The Money Supply (M’s) January 5, 2009
Posted by mylastresort in random.Tags: Education, kuwait, Money supply, random
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The modern government’s of today regulate the economy by monetary policy. Monetary policy is the process the Federal Reserve (Fed), or central bank of Kuwait (CBK), control the following:
- Supply of Money
- Availability of Money
- Cost of money (interest rate)
The supply of money is broken down into different types of ‘money’ based on its effects by monetary policy. The measures are placed along a spectrum; from the narrowest to broadest measures.
- Narrow Measures: Directly affected by monetary policy.
- Broad Measures: Less related to monetary policy decisions. The broad measures are usually indirectly effected by changes in the monetary policy.
The M’s defined.
The different types of measures are classified as M’s. The M’s range in measures from M0 (narrow) to M4 (broad).
The M0 is often referred to as the monetary base. It is the base from which other forms of money are created. Currency, includes notes and coins, in circulation and in bank vaults. Cash (reserves) owned by banks that is held by the Fed, or central bank. Traditionally, it is the most liquid measure of the money supply.
The M1 represents the assets that strictly conform to the definition of money. It includes currency in circulation, demand deposits (and other deposits that work in the same way), and finally, K-Net transactions through their links to bank accounts and are also considered as a form of money.
The M2 is the most common economic indicator in forecasting inflation. It is usually represented by savings deposits, time deposits and money market accounts for individuals, plus the M1. In essence it represents as close as substitute to ‘money’ as possible.
The M3 is no longer used by the Fed or the central bank of Kuwait. It is the M1 + M2 and the large deposits of money market funds by institutions. It is also made up of short term repo’s and larger liquid assets.
Many countries use the M4 such as the Bank of England which is composed of cash outside banks. It is composed of the money in circulation with the public and non-banking firms, private sector retail and wholesale banks, and building society deposits.
The M’s are defined differently in every nation. For example, in England, India, and Japan, the M’s differ in terminology but all are in the same order of narrowest to broadest.
The above definitions were those used by the Federal Reserve and as closely related to the Central Bank of Kuwait definition.
December Confessions #3 December 31, 2008
Posted by Ali in analysis, kuwait.Tags: December Confessions, kuwait, Oil, OPEC
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During December the market confessed three important facts. The first is that the Kuwait Investment Authority (KIA) will not provide the optimism needed to restore confidence in the market. The second is that investment banks will fail in succession amid the greatest government intervention since souk almanakh. Finally that oil prices will no longer be controlled by the oil cartel, OPEC.
OPEC Versus Oil
A positive relationship between, long-term oil and the Kuwait Stock Exchange (KSE), has existed for decades. In the 1970’s the KSE rallied with the sharp increase in oil prices. Early in the 1980’s the market crashed when oil prices fell. Later in 1997, the price of oil fell below $10/barrel sending the market spiraling. Thus it should not be surprising to see the KSE collapse in 2008 considering the massive decline in oil prices from $147 to below $40.
Since oil determines Kuwait’s fiscal policy the higher oil prices translate into higher income generated by the government. The higher income results in greater government expenditures thus a bigger fiscal policy. (more…)
December Confessions #2 December 31, 2008
Posted by Ali in analysis, kuwait.Tags: global, investment, kuwait, TID
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During December the market confessed three important facts. The first is that the Kuwait Investment Authority (KIA) will not provide the optimism needed to restore confidence in the market. The second is that investment banks will fail in succession amid the greatest government intervention since souk almanakh. Finally that oil prices will no longer be controlled by the oil cartel, OPEC.
Investment Banks Collapse
During this crisis many speculators believed that investment companies would not fare well, but none could fathom the utter failure of Global Investment House (Global) or The Investment Dar (TID). This is labeled as another of the December surprises that would rattle the local economy once more following the collapse of Gulf Bank of Kuwait a few weeks earlier.
On December 16th, Fitch downgraded Global five notches down to C, in other words Global went from “investment grade” to “junk.” Global was downgraded because of its default on a payment to WestLB. That was a shock to investors in the market. Investors were not expecting Global to default. Although a few weeks earlier, we heard in the market about TID defaults and the possibility of Global’s default, still it was hard to believe to see these two gigantic investment banks failing. (more…)
“K-Dow”: Scandal or Strategic Investment? December 29, 2008
Posted by Abdul in Regulation, analysis, kuwait.Tags: Dow Chemical, K-Dow, KPC, kuwait
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Named K-Dow, this joint venture (JV) represents one of the most talked about deals in the country. Petrochemical Industries Company (PIC), a wholly owned subsidiary of Kuwait Petroleum Corporation (KPC), announced a multi-billion dollar joint venture with the Dow Chemical Company (Dow) in December 2007, in which Dow would contribute its Oil and Gas arm totally into the deal, creating the largest Polyethylene provider in the world. Polyethylene is the main ingredient in plastics. K-Dow would be larger than the JV between GE Plastic and SABEC and Chevron Phillips.
