Fiscal cliff negotiation goes sour

By now, most of us have heard something about fiscal cliff.

The fiscal cliff has turn into a battle between Republicans and Democrats. President Obama wanted at the beginning to increase taxes on those making 250k and above, then he recently changed his position on that and elected to propose an increase on individuals making 400k and above. Let’s face, most American make less than 250k even with a combined income between husband and wife. The increase of tax on those making 250k and above would not have affected most American. In fact only about 2% of American make 250k and above according to the US census Bureau. The more we venture into higher income, the lower the percentage become. Once can wonder why the adjustment.

Republicans, who tend to have deep pocketed corporations behind them as well as individuals making well over 250k a year, are looking to stop and oppose any tax increase. The Republican are instead looking to cut spending in much needed social services such as Medicare and other services on which so many Americans depend on.  

They argue that an increase in tax rates will not produce a much needed boost in the budget but rather spending cuts will. Even though spending costs are very important to minimize money going out but there is also a need for money coming in as well.

Last week, the mood on the street was very auspicious after president Obama and House Speaker John Boehner met to discuss the different options. Some people were so optimistic that they even predicted a resolution by the end of the current week. But with the way things are going, each day passing reduces people’s optimism on a solution.

Investors and everybody else are bracing for the US going over the cliff. We are all aware of the consequences of such action. Nevertheless, some analysts argue that it might be the best thing to do for the US.

We are all looking at congress to deliver a solution and help keep the economy on the path to recovery.

Budget talks push the market higher

The Dow Jones industrial average rose 100.38 points, or 0.76 percent, to 13,235.39. The S&P 500 Index gained 16.81 points, or 1.19 percent, to 1,430.39 its highest closing level since Oct. 22.

 The NASDAQ Composite added 39.27 points, or 1.32 percent, to 3,010.60. 

Ten-year Treasury yields increased seven basis points to 1.77 percent. Gold increased, while sugar, natural gas, coffee, cotton and oil led gains in commodities.

The sentiment on the street was optimistic on report of movement and improvement on the fiscal cliff negotiations.

President Barack Obama and House speaker John Boehner met at the white house on Monday raising hopes of a deal in sight. John Boehner has dropped his opposition to raising tax rates for some top earners. President Obama’s proposal also highlights some spending cuts and a revise tax increase. President Obama’s new tax increase will affect people making 400K and above which is well above his earlier 250K. President Obama is also considering a possible budget concession on Social Security cost-of-living increases. The two met for about 45 minutes at the White House today with two weeks remaining to avoid the so-called fiscal cliff.

Currently, the market is being held hostage by the fiscal cliff talks. The market gas been reacting for the past few weeks to rumors on the different proposals submitted by both parties.

Stocks have been on a rollercoaster ride, the sentiment on the street is very unsettled and volatile.  

Investors are fretting about a possibility of a recession in case the talks on the fiscal cliff fail.

In the meantime, Clearwire agreed to sell the rest of the company to Sprint Nextel for $2.2 billion. Clearwire stock price tumbled 12.8 percent to $2.94, while Sprint was down 0.7 percent to $5.51. 

Apple which have suffered a setback the past weeks, have rebounded on report of strong sales of the I phone 5 in China.

The sentiment on the street is very auspicious on a potential by the end of the week or early next week.

Swiss bank UBS is facing fines up to $1 billion

UBS which is Switzerland’s biggest bank is facing fine of more than $1 billion by the US and UK Regulator for trying to manipulate global interest rates. Such a penalty will be more than the one paid by British bank Barclays in June by the US and British regulators. In addition UBS will be the third big European bank being hit with fine by the US this week.

“The global settlement is about $1 billion. It's expected early next week, on Monday or Tuesday," the source said. UBS declined to comment.

UBS declined to comment. Britain's Financial Services Authority and the U.S. Department of Justice and the Commodity Futures Trading Commission (CFTC) all declined to comment as well. 

