rate of the economy will go down, the Gini coefficient will go up, and Keynesian economists will write thesis after thesis on the “new normal” or “secular stagnation”. Their solution, of course, will be more government intervention to share out an ever-dwindling pot of goods and services.

And as we all know, the government has two arms: one very long to take people’s money, and one much shorter to redistribute it — which implies that if you are not close to the government, you don’t benefit. Fortunately for the Keynesians, most are close enough to the government not to worry. Alas, however, more government intervention seldom leads to more growth.

Now let’s consider what happens if the T-bill rate is at 3%, and the actual borrowing rate is at 5%. Now there is no incentive to borrow in order to buy existing assets yielding 4%. Anyone who wants to get rich has to build new assets and has to run the risk of failure. What’s more, companies yielding less than 5% can no longer access capital and must eventually fold. There is no more leverage and no more

www.marcuardheritage.com

zombie companies. This state of affairs leads automatically to an increase in the stock of capital, together with rising productivity.

So Wicksell’s thesis is simple: if you want growth, you need to keep interest rates above the average return on existing assets, and below the expected marginal return on new assets. The band between the two is the “natural rate” band. If you maintain the market rate way below that band, then indebtedness and asset prices will go up and the result one day will be debt-deflation, as described by Irving Fisher. This debt-deflation will start when leveraged returns fall below zero, which can occur either because the ROIC is falling because growth is low, or because the ROIC is now computed on the prices of assets which have gone up a lot, or because the central bank raises rates, or because of a combination of the three.

So, contrary to what many people believe, if the leveraged return is at zero as we speak, a 25bp increase in the cost of money could have a devastating impact on many positions, turning them into negative cash flow nightmares in no time at all. In short, it is not that an eventual interest rate increase from the Federal Reserve should be dismissed as an event with little impact in the real world.

Not only does this line of reasoning make intuitive sense, there is plenty of statistical evidence to support it. The chart above shows US history since 1965. The unshaded areas represent periods in which real short rates were above 2%, their median from 1960 to 2002. Every one of these periods showed strong productivity and strong growth. The reverse is equally true. The areas shaded green represent periods in which real rates were below 2%. Each was marked by a collapse in productivity, and therefore by a collapse in the structural growth rate of GDP per capita.

The difference between these two sets of periods is that in the first — when real rates were higher than their historical median — capital was used by entrepreneurs, while in the second capital was used by the government and by rentiers.

The reality is that if you waste capital on bidding higher the prices of existing assets, you cannot have growth. The idea that growth can be generated from a rise in the prices of inefficient old assets is a myth. The amazing thing is that something so obvious should still be considered controversial.

Disclaimer: This information may not be construed as advice and in particular not as investment, legal or tax advice. Depending on your particular circumstances you must obtain advice from your respective professional advisors. Investment involves risk. The value of investments may go down as well as up. Past performance is no guarantee for future performance.

Investments in foreign currencies are subject to exchange rate fluctuations.

Marcuard Cyprus Ltd is regulated by the Cyprus Securities and Exchange Commission (CySec) under License no. 131/11.

WORLD CURRENCIES PER US DOLLAR CURRENCY

CODE

RATE

EUROPEAN

Belarussian Ruble British Pound * Bulgarian Lev Czech Koruna Danish Krone Estonian Kroon Euro * Georgian Lari Hungarian Forint Latvian Lats Lithuanian Litas Maltese Pound * Moldavan Leu Norwegian Krone Polish Zloty Romanian Leu Russian Rouble Swedish Krona Swiss Franc Ukrainian Hryvnia

BYR GBP BGN CZK DKK EEK EUR GEL HUF LVL LTL MTL MDL NOK PLN RON RUB SEK CHF UAH

17869 1.5202 1.833 25.341 6.9943 14.6669 1.0667 2.368 292.22 0.6588 3.2366 0.4024 19.78 8.6568 3.9813 4.1586 65.6775 8.7278 1.0124 23.95

AUD CAD HKD INR JPY KRW NZD SGD

0.7115 1.3328 7.7505 66.03 123.23 1170.03 1.5441 1.4219

BHD EGP IRR ILS JOD KWD LBP OMR QAR SAR ZAR AED

0.3773 7.8066 3.9000 0.7093 0.3040 1513.10 0.3850 3.6415 3.7500 14.2702 3.6729

AZN KZT TRY

1.0494 307.7 2.8695

AMERICAS & PACIFIC

Australian Dollar * Canadian Dollar Hong Kong Dollar Indian Rupee Japanese Yen Korean Won New Zeland Dollar * Singapore Dollar MIDDLE EAST & AFRICA

Bahrain Dinar Egyptian Pound Iranian Rial Israeli Shekel Jordanian Dinar Kuwait Dinar Lebanese Pound Omani Rial Qatar Rial Saudi Arabian Riyal South African Rand U.A.E. Dirham ASIA

Azerbaijanian Manat Kazakhstan Tenge Turkish Lira

Note:

* USD per National Currency

November 18 - 24, 2015

16 | MARKETS | financialmirror.com

Don’t fear a rising dollar

By Anatole Kaletsky The US Federal Reserve is almost certain to start raising interest rates when the policy-setting Federal Open Markets Committee next meets, on December 16. How worried should businesses, investors, and policymakers around the world be about the end of near-zero interest rates and the start of the first monetary-tightening cycle since 2004-2008?

