G-20 Tells Europe to Deal ‘Decisively’ With Debt Crisis at Oct. 23 Summit

Europe’s revamped strategy to beat its two-year sovereign debt crisis won the backing of global finance chiefs, who urged the region’s leaders to deal “decisively” with the turmoil when they meet for emergency talks in a week’s time.

European officials yesterday outlined the initiatives they’re considering at a meeting in Paris of finance ministers and central bankers from the Group of 20 economies. With the continent’s fiscal woes rattling financial markets and threatening the world economy, governments were urged to complete the plan at their Oct. 23 summit in Brussels and to tame the threat of contagion by maximizing the firepower of their 440 billion-euro ($611 billion) bailout fund.

“The plan has the right elements,” U.S. Treasury Secretary Timothy F. Geithner told reporters in Paris. Bank of Canada Governor Mark Carney said that “some of what is being considered, if fully implemented, would be sufficient in our opinion.”

Policy makers held out the possibility of rewarding European action with more aid from the International Monetary Fund, while splitting over whether the Washington-based lender needs a fillip of cash.

‘Substantial Arsenal’

“The IMF has a substantial arsenal of financial resources, and we would support further use of those existing resources to supplement a comprehensive, well-designed European strategy alongside a more substantial commitment of European resources,” Geithner said. He added that the U.S. would back more money for the IMF only if a “compelling case” was made as its current $390 billion war chest is “very, very substantial.”

Europe’s strategy, which has still to be made public, currently includes writing down Greek bonds by as much as 50 percent, establishing a backstop for banks and multiplying the strength of the newly-enhanced European Financial Stability Facility, people familiar with the matter said Oct. 14. Optimism the crisis may soon be tamed spurred stocks higher last week and pushed the euro to its biggest gain against the dollar in more than two years.

European officials “will have left Paris under no misunderstanding that there is a huge amount of pressure on them to deliver a solution,” U.K. Chancellor of the Exchequer George Osborne told reporters. Next weekend “is the moment people are expecting something quite impressive.”

Agreement ‘Close’

German Finance Minister Wolfgang Schaeuble said his G-20 counterparts welcomed Europe’s “confirmation that we’re aware of our responsibility and we’ll solve the problems in the euro zone.” European Union Economic and Monetary Affairs Commissioner Olli Rehn told Bloomberg Television that euro-area authorities are “close” to an agreement on how to capitalize banks.

The G-20 officials -- who met to prepare for a Nov. 3-4 gathering of leaders in Cannes, France -- said the world economy faces “heightened tensions and significant downside risks” that must be addressed.31

They vowed to keep banks capitalized and financial markets stable, while reiterating an aversion to excess currency volatility. They also considered shortly naming as many as 50 banks as systemically important, two officials said.

Almost two years to the day since Greece set the crisis in motion by announcing it had underestimated its budget deficit, Europe’s latest strategy hinges on putting it on a viable path. Austerity has plunged Greece deeper into recession and provoked civil unrest that threatens political stability.

Italy Targeted

Failure to curb the pain has led to Portugal and Ireland requiring bailouts, and markets are now targeting larger debt- strapped nations such as Italy. Investors are concerned that if the crisis is allowed to fester, the world economy could face a repeat of the chaos that followed the 2008 collapse of Lehman Brothers Holdings Inc. Geithner warned three weeks ago that failure by Europe to act would risk “cascading default, bank runs and catastrophic risk.”

In the works is a five-point plan foreseeing a solution for Greece, bolstering of the EFSF rescue fund, fresh capital for banks, a new push to boost competitiveness and consideration of European treaty amendments to tighten economic management.

The Greek bond losses now envisaged in the plan may be accompanied by a pledge to rule out debt restructurings in other countries that received bailouts, such as Portugal, to persuade investors that Europe has mastered the crisis, said the people on Oct. 14.

Options Discussed

Options include tweaking a July accord struck with investors for a 21 percent net-present-value reduction in Greek debt holdings. One variant would take that reduction up to 50 percent, the people said.

