First Dance Lyrics

W ASHINGTON ? Qualifying for a mortgage for large numbers of home purchasers not only is a tough challenge but one that ends unhappily ? they get rejected.

The reasons for the turndowns typically involve multiple factors: below-par credit scores, inadequate documented income to support the monthly payments, little or no savings in the bank.

But a new survey by credit-score giant FICO offers buyers a rare peek inside the heads of credit-risk managers at financial institutions across the country and in Canada.

Researchers asked a representative sample of them what single factor in an application makes them most hesitant to fund a loan request -? in other words, whats most likely to prompt them to say no.

The results provide practical insights to anyone who is thinking about applying for a mortgage. Tops on the list: Surprise. Its not your credit scores. Its not how much youve got for a down payment or whats in the bank. Its your DTIs ? your debt-to-income ratios. Nearly 60 percent of risk managers in the FICO study rated excessive DTIs their No. 1 concern factor ? five times the percentage who picked the next biggest turnoff.

Yet many new buyers have only a rough idea in advance of an application ? even for a pre-approval letter ? about their own DTIs, how lenders view them, and what sort of limits theyre likely to encounter.

Since they are so important to a successful application, heres a quick overview on what goes into DTIs and why they are such a big red flag. Debt-to-income ratios for home loans are the most direct indication to a bank about whether you are going to be able to afford to repay the money you want to borrow.

Debt ratios for home loans have two components: the first measures your gross income from all sources before taxes against your proposed monthly housing expenses including the principal, interest, taxes and insurance that youd be paying if the lender granted the mortgage you sought.

As a general target, lenders like to see your housing expense ratio come in at no higher than 28 percent of gross monthly income, though there is flexibility to go higher if other elements of your application are viewed as strong.

In May, according to mortgage software and research firm Ellie Mae LLC, the average borrower who obtained home purchase money through investors Freddie Mac and Fannie Mae had a housing expense ratio of 22 percent.

Federal Housing Administration-approved borrowers had average housing expense ratios of 28 percent.

The second DTI component ? the so-called back-end ratio ? measures your income against all your recurring monthly debts. These include housing expenses, credit cards, student loans, personal loan payments and others. Under federal qualified mortgage standards that took effect in January, your back-end ratio maximum generally is 43 percent, though again there is wiggle room case by case.

Most lenders making loans eligible for sale to Fannie or Freddie prefer not to see you anywhere close to 43 percent. In May, according to Ellie Mae, the average approved home purchase applicant had a back-end ratio of 34 percent.

Even at FHA, which tends to be more lenient on credit matters than Fannie or Freddie, the average back-end ratio for buyers was 41 percent. The average for denied applications was 47 percent.

A good place to learn more about DTIs and to compute your own is Fannie Maes consumer-friendly know your options site (www.knowyouroptions.com), which includes calculators and other helpful tools.

The new FICO survey found that the second leading cause of concern for loan officers is multiple recent [credit] applications.

Lenders spot these on your credit reports and take them as signals that you are seeking to add on even more debt, which could affect your ability to repay the mortgage money youre asking them to give you.

In third place as an instant turnoff: your credit scores. Most lenders want to see FICO scores well above 700 — Fannie and Freddie averages were in the 755 range in May, FHA average approved scores were a more generous 684.

Bottom line here: If you want to be successful in your mortgage application, be aware of these key turnoff points for lenders and take steps to avoid the tripwires. Most important: Postpone your purchase until your DTI ratios tell you — yes, you can afford the house you want and lenders wont reject you out of hand.

Contact me at kenharney@earthlink.net

Monetary policy

July 23rd, 2014

REPUBLICANS renewed their assault on the Federal Reserve recently, as they debated legislation to curtail the Feds freedom to set monetary policy as it sees fit. The legislation would require the Federal Reserve to set interest rates according to a Taylor rule:a formula which adjusts interest rates according to inflation and the output gap. John Taylor, the inventor of the concept, suggested to Congress a rule which would target inflation at 2%, the Federal Reserve’s current objective. However, Mr Taylor’s plan is not a popular one among economists; in a recent poll the economists surveyed overwhelmingly opposed the plan. Why is it such a bad idea?

