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Eurozone economic prospect – Goldilocks meets the bears?
| 12-12-2017 | treasuryXL |
Long term Interest rates
Long term interest rates have been in a downward channel since the summer of 2008. 10-year EUR interest rate swaps (an acceptable benchmark) peaked just above 5% in 2008 before falling and steadying around 2% towards the autumn of 2013. After a period of relative calm, the rates continued their descent to a bottom of 0.25% around 15 months ago. Over the last 3 years, 10-year EUR interest rate swaps have averaged a yield of just 0.75% – now the yield is 0.80%.
Short term interest rates
3-month Euribor turned negative in April 2015 and has remained negative. Over the last 3 years, the yield has averaged -/- 0.20% – now the yield is -/- 0.33%. 3-month Euribor futures imply that the rate will remain negative until March 2020 and, will rise to just 0.75% by September 2022.
Economic indicators
Unemployment falling to 9.6% in 2017; 9.1% in 2018
GDP growing by 1.6% in 2017; 1.8% in 2018
Government debt to GDP ratio falling to 90.4% in 2017, 89.2% in 2018
Average maturity for new government debt extending to 13 years in 2017; 9 years in 2007
So, what could happen to trigger a reversal in this sentiment?
Share prices are rising – AEX index is up almost 15% since the start of the year
House prices are rising – in the Netherlands prices have increased by 8% over the last year. Turnover is greater with 14% more homes sold than last year.
Global debt is rising – about EUR 190 trillion. This amounts to more than 300% of the world’s annual economic output. (source IIF report)
Interest coverage ratios (ICR) are deteriorating worldwide – in Europe specifically in Germany and France. (source IIF report) This, even though interest rates are low.
Balance sheet of central banks are dangerously expanded – result of Quantitative Easing.
Historical low interest rates – leading to underestimation of risks.
Political change – a rise in “populist” parties in many countries reflecting disenchanted voters
So, what about Goldilocks?
The dilemma for the ECB is that the Eurozone has, essentially, become 2 blocs – the North and the South. In the North, with increases in house prices and stock markets, and drops in unemployment; a rise in interest rates would not be deemed to be negative. However, in the South, the recovery is far behind and they welcome every form of stimulus to aid their economies.
And the moral of story – how your actions/inactions may affect others.
And remember who chased Goldilocks away – the bears (markets!)
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Who to choose: A generalist or a specialist?
| 11-12-2017 | Olivier Werlingshoff |
During the last few months this question has been on top of my mind. Is it better to specialize yourself and start a specific study?
First, we need to look at the definitions of both; a specialist is a person who is highly skilled in a specific and restricted field. A generalist is a person who is competent in several different fields or activities.
On LinkedIn you can find the 6 differences between a generalist and a specialist by “Han van Kasteren”.
I will mention a few:
But I also thought of two other differences which I would like to share with you:
Now I have mentioned a few bullet points I found on the internet, when can a generalist interim Treasurer be a good choice?
I would say especially in the field of cash management and working capital they could be a good choice. Both specialties have effect on different departments of the business to mention a few; controlling, sales department, procurement, tax and legal.
During my career I talked with a lot of CFO’s and financial managers of large companies and tried to understand their challenges and to help them achieve their goals. As treasurer I had my own challenges and tried to make links with other departments to achieve my goals.
I am a generalist with a passion for cash management optimization!
Olivier Werlingshoff
Owner of Werfiad
Bitcoin – regulation and acceptance
| 06-12-2017 | Lionel Pavey |
As the price of Bitcoin reaches ever higher – more than $11,000 at the moment – Governments are starting to look at what regulation needs to be put into place. Bitcoin has gained a reputation as the currency of choice for tax evaders and drug traders due to its anonymity. It is a market with little or no regulation and, obviously, Governments are looking at lost revenue. Yesterday the UK Treasury stated the current anti-money regulations needs to be updated to encompass all virtual currencies.
It has been reported that criminals and terrorists have used virtual currencies to purchase illegal commodities via dark webs – ensuring complete anonymity. The proposal from the UK Treasury would mean that traders would be registered. At present, there are almost 100 ATM machines for Bitcoin transactions in the UK – with more than 70 in London. Cash can be entered into the machines and converted into Bitcoins. One transaction involved a customer paying in GBP 14,000 in cash.
For Governments, regulation would mean that the Treasury would be able to identify the owner of the money and investigate the source of the funds. Tax evasion would therefore be reduced. Naturally there are genuine investors who want to buy Bitcoin, but this can already be done via an electronic exchange.
To increase acceptance as a genuine alternative currency there needs to be a growth in financial products related to virtual currencies. Yesterday, the CBOE (Chicago Board Options Exchange) announced that it will start trading Bitcoin futures this coming Monday. Initial margins for trading will be 30 per cent and price limits will be put in place.
However, there are still many hurdles before complete acceptance can occur. It is still not a recognized currency – the retail outlets that accept payment in Bitcoin is still very small. In America, only 3 of the top 500 online retailers accept Bitcoin. Whilst the price of Bitcoin has surged in 2017, this very large price increase is having a negative effect on acceptance by retailers. As the currency has increased in value so much, there appears to be a reluctance among owners of Bitcoin to use Bitcoin to transact. It has become easier to speculate on its value than to trade for goods. This is a serious problem for a virtual currency to gain worldwide acceptance.
Another area of concern regards the transaction time. Confirmation of a transaction can take up to 20 minutes – if you ordered a coffee, then it would be cold before you could drink it!
Virtual currencies are certainly something that should be considered for the future, but until they are backed and trusted by the Government and residents of a country, they will only have a small niche marketplace.
Lionel Pavey
Cash Management and Treasury Specialist