Global authorities are investigating more than a dozen banks accused of altering submissions used to set benchmarks such as the London interbank offered rate to profit on interest-rate derivatives to manipulate the big banks’ financial health. Barclays, the U.K.’s second-biggest bank, settled to pay a fine $467 million in June to resolve the U.S. and U.K. Libor probes.

The fall out pushed Barclays CEO and chairman to quit and caused a public outcry in Europe and around the world on banking policy and ethics.

The probe has already brought a few arrests in the UK last week.

UBS the Swiss giant suffered a lost of $2.3 billion of unauthorized trades by one of its former trader who was later sent to jail for 7 years. The loss caused the Swiss banking giant to cut thousand and jobs and caused a management upheaval. Following this big loss, UBS is now facing a big fine from the UK and the US.

"I'm not sure how much more reputational damage can be done to UBS," said Chris Wheeler, analyst at Mediobanca in London. "They are rebuilding that slowly, but it won't help the wealth management business when you see this as a headline."

Banks tend to settle with authority to minimize damage and salvage some credibility in front of the public and politicians.

We all can remember how big banks were said to be to big to fail. Big banks enjoyed being bailed out while small businesses were allowed to crumble due to poor decisions made by those banks. Now it seems as if those banks have forgotten the crisis, it seems as if they have forgotten who provided the much needed cash infusion when it was needed, they forgot that they owe to the public to increase their standard and relinquish they need for reckless financial behavior that almost sent the world economy into a drain.

Luckily for those banks, they have politicians on their sides, lobbyists who will always find a way to get them what they need and pull them out of troubles. Unfortunately the smaller employees at those banks are face with layoffs, pay cut and loss of bonuses. The damages will spilled over to consumer since banks might try to recoup their losses by increasing fees.

The culture of financial recklessness cannot continue but unfortunately, it seems as if it is part of the financial system.

This article was written by Kadjolo Couliably managing partner at KDL Financial LLC

The Fed keeps Rates low

The Federal Reserve said on Wednesday that it plans to keep interest rates very low even after unemployment falls close to a normal level.

For the first time, the fed has made it clear how it will impact the economy directly by providing clear actions. As result of such transparency, consumers and investors are a lit more settled. This will allow the market to have a positive response and allow consumers to feel a little more comfortable when deciding to borrow.

The move by the fed is intended to give a boost to the market and inject some much needed cash into the economy. Even though the move is seen as beneficial to the economy, it has a big impact on retirees and those who depend on savings

"This approach is superior" to setting a timetable for a possible rate increase, Chairman Ben Bernanke said at a news conference after the Fed held a two-day policy meeting and issued a statement. "It is more transparent and will allow the markets to respond quickly and promptly to changes" in the Fed's economic outlook.

"The Fed has become more explicit and more transparent," said Steven Wood, chief economist at Insight Economics. "This should provide the markets with much more clarity around monetary policy action in the upcoming year."

The Central Bank stated that it plans to be aggressive in its bond purchase and plan on keep on sepngin $45 billions worth of treasury bonds a month to purchase bonds. This move is intended to keep the cost of borrowing low and give a boost to hiring.
The latest, known as “Operation Twist,” involved selling short-term debt and buying long-term bonds. As a result, the demand for long term bond will increase driving down interest rates on long-term borrowing, like mortgage loans while draining cash out of the system with the sale of short-term debt.
The policy extends the Fed’s four-year strategy of flooding the financial system with cash by piling more debt onto the nearly $2.8 trillion in Treasury and mortgage bonds already stashed in its vaults.

Currently, the employment’s rate is at 7.9%. The fed intends on pushing with its new policy at least until the employment rate decrease to 6.5%. the new strategy implemented might continue beyond the 6.5% target for the unemployment rate.

The fed are afraid that the unemployment remain high which will cause those out of work not to be able to find jobs offering them the same pay they were accustomed too.

The priority at this point is to stimulate the economy and decrease the unemployment rates.

With the fiscal cliff looming, a lot of businesses are bracing for deep changes and uncertainty.