A Taylor rule sets interest rates based on only a couple of variables, in this case the output gap and inflation. However, while these data series provide valuable information about the state of the economy, they also contain random noise. For example, consider the most recent estimate of GDP for the first quarter of 2014, which showed a decline at an annual rate of 2.9%. A fall of this magnitude usually betokens a deep downturn, and under Mr Taylors proposal would have resulted in a 50 basis point fall in interest rates. But in this case the drop in output is thought to have been largely caused by the unseasonably cold weather in February–a one off shock, unrelated to aggregate demand. A team of economists who look at hundreds of pieces of data will be better able to tell if a given series is behaving erratically, as opposed to being an accurate signal about the state of the economy. A simple Taylor rule, by contrast, may overreact to noisy data, generating volatile interest rates. A rule with dozens of variables could reduce the influence of noisy data series. But such a rule would be impossible to calibrate even for economists, let alone politicians, and it would have none of the transparency that Republicans supposedly yearn for.

Furthermore, economic data are released on a lag and are often subject to large revisions. The magnitude of the fall in GDP during the recession only become apparent years after the fact, and indeed, the large decline in output in the first quarter of 2014 was initially reported as a small rise. A monetary policy rule that relies primarily on national accounts data will produce interest rates that react too slowly to changes in the economy and which will be vulnerable to data revisions. GDP is not the only measure of growth in the economy, of course; some Taylor rules use unemployment rates for example. But other measures also need to be interpreted with caution. The unemployment ratefluctuates with changes in labour participation rates and the number discouraged workers. In short, there is no single measure of output which a simple Taylor rule can rely on.

The second problem with a Taylor rule is that it breaks down in a deep recession–exactly when it is most needed. During the crisis Taylor rules called for negative interest rates as output crashed and prices deflated. Since interest rates are unable to fall below zero, however, conventional monetary policy was effectively muzzled. Instead the Federal Reserve was able to pivot to unconventional monetary policy such as quantitative easing and forward guidance. While the effectiveness of such unconventional measures has been difficult to measure, the majority of economists think they have proved superior to a counterfactual policy of doing nothing. A Federal Reserve which was bound to follow a Taylor rule could find its hands tied at the worst possible moment.

Finally, as Nick Rowe points out, economies constantly change. Even if you did manage to craft the perfect rule for monetary policy today, it is likely that it would be the wrong fit for the economy tomorrow, leading either to undesirably high inflation or more periods with interest rates stuck at zero.

In monetary policy, as in life, commitment is a key ingredient to success. A central bank which publicly commits to a stable framework, such as inflation targeting, will be better able to stave off both recessions and outbreaks of inflation. However, shackling the Federal Reserve to a single policy rule takes this idea too far. It seems unlikely this proposal will become law, at least while the Senate and White House are in Democratic hands. But the embrace of the “end the Fed” mantra by one side of the political divide is a very worrying development.

AAP RBA governor Glenn Stevens says the world economy dodged a bullet thanks to decisive policy actions.

Monetary policy cant do it all.

Thats the message from Reserve Bank governor Glenn Stevens.

There was a global panic in 2008, but the world economy avoided a repeat of the 1930s depression, he said in a speech in Sydney on Tuesday.

That was thanks to a combination of quick actions by central banks to keep the private banks cashed up, aggressive use of monetary and fiscal policy, avoidance of projectionist trade polices, and policy actions designed to promote confidence, he said.

The accounts of some of the key decision makers that have been published give even more sense of how desperately close to the edge they thought the system came, and how difficult the task was of stopping it going over, Mr Stevens said.

Macroeconomic policy has a big role to play in getting the world economy back on track, but the rise in government debt is a difficulty, he said.

Public debt has risen in part because of stimulus measures, but mainly because of the depth of the downturn in economic activity.

A financial crisis and deep recession can easily add 20 or 30 percentage points to the ratio of debt to GDP, and did so in a number of cases, he said.

And some countries had gone into the crisis in bad shape after neglecting serious efforts to get their budgets in order.

So fiscal policy has not had as much scope to continue supporting recovery as might have been hoped, Mr Stevens said.

Policymakers in some instances have felt they had little choice but to move into consolidation mode early in the recovery.

And that leaves monetary policy to do the work.

But monetary policy has its own difficulties.

Interest rates can be pushed down, even to the zero lower bound reached by the US and Japan he said.

But if people simply dont wish to take on new business risks, monetary policy cant make them, Mr Stevens said.