Janet Yellen, the Fed chair, has repeatedly said that the impending sequence of rate hikes will be much slower than previous monetary cycles, and predicts that it will end at a lower peak level. While central bankers cannot always be trusted when they make such promises, since their jobs often require them deliberately to mislead investors, there are good reasons to believe that the Fed’s commitment to “lower for longer” interest rates is sincere.

The Fed’s overriding objective is to lift inflation and ensure that it remains above 2%. To do this, Yellen will have to keep interest rates very low, even after inflation starts rising, just as her predecessor Paul Volcker had to keep interest rates in the 1980s very high, even after inflation started falling. This policy reversal follows logically from the inversion of central banks’ objectives, both in America and around the world, since the 2008 crisis.

In the 1980s, Volcker’s historic responsibility was to reduce inflation and prevent it from ever rising again to dangerously high levels. Today, Yellen’s historic responsibility is to increase inflation

and prevent it from ever falling again to dangerously low levels.

Under these conditions, the direct economic effects of the Fed’s move should be minimal. It is hard to imagine many businesses, consumers, or homeowners changing their behavior because of a quarterpoint change in short-term interest rates, especially if long-term rates hardly move.

And even assuming that interest rates reach 1-1.5% by the end of 2016, they will still be very low by historic standards, both in absolute terms and relative to inflation.

The media and official publications from the International Monetary Fund and other institutions have raised dire warnings about the impact of the Fed’s first move on financial markets and other economies.

Many Asian and Latin America countries, in particular, are considered vulnerable to a reversal of the capital inflows from which they benefited when US interest rates were at rock-bottom levels. But, as an empirical matter, these fears are hard to understand.

The imminent US rate hike is perhaps the most predictable, and predicted, event in economic history. Nobody will be caught unawares if the Fed acts next month, as many investors were in February 1994 and June 2004, the only previous occasions remotely comparable to the current one. And even in those cases, stock markets barely reacted to the Fed tightening, while bondmarket volatility proved short-lived.

But what about currencies? The dollar is almost universally expected to appreciate when US interest rates start rising, especially because the EU and Japan will continue easing monetary conditions for many months, even years. This fear of a stronger dollar is the real reason for concern, bordering on panic, in many emerging economies and at the IMF. A significant strengthening of the dollar would indeed cause serious problems for emerging economies where businesses and governments have taken on large dollardenominated debts and currency devaluation threatens to spin out of control.

Fortunately, the market consensus concerning the dollar’s inevitable rise as US interest rates increase is almost certainly

wrong, for three reasons.

First, the divergence of monetary policies between the US and other major economies is already universally understood and expected. Thus, the interest-rate differential, like the US rate hike itself, should already be priced into currency values.

Moreover, monetary policy is not the only determinant of exchange rates. Trade deficits and surpluses also matter, as do stockmarket and property valuations, the cyclical outlook for corporate profits, and positive or negative surprises for economic growth and inflation. On most of these grounds, the dollar has been the world’s most attractive currency since 2009; but as economic recovery spreads from the US to Japan and Europe, the tables are starting to turn.

Finally, the widely assumed correlation between monetary policy and currency values does not stand up to empirical examination. In some cases, currencies move in the same direction as monetary policy – for example, when the yen dropped in response to the Bank of Japan’s 2013 quantitative easing. But in other cases the opposite happens, for example when the euro and the pound both strengthened after their central banks began quantitative easing.

For the US, the evidence has been very mixed. Looking at the monetary tightening that began in February 1994 and June 2004, the dollar strengthened substantially in both cases before the first rate hike, but then

weakened by around 8% (as gauged by the Fed’s dollar index) in the subsequent six months. Over the next 2-3 years, the dollar index remained consistently below its level on the day of the first rate hike. For currency traders, therefore, the last two cycles of Fed tightening turned out to be classic examples of “buy on the rumor; sell on the news.”

Of course, past performance is no guarantee of future results, and two cases do not constitute a statistically significant sample. Just because the dollar weakened twice during the last two periods of Fed tightening does not prove that the same thing will happen again.

But it does mean that a rise in the dollar is not automatic or inevitable if the Fed raises interest rates next month. The globally disruptive effects of US monetary tightening – a rapidly rising dollar, capital outflows from emerging markets, financial distress for international dollar borrowers, and chaotic currency devaluations in Asia and Latin America – may loom less large in next year’s economic outlook than in a rear-view glimpse of 2015.