Under a more aggressive proposal, investors would exchange Greek bonds for new debt at a lower face value collateralized by the euro area’s AAA-rated rescue fund, the people said. The ultimate option is a restructuring involving writedowns without collateral, they said.

The bank-aid model under discussion is to set up a European-level backstop capitalized by the rescue fund, the people said. It would have the power to take direct equity stakes in banks and provide guarantees on bank liabilities.

Officials are considering seven ways of multiplying the strength of Europe’s temporary rescue fund. The options break down into two broad categories: enabling it to borrow from the European Central Bank or using it to partly insure new bonds issued by distressed governments. The ECB has all but ruled out the first method, making bond insurance more likely, the people said.

EFSF Guarantees

EFSF guarantees of new bonds might range from 20 percent to 30 percent, a person familiar with those deliberations said. Recourse to bond insurance suggests the central bank will need to maintain its secondary-market purchases for an unspecified “interim” period, people said.

ECB President Jean-Claude Trichet, who attended his last G- 20 meeting before he retires Oct. 31, reiterated the central bank hopes to stop purchasing government bonds once the EFSF is able to take over.

A consensus is emerging to accelerate the setup of a permanent aid fund planned for July 2013, the European Stability Mechanism. This week’s discussions will focus on creating it a year earlier, in July 2012, and easing unanimity rules that permit solitary countries to block bailouts.

Officials divided over whether Europe’s travails meant the IMF should be handed more cash, beyond agreeing it must have “adequate resources to fulfil its systemic responsibilities.” Emerging markets such as China are considering whether the lender needs more money, while officials from the U.S., Germany and Canada were among those to say either that the euro area must fix for its problems first or the IMF already has plentiful and untapped resources.

Source: Bloomberg

Why the Greek Debt Crisis Matters??

With Greece on the brink of default - and hanging over the global economy like a financial sword of Damocles - investors the world over are asking themselves the very same question, day after day: Just what is the Greek debt crisis, and what does it mean to me?

It means a lot.

In fact, the Greek debt crisis could prove to be the first in a series of sovereign-debt defaults that could even infect the U.S. economy, tipping it into a "double-dip" recession and reprising the bear market of 2009.

In short, this crisis is one you need to watch and understand.

Given the stakes, we decided to work with our panel of global-investing experts and put together this Money Morning special report: "What is the Greek Debt Crisis, and What Does it Mean for Investors?"

Our goal was to provide you with answers to some of the key questions about the Greek debt crisis - how it started, what's actually taking place, how it could affect the U.S. economy, and how we expect it to play out.

And with the help of experts Keith Fitz-Gerald, Shah Gilani and Martin Hutchinson, we also answer the most important debt-crisis question of all: "What should you do about it?"

Question: What is the Greek Debt Crisis?

The Greek debt crisis is an expensive lesson in the importance of fiscal discipline - that comes with a multi-billion-dollar price tag.

Due to decades of overspending, Greece is currently receiving a bailout package of $159 billion (110 billion euros) from European governments and the International Monetary Fund (IMF) to meet payment obligations. Greece received its first installment in May 2010, and needs its next $17.3 billion (12 billion euros) loan by mid-July or it won't be able to pay wages or pensions at the end of the month.

Nor does it end there: The European Commission has said Greece will need an extra $166 billion (115 billion euros) through the middle of 2014.

Through the involvement of other countries and financial institutions, this is no longer simply a "Greek" debt crisis - it's becoming a global one. Similar problems plague Portugal, Spain, Italy and Ireland. With the debt contagion spreading, other worldwide players - including the United States - might not escape unscathed.

Q: How Did Greece Get Into This Mess?

Greece certainly didn't create this epic mess all by itself - it had help. Aiding and abetting Greece's own miscues were budgetary machinations by Goldman Sachs Group Inc. (NYSE: GS), a failure by the Eurozone to hold countries accountable for their finances, and credit default swaps that bet against Greece meeting its debt obligations.

But ultimately Greece is to blame.