HSBC Pays record fine: $1.9 Billion

The Justice Department last Tuesday stated that HSBC violated the Bank Secrecy Act by allowing money drug traffickers in Mexico to launder their money through the bank and allowing prohibited transactions with Iran and other nations that have been under sanctions.
In court papers filed in federal court in Brooklyn, the federal government said the case against HSBC is related to the laundering of proceeds from narcotics trafficking via the Black Market Peso Exchange, a method used to convert cash narcotics dollars into Colombian pesos by buying and re-selling wholesale consumer goods.
“The lack of an effective anti-money laundering program at HSBC Mexico and HSBC Bank USA, N.A. contributed to the conduct charged” in the money-laundering case against narcotics traffickers, Justice Department prosecutors said in a court filing.

The court document also states that prohibited transactions with Iran, Libya, Sudan and Burma took place from 2001 through 2006.

HSBC agreed to settle and pay a record fine of $1.9 billion in order to avoid any legal procedure that could deeply impact the bank reputation and cause clients to flock to other banks to avoid being associated with them.  Chief Executive Stuart Gulliver said: "We accept responsibility for our past mistakes," he said. "We have said we are profoundly sorry for them, and we do so again. The HSBC of today is a fundamentally different organization from the one that made those mistakes."

Since the financial collapse of 2008, the government has been actively monitoring banks and even investigating bank’s transactions. As a result, the Securities and Exchange Commission had brought charges against 133 companies and individuals, including 60 CEOs, CFOs, and other corporate officers. Those SEC cases have netted the government $2.6 billion in fines, penalties and other payments.

We all remember Bernie Maddof, the mastermind behind the biggest ponzi scheme ever. He was sent to prison. The funny thing is that even though the government is fining big banks and collecting record fines, none of those banks executives are being held accountable and punished accordingly.

In 2008, big banks and have received funds from the government (taxpayer money) in order to avoid a mettle down. We all hoped that the greed and reckless culture would have vanished with the crisis but looks like we were just living on opium since this culture is deep rooted into Wall St.

When will we see bank executives being sent to jail for reckless behavior? Let’s hope not too late.

This article was written by Kadjolo Coulibaly, Managing Partner at KDL Financial LLC

China Rising Economy

China's economy is likely to surpass the United States in less than two decades while Asia will overtake North America and Europe combined in global power by 2030, a U.S. intelligence report said on Monday.

The report also states that: "As the world's largest economic power, China is expected to remain ahead of India, but the gap could begin to close by 2030," it said.

"India's rate of economic growth is likely to rise while China's slows. In 2030 India could be the rising economic powerhouse that China is seen to be today. China's current economic growth rate - 8 to 10 percent - will probably be a distant memory by 2030."

With the economic expansion that accelerated dramatically since the 1990, countries have opened up their doors to foreign investors and companies.

China is a well loved country for low cost labor and always and an endless qualified workplace. Combining the low wages and the quality of its workers, China has become an attractive place for big companies to install their manufacturing department and produce goods from China.

The Savings allow companies to increase their profit and still be able to use low wage labor legally without having to worry about legal backlashes.

China wealthy class is buying company and holding stake in foreign countries. China is the second-largest holder of U.S. government debt after the Federal Reserve. China’s holdings of U.S. government securities were $1.164 trillion as of June, according to Treasury Department data released Aug. 15.

China’s market is an expanding market. Its automotive market is a very attractive one fro car manufacturer since more Chinese are looking to won a car, luxury cars are looking to increase their shares of the market by expanding their presence in the country.

China has been spending a lot of money to expand and upgrade its military infrastructures.

China was recently able to carry landing test on its first aircraft carrier. China spent about $100 billion. China is developing and acquiring new sophisticated weapons including a home built J-20 stealth fighter jet, which made a test flight last year.

