Links: 2013-05-23
Apple Tax Rate Ignores Profit Shifting Offshore – Bloomberg
“By shifting income from countries where they operate to offshore tax havens, multinational companies such as Apple, maker of the iPhone and iPad, can manipulate their tax rates and boost their profit.
Apple’s calculation “ignores the issue of profit shifting, which is the central controversy that was the subject of the hearing,” said Martin Sullivan, a former U.S. Treasury Department economist and chief economist at Tax Analysts, a nonprofit organization. “Apple has shifted enormous amounts of profits from the United States to an untaxed entity overseas. That’s the issue.””
BBC News – Why we do not feel richer despite buoyant stock markets
“Despite the economic gloom the financial markets are up, and not just a little. The Financial Times index of leading shares is higher than it has been for years, and so too is the Dow Jones index in the United States. The problem is that in the real economy there is hardly any recovery and people are not feeling any better off.
Jeremy Paxman is joined in the Newsnight studio by three prominent economic thinkers to discuss why the markets are so buoyant.
From left to right the guests are Allister Heath, editor of City AM; Gillian Tett, assistant editor of the Financial Times; and Robert Reich, a political economist, author and professor at the University of California at Berkeley.”
Risk-Based Capital: The Good, the Bad and Mostly the Ugly – Bank Think Article – American Banker
“The Basel capital framework categorizes assets by risk level. Safer assets receive lower risk weights than higher risk assets. The sum of the weighted or adjusted assets is then compared to existing capital to determine capital adequacy. Supporters believe risk based capital is a superior measure of bank strength compared to non-risk-adjusted accounting based measures like the leverage ratio. Unfortunately, the facts do not support this belief.”
“Canada’s housing market is slowing dramatically in terms of both sales and construction, dragging down economic growth and putting some 150,000 jobs at risk in coming years, a mortgage industry association warns in its spring report.
The Canadian Association of Accredited Mortgage Professionals stops short of calling the ongoing slide that began about nine months ago a crash, but chief executive Jim Murphy says policy-makers should stop trying to tighten lending rules further and start thinking about helping for first-time purchasers.”
Iceland’s new coalition government suspends EU accession talks – FT.com
“Iceland’s new coalition government has indefinitely suspended accession talks with the EU as the Nordic island attempts to find the answers to its economic troubles itself.
Sigmundur David Gunnlaugsson, who will become Iceland’s youngest ever prime minister at the age of 38, presented a coalition agreement on Wednesday that focused on easing household debt and boosting economic growth in the country that became one of the biggest casualties of the global financial crisis.”
Swiss franc hits lowest level in two years – FT.com
“The Swiss franc hit its weakest level in two years against the euro after the head of Switzerland’s central bank said the country could impose negative interest rates and did not rule out more extreme measures to weaken its currency.
Thomas Jordan, chairman of the Swiss National Bank, told journalists in Frankfurt that the central bank had not ruled out raising its minimum exchange rate from the current 1.20 francs a euro.”
Spain banks may need to raise money to meet provisions: Rajoy | Reuters
“Spain’s Prime Minister Mariano Rajoy on Wednesday said the country’s banks may have to raise capital on the financial markets to meet higher provisioning requirements.
Rajoy, who was speaking at a news conference following a summit of European leaders in Brussels, said however that Spain would not need to tap more European funds on top of the 41-billion-euro ($53 billion) bailout it sought last year for its banks.”
Home sales close in on three-and-a-half year high | Reuters
“Home resales rose in April to the highest level in nearly 3-1/2 years and prices surged, offering the economy a buffer from the stiff headwinds posed by belt-tightening by Washington.
The National Association of Realtors said on Wednesday existing home sales advanced 0.6 percent to an annual rate of 4.97 million units, the highest level since November 2009.”
Greek youth unemployment close to 75pc in some areas – Telegraph
“Greek youth unemployment is close to hitting 75pc in some parts of the country, official data showed on Wednesday, highlighting a huge disparity between Europe’s northern and southern states.”