Anatole Kaletsky is Chief Economist and CoChairman of Gavekal Dragonomics and the author of Capitalism 4.0, The Birth of a New Economy. © Project Syndicate, 2015. www.project-syndicate.org

How to interpret Warren Buffett’s new AT&T become a cheaper way of owning If there is one investor who is the best AT&T rather than just buying known of the past few decades, it would By Jon C. Ogg, AT&T shares outright. That have to be Warren Buffett. This is why his 24/7 Wallst.com would then come with yet more Berkshire Hathaway Inc. (NYSE: BRK-A) subscriber revenue exposure is so closely watched when it comes to ahead and the most impressive portfolio changes, investments and acquisitions. 24/7 Wall St. tracks the so-called Buffett dividend of the largest companies in America. Had this not holdings each quarter and as new changes are learned. It been the case, then logic would dictate that those AT&T turns out that the most recent Berkshire Hathaway holdings shares would have been sold off in the open market over the contained more changes than have been seen in some time. course of the quarter.

The AT&T stake was listed as 59.32 mln shares as of What stood out to some investors in the holdings as of September 30, was a new stake listed in AT&T Inc. (NYSE: T) September 30. Berkshire Hathaway’s stake in DirecTV in and a massively larger stake in Kraft Heinz Co. (NASDAQ: June was listed as the same stake of 31.35 mln shares, but KHC). That new Kraft Heinz stake was not grouped entirely this was after the stake had been previously raised in prior in the equities amount previously of $106.1 bln from June 30 periods. The formal merger terms were in cash and stock, as — and the total equity holdings for September 30 was listed follows: “As a DIRECTV shareholder, you are entitled to receive for each share of DIRECTV common stock an amount as a record of $127.4 bln.

The first thing that investors need to consider about the equal to $28.50 in cash, and 1.892 shares of AT&T common new AT&T stake is that it should not really be considered all stock, which represents the exchange ratio determined per that new. Berkshire’s holding of AT&T is actually tied to the terms of the transaction. You may also receive cash in AT&T’s acquisition of DirecTV that was completed this lieu of a fractional share of stock based on a per share price of $35.14.” summer.

When you multiply the 31.35 mln DirecTV shares by the It was more or less an unknown how the conglomerate’s portfolio managers would actually treat AT&T’s shares on a 1.982 exchange ratio, without considering the cash portion post-merger basis. Now the reality appears to be that the of the deal, you get just over 59.3 mln shares of the surviving DirecTV stake was at first a play on media and monthly company — and that matches the 59.32 mln shares. In subscription services, which then may have ultimately short, Buffett took the cash but kept the surviving shares in

AT&T. If you just looked at Monday’s headlines around AT&T, you would have thought that Buffett and his newer portfolio managers just acquired AT&T shares in the open market.

That is not the case at all. Here are the main headlines seen elsewhere on Monday morning: - AT&T (T) Stock Up as Warren Buffet Adds to Portfolio (TheStreet); - Warren Buffett adds AT&T to portfolio, cuts stakes in Goldman, Wal-Mart (MarketWatch); - Warren Buffett Cuts Stake in Goldman, Wal-Mart, Adds AT&T to Portfolio, 13-F Says (Barron’s); - AT&T and GM among Buffett’s Q3 adds (Seeking Alpha); - Buffett’s Berkshire Hathaway Shows New Stake in AT&T (T), Pares Wal-mart (WMT), Goldman (GS) Positions — 13F (Street Insider); - Berkshire Hathaway Takes New Stake in AT&T, With 59,320,756 Shares — 13F Filing (Dow Jones).

Another consideration here is that Verizon Communications Inc. (NYSE: VZ) is also a current Buffett stock holding. Verizon was the same stake at 15 mln shares, but that had been raised two quarters ago.

The new total Berkshire Hathaway holdings, based on September 30 share prices, would value the new AT&T stake at roughly $1.9 bln and would value the Verizon stake at $645 mln or so.

It is no secret that Buffett loves dividends. It is also now

November 18 - 24, 2015

financialmirror.com | WORLD | 17

Is it time for global money?

By Larry Hatheway Alexander Friedman Today’s world is more economically and financially integrated than at any time since the latter half of the nineteenth century. But policymaking – particularly central banking – remains anachronistically national and parochial. Isn’t it time to re-think the global monetary (non)system? In particular, wouldn’t a single global central bank and a world currency make more sense than our confusing, inefficient, and outdated assemblage of national monetary policies and currencies?

Technology is now reaching the point where a common digital currency, enabled by near-universal mobile phone adoption, certainly makes this possible. And however farfetched a global currency may sound, recall that before World War I, ditching the gold standard seemed equally implausible.

The current system is both risky and inefficient. Different monies are not only a nuisance for tourists who arrive home with pockets full of unspendable foreign coins. Global firms waste time and resources on largely futile efforts to hedge currency risk (benefiting only the banks that act as middlemen).