"Greece lied to get into the European Union [EU]," said Money Morning's Shah Gilani, a former hedge-fund manager who's an expert at "reading" global-capital-movement trends. "After they were in, they used world markets to borrow from investors who bought their bonds, knowing that the EU/IMF would bail them out when it came time to repay. It was a calculated gamble to keep stuffing themselves and raising their GDP/per capita productivity to levels equal to Germany and France. [Greece] doesn't have the productive means to grow to anywhere near the per capita income of the French or Germans. It has olive oil and tourism, what else?"

Under an agreement called the Maastricht Treaty, to adopt the euro as their currency countries had to cap annual budget deficits at 3% of gross domestic product (GDP), and total government debt had to remain at or below 60% of GDP. To appear compliant, Greece failed to book billions of dollars of military expenses, and Goldman Sachs arranged a currency-swap deal in 2001 that effectively cut the country's deficit.

After Eurozone acceptance, Greece violated the terms of the Maastricht Treaty from 2001 to 2006, running excessive budget deficits in each of those years.

Greece's financial mismanagement had been ongoing for decades. Many problems started when the country joined the EU in 1981 - during the administration of then-Prime Minister Andreas Papandreou (father of current Prime Minister George Papandreou).

"Instead of steering the Greek economy to reap the enormous potential benefits of its premature EU membership, the internationally sophisticated Papandreou manipulated the EU system of slush funds so as to keep a gigantic stream of resources flowing to the bloated Greek public sector," said Money Morning Contributing Editor Martin Hutchinson, a former global merchant banker who in the past has helped some European nations restructure their finances. "The result was an economy focused almost entirely on the public sector and tourism (which also benefited from innumerable EU grants), with the populace enjoying living standards far in excess of their ability to pay their way."

The bottom line: Greece spent years borrowing from Europe without offering any real returns to the global economy, creating a country of citizens living well beyond their means.

Q: Will the Bailouts Really Halt a Default?

While European leaders continue to discuss a second round of bailout plans, Gilani said Greece could avoid default - if lenders remain willing to help.

"There won't be any big victims if Greece gets bailed out and their debts rolled out another 30 years," said Gilani. "Were any of the big U.S. banks victims of their own fraud in the subprime smackdown? No. They got bailed out and liquefied. The same could happen to Greece and theoretically there may not be any big victims. As long as there are fingers in the dykes we'll muddle through."

But the country's low economic productivity means Greece will require infusions of external financing every year for years to come. Greece's economy is set to shrink by an additional 3.8% to 4% this year after contracting 4.5% in 2010. Plus, the bailouts have let Greece believe it can lean on the EU to fix its problems.

Many experts, including Money Morning Chief Investment Strategist Keith Fitz-Gerald, believe Greece should be forced to face up to its lack of fiscal discipline - meaning the bailouts should end. But if that happens, the fallout - and the pain - will be widespread.

The bottom line: The risk of default is much greater than the headlines would have you believe. And if there is a default, the U.S. economy won't escape the fallout.

Q: What Does This Mean for the Euro?

One of the lessons we've learned from the Greek debt crisis is that the Eurozone is not as strong or stable as most believed. Eurozone members attempted a monetary union without united fiscal policy. Now it must strengthen membership standards to prevent future crises.

"If the EU wishes to make the euro work, it must demonstrate that the fiscal rules of euro membership have teeth," said Hutchinson.

That's been tried before - to no avail.

The euro's stability was based on a pact among members to keep their finances in order. In 1996, countries voted on imposing fines on countries that didn't adhere to the Eurozone's standards. But that motion was struck down and no "punishment" ever came about.

The bottom line: Greece isn't the only euro "bad boy." Other countries also have failed to meet the Eurozone standards at least once; but certainly none as extreme and frequent as Greece. In fact, the Eurozone as a whole has never met the 60% of GDP government target. And Eurozone policies weren't enforced.

Q: What's Next in the Greek Debt Crisis?

As you're no doubt beginning to see, the question "what is the Greek debt crisis?" may actually be too narrow a query.