Even though most of the country is still living in poor condition, China has been slowly positioning itself to be one of the world superpower. Whether we look at china economy, its military or its population, china has been growing. There is an endless supply of willing low wages labor ready to work, a strong sense of pride and a need to flex some muscle. China is a country to be reckoned with, a country not to be neglected since it has proven to have the resources and the willingness to be a superpower.

This article was written by Kadjolo Coulibaly Managing partner at KDL Financial LLC

Jobs report

The much anticipated Job report has been published today. The numbers published look better than expected. In fact, there was an increase in hiring, 147,000 jobs were added in November versus 138,000 in October. With Super storm Sandy hitting the eastern coast last month, the word on the opinion on the street was a decline in hiring and an increase in joblessness. The unemployment rate fell to 7.7 percent the lowest since December 2008 compare to 7.9 in October. Labor force participation rate: 63.8 vs 63.9 in October. The government said Super storm Sandy had only a minimal effect on the figures. The government noted that as long as employees worked at least one day during a pay period which is two weeks for most people, its survey would have counted them as employed. In November, retailers added 53,000 positions. Temporary help companies added 18,000 and education and health care also gained 18,000. Auto manufacturers added nearly 10,000 jobs. The overall manufacturing jobs fell 7,000.

The market has reacted positively to the news: the Dow Jones has climbed 56 point in early trading, Gold price is bouncing back.

Consumer spending is increasing s well perhaps due to the holiday’s season.

The impact of the fiscal cliff ongoing battle might not be felt until we receive the data for December. Companies are not holding on hiring workers, the economy is has been slowing rebounding, consumer spending is rising. Car manufacturers have mostly reported strong positive numbers, Gas prices have fallen recently. The housing market is slowing rebounding as well.

Even though we must note that the fiscal cliff might greatly affect the economy (hiring, market…), we can see sign of hopes in the economy recovery. President Obama’s economy team might be facing challenges from the opposition but they are producing results whether small or even insignificant. As we all know, it is better to move half of an inch than not moving at all.

This article was written by Kadjolo Coulibaly Managing partner at KDL Financial LLC

Fiscal cliff

A lot have been said the past few months regarding the fiscal cliff. For those who are not aware of the ongoing battle in DC, the tax cuts on wealthy individuals is about to expire at the end of the year. In case that event, the consequences could be dire on the economy. From jobs lost to stinginess on spending. Congress and the white house are looking for a deal that will benefit all Americans not just a small percentage of Americans. President Obama is seeking to raise income tax rates on individuals earning $200,000 or more a year and married couples earning $250,000 and more annually, while Republicans say that any increase in tax revenues can only come from limiting deductions and other breaks. President Obama said the Republican approach can’t raise enough money without adding to the tax burden of middle-class families. The deadlock between President Obama and republican is around tax raise for the wealthy.

With the economy barely recovering, consumer spending not quite improving, with a job market very unsettled, a volatile financial market and a low confidence on lawmakers, there is an urgent need to help stabilize the economy and avoid any adverse action which could push the economy back into a recession and push consumers to hold to their cash.

The need for a compromise by lawmakers is of the extreme urgency.

Republicans would prefer to keep the taxes from being raised on the wealthy and have more deeper spending cuts on social services such as on health care, on services provided to those in need due to their bad financial health. A raise in tax could send businesses to halt hiring, to cut jobs and minimize investments. Investors in the US are currently in a selling frenzy. Companies like Apple Inc. (NASDAQ:AAPL) and other big corporations have seen a deep drop in their stock price, investors looking to avoid higher taxes on capital are liquidating their positions and moving their money to other low tax rates investments or holding their money.

The real estate market is going to be affected but luckily, only the high end real estate market will be affected directly since wealthy owners are looking to sell their properties to avoid higher tax rates.

President Obama has hinted to willingness for compromise but insisted that Taxes need to be raised on wealthy individual in order for any proposal from congress to be considered.

House speaker John Boehner sent a proposal to President Obam whi was rejected due to a lack of increase in taxes on the wealthy.