What goes up must come down, Japan version | FT Long Short
“the real question is why markets chose to care today. China has been slowing for months, and while Fed-ology always moves prices, it was particularly hard to read anything much new into Wednesday’s comments.
Here’s one explanation: after such a heady rise, everyone was ready for a break.
In other words, what goes up, must come down. And how Japanese equities had gone up! The Nikkei was up 50 per cent this year, and more than 70 per cent in six months, thanks to the hopes vested in “Abenomics” and the Bank of Japan’s easing programme. The rise is the biggest since the aftermath of the Korean war in 1953 – the biggest bull market in half a century. Even optimists had to be worried that the market would pause for breath, and after such a strong rise, a pause means a big drop.”
Nikkei plunge sparks retreat from risky assets – FT.com
“Asian shares outside of Japan also retreated after they got their first chance to react to Federal Reserve chairman Ben Bernanke’s comments that monetary stimulus could be scaled back.
Mr Bernanke said the Fed could start slowing the pace of its $85bn-a-month asset purchases “in the next few meetings”, but only if the employment market showed sustained improvement.
The minutes of the Fed’s last meeting, revealed shortly before Mr Bernanke spoke, showed a “number” of officials were ready to start tapering off the central bank’s third round of quantitative easing as early as June.”
Japan Moves to Rein In Government Bonds – WSJ.com
“Japanese government bonds swung wildly on Thursday, recouping morning losses after the Bank of Japan acted to stabilize the market and Japanese shares plummeted.
The benchmark 10-year JGB yield was down four basis points at 0.845% as of 3 p.m. in Tokyo, after hitting 1.0% in the morning, the highest in more than a year. Lead June JGB futures finished up 0.61 at 142.51, after earlier declines triggered a temporary halt to trading.
“Volatility has gone up. Today’s also terrible,” said Chikahiro Tsuboi, director of the investment planning and securities investment departments at Taiyo Life Insurance Co. 8795.TO -5.06% “The market hasn’t fully digested (BOJ Gov. Haruhiko) Kuroda’s press conference yesterday and (Federal Reserve Chairman Ben) Bernanke’s congressional testimony overnight, so it’s almost like some kind of panic.””
China factory activity shrinks for first time in seven months: flash PMI | Reuters
“The flash HSBC Purchasing Managers’ Index (PMI) for May fell to 49.6, slipping under the 50-point level demarcating expansion from contraction for the first since October and sending Asian financial markets sharply lower.
The final HSBC PMI stood at 50.4 in April.”
“A 7.3% plunge in the Japanese stock market Thursday spilled into Europe, overshadowing moderately better economic data on the Continent and dragging down bourses in Frankfurt, London, Paris and Rome. Futures suggested that a lower open in the U.S. looms.
After the tumult in Japan, investors jumped quickly out of riskier assets. Spanish and Italian government bonds weakened, as did more-speculative currencies like the South African rand. Havens such as German government bonds and the Swiss franc gained. Gold also rose.”
Twitter Adds Verification Feature – WSJ.com
“The new feature comes in the wake of a string of widely publicized hacks of visible Twitter accounts, including those owned by news outlets like the Financial Times, the Guardian and others. Most recently, when the Associated Press account was hacked, a single alarmist tweet was enough to send U.S. stock markets into a tailspin, plunging the Dow by upwards of 150 points in a matter of minutes.
For months, many have called for Twitter to introduce such new security features to remedy the ongoing hacks.
The process is much like other two-factor authentication services across the Web. When a user tries to log in to his or her profile, they are asked to provide a cellphone number. Twitter sends an SMS message to that phone, and the user is asked to enter that code to continue the login. The new feature is optional, and must be turned on inside the settings menu.”
Debate Aside, Number of Drone Strikes Drops Sharply – NYTimes.com
“lost in the contentious debate over the legality, morality and effectiveness of a novel weapon is the fact that the number of strikes has actually been in decline. Strikes in Pakistan peaked in 2010 and have fallen sharply since then; their pace in Yemen has slowed to half of last year’s rate; and no strike has been reported in Somalia for more than a year.”
