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Greece – The Greek parliament narrowly voted in favour of a drastic package of austerity measures on today, intended to save the country from defaulting on its debts.

The proposed tax hikes and spending cuts have been deeply unpopular with the Greek public. A nationwide 48-hour strike is under way and violent clashes are continuing in the streets of the capital, Athens.

Greece is heavily in debt and the package is needed to win the latest tranche of a EUR110bn loan. There will be a second vote on Thursday for the implementation of different parts of the package, such as tax rises and the sale of state assets.

Global – French Finance Minister Christine Lagarde has been officially chosen to lead the International Monetary Fund (IMF). She will become the first female managing director of the global lending organisation.

Before the IMF’s 24-member board voted to appoint her to the position, she was endorsed by the Obama administration. She had also won support from Europe, China and Russia.

Lagarde takes over at a tumultuous time. Europe’s debt crisis is intensifying.

Asia Pacific – Credit ratings for companies based in the Asia Pacific region are likely to remain stable for the rest of the year, investors have been told.

Moody’s Investors Service points out the first half of 2011 saw little change in the ratings of the area’s non-financial corporates and predicts this trend will continue over the coming six months.

In the year to date, the share of rated companies with ‘stable’ outlooks in the region has risen to 83percent, a 3percent increase on the same period in 2010.

Brazil – The government bond ratings of Brazil have been upgraded from Baa3 to Baa2 by Moody’s Investors Service. Brazil’s rating was last moved by Moody’s on September 2009, when it was lifted from Ba1 to Baa3 and given a positive outlook.

The ratings agency says its new decision is based on Brazil having a sovereign credit profile consistent with ratings in the higher Baa range and a moderate susceptibility to credit boom-related event risk.

Want to know how to make money or save tax through these trying times: Call David Rogers on 0034 952 816 443 or 0034 622 345 558 or email david.rogers@blacktowerfm.com

The right advice

Getting the right financial advice as an expat in Spain is so very important. Over the coming months we will be publishing articles by David Rogers of Black Tower Financial Management. In my view David is the person to speak to when seeking advice in finance related matters.

The Spanish Advantage (Investments)

There are a substantial number of Expats living in Spain that may not be aware of certain advantages open to them purely as a result of the fact that they live here.

For example did you know that you can be protected from the European Savings Directives rules on Withholding Tax, which is a tax levied on growth from savings or investments?

To avoid this you need to take advantage of the favorable way in which Spain looks at investments. In this regard it is possible for a person who lives in Spain to open what are known as Spanish Compliant Portfolio Accounts (SCPA). A SCPA is an extremely tax efficient vehicles for holding invested funds and cash.

For example: If you held funds on deposit in the general banking system or you have funds invested in non-complaint products, under the European Savings Directive, any growth obtained is subject to withholding tax.

The current rate of withholding tax is 19%. (This is tax law and is always charged on growth, although not readily explained by the banking system or many off-shore providers.

What does that mean? Well as an example if you had €100,000 either on deposit or in certain non-compliant off-shore structures and that grew to €110,000 then there would be a 19% tax charge applied to the growth element only (€10,000).

This would result in withholding tax charge of €1900. This applies no matter whether you touch the original amount or the growth element. In other words tax on the growth is unavoidable.

Unless you take advantage of a Spanish Compliant Portfolio Account, in which case, the tax treatment is far more favorable.

In this case if the €100,000 had grown to €110,000 and the policy owner decided NOT to touch the investment at all, then there would be NO tax to pay. This is known as tax free role up, because the policy owner can now get growth on the tax that they would have paid if the had been in the banking system or in non-complaint off-shore structures.

Furthermore, should the policy owner wish to drawdown from the policy a Spanish Compliant Portfolio Account also provides an extremely favorable tax position for the policy holder.

In this case for example, if the client wished to take the whole growth (€10,000) then this would be treated as follows:

Of the €10,000 withdrawn, €9,000 would be treated as Return of Capital, and be exempt from tax (zero tax to pay) and the remaining €1,000 would be taxed as investment income which is levied at 21%. So in the case it is possible for the policy holder to get hold of €10,000 with all taxes paid for only €210 or 2.1% in tax. Or put another way he would have saved €1,690 in tax charges alone.