Four Republicans who opposed Speaker John Boehner on spending and budget issues won’t return to the Budget or Financial Services committees when the next session of Congress begins in January, according to a House Republican leadership aide. The Republican Steering Committee removed Walter Jones of North Carolina and David Schweikert of Arizona from the Financial Services Committee, said the aide, who asked not to be named. Justin Amash of Michigan and Tim Huelskamp of Kansas were removed from the House Budget Committee, the aide said. We will not rush into assumption, but one could conclude that those four republicans where taken off their positions due to their opposition to the powerful House speaker. The stakes are high for republicans, their refusal for higher tax rates on wealthy is very strong.

Wealthy individuals and businesses pump a lot of money in charities and other non profit organization to help those is need. A higher tax rates will translate into a reduction of money flown into non-profits and charities. This would lead to fewer resources for those in need, job loss and dire social consequences in addition to the financial consequences.

On the other hand, with the government in need of money to sustain the country economy and fund more social project, there is need to raise capital. Middle class, individual making less than the wealthy, small businesses cant afford to pat any higher tax rates, they cant afford lose the social services offered by the government such as Medicare and other services. Spending has already been cut in multiple social services, states and cities have seen longer lines at their doors and have found it difficult to raise more capitals. Some states have even seen an exodus of their resident to other more financially attractive states.

The financial market and the high end real estate market will be hit but there is a high influx of much needed foreign money. Wealth foreigners are spending more money in the US, buying real estates and investing in the US.

Even though an increase in tax could lead to job loss and other financial consequences, the refusal to raise taxes will have dire consequences on average Americans, on American children and the American dream. The wealthy might just have to settle with higher rates.

This article was written by Kadjolo Coulibaly, Managing Partner at Kdl Financial LLC

Alternative Financing

With the current economy, obtaining a loan or mortgage for businesses as well as individual have been very challenging

There is a strong sentiment on the start to move away from traditional lending institutions (banks). In fact, traditional lending institutions have become more stringent in they approval process. The credit score needed for approval is higher, in most instances a potential borrower might need a score of 720 and above to qualify for decent interest rates.

At the event that unfolded in 2008-2009 which caused companies to lay workers off, which pushed some companies to close their doors ( Bear stern, Lehman Bros…), consumers and a lot of businesses saw they net worth being wiped and in some cases if lucky being reduced. Credit rating started sinking for a lot individuals and small businesses. Cash became rare; consumers could no longer afford to spend money. Therefore, many industries were affected with a shortage of cash. Loan application started rising as well as declined letters. Traditional lending institutions in need of much needed cash could not afford to extend credit to applicants.

Therefore, the big banks and financial institutions went to the Federal Government for bails out. Using hard earned tax payer money to return to their financial health and go back to their usual ways of doing business. While those big banks and institutions received money to stay in business and be productive, smaller businesses and consumers were not as lucky.

The fed lowered the interest rates but yet, banks refused to lend money, they elected to hold on to the money for their profitability. They raised the approval requirements and offered unattractive rates.

Seeing the way banks acts, Consumer and businesses started looking for alternative financing. Private lenders, Small financial firms, assets based lending…

The alternative lending has been soaring for the past few years. In fact 80% of consumers stated that they will be willing to go obtain a loan from an alternative source of lending whether for a mortgage, a business loan or equipments loan, there is a strong demand for alternative financing.

Companies like Wal-Mart Stores Inc are looking to capitalize on the opportunity. In fact, according to a financial services study, one in three U.S. consumers would consider a mortgage from retailer Wal-Mart and almost half would consider one from online payment provider PayPal. Cotsco is already providing home loans online through select lenders from its retail stores and according to Jay Smith, Costco's director of financial services. 

The current state of the economy has pushed consumers and business to look for alternative financing, which makes it easier to obtain a loans and a feel of direct contact with the decision makers. The lending game has begun to change and we can foresee a trend in the need for alternative financing now.

This article was written by Kadjolo Coulibaly managing partner at KDL financial LLC