As the Kuwaiti Recession Begins… October 28, 2008
Posted by mylastresort in analysis, rumors.Tags: Collapse, economy, Finance, Future, Gulf bank of Kuwait, kuwait, Parliament
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In moments of crisis, rumors seem like facts and assumptions are distorted into realities, and as chaos wreaks havoc, irrationality unfolds to become sanity.
As the new chairman of Gulf Bank of Kuwait (GBK) attains his novel seat amidst the greatest financial disaster ever to linger over Kuwait his first words wielding a cigar in his left hand and balancing his documents in the other are: “remain calm.” A simple fact remains Qutaiba was, is, and will remain one of the wealthiest persons in the universe. (more…)
Gulf Bank of Kuwait (GBK) Possible Collapse – (Update) October 26, 2008
Posted by mylastresort in analysis.Tags: Bankruptcy, Central Bank of Kuwait, economy, GBK, Gulf bank of Kuwait, Intervention, kuwait
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Following the reports of Gulf Bank of Kuwait (GBK) suffering massive losses earlier this morning I have decided to explain the severity of the situation and the possible outcomes which might occur.
Initially, the bank will lose credibility both, locally and internationally. Customers will demand their cash from their accounts and early maturity from their deposits. Corporate clients will not risk their businesses future with an ailing bank and cease operating in their GBK accounts. No banks will deal with a bank rumored to be in a bad position. Therefore GBK funds will freeze. THE BANK WILL FAIL EVENTUALLY its just a matter of time. Following a run on Gulf Bank of Kuwait (GBK) and a liquidity squeeze the bank will be forced into one of the following outcomes: (more…)
Citibank ending operations in Kuwait? October 15, 2008
Posted by mylastresort in analysis.Tags: banking, Bankruptcy, Banks, Citi, Citibank, economy, global, Rumor, Sub-prime, subprime, Systemic Risk, US
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Black October? October 6, 2008
Posted by mylastresort in analysis.Tags: Bailout, Black Monday, economy, Great Depression, Junk Bond Market Collapse, subprime, UAL Corporation
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A list of some of the financial disasters which occurred in October…
“The Great Depression” (1929)
- “Black Thursday” - October 24, 1929
- “Black Monday” – October 28, 1929
- “Black Tuesday” - October 29, 1929 (12.8% decline)
The collapse continued into the next month ultimately losing 90% of its value. Prices did not regain until the mid 1950’s. (more…)
CBK: Breaking the Bank September 28, 2008
Posted by mylastresort in analysis, rumors.Tags: Bank of England, Breaking the Bank, CBK, Central Bank of Kuwait, Crisis, economy, George Soros, Hedge fund, investment, Speculators
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Currency speculators have for years been tackling central banks in surprise attacks in an effort to reap large rewards from ‘breaking the bank’.
One of the most memorable events was ‘Black Wednesday’ of 1992 which took the Sterling Pound off of its goals of joining the European Central Bank (ECB). In 1992, currency speculators unexpectedly attacked the Bank of England (BOE) forcing it to alter the strict regulations associated with joining the union. Later, the BOE was not able to conform to the standards set by the ECB forcing it out of the European Union (EU). (more…)
Lehman Brothers Fate September 14, 2008
Posted by mylastresort in rumors, sovereign funds.Tags: American International Group, banking, Citigroup, Collapse, economy, FED, John A. Thain, John Mack, Lehman Bros, Lehman Brothers, Long-term Capital Management, LTCM, Merrill Lynch, Morgan Stanley, NYC, subprime, US, Vikram S. Pandit, Washington Mutual
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Just like a scene from a movie top banking executives meet at the New York Fed to discuss Lehman Brothers fate. Exactly 10 years ago the same meeting occured to discuss Long Term Capital Managment (LTCM) a hedgefund which collapsed in 1998 and sent the market tumbling.
“I’m hoping that some big firm will want them more than the Fed wants them… The government right now, the Treasury and the Fed among others, they’re trying to work the deal with no government money, as they should.”