Moody's Investors Inc. (NYSE: MCO) just cut Portugal's debt rating to below-investment-grade status ("junk" in the parlance of Wall Street). And that move roiled the bonds of Spain and Italy, two other high-debt nations that have been the focus of major solvency worries. Ireland is also causing lots of sleepless nights for debt-holders.

"The real problem is that Greece is only the first domino," Gilani said. "In order to support the rest of the ailing peripheral Eurozone countries, the European Central Bank, all the European banks, the IMF, the U.S. and China are going to have to come to the rescue. Unless there is some new model for achieving solvency with liquidity that comes from the Chicago School of Impossible Economics, the euro is toast and the whole experiment of European Union will be tested from the corners and its center."

Hutchinson said Portugal and Ireland are productive enough to solve their problems through austerity, although there's no guarantee. Italy will be a tight squeeze. In an ideal world, Spain would get a badly needed new government - one that would put in place the measures needed to avoid default. And Greece would be booted out of the Eurozone, he said.

The bottom line: The Greek debt crisis is more of a Eurozone debt crisis.

Q: Could the Greek Debt Crisis ‘Infect' the U.S. Economy?

Let's just cut to the chase here: The answer is a resounding "yes."

Greek's debt problems have an excellent chance of going global, not just because of an economic ripple effect, but because other countries like the United States are also getting carried away with high debt loads.

"What's happening in Europe is already happening here," said Gilani. "So, it's not so much a problem of infestation, it's more a matter of manifest destiny."

All of this is widely known. But the largely untold "rest of the story" is this: If the European banking sector implodes, the U.S. financial system could take an unqualified beating.

Big U.S. banks have been lending generously to banks across Europe. Close to 29% of their lending books during the past two years have gone to their heavyweight European counterparts. While they have pulled back considerably as a result of recent turmoil, U.S. banks are widely believed to have $41 billion of direct exposure to Greece.

The amount of exposure to the rest of Europe is not easily quantifiable. And this U.S. financial system link doesn't end there: U.S. money-market funds have a hefty European exposure, too.

The bottom line: The U.S. Federal Reserve and other regulators are right now reviewing "contingency plans" in case the widening European debt crisis fires off another run on the $2.7 trillion money-fund sector - a situation we saw back in 2008. But insiders admit that it may be a lot tougher to craft an effective response this time around.

Q: As an Investor, What Should I Do?

Although it's not clear how the Greek debt crisis will play out, you should run through a "Greece safety" checklist to avoid exposure to the heart of the crisis and increase holdings in safer and more protective investments.

Our experts suggest taking the following steps:

Stay away from European banks - they're on the hook for $100 billion.
Avoid southern European debt, as well as U.S. Treasuries and Japanese government bonds - they're no safe haven.
Don't ignore Europe entirely - there are some worthy German and Swedish non-bank stocks.
Look to energy-related investments, commodities and precious metals, all of which have bullish long-term outlooks.
Use protective stops.

Source: http://moneymorning.com/2011/07/07/special-report-what-is-the-greek-debt-crisis-and-what-does-it-mean-for-investors/

Weak rupee benefits Infosys despite uncertainty

A 10 per cent rupee depreciation against US dollar during the second quarter (July-Sep) has benefitted Indian IT bellwether Infosys, helping it in revising its revenue guidance for the entire fiscal (2011-12) once again.

"Guidance for this fiscal (FY 2012) has been revised upwards to Rs 33,795 crore from earlier estimates of Rs 31,999 crore due to rupee depreciating 10 per cent to Rs 48.98 during the second quarter from Rs 44.55 in the first quarter (April-June)," Infosys chief financial officer V Balakrishnan told IANS Wednesday.

Though mark-to-market, the global software major lost Rs 246 crore due to hedging the dollar at Rs 44.55, a weakening rupee helped it to reduce the loss to Rs 108 crore on currency conversion from dollar to rupee.

"If rupee appreciates again during this (third) or next (fourth) quarter, we will revise the outlook accordingly," Balakrishnan said on the margins of the company's briefing on its financial performance for the quarter ( Q2) under review.