The benefits of ridding the world of national currencies would be enormous. In one fell swoop, the risk of currency wars, and the harm they can inflict on the world economy, would be eliminated. Pricing would be more transparent, and consumers could spot anomalies (from their phones) and shop for the best deals. And, by eliminating foreign-exchange transactions and hedging costs, a single currency would reinvigorate stalled world trade and improve the efficiency of global capital allocation.

In short, the current state of affairs is the by-product of the superseded era of the nation-state. Globalisation has shrunk the dimensions of the world economy, and the time for a world central bank has arrived.

Dream on. A single world currency is in fact neither likely nor desirable.

Central banks, while ideally independent from political influence, are nonetheless accountable to the body politic.

They owe their legitimacy to the political process that created

“Central banks’ legitimacy matters most when the stakes are highest. Everyday monetary-policy decisions are, to put it mildly, unlikely to excite the passions of the masses” them, rooted in the will of the citizenry they were established to serve (and from which they derive their authority).

The history of central banking, though comparatively brief, suggests that democratically derived legitimacy is possible only at the level of the nation-state. At the supranational level, legitimacy remains highly questionable, as the experience of the eurozone amply demonstrates. Only if the European Union’s sovereignty eclipses, by democratic choice, that of the nation-states that comprise it will the European Central Bank have the legitimacy it requires to remain the eurozone’s sole monetary authority.

But the same political legitimacy cannot be imagined for any transatlantic or trans-Pacific monetary authority, much less a global one. Treaties between countries can harmonise rules governing commerce and other areas. But they cannot transfer sovereignty over an institution as powerful as a central bank or a symbol as compelling as paper money.

Central banks’ legitimacy matters most when the stakes are highest. Everyday monetary-policy decisions are, to put it mildly, unlikely to excite the passions of the masses. The same cannot be said of the less frequent need (one hopes) for the monetary authority to act as lender of last resort to commercial banks and even to the government. As we have witnessed in recent years, such interventions can be the difference between financial chaos and collapse and mere retrenchment and recession. And only central banks, with their ability to create freely their own liabilities, can play this role.

Yet the tough decisions that central banks must make in such circumstances – preventing destabilising runs versus encouraging moral hazard – are simultaneously technocratic

and political. Above all, the legitimacy of their decisions is rooted in law, which itself is the expression of democratic will. Bail out one bank and not another? Purchase sovereign debt but not state or commonwealth (for example, Puerto Rican) debt? Though deciding such questions at a supranational level is not theoretically impossible, it is utterly impractical in the modern era. Legitimacy, not technology, is the currency of central banks.

But the fact that a single global central bank and currency would fail spectacularly (regardless of how strong the economic case for it may be) does not absolve policymakers of their responsibility to address the challenges posed by a fragmented global monetary system. And that means bolstering global multilateral institutions.

The International Monetary Fund’s role as independent arbiter of sound macroeconomic policy and guardian against competitive currency devaluation ought to be strengthened.

Finance ministers and central bankers in large economies should underscore, in a common protocol, their commitment to market-determined exchange rates. And, as Raghuram Rajan, the governor of the Reserve Bank of India, recently suggested, the IMF should backstop emerging economies that might face liquidity crises as a result of the normalisation of US monetary policy.

Likewise, a more globalised world requires a commitment from all actors to improve infrastructure, in order to ensure the efficient flow of resources throughout the world economy. To this end, the World Bank’s capital base in its International Bank for Reconstruction and Development should be increased along the lines of the requested $253 bln, to help fund emerging economies’ investments in highways, airports, and much else.

Multilateral support for infrastructure investment is not the only way global trade can be revived under the current monetary arrangements. As was amply demonstrated in the last seven decades, reducing tariffs and non-tariff barriers would also help – above all in agriculture and services, as envisaged by the Doha Round.

Global financial stability, too, can be strengthened within the existing framework. All that is required is harmonised, transparent, and easy-to-understand regulation and supervision.

For today’s international monetary system, the perfect – an unattainable single central bank and currency – should not be made the enemy of the good. Working within our existing means, it is surely possible to improve our policy tools and boost global growth and prosperity.

Larry Hatheway is Chief Economist of GAM Holding.

Alexander Friedman is Chief Executive of GAM Holding. © Project Syndicate, 2015 - www.project-syndicate.org

and Kraft Heinz stakes: The big picture the case that investors can receive better dividend yields in telecom than they can in tobacco. AT&T’s stock drop in 2015 now gives it a yield of almost 5.8%, and Verizon’s pullback from highs has its dividend just shy of 5.0%.

Kraft Heinz is the stake that should stand out the most to investors. It was already well known that Buffett was an investor in Kraft Foods and separately was a participant, along with 3G Capital, in Heinz. Then that merger of the two food giants gave Berkshire Hathaway a massive stake in the combined company.

Kraft Heinz was formally listed as a huge 325,634,818 shares, worth almost $23 bln at the end of September. That stake was listed as being over $23.5 bln all-in on Kraft Heinz, as of the previously released September 30 balance sheet. The 13F filing of the full holdings showed the stake as being worth $22.98 bln.