He rejected the notion that low population growth or slower growth in productivity had caused the expected rate of profit available to entrepreneurs to fall too far for low interest rates to work.

He also dismissed the idea that there was a legacy of unproductive investment depressing expectations of profit, the view of the so-called Austrian tradition in economics.

Visitors to the US would not readily conclude that America had over-invested in infrastructure, nor would they when visiting the UK or, for that matter, Australia, he said.

Perhaps the answer is simply subdued animal spirits – low levels of confidence.

But he warned that low investment caused by depressed confidence could be a self-reinforcing equilibrium, and that monetary policy by itself might not be able to snap the economy out of it.

He recommended the G20 agenda for growth, including supply-side reforms, innovative ways of investing in infrastructure, better financial regulation and genuine free trade.

The highly accommodative financial conditions will then have a more powerful effect in engendering real growth, he said.

A rising confidence dynamic could unfold.

Fed governor and Harvard Professor Jeremy Stein gave an important speech on March 21, Incorporating Financial Stability Considerations into a Monetary Policy Framework. I have a few minor criticisms, specifically on standard errors, causal mechanism, and Lucas critique. But its great for Jeremy to think out loud this way, and give me occasion to do the same. You should read the whole thing.

Steins bottom line:

…all else being equal, monetary policy should be less accommodative–by which I mean that it should be willing to tolerate a larger forecast shortfall of the path of the unemployment rate from its full-employment level–when estimates of risk premiums in the bond market are abnormally low.

This view has put Stein a bit in the camps of the hawks, meaning simply those who for one reason or another think the time to raise rates is sooner rather than later.

This is an interesting framing. Why did Stein say forecast shortfall of the path of the unemployment rate from its full-employment level and not just more unemployment? Stein is pitching the argument, I think, at the other FOMC members sensitivity to unemployment. If the Fed ultimately cares about unemployment a year from now, the probability of a shock that would unexpectedly raise unemployment matters as much as the Feds expected value. His idea: a bit of tightening might raise the level a bit, but lower the variance.

How Do You Measure Financial Market Vulnerability? Stein thinks about leverage measures, and concludes they are not useful in real time, that to the extent they can be measured, they are better addressed with regulation rather than interest rates. Most of all

How, if at all, does monetary policy influence the evolution of the ratio? Without an answer to this question, it is hard to say how much one would want to alter the stance of policy when, say, the ratio is abnormally high relative to trend.

He concludes that the Fed should watch risk premiums — the expected excess return on long term treasuries and corporates — and be ready to tighten if risk premiums seem too low. Essentially, the Fed should add a new term to the Taylor rule,

interest rate = phi_pi*inflation + phi_u*unemployment + phi_r*risk premium.

(my interpretation, not the speech.)

As an illustration, consider the period in the spring of 2013 when the 10-year Treasury yield was in the neighborhood of 1.60 percent and estimates of the term premium were around negative 80 basis points (3). Applied to this period, my approach would suggest a lesser willingness to use large-scale asset purchases to push yields down even further, as compared with a scenario in which term premiums were not so low.

But measuring the term premium is tricky stuff. Its not just the spread between long bond and short bond yields. If long bonds are 1.60% and short bonds are 0%, it might just be that everyone expects interest rates to rise in the future, and expected returns are the same for holding any type of bond. The risk premium is how much of that spread exists over and above (or in this case, under and below) peoples expectations of rising interest rates.

So how do you separate the yield spread into expectation and risk premium components? Footnote 3:

The 10-year nominal rate hit 1.63 percent on May 2, 2013. An estimate of the term premium based on the oft-cited methodology of Kim and Wright (2005) was negative 0.78 percent on this day.

OK, how do Kim and Wright come to this conclusion? Basically, by running regressions. They (we) examine, in the past, what configuration of bond prices and other variables have been followed by interest rate rises (expectations hypothesis), and what configuration has been followed by good returns to bond investors (risk premium)?

This is an imprecise business. Regressions have standard errors big ones. Regressions vary even more by specification — which variables do you put on the right hand side. Having written two papers on bond risk premiums, I can attest those standard errors and specification uncertainties are large.

At a minimum, I think Stein would do all of us a favor if he would include standard errors and specification errors. My guess though is that they would be at least one if not two percentage points. The risk premium was somewhere between negative 2 and positive 2 percent, not -0.78%. That might undermine his case (!), but perhaps the Fed can write an internal memo that everyone has to quote numbers with standard errors. So, the natural rate of unemployment is not 6.500%, but has at least a percent or two uncertainty as well.