There is not a more favorable (legal) way of dealing with invested funds and as such this should be, at least, considered as an option for anyone living in Spain or anyone that has funds invested in either the banking system or in non-complaint investment portfolios.

In this regard many Expats have been sold and/or invested in non-complaint products so if you have funds invested its worth establishing of they are Spanish Compliant.

If you want to know more, or want to establish whether you are in non-compliant products please contact me on 0034 952 816 443 or 0034 622 345 558 or email me at david.rogers@blacktowerfm.com

Return of the real money?

Well on Monday of this week in the US they have been celebrating Labour Day which is traditionally the end to the summer holiday period and a time when the “real money” returns to the global markets. The big question is how the markets will pan out as we head into the end of the year. Friday’s much anticipated jobs number out of the US satisfied both the pessimists and optimists. Optimists will point to fewer jobs being lost than expected, pessimist’s will point to the fact that at the current rate of recovery it will take at least 5 years for the US to get back to the kind of growth that would signal a healthy, functioning economy. The equity markets have staged an impressive 5% growth during the period May to August compared to a historical average of 1%, however volumes are down 31%, a bit like walking on a sheet of ice that is steadily getting thinner and thinner.

Just to complicate matters even more, we have the mid term elections in November, and it’s widely expected that President Obama will get trounced and will become a lame duck president for the rest of his tenure, not something the world’s largest economy exactly needs right now.

In the UK, October sees the comprehensive spending review that will lead to the start of budget cuts and job losses that will be needed to bring down the UK’s structural deficit. Mr Osborne has pledged to reduce this by 8% during the coalition’s parliamentary term.

The data out of the Eurozone over the summer period has been a two-tier story. Germany and France have seen great numbers if taken at face value, but the rest of the Eurozone is still mired in a de-leveraging phase that could take generations to work through. For example Spanish unemployment as measured between the ages 18-24 is running at 40%. On the back of this the problems for the Eurozone are far from over.

However, the optimists still paint the picture that the world is improving, which to a point it is, but it is very specific and the next six months that will take us to Q1 2011 will once again see the global economy face a series of head winds and challenges, and the answer most central banks will take will be to embark on another series of quantitative easing, something that so far has keep interest rates low but has not seen the growth the market expected.

The markets are back and summer is finally over.
Kind Regards,

Keith Spitalnick LLB (Hons)

Regional Sales Manager

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Is it really smooth sailing?

This weeks update from currency expert Keith Spitalnick.

The UK economy has officially emerged from a deep recession, but is it really smooth sailing ahead now?  Mervyn King has indicated that he expects inflation to move above the 3% level, but that it will cool later on in the year.  Arguably the big question for this year is how quickly to withdraw the monetary and fiscal stimulus. Remove QE too early and we run the risk of a double dip recession however if QE is withdrawn too slowly then forecasts and assessments of our economic health become distorted as the economy relies on an artificial stimulus rather than institutional capital reserves.

The capital injected in the markets over the last 18 months was designed to free up lending, but even now the effects of more liquidity have not necessary permeated down to the high street.  Banks are now required to hold greater levels of capital, and move away from their preference for high risk high return trades.  These new regulatory requirements in the financial sector are reflected in the break down of our GDP figures and explain why Britain has only limped into the black this quarter.

Mervyn King is keeping a tight reign on the value of sterling, and the MPC’s increasingly ‘dovish’ perspective regarding inflation is the controlling factor for the pound over the next year.  Although the BoE realize that inflation is bad for our economy they would sooner keep the pound weak with interest rates low so as to nurture a stronger recovery.  The promise of obvious growth in the GDP figures released in January saw the pound rally to a 5 month high against the euro, and coupled with fears over the stability of the Portuguese, Irish, Greek and Spanish economies the pound has held form above 1.1350 for those tentative investors keen to get a quick return from the British market.