The Kraft Heinz stake had been previously written about in Berkshire Hathaway’s third-quarter earnings and balance sheet document. That specifies how the transaction looks and includes data about 3G, stated as follows: “Berkshire’s initial investments consisted of 425 mln shares of Heinz Holding common stock, warrants, which were exercised in June 2015, to acquire approximately 46 mln additional shares of common stock at one cent per share, and cumulative compounding preferred stock with a liquidation preference of $8 bln. The aggregate cost of these investments was $12.25 bln.”

3G also acquired 425 mln shares of Heinz Holding common stock for $4.25 bln. In addition, Heinz Holding reserved 39.6 mln shares of common stock for issuance to its management and directors under equity grants, including stock options.

What has to be kept in mind now is that Berkshire Hathaway’s quarterly financial filing showed that approximately 58% of the aggregate fair value was

concentrated in the equity securities of just four companies.

These were listed as follows: - Wells Fargo & Co. (NYSE: WFC) as $25.2 bln; - Coca-Cola Co. (NYSE: KO) as $16.0 bln; International Business Machines Corp. (NYSE: IBM) as $11.7 bln; - American Express Co. (NYSE: AXP) as $11.2 bln; Now insert the more expanded equity value of $127.4 bln rather than the $106 bln prior grand total. The $22.98 bln for Kraft would now come to a rounded $87.1 bln. Future filings may say that Berkshire Hathaway’s public equity holdings are now dominated by five companies, comprising about 68.4% of the value of the public equities portfolios.

Buffett’s latest portfolio changes looked very different from past changes. It turns out that there were exceptions and reasons for each. Investors always need to consider the logic behind what they see reported just on a static basis as if there is really a vacuum. (Source: 24/7 Wall St.com)

November 18 - 24, 2015

18 | WORLD | financialmirror.com

Pressuring the poachers

By Michael Meyer At one of Hanoi’s priciest restaurants, a group of Vietnamese businessmen meet their new American partners to celebrate their latest venture. “A toast!” someone exclaims.

They raise their glasses, filled with the finest scotch, which has been sprinkled with a fine powder. Not gold powder, as lesser moguls might offer, nor even the purest cocaine. No, this is far rarer and costlier: it is pulverised white rhino horn.

A half-century ago, white rhinos abounded in Africa.

Today, the International Union for the Conservation of Nature estimates that only 25,000 still roam the continent, mostly in South Africa, with a handful in Namibia and Kenya.

The population of elephants – another of Africa’s most iconic animals – is also dwindling fast, having fallen from 10-20 million a half-century ago to just 470,000 today.

The proximate cause of these precipitous declines is poaching. But the real reason is those businesspeople in Asia.

Thanks to demand from people like them, the going rate for elephant tusk in Asian markets is around $1,500 per pound.

Rhino horn fetches $45,000 or more. With prices like these, it is no surprise that poaching has become a $20 billion mega-business, reaching high into the political leadership of many African countries.

The World Wildlife Fund estimates that roughly 400 tons of ivory – taken from about 50,000 elephants – was trafficked in 2013. There are now about 50,000 elephants left in all of Central Africa. Farther east, Tanzania’s elephant population declined by two-thirds, or more than 25,000 animals, from 2009 to 2014, while Mozambique’s fell by 40%. All of Mozambique’s white rhinos have already been wiped out.

Conservationists have been sounding the alarm for years.

But the poaching industry has only grown. Far from a bowand-arrow affair carried out by local tribes, it has become a kind of mechanized warfare, featuring gangs equipped with AK-47s, electronic tracking gear, and sometimes even helicopters. This industrial-scale destruction of animal species is enabled – indeed, encouraged – by collusion with national park authorities and government officials.

The numbers clearly illustrate this transformation. In South Africa, Save the Rhino International reports that

poachers killed 1,215 rhinoceroses last year – one every eight hours – compared to just 13 in all of 2007. At this rate, the organisation predicts, deaths will overtake births as early as next year, meaning that, for South African rhinos, extinction is not far off.

The militarisation of poaching makes it increasingly difficult for conservation groups to protect animals, even within wildlife sanctuaries.

For example, armed guards must patrol Kenya’s Ol Pejeta Conservancy 24 hours a day to shelter the 133 rhinos living there (the largest herd in East Africa, and one that includes three of the world’s last four northern white rhinos).

But there is reason for hope. Last month, Chinese President Xi Jinping and US President Barack Obama agreed to impose a near-total ban on the ivory trade. While the agreement will not be implemented overnight, it represents important progress, not only because China is the world’s largest ivory consumer, but also because this is the first time that the US and China have made a specific joint commitment to protect wildlife.

There is also progress on the ground. In Kenya, rhino poaching fell by nearly half last year, claiming only 34 of 1,024 rhinos; in the first nine months of this year, poachers killed only six rhinos. Fewer of the country’s elephants are being killed as well. In 2013, roughly 60% of the country’s elephants died at the hands of poachers; this year, that proportion has been about one-third – a significant improvement, if hardly a pretty picture.