Obama dials back drone strikes: 3 reasons why – CSMonitor.com
“President Obama has, in some ways, become known as the “drone president.” His drone campaign started three days into the first term of his presidency. His national security policy has been defined, at least in part, by a penchant for targeted killings. And he has already authorized more than six times the number of strikes in Pakistan that President George W. Bush did in his entire presidency.
And yet, as the president prepares to make his case for drones in a Thursday address at the National Defense University in Washington, it turns out drone strikes are actually down considerably, according to an analysis in The New York Times.”
Four Americans Killed Since 2009 in Drone Strikes | TIME.com
“Attorney General Eric Holder says four American citizens have been killed in drone strikes since 2009.
The attorney general said that in conducting U.S. counterterrorism operations against al-Qaida and its associated forces, the government has targeted and killed one American citizen, Anwar al-Awlaki.
In a letter to Senate Judiciary Committee Chairman Patrick Leahy, Holder says the U.S. is also aware of three other American citizens who have been killed in such counterterrorism operations over the same time period.”
Japan rates may torpedo recovery | Capital City | IFRe
“In the normal order of things inflation follows a recovery, rather than preceding it, as it threatens to do in Japan. If inflation comes first, it means the government is hit with rising debt service costs before the increased tax revenues of a stronger economy begin to roll in. With Japan having government debt of well over two times the size of is economy, the costs would mount quickly. That might get in the way of planned government stimulus and, as rates spike, could ultimately be self-reinforcing, with rises in rates causing yet more rises in rates.
This, in essence, is the Japanese bond crisis thesis in a nutshell – the big bet that many hedge funds have made, and lost money on, in recent years”
Stockholm riots raise questions about immigration policy – FT.com
“The sight of burning cars in a dozen suburbs of Stockholm on Tuesday night has shocked Sweden and shaken its image of tolerance and equality. But the rioting is also raising a simple, devastating question: is Sweden facing its own Paris or London moment when it is forced to confront long-simmering questions about the integration of immigrants?”
Don’t wait to fix Europe’s banking crisis – FT.com
“Mr Schäuble is right not to want to rush things and repeat the mistakes made with the impetuous creation of the region’s single currency 14 years ago.
But the focus of European policy makers on the design of a forward-looking banking union – over whatever timeframe – misses a crucial point. There is a crisis in parts of the eurozone banking system that must still be addressed.
Take Portugal.”
Greece really needs a year to prepare for total default – FT.com
“If a default were to result in an exit Greece would introduce its own currency, at a nominal conversion rate of one-to-one against the euro. The new drachma would devalue substantially. Greece’s manufacturing export sector, accounting for about 7 per cent of economic output, would gain substantially, but not enough to lift the country out of its crisis. Tourism accounted for 18 per cent of GDP in 2008, but Greek holiday destinations have become very expensive and, to remain competitive, prices would need to come down – ideally by some 50 per cent. This could not be done through an internal devaluation, where nominal wages and prices were reduced. The sum of tourism and exports, plus the prospect of strong export growth as the terms of trade improve, should be sufficient for a euro exit strategy to work – but only if it is well prepared and executed.
The irony is that Greece would still need to implement reforms similar to those that international lenders are currently demanding. The government would need to be able to collect taxes. It would have to stamp out corruption. It would need to ensure a substantial degree of labour market flexibility. Trade unions would need to be blocked from negotiating wage increases that offset the benefits of a nominal devaluation. Greece needs a big double-digit real devaluation, which would require a wage adjustment. “
Tax investigations are not Apple’s biggest worry – FT.com
It would be troubling if this were the strategy to fix shrinking margins and slowing growth. Is it though?
“Last year Mr Cook fired Scott Forstall, the group’s longtime head of iOS, its mobile operating system, and promoted Sir Jonathan Ive, Apple’s celebrated design chief, to oversee all hardware and software at the firm. Sir Jonathan is instituting a top-to-bottom review of its software, according to reports.