- Senator Richard Shelby, Senate Banking Committee
The current roster consists of the following attendees:
- Citigroup Vikram S. Pandit
- Merrill Lynch John A. Thain
- American International Group
- Washington Mutual
- Morgan Stanley John Mack
- Goldman Sachs Lloyd C. Blankfein
- JPMorgan Chase James Dimon
- Credit Suisse Brady Dougan
- Bank of New York Mellon Robert Kelly
- UBS Robert Wolf
- Barclays Bert E. Diamond
Including Henry M. Paulson, Treasury Secretary, & Timothy Geithner, New York Fed president.
Part 3: The Collapse of the KSE September 9, 2008
Posted by mylastresort in analysis, qatar, saudi arabia.Tags: bahrain, Central Bank, Central Bank of Kuwait, Collapse, economy, Government, inflation, KSE, Kuwait Stock Exchange, qatar, Regulations, uae
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Kuwait’s Neighboring Nations
In Bahrain and the United Arab Emirates (UAE) riots began to proliferate among residents demanding action due to the rising prices in consumer goods. Doha and Dubai pride themselves as being tax havens while avoiding to mention double-digit inflationary figures. During the summer of 2008 all of the Gulf countries had peaked to record inflation levels never before experienced in the region.
The Lender of Last Resort
One of several methods to drain liquidity from the markets would be to increase interest rates to levels that would tempt investors to leave the exchange and head to the banks. The Central Bank of Kuwait (CBK) had failed to affect the markets in its previous attempts at raising rates therefore decided to force banks to increase rates without hiking the discount rate, by altering the money supply.
During July 2008 banks experienced a severe loss of liquidity in the market that forced banks to rapidly increase rates in an attempt to remain solvent and avoid the penalties set by the lender of last resort. Short-term deposit rates increased dramatically as banks battled for funds in order to remain solvent. Market participants finally recognized that banks were offering attractive rates that were enough to make them shift to deposits. During the period, banks were behind hundreds of thousands of dinars per day in penalties and exaggerated deposit rates forcing the central bank to flood the market with funds to avoid creating a new crisis.
Part 2: The Collapse of the KSE September 8, 2008
Posted by mylastresort in analysis, bahrain, qatar.Tags: bahrain, Central Bank, Central Bank of Kuwait, Collapse, economy, Government, inflation, KSE, Kuwait Stock Exchange, qatar, Regulations, uae
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The CBK Regulations
The Kuwait Stock Exchange (KSE) had exhausted all locally available funds by 2005. Beginning in 2006 the market was increasing based on the concept that investors who entered into new positions were not selling shares in the market to buy new ones rather they were trading on leverage, obtaining bank loans, or selling foreign assets to acquire additional exposure in the surging market. The regulators acknowledged the pending epidemic and set up sequential regulations at drying up liquidity in the market to contain inflation.
The Single Gulf Currency
Beginning in 2004 serious discussions between the six GCC nations began regarding the unification of the Gulf’s currency. Central bank Governors would hold regular meetings to discuss methods and deadlines for the process. The Governors decided that no major changes to currency policy would occur and that inflation must be contained to strict measures prior to the 2010 deadline. Following a regular meeting in May 2007 the Central Bank of Kuwait unexpectedly announced that it has entered into a currency basket, citing that the falling US dollar would boost inflation if the country remained in a pegged exchange rate system. The move astonished other members of the GCC since the move was in direct violation of the terms the countries agreed upon hours earlier. The currency revaluation was one of the the earliest moves the CBK had undertaken to combat the predicted inflationary threats of today.
The Regulations
In the short period following the Kuwait Stock Exchange (KSE) reaching the 10,000 points level the Central Bank of Kuwait (CBK) would unleash several coordinated regulations each serving the same purpose: Contain inflation. The CBK would allow listed companies to call for capital increases. Many companies increased capital, sending frantic investors to local banks to obtain loans. Then the first of the major regulations occurred, the CBK abruptly prohibits real estate investment and its use as collateral for borrowing purposes. The move prevented many from increasing debt to finance new investment opportunities. The move also sends the real estate market to decline by up to 40% in some areas forcing investors increase collateral or repay loans.