In Kenya, this progress can be explained partly by the need to revive tourism, which has been badly eroded by security threats in the last two years. But it may also be a response to growing global scrutiny. As Richard Vigne, the chief executive of Ol Pejeta, put it, the government “got embarrassed.” Reinforcing this interpretation is the recent re-appointment of Richard Leakey, the no-nonsense conservationist who founded the Kenya Wildlife Service, to head the agency.

Another major driver of progress in Kenya has been a strategic shift at the local level. Many of the country’s private conservancies (which rival its national parks in terms of wildlife) have abandoned their old “fortress mentality,” which prohibited human incursions, in favour of a community approach. Ol Pejeta, for example, allows herders to graze their cattle within its borders during the dry season; in exchange,

the herders and their communities must report poachers in the area.

This innovative approach to policing has already produced results. Ol Pejeta has not lost an elephant in many years, and only a very few rhinos have been killed.

Action at the international, national, and community levels is of course good news. But if poaching is to be limited to the point needed to ensure the long-term survival of Africa’s rhinos and elephants, action must also be taken at the individual level. People – say, those wealthy Asian businesspeople, or their Western partners – must not only refuse to purchase products derived from poaching; they must also reject them when they are offered.

Just as finger-pointing helped to spur real action by Kenya’s government, individual shaming could help bury the pointless traditions that fuel poaching. Add to that efforts to give local communities a shared stake in saving endangered wildlife, and one has all of the elements of an effective strategy – call it “blame, shame, and share.” With elephant and rhino populations dwindling fast, there is no time to waste in implementing it.

Michael Meyer, Dean of the Graduate School of Media and Communications at Aga Khan University in Nairobi, is establishing an environmental reporting program for Africa. © Project Syndicate, 2015 - www.project-syndicate.org

Marginalised people’s neglected diseases

By Carolyn Woo and Michael Marine

When Pope Francis visited the United States in September, he delivered historic addresses to the US Congress and the United Nations General Assembly.

Building on the sentiments of his encyclical letter, Laudato Si’, Francis highlighted the international community’s responsibility to respond to human suffering, such as that faced by refugees and those living in extreme poverty, and called for global solidarity in order to overcome social exclusion and inequality.

The pope’s entreaties should make us turn our attention to every aspect of human suffering, especially those that affect the most marginalised people. One of these is neglected tropical diseases (NTDs). This group of parasitic and related infections – including lymphatic filariasis (or elephantiasis), intestinal worms, and schistosomiasis – is a scourge of poverty. These illnesses afflict approximately 1.4 billion people per year, including more than 500 million children, causing untold pain and suffering and, through lost productivity, contributing to the cycle of poverty.

Over the past decade, the international community has made important progress against NTDs. For example, the generosity of major pharmaceutical companies, which provide medicines free of charge, has enabled treatment

programmes to be scaled up.

But, unfortunately, despite encouraging signs of progress, barely 40% of people at risk for these preventable diseases receive the medicine they require. Well over a billion people still do not have access to treatments for potentially debilitating conditions that cost less than $0.50 per person to deliver. This is not only a serious medical issue; it is also a grave moral problem, one that those of us who work with the poor confront every day.

The reason for the international community’s failure to solve this problem is as simple as it is ugly: for the most part, NTDs afflict only the poorest and most overlooked people. As Francis put it in Laudato Si’ “There is little in the way of clear awareness of problems which especially affect the excluded.” Indeed, “they are mentioned in international political and economic discussions, but one often has the impression that their problems are brought up as an afterthought.”

The pope’s historic visit to the US came at an important time. Congress was finalising spending bills for fiscal year 2016, and the UN was completing its work on the Sustainable Development Goals (SDGs), setting targets that will guide development policy for the next 15 years. Both organizations would do well to heed the pontiff’s words.

It is critical that the US continue its strong leadership on NTDs by maintaining funding for treatment programmes in the federal budget, this year and in the years to come. As Francis reminded members of Congress, “How much has been done in these first years of the third millennium to raise people out of extreme poverty! I know that you share my conviction that much more still needs to be done, and that in times of crisis and economic hardship a spirit of

global solidarity must not be lost.”

On the international level, we are encouraged that UN members were inspired to assign high priority to the fight against NTDs in the post-2015 development agenda. In particular, a global indicator for NTDs – the “number of people requiring interventions against neglected tropical diseases” – was included in the SDGs’ monitoring framework. This will help to ensure that NTDs are finally given the attention they deserve over the next 15 years.

One of the most basic steps we can take to overcome what Francis calls “the globalisation of indifference” is to come together in support of decisive, measurable action against NTDs. Introducing a global metric to mark our progress on the path to controlling and eliminating them for good is a true demonstration of our solidarity with the poor.