This move is risky. Apple’s main problems, globally, are slowing growth in iPhone sales and shrinking profit margins across its line-up. Of all the ways to address these problems, why spend so much time and energy repainting iOS?
It is because, in the tech industry, interface redesigns have become a catch-all solution to every business ailment.”
Chancellor Angela Merkel Successfully Wooing the Female Vote – SPIEGEL ONLINE
“The German left used to have a corner on the market when it came to progressive social issues. But Chancellor Merkel has transformed the conservatives, attracting huge quantities of women voters along the way. They’ve become a hot political commodity in this year’s upcoming election, with the opposition struggling to catch up.”
And Then There is Bernanke – Tim Duy’s Fed Watch
Very good prediction from Tim Duy!
“Looking through the noise, I think there is strong interest in tapering QE now that we have a string of job reports pointing to substantial and sustainable improvement in labor markets, but, given the fiscal contraction, little willingness to pull the trigger on tapering until we see another two or three similar reports.”
Why Aren’t There More Storm Cellars in Oklahoma? – Megan Garber – The Atlantic
“”You had to be underground,” The Weather Channel’s Mike Bettes put it, “in order to survive this tornado.”
He was not exaggerating. The massive storm that hit Moore, Oklahoma yesterday — featuring winds up to 200mph — didn’t simply put those aboveground at risk of being swept up in its funnel. The tornado also took the smallest objects of everyday life — down to pebbles and even dust — and effectively converted them into bullets and shrapnel. Much of the carnage that so often results from tornadoes is the result of a terrible phenomenon known by an appropriately terrible euphemism: “debris impacts.””
The Former Flickr Employee Guide To Tumblr Yahoo Survival | TechCrunch
“Navigating an acquisition can be tough, and though there are a number of differences between Flickr in 2005 and Tumblr in 2013, there are striking similarities:
So as former Flickr employees, here is some practical advice from us to our friends at Tumblr, humbly shared:”
FRB: Testimony–Statement by Chairman Bernanke before the Joint Economic Committee–May 22, 2013
Ben Bernanke’s view on economic policy and his economic outlook as presented to Congress today in prepared remarks.
“Canada’s household savings rate plummeted to 3.8% at the end of 2012 from its peak of about 20% in the early 1980s, the study said.
The wealth of an average Canadian adult was only $6,600 in 2012, or 2.7% higher when compared to the wealth controlled by households at the beginning of 2008.
The report also found that only three in 10 households surveyed believed the accumulation of wealth was a very important personal goal, while half saw it only as a somewhat important pursuit.”
Apple’s Web of Tax Shelters Saved It Billions, Panel Finds – NYTimes.com
“Even as Apple became the nation’s most profitable technology company, it avoided billions in taxes in the United States and around the world through a web of subsidiaries so complex it spanned continents and went beyond anything most experts had ever seen, Congressional investigators disclosed on Monday.”
Apple’s Taxes Expose the Rotten U.S. Code – Bloomberg
“Ideally, revising the treatment of overseas income should be part of a broader tax overhaul. It’s hard to separate the treatment of foreign income from the rest of the corporate tax code, which encourages companies to move their operations overseas.
Two Principles
If an overhaul fails to advance, however, lawmakers should revise foreign-income rules separately. By one estimate, the Treasury is losing $90 billion a year as a result of multinational companies’ shifting income overseas to avoid taxes.”
The Irish loophole behind Apple’s low tax bill | Reuters
“Apple’s ability to shelter billions of dollars of income from tax has depended on an unusual loophole in the Irish tax code that helps the country compete with other countries for investment and jobs.
A U.S. Senate investigation revealed Tuesday that Apple, maker of iPhones, iPads and Mac computers, channelled profits into Irish-incorporated subsidiaries that had “no declared tax residency anywhere in the world.””
How Apple Reduces What It Pays In Taxes – Business Insider
This is a pretty good read so I recommend it. The post shows how a sophisticated company or individual can reduce taxes because they understand the ins and outs of international tax laws. I am not going to take a view on whether this is right or wrong. I just want to present the information.
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