Admitting that uncertainty remained at the macro-economic level due to sovereign debt crisis in Europe and slow recovery in the US, the financial executive said the company had still headroom to grow business in key verticals such as BFSI (banking, financial services and insurance), retail, energy, utilities and manufacturing in the developed markets, which account for over 80 per cent of its exports.

"If the US economy goes into double dip, it will be a challenge for pricing though it has been stable during the first two quarters of this fiscal. If the recovery is slow, we have to wait and watch to see how IT budgets and spending in 2012 will fare," Balakrishnan, who has also become a board member, pointed out.

Noting that uncertainty in the macro-economic environment could impact the Indian IT industry though not to the extent the global recession had in 2008-10, Infosys chief executive S.D. Shibulal said high unemployment rate and slow recovery in the US were a cause for concern, while the situation in Europe was getting worse due to sovereign debt crisis and turbulence in its financial markets.

"We remain cautious due to worries arising out of the prevailing situation in Europe and the US. Our clients are very cautious, taking only short-term decisions while holding up or hesitant in taking decisions for the long term," Shibulal told.

Referring to the double-digit topline growth in the first two quarters (April-Sep) of this fiscal, the chief executive said the company was focusing on implementing its 'Infosys 3.0' strategy to sustain and drive business by taking up transformational process and innovation.

"We are bracing up for any eventuality, be it downturn, upturn or going sideways by strengthening strategic relations with our global clients, who demand greater efficiency, higher productivity and creating differentiation to remain competitive" Shibulal asserted.

Denying media reports on acquiring the Thomson Reuters' healthcare unit in the US, Shibulal said there was no acquisition for the time being though the company was always on the lookout for strategic buy-out.

"We are only dating and not engaged yet. As of now, no acquisitions on the table though we continue to explore for strategic take-overs," he quipped.

The company is on course to hire 45,000 people during this fiscal and made 23,000 campus offers for next fiscal (2012-13).

Why is the US dollar strengthening?

Despite the weakness of the US economy, high level of debt and downgrade of its long-term debt, the US dollar and the US Treasury securities continue to be in demand. How can a weak currency support a strong currency. Here's why:

Greek Crisis
The debt crisis in the euro zone, fears of default by Greece and breakup of the euro zone has been weighing down the euro.

Volatile Market
In uncertain times, investors prefer to cash over risky financial assets such as stocks. Global sell-off in stocks has increased demand for dollar and led to its appreciation.

Operation Twist
Fed's recent action of injecting liquidity by replacing long term bonds with short-term bonds instead of printing more money has prevented an increase in supply of dollar.

Safe Haven
The US dollar is still considered a safe haven despite all the troubles with the US and the central banks across the world continue to buy US Treasury securities.

Outlook
Indian Rupee to improve to Rs 46.3 to a dollar by March 2012, according to DBS. Consensus poll of Bloomberg estimates US/Rupee at Rs 44.1 by March. The euro too may recover some of its recent losses.

World markets moving in Trading Range-Technicals Analysis

Levels to watch for Dow Jones

Today US market also open in green and Dow Jones is trading at 11379 up 276 points. So it is important to see which levels are important for the Dow Jones. As we can see that Dow Jones is trading in range since August 2011. Dow Jones has to move above 11717 to see more strength in it. This is a upper trading band level and may act resistance for the index. Support is at 10550 level which is lower band of trading range. If Dow Jones moves above its resistance level then it may go up to 12500 level.

Europen Markets Showing Strengths

Above is a daily chart of FTSE index. FTSE has been trading in a range since August 2011. As we can see that its upper band is at 5450 & lower band is 4869.Today FTSE closed at around 5399. Major resistance for the index is at 5450. If it goes above it then next leves for FTSE is 5750 & 6000. Down side is cappend at 4869.

Indian markets (Nifty) moving in line with world major markets i.e. in trading range

Nifty is trading at 4979 up 91 points. So it is important to see which levels are important for the Nifty. As we can see that Nifty has also been trading in range since August 2011 after US downgrade by S&P and it broked down below 5200 which was acting as support and turned into resistance. The upper trading band level is 5200 and may act resistance for the index. Support is at 4700 level which is lower band of trading range as from last 3 months it is acting as major support also. Depending upon the global cues if Nifty moves above its resistance level then it may go up to 5500 level else on downside it may touch 4300 (Fibonacci Retracement level.