In his UN speech, Francis reminded us of a crucial point: “Above and beyond our plans and programs, we are dealing with real men and women who live, struggle and suffer, and are often forced to live in great poverty, deprived of all rights.” If, with all of our technological advances and unprecedented private-sector donations, we cannot change the predicament of the poorest people for mere pennies per person, how can we truly expect to overcome the more challenging, costlier health and development challenges we face?

Carolyn Woo is President and CEO of Catholic Relief Services. Michael W. Marine is CEO of the Sabin Vaccine Institute in Washington, DC. © Project Syndicate, 2015 - www.project-syndicate.org

November 18 - 24, 2015

financialmirror.com | WORLD | 19

The poverty line’s battle lines

By Kaushik Basu For a long time, as a college professor and then as the chief economic adviser to the Indian government, I was a happy user of the World Bank’s data on global poverty, tracking trends and analysing cross-country patterns. I seldom paused to think about how those numbers were computed. Then, three years ago, I joined the World Bank as its Chief Economist. It was like a customer, happily ordering dinner in a favorite restaurant, suddenly being asked to go into the kitchen and prepare the meal.

Being in the business of measuring poverty is a challenge for the World Bank. If poverty declines, critics accuse us of trying to showcase our success. If it rises, they say we are ensuring that we stay in business. And if it stays the same, they accuse us of trying to avoid these two charges.

Fortunately, there is something liberating in knowing that you will be criticised for any outcome. Still, as our team set about defining the global poverty line this year (and thus the incidence of poverty), I was acutely aware of the note of caution from Angus Deaton, this year’s Nobel laureate in economics: “I am not sure it is wise for the World Bank to commit itself so much to this project.”

I could see his point: This year’s poverty calculation was particularly momentous. In 2011, new purchasing power parities (or PPPs, which essentially estimate how much $1 dollar buys in different countries) had been computed, and the data became available in 2014. This was one reason to take stock of how we would adjust the global poverty line, estimate new poverty numbers, and publish them in our Global Monitoring Report, which was released in October.

A second reason is that the UN has included the eradication of chronic poverty in its new Sustainable Development Goals. This means that our decision on where to draw the poverty line probably will influence not just the World Bank’s mission but also the development agenda of the UN and all countries around the world. Clearly, as we crunched the numbers, we had a special, and daunting, responsibility to fulfill.

Our first task was to see how the global poverty line had been determined earlier. In 2005, when the previous round of purchasing power parities was estimated, the method used was to take the national poverty lines of the 15 poorest countries, compute their average, and treat that as the global line. This led to a global poverty line of $1.25. The idea was that a poor person was anyone whose PPP-adjusted daily consumption fell short of $1.25.

The validity of this method has been questioned – and I have had my own reservations. But where the line is drawn in the initial year is in some sense not that important.

Because there is no unique definition of poverty, what matters is to draw a line at some reasonable place and then hold the line constant in real (inflation-adjusted) terms so that we can track the performance of the world and individual countries over time.

Some critics argue that the 2005 poverty line of $1.25 was too low. But what should alarm them is that in 2011, some 14.5% of the world’s population – one in every seven people – lived below it. Given that we are already committed to the goal of ending extreme, chronic poverty by 2030, our first decision was to hold the yardstick for measuring poverty constant.

Since there had been inflation between the two rounds of the PPP computation, in 2005 and 2011, we would obviously have to raise the nominal poverty line to keep the real line constant. However, doing this for the world as a whole is far from easy. Which countries’ inflation should we use?

We ran two experiments: one was to inflate the poverty lines of the 15 countries used in 2005, using their respective inflation rates and then taking an average; the other was to do the same for 101 countries for which we had the necessary data. These two methods raised the line to $1.88 and $1.90, respectively.

However, a third approach was possible: to raise the poverty line with the new PPP indices so that the incidence of global poverty remained unchanged (because PPP arguably tells us about parity across countries and should not change the absolute level of global poverty). This exercise – and it was beginning to look like a strange alignment of the stars – resulted in a poverty line just above $1.90. In short, by

keeping to one decimal place, all three methods led to $1.9.

And that is the line we adopted.

We will not always have the good fortune to be able to use different methods and still arrive at virtually the same line.

Furthermore, poverty can and should be measured by many metrics other than money: life expectancy, educational attainment, health, and various other measures of human “functionings and capabilities” (as Amartya Sen calls them) are all important. To tackle these problems in the future and broaden the World Bank’s poverty research, we have established the 24-member Commission on Global Poverty – chaired by Sir Tony Atkinson of the London School of Economics and Nuffield College, Oxford – which will submit its report next spring.

Measuring poverty attracts attention from both politicians and academic researchers – and we had an ample amount of both. We were attentive to the politics of poverty, but we resisted political lobbying. We took account of the suggestions of researchers, but we used our judgment. One researcher was adamant that the poverty line should be $1.9149. I decided that those last three digits were a bit excessive.