Oil and Gas represents nearly 25-30% of Dow’s operations. In December 2007, the JV was valued at $19 billion. With the markets plunging since the deal was announced, the JV was revalued to $15 billion in late November 2008, in which Kuwait would provide $6 billion for a 50% stake in the JV. The worst-case scenario for this deal would provide a return of at least 10% annually, as announced by PIC Chairman Maha Mulla Hussain. The venture would employ more than 5000 people (Kuwaitis and non-Kuwaitis) and have annual revenue of about $15 billion. Agreements were signed on November 28th after approval from Kuwait’s Supreme Petroleum Council, the highest authority in the Ministry of Oil.
So where’s the problem? Sounds like a great deal for Kuwait and Dow. (more…)
Kuwaiti Oil Down $2.60 December 24, 2008
Posted by mylastresort in analysis, kuwait.Tags: kuwait, Oil, OPEC
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The Kuwaiti price for oil fell another $2.60 to end the day at $32.73 accordingto the Kuwait Petroleum Corporation (KPC). A global decline in the demand for oil has decreased prices substantially since July.
The price of a Kuwaiti barrel reached its highest level this summer to $135 before its downward spiral. Short term expectations are that oil prices will reach $20/barrel within the next couple of months. The oil cartel, OPEC, has recently announced more cuts in production while prices continue to decline.
Kuwaiti M1 Slows to 11.3% December 24, 2008
Posted by mylastresort in kuwait.Tags: CBK, kuwait, M1
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Kuwaiti M1 Money Supply Slows to 11.3% in November from 13% last month. Various central bank measures were taken to strengthen the local banking system and maintain the flow of lending. The measures include:
- Reducing Discount Rate
- Guaranteeing Deposits
- Raising the Loan-to-Deposit Ratio
- Injecting funds in to the interbank market
Reminder: M1 is the currency in circulation, demand deposits – and other deposits that are similar to demand deposits.
Report: Global’s Desolation December 23, 2008
Posted by Ali in analysis, kuwait.Tags: global, investment, kuwait, Report
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Global Investment House (Global), was incorporated in 1998 by a group of mid-age Kuwaiti entrepreneurs who used to work for Kuwait Investment Company. Global has been lead by Mrs. Maha Al-Ghunaim since inception. Global started in 1998 with market cap of KD 15 millions, and by June 2008 its market cap grew to KD 1.5 billion.
Global growth was initially driven by fees and commission, as the company was focused on private placements and marketing its funds. However, when the company started to grow larger and faster these core business earnings became more difficult to grow, thus Global became more aggressive in its investments. Global’s recent growth and return were coming mainly from their investment activities (Chart 1). 
(more…)
KIA to invest in KSE Wednesday December 22, 2008
Posted by mylastresort in analysis, kuwait.Tags: KIA, kuwait, SWF
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Kuwait’s Sovereign Wealth Fund (SWF), The Kuwait Investment Authority, has made public that it will begin investing in the local bourse. In a statement published on KUNA [kuna.net.kw], the official news agency, it states:
“Kuwait Investment Authority allocates its share in … fund to the Kuwait Investment Company so that the portfolio’s operations can start on Wednesday”
- KUNA alert without further details
Since the report was publicized after the market closed a massive rally will occur tomorrow, Tuesday, in preparation of the investment by the KIA. Many statements were made in the past regarding the investment by the KIA but no action was taken and investors remain hesitant to believe any statements by the government.
Where is the ‘task force’..? December 22, 2008
Posted by mylastresort in kuwait, sovereign funds.Tags: CBK, kuwait, Task Force
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Kuwait set up a ‘task force’ headed by the Central Bank governor to deal with the current financial turmoil it is experiencing. This task force is composed of ‘the best of the best’. The lack of transparency of the task force and its closely knit group leads some to believe that either, ‘this is big’, or that they really aren’t doing anything.
A college graduate with little or no experience could validate an argument similar to anyone of the members on the task force since the current situation is far more different than any other historical recession the Gulf region has ever experienced. In the current climate such as the one the world is experiencing, no vast knowledge, or experience of past events could generate the ‘correct’ resolution. In simple terms, no one knows what is happening or how to solve it.
It has been over 60 days since the task force was in place and to this moment only the governor has spoken publicly about its progress and as expected always in a positive - “we will…” attitude.
‘The time is now!’ Actions need to precede beaurocratic approvals. I have stated this many times, ’Kuwait can purchase the entire private sector multiple times with its reserves’ and should not wait for the problems to escalate before acting.
The problems facing many in the industry is the lack of transparency involved in the process. Rating agencies cannot accurately measure the risks associated with the country if information is not made public.
May i please have my salary… December 21, 2008
Posted by mylastresort in kuwait.Tags: AlDar, Employee, investment, kuwait
6 comments
The roles have been reversed. In the summer foreign labor staged rally’s and a violent protest to claim past salaries, today citizens will experience the true nature of ‘karma.’ Due to the current crisis it has been brought to our attention that The Investment Dar will not being giving any employees bonuses this year. Employee salaries for the month of November have been delayed and employees will be grateful if they receive their December salaries. (more…)