Some analysts have suggested that the only way the UK is to avoid a Greek or Spanish style economic crisis would be to increase income tax by 10%, VAT to 20% and the privatisation of the health service. Although there is always a threat of the double dip, it must be remembered that Greece and Spain had issues because of their ability to finance their debt. As the head of sovereign risk strategy at HSBC pointed out the cost of insuring a British government bond (gilt) means that there is ‘zero percent’ chance of Britain defaulting on her loans. Credit may be slow moving domestically, but internationally our debt is still an appealing investment.

Arguably the most important dates over the next two months will be 10th February and 15th March when we have the Treasury’s Inflation Report Hearings. During these hearings the BOE Governor and several MPC members testify on inflation and the economic outlook before Parliament’s Treasury Committee. If the comments are more ‘hawkish’ than expected we would expect a positive improvement in the value of sterling.

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Here is the latest look at the pound & euro by currency expert Keith Spitalnick.

Hola amigos!

The release of the latest Consumer and Retail Price Indexes for December, the quarterly assessment of our economic growth (GDP) and the motivation behind the Bank of England’s monetary policy decisions at the start of January have all caused significant volatility for the pound versus the euro since the New Year, but have ultimately seen a gain for sterling. Price increases exceeded forecasts by 0.3% on both RPI and CPI, and despite a late surge in retail sales over the Christmas period it would appear that the UK economy is still the lame horse of the global recovery because of risk aversion and tighter regulation in the financial sector.

In the real economy, and as far as the figures are concerned, domestically we are crying out for more flexible lending from the banks, and this has kept both small businesses and important economic sectors from featuring prominently in the recovery. On 26 January preliminary GDP figures were released revealing that although Christmas and the cold snap are over, credit is still frozen, consumers are more cautious about frivolous spending and our dependency on financial services and liquidity has not changed.

The mid-month Bank of England Monetary Policy Committee Minutes showed a 9-0 vote in favour of an unchanged monetary policy. The tone was more positive than in December. Reference was made to the upturn in the global economy, which was largely Asian driven, although there was evidence of stronger US growth in the fourth quarter of 2009. At the beginning of January the Agents Summary of Business Conditions made reference to a very gradual improvement in business sentiment, in part due to a recovery in export demand, and it is this export demand that should drive the pound higher over the first half of 2010.

The number of people claiming Jobseeker’s Allowance in December 2009 was fewer than expected, which is encouraging news, but it did not translate into more spending by the newly employed consumer.  An increase in prices, the level of unemployment and positive news from the Bank of England prompted the strengthening of the pound at the start of the month, but these key economic indicators do not add up to or convey the whole of our economy.  The fact that the pound rallied just before GDP figures came out, and fell by over a cent shows that we are still in a very fragile position economically.  Although sterling has the potential to push higher against the euro in February, we still run the risk of tripping up if Quantitative Easing is increased and the banks remain frigid.

With the early weeks of February seeing the release of a huge amount of potentially positive information, we could see the 1.1650 rate genuinely tested during February.

Hasta la proxima!

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Here is this weeks currency update from Keith Spitalnick.

Hola amigos!

The week began with significant gains for sterling against the euro on the back of last weeks push beyond the key 1.13 level.

Tuesday saw the release of the previous month’s consumer and retail price indexes. The data, which exceeded forecasts by 0.3% on both surveys, indicates prices increased for December. This in itself was not unexpected, but it does put pressure on the Bank of England to address the specter of inflation rising whilst interest rates remain at a record low.

The Bank of England Monetary Policy Committee Minutes showed a 9-0 vote in favour of an unchanged monetary policy in respect of both bank rate and quantitative easing. The tone of the MPC Minutes was fractionally more positive than in the previous month. Reference was made to the upturn in the global economy, largely Asian driven, although there was evidence of stronger US growth in the fourth quarter. Yesterday also saw publication of the Bank of England monthly Agents survey which places more emphasis on anecdotal evidence, including feedback from business executives. The Agents Summary of Business Conditions made reference to a very gradual improvement in business sentiment, in part due to a recovery in export demand. If this scenario is sustained, this would be positive for sterling.