The CBK continued to allow companies to raise capital sending investors to the banks once more, this time to get consumer loans (without collateral) and placing the funds in the exchange. The central bank was adamant at ending leveraged positions in the markets, hence it announced a cap on consumer loans forcing market participants to only use available cash to invest in the exchange. No longer could individuals obtain massive loans to invest in the booming markets. The central bank predicted that the inflation rate would finally decrease. Soon after, the CBK surprisingly announced the highest inflation on record.
Part 1: The Collapse of the KSE September 7, 2008
Posted by mylastresort in analysis, bahrain, qatar, saudi arabia.Tags: bahrain, Central Bank of Kuwait, Central banks role, Collapse, economy, Government, inflation, KSE, kuwait, Kuwait Stock Exchange, Part 1, Part 2, Part3, qatar, Regulations, uae
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The recent collapse in the Kuwait Stock Exchange (KSE) index this past week has not been given its proper placement in the headlines. I have found it difficult to find resources covering the details of the collapse or reasons justifying the decline. Some might hail the events as a market correction but I believe the reasons are far more complex and intertwined with recent economical events in the country.
This post will be composed of 3 parts.
A Brief History of the Local Economy
Economies across the globe experienced massive economic prosperity beginning after the millennium ending in 2007. Emerging markets were recognized as superior untapped resources by some of the leading financial institutions. Several companies relocated to the third world in a race to attract as much wealth as possible. Investors in New York, London, and Paris devised plans to invest in countries they could not locate on maps. During the same time Kuwait experienced its own expansion of economic growth.
The rush of riches to the citizens from a single source in a rapid pace began worrying regulators. The Kuwait Stock Exchange (KSE) index multiplied exponentially in 10 years from 98 to 08. During this short period, college graduates headed directly to the exchange for employment regardless of specialization. Housewives began exchanging stock tips. Industrial and service companies began trading the markets neglecting their core businesses. Investment companies began propping up across the horizon. They all shared the same objective: To generate as much wealth in the shortest time possible. In order to maintain economic stability in the nation the central bank of Kuwait would need to act by containing growth to prevent surging inflation.
CBK Vs the Government
The Central Bank of Kuwait (CBK) has recently been finding it difficult to contain inflation using conventional methods. Central banks around the globe use their power to predict the future behavior of markets and adjust interest rates, money supply and use influence to guide markets in controlled movements. The central banks are capable of requesting aid from the governments to fight sudden implications, but of course the central bank is not required to act when the government requests certain actions from it. Also, the central banks must be independent from local politics and unbiased in their decision-making. These are core fundamentals that allow the central banks to operate in the most proficient manner possible.
In Kuwait however, the methods are different. During a year of record inflation parliament announces the highest spending budget in history, an increase in wages, demands decreasing the dicount rate, and finally the dissolution of consumer loans. The government’s actions were all created with the CBK’s direct objection proving that the government will not aid the CBK in preserving the economical well being of the country. The governments actions would prove catastrophic to the economy if left unabated therefore the CBK must act swiftly and alone to correct the government’s blunders.
Kuwait posts budget surplus September 1, 2008
Posted by mylastresort in analysis, sovereign funds.Tags: economy, inflation, Kuwait Investment, Oil, politics, Surplus
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Higher oil revenues helped boost Kuwait to a preliminary surplus of KD 3.8 bil ($14.22 bil) in the first quarter of its 2008/09 fiscal year. Oil revenues for the first 3 months was KD 6.29 bil compared with a forecast KD 11.65 bil for the fiscal year which starts in April 1. Kuwait’s budget was based on a conservative oil price estimate of $50 per barrel.
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Kuwaiti parliament approved a budget with a record expenditure of KD 19 bil dinars (despite warnings by the central bank to contain spending to tackle record inflation)
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Kuwait invests 10% of its revenues in a fund for future generations
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A surplus means Kuwait Investment Authority (Kuwait’s sovereign fund) has more funds to spend on foreign investments