Kaushik Basu is Chief Economist and Senior Vice President of the World Bank and Professor of Economics at Cornell University. © Project Syndicate, 2015 - www.project-syndicate.org

November 18 - 24, 2015

20 | BACK PAGE | financialmirror.com

WTI bounces from two and a half month lows Markets Report by Forextime Ltd

By Lukman Otununga, Research Analyst at FXTM

The big story in overnight trading was the Eurodollar declining to fresh seven-month lows at 1.0655. There is still a continually strong divergence in both monetary and economic sentiment between the United States and Europe that is consistently encouraging sellers to attack the currency pair.

The increased expectations that the ECB might ease monetary policy once again in December have also been joined by the emerging concerns that geopolitical tensions might impact consumer confidence around Europe.

WTI oil continues to trade with heightened sensitivity and after hitting another two and a half month low at $40 on Monday, the commodity managed to bounce back to trade as high as $42.24.

The reoccurring theme of a persistent oversupply of the commodity is continually punishing WTI. The recent statement from OPEC that the oversupply was at its highest in a decade is going to weigh on investors’ minds as a result and limit any hope of a significant rebound in prices.

Although the commodity is clearly finding tough support slightly above $40, WTI remains bearish on the daily timeframe and a breakdown below $40 may invite an opportunity for sellers to send prices towards $39.

WTI has breached the inverted wedge pattern and prices have found resistance below the daily 20 SMA. The MACD has crossed to the downside and even if prices did somehow manage to rebound higher, $43 may act as a dynamic resistance which should invite sellers to send prices back down towards $39.

Later on during the European session, most was on the UK economy with the latest inflation data. Sterling remains victim to a dovish BoE and a renewed risk-off trading environment may threaten the Sterling bulls. If CPI fails to meet expectations, this may unearth some concerns which market participants have about the potential slowdown in economic momentum in the UK economy. The GBP may be left vulnerable and open to additional losses as investors push back UK interest rise expectations further.

Dollar Index creates higher low Despite Friday’s soft retail sales report, the heightened expectations around the Fed raising US interest rates in December has empowered USD bulls further. Dollar sensitivity to US interest rate expectations remains rife in the currency markets and this can be seen in the USD index after the recent rally towards 100.

The next major event risk for the US economy this week will be the CPI report and if results exceed expectations, then the USD bulls may be offered a welcome boost which should accelerate the incline towards the 100.00 psychological resistance.

AUDUSD: The AUDUSD is technically bearish. Prices are trading below the daily 20 SMA and the MACD has crossed to the downside. As long as prices can keep below the 0.7150 resistance, there may be a decline back below 0.7000.

USDCAD: The USDCAD is technically bullish. Prices are trading above the daily 20 SMA and the MACD has crossed to the upside. A breakout above the 1.3350 resistance may open a path to 1.3450.

GBPAUD: The GBPAUD is technically flat. Prices are meandering between the daily 20 SMA and the MACD is lacking any momentum. A breakout above 2.1700 or breakdown below 2.1100 may be the first signals for the trend resumption.

For information, disclaimer and risk warning note, visit: www.ForexTime.com FXTM is an international forex broker, regulated by the Cyprus Securities and Exchange Commission (CySEC), nd FT Global Limited is regulated by the International Financial Services Commission (IFSC)

Sapienta Country Analysis Cyprus - In March 2013 Cyprus suffered its worst economic shock since 1974, leaving the economy with high corporate, household and government debt and an illiquid banking system. There are many uncertainties going forward but also potential new prospects, including exploitation of gas and a possible solution of the Cyprus problem.

fiscal and structural policy, and macroeconomic and sectoral trends; tables and charts of quarterly recent economic trends and medium-term forecast. €9950 ex VAT per year for up to 5 users within a single organization if paid in advance; €1,100 ex VAT if paid in instalments.

- Premium subscription (monthly analysis and critical updates): Analyst will alert you by email of critical - Sapienta Country Analysis Cyprus is an unrivalled monthly service that not only keeps you abreast of these developments developments as they occur and include two to three lines of comment. €11,250 ex VAT per year for up to 5 users within a but helps you anticipate and plan for what is coming next. single organization if paid in advance; €1,400 ex VAT if paid Written in a concise, easy-to-read format, Sapienta Country in instalments.

Analysis Cyprus provides you with comprehensive monthly analysis and forecasts of domestic and international politics, - Bespoke service: Aimed at institutional investors, premium budget and debt performance, the banking sector, sectoral subscribers enjoy a 20% discount and standard subscribers a policies including oil and gas, and macro-economic trends.

10% discount on bespoke services such as personal and - The reports are written by Fiona Mullen, a renowned Cyprus telephone briefings. Check our website for further details. analyst with 20 years’ experience producing clear, reliable and independent analysis for an international audience.

Contact Check our website for sample issues. research@sapientaeconomics.com, Tel +357 99 338 224, - Standard subscription (monthly analysis and forecast): Analysis and outlook for domestic and international politics, www.sapientaeconomics.com

Comprehensive monthly analysis of politics, economic policy and the economy