Hence the developments in developed markets will decide trends and any breakout either up or down will become the secondary trend for the markets. Primary trend is downtrend and intermediate is sideways movement i.e. in trading range.

So don't enter market right now let the trend to get confirm if you are investor or else if you are trader then it is a good opportunity to buy at 4750 levels and sell at 5150 levels.

Note: To view larger size of image please click on image.

Getting fired from Apple led me to the most creative periods of my life: Steve Jobs

John Sculley's role in ousting Steve Jobs from Apple is well documented. What's not known is how Jobs's counterculture traits rubbed conservative suits the wrong way and eventually forced his exit.

How are such strange names as AC Markkula Jr, Peter O Crisp, Philip S Schlein, Arthur Rock, Henry E Singleton and John Sculley woven into the saga of Steve Jobs's genius? They are the men who fired Jobs from his own company, Apple, in 1985. How? And Why?

The answer to the first question is simple, and it comes from Steve himself. "As Apple grew, we hired someone [John Sculley] who I thought was very talented to run the company with me, and for the first year or so things went well. But then our visions of future began to diverge and eventually, we fell out. When we did, our board of directors sided with him," Steve said in his famous 2005 Stanford speech.

But the story is far more intriguing than it appears from that admission. In 1981, Apple Computer went public. Just two years later, Apple made the Fortune 500 list and Jobs recruited John Sculley, the head of Pepsi, to be its new chief executive.

"Do you want to spend the rest of your life selling sugared water, or do you want a chance to change the world?" Jobs popped the question. Sculley's entry into Apple changed Jobs's world. Steve had always wanted Sculley as CEO and when he hired him he saw himself as the chief visionary.

But that arrangement didn't last long. Steve, who didn't much understand Sculley's working style, got disenchanted and wanted the control of Apple again. Steve plotted Sculley's exit from the organization by sending him to China on a business tour and wresting control of Apple in his absence.

While in China, Sculley got wind of Steve's schemes. On his return, he made a case before the board and asked it to vote against Steve. The board agreed and Steve was shown the door. But the nasty spat with Sculley was not the only reason for Jobs's exit.

WORST MERGERS OF THE WORLD

Quaker and Snapple

The success with Gatorade drove grocery store legend Quaker Oats to make another ambition. Quaker acquired Snapple to make Snapple drinks just as popular. This 1994’s acquisition was worth $1.7 billion, which was criticized too much for the fruity drinks. However, after more than two years from the merger, Quaker Oats sold Snapple to Triarc for $300 million and Triarc sold it to Cadbury Schweppes for $1.45 billion in the three following years.

Sprint and Nextel

Announcement of $35 billion merger between Sprint and Nextel to form Sprint Nextel Corporation was made in December 2004. However, customers of both Nextel and Sprint would have to purchase new phone equipment if they wanted convert their accounts to the other side. The new company faced underlying and unexpected problems. The economy started to become worse and it had to compete with other strong rivals likeAT&T, Verizon, and the iPhone. In addition, many Nextel executives and managers stepped down due to two cultures’ clash.

AOL and Time Warner

In 2001, Time Warner and American Online merged together for $111 billion. The merger was considered as a revolutionary move of the old-school media giant and AOL. However, the decline of dial-up Internet access led to the new company’s failure. Time Warner’s stock has fallen 80 percent since the merger.

Prudential/AIA

One that failed to complete, yet still caused major headaches for the putative buyer. In March 2010, UK insurance giant Prudential (LSE: PRU) launched a breath-taking $35.5 billion for AIA, the Asian arm of bailed-out US insurer AIG.
Following regulatory concerns and shareholder revolt, Pru abandoned this deal three months later, having failed to cut the asking price by $5 billion. This left Pru with deal costs nearing £1 billion and CEO Tidjane Thiam with egg all over his face.