January is traditionally a period of heightened activity in the insurance, re-insurance and fixed income sectors. Internationally this activity incentivizes traders holding strong currencies to capitalize on the arbitrage potential in other markets and traditionally London benefits as the largest trader in bonds and exchange traded derivatives.

Analysts assert that any reduction in the unemployment rate in 2010 is likely to be very gradual, but in December Jobless Claims (Unemployment Change), although generally viewed as a lagging indicator, returned far better figures than expected with claims down by 15,200; also the Unemployment Rate, a figure that relates to November, dropped back to 7.8%. The number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labor conditions, which puts a lot of focus on the retails sales figures over the Christmas period, and serves to reiterate the significance of the Bank of England’s role as the manager of inflation. This week has ended with the release of December’s retail figures. Fortunately they were better than the month previously, however not as good as forecast which prompted a slight drop off in sterling to a low of 1.1442 for the morning’s trading.

Despite these numbers, no rate hike is in the horizon. Mervyn King made a public appearance on Wednesday and cooled down such expectations. He said inflation could go above 3% but the likelihood is that it will cool later in the year, and preferred to focus on the problems of the economy, especially on the big government deficit.

Wednesday and Thursday of next week promise to deliver a mixed bag by way of information. There will be minor economic statements coming through from the Eurozone, mostly focusing on French and German spending and consumer and business sentiment, but these are unlikely to prompt any decisive change between sterling to euro. The 26th will see the release of the first HPI figures of the year, relative to December’s homes sales activity. Consumer sentiment in the UK has taken a bit of a knock already this year and many property agents are reporting greater interest, but less stock available.

The significant economic data released next week is the preliminary GDP figures. There are 3 versions of GDP, released a month apart – Preliminary, Revised, and Final. The Preliminary release is the earliest and thus tends to have the most impact and given that these figures chart the change in the inflation-adjusted value of all goods and services produced by our economy they will allow us to asses not only the accuracy of the governments figures for last year, but also the threat of inflation rising above the current 2.9% level. A GDP figure higher than forecast is usually sterling positive, so we could see the 1.15 level tested, but we do need a drive to 1.155 for the markets to stabilize around this support level.

Hasta la proxima!

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Good week for the GB pound

This weeks look at the state of money from currency expert Keith Spitalnick. A very good week for sterling last week as it pushed beyond the key 1.13 level against the euro and also gained against the USD. The push on sterling was largely attributed to improved economic data leaning to a more positive outlook for the UK economy. In addition the National Institute of Economic and Social Research (NIESR) estimated that UK fourth quarter GDP which is due out next week will come in at +0.3%- so therefore the UK will be out of recession! The upbeat assessment was mirrored by MPC member Andrew Sentence who commented that the Bank of England may need to raise interest rates this year.

Will GB pound continue to grow?

So will this good run continue this week? Hopefully so. We have a plethora of economic data and feedback this week from the UK economy which could galvanize sterling further. We start on Tuesday with the Consumer and Retail price index which is a gauge on inflation for the UK- the expectation is that the measures will show an increase in inflationary pressure which will add further to the probability of a rate rise in 2010. Following this we have the Bank of England minutes which may offer an insight into the cessation of the Quantitative Easing programme- possibly as early as February. Following this we have retail sales and jobless data followed by public finance data. So a big week for the pound and if we get more positives than negatives we could see a stronger pound ahead of the official release of Q4 2009 GDP next week.

Euro still fighting

For the Eurozone we are again focused upon Greece. Greek officials are summoned to Brussels to face a grilling over “unreliable data” which hid the real story behind the health of the Greek economy. This again could lead to a weaker euro, last week German Chancellor Merkel stated that the Greek problem is adding great pressure to the Eurozone. The key market level will be to hold above 1.13 and then push back to 1.15 to show a clear break from the current trading range of 1.10-1.13.

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