The same point holds for the much more important credit spreads. If the BAA bond spread is 1%, does this mean a 1% chance of default (including recovery)? Or does it mean that the price is temporarily low and people holding BAA bonds will earn on average 1% more on other assets? Solid research breaking out this spread, also by examining historical correlations, is just beginning.

More deeply, the historical correlations come from a sample in which the Fed was not affecting long rates. I dont think QE did much to long rates, but the Fed does, with some sort of friction or segmented market in mind. That would make those regressions pretty useless now. If you force the weather forecaster to say it will be sunny, the usual correlation between forecast and reality will fail.

More deeply still, there is a classic Lucas Critique problem. Historical correlations can be counted on to move as soon as the Fed exploits them for policy. If low short rates were correlated with low credit spreads which were correlated with subsequent financial turmoil in the past, will raising short rates raise credit spreads and lower financial turmoil now?

The cure is to understand the causal structure, but here were all really at a loss. Everyone writes about how low interest rates lead to a search for yield and low risk premiums, but how? Economic theory pretty much divorces the level of interest rates from the risk premium between different securities. If anything, simple correlations go the other way: low interest rates have happened in the depths of recessions, when risk premiums are highest.

Stein knows all of this of course.

Of course, there are many caveats. Foremost among them is the fact that the ability of increases in the EBP [excess bond premium] to predict future economic activity may not reflect a causal link from the former to the latter. Perhaps there are economic slowdowns that are caused entirely by nonfinancial factors, and, when investors see one on the horizon, they get skittish, causing the EBP to rise. If so, it would be wrong to conclude that easy monetary policy–even if it does, in fact, cause lower risk premiums–has any causal effect on the probability of a future slowdown. So at this point, the evidence that I have reviewed can only be thought of as suggestive.

Making progress on these difficult issues of causality will likely require a clearer articulation of the underlying mechanism that leads to such pronounced asymmetries in the relationship between credit spreads and economic activity. If a causal link is, indeed, present, what is there about it that leads increases in spreads to have a much stronger effect on the economy than decreases? I suspect that the answer has to do with something that mimics the effect of leveraged losses to financial intermediaries–and the attendant effect on credit supply. For example, GZ document that their EBP measure is closely correlated with the credit default swap spreads of broker-dealer firms. The reason could be that losses on their inventories of risky bonds erode the capital positions of these firms, which might in turn compromise their ability to provide valuable intermediation services. Alternatively, a similar mechanism may play out with open-end bond funds, whereby losses cause large outflows of assets under management, again compromising the intermediation function and aggregate credit supply.

So, if there is a correlation between the level of the short rate, the term premium and the risk premium, and a correlation between those and financial stability, its not about fundamental business cycle risk, its something about frictions in the intermediation system. We are awfully far from understanding that process, and especially understanding it well enough to manipulate it!

This statement also somewhat contradicts Steins earlier view that we shouldnt watch and respond to leverage: How, if at all, does monetary policy influence the evolution of the [leverage] ratio? asked Stein above. But this is awfully speculative on how monetary policy affects risk premiums, and through them financial stability. Finally, frictions by definition dont last forever. We are talking, not about a month or two of higher rates and higher risk premiums, but about rates and premiums that last for years. Do these frictions really last for years?

Stein is duly cautions

…let me emphasize the conjectural nature of these remarks. Even if this broad way of thinking about the problem turns out to be useful, there is a ways to go–in terms of modeling and calibration–before it can be used to make quantitative statements. Thus, at this early stage, I would not want to claim that one is likely to get policy prescriptions that differ significantly from those of our standard models. We will have to do the work and see what emerges.

But understanding all this will take years. Do we really get to wait? Is Stein really making speeches to spur a decade long research agenda? Given the equally tenuous theorizing on the dove side about the relation between low interest rates and long-term unemployment or the employment-population ratio, should it wait? How should the Fed act with so much uncertainty about basic cause and effect? Im glad Im not on the hot seat.

I applaud the closing comment. Recessions are really about risk premiums.

…one of the central and most widely shared ideas in the academic finance literature is the importance of time variation in the risk premiums (or expected returns) on a wide range of assets. At the same time, canonical macro models in the New Keynesian genre of the sort that are often used to inform monetary policy tend to exhibit little or no meaningful risk premium variation. Even if most of the specifics of what I have had to say in this talk turn out to be off base, I have to believe that our macro models will ultimately be more useful as a guide to policy if they build on a more empirically realistic foundation with respect to the behavior of interest rates and credit spreads.

Disclosure: None

Yet many new buyers have only a rough idea in advance of an application even for a pre-approval letter about their own DTIs, how lenders view them, and what sort of limits theyre likely to encounter.

Because they are so important to a successful application, heres a quick overview on what goes into DTIs and why they are such a big red flag. Debt-to-income ratios for home loans are the most direct indication to a bank about whether you are going to be able to afford to repay the money you want to borrow.

Debt ratios for home loans have two components: The first measures your gross income from all sources before taxes against your proposed monthly housing expenses including the principal, interest, taxes and insurance that youd be paying if the lender granted the mortgage you sought.

As a general target, lenders like to see your housing expense ratio come in at no higher than 28 percent of gross monthly income, though there is flexibility to go higher if other elements of your application are viewed as strong. In May, according to mortgage software and research firm Ellie Mae LLC, the average borrower who obtained home purchase money through investors Freddie Mac and Fannie Mae had a housing expense ratio of 22 percent. Federal Housing Administration-approved borrowers had average housing expense ratios of 28 percent.

The second DTI component the so-called back-end ratio measures your income against all your recurring monthly debts. These include housing expenses, credit cards, student loans, personal loan payments and others. Under federal qualified mortgage standards that took effect in January, your back-end ratio maximum generally is 43 percent, though again there is wiggle room case by case.

Most lenders making loans eligible for sale to Fannie or Freddie prefer not to see you anywhere close to 43 percent. In May, according to Ellie Mae, the average approved home purchase applicant had a back-end ratio of 34 percent. Even at FHA, which tends to be more lenient on credit matters than Fannie or Freddie, the average back-end ratio for buyers was 41 percent. The average for denied applications was 47 percent.

A good place to learn more about DTIs and to compute your own is Fannie Maes consumer-friendly know your options site (www.knowyouroptions.com), which includes calculators and other helpful tools.

The new FICO survey found that the second leading cause of concern for loan officers is multiple recent [credit] applications. Lenders spot these on your credit reports and take them as signals that you are seeking to add on even more debt, which could affect your ability to repay the mortgage money youre asking them to give you.

In third place as an instant turnoff: your credit scores. Most lenders want to see FICO scores well above 700 Fannie and Freddie averages were in the 755 range in May, FHA average approved scores were a more generous 684.

Bottom line here: If you want to be successful in your mortgage application, be aware of these key turnoff points for lenders and take steps to avoid the tripwires. Most important: Postpone your purchase until your DTI ratios tell you yes, you can afford the house you want and lenders wont reject you out of hand.

Ken Harneys email address is kenharney@earthlink.net.

The latest January 1, 2015 deadline for the launch of a monetary union and adoption of a single currency (the Eco) for the West African Monetary Zone ((WAMZ) is missed yet, again.

Various deadlines for the commencement of the Monetary Union project in 2003, 2005, 2009 were also missed and 2020 is now being considered. This is because the six members states of WAMZ, which a few years back conceived the idea of establishing a common monetary space and the adoption of a single currency for the sub-region are finding it quite difficult to simultaneously meet all agreed macroeconomic convergence criteria before the project can take off.

There are now warnings that it would be in their best interest to significantly push the project launch time further to allow all member countries prepare and at least fulfill the basic convergence criteria, no matter when they are able to do this.

“An example is what happened in European Union where some members were not ready but went into the monetary union that was obviously not founded on a very solid platform and were not able to withstand when the financial crisis came,” the Coordinating Minister for the Economy and minister of Finance, Ngozi Okonjo-Iweala, warned during the week.

WAMZ was established by the Authority of the Heads of State and Government of five West African Member States, including Nigeria, Ghana, The Gambia, Sierra Leone, Guinea in December 2000. The objective was to establish a Monetary Union, a common Central Bank and introduce a single currency to be called the Eco.

After a decade of being an observer status, Liberia was absorbed as a full-fledged member of WAMZ in 2010. The West African Monetary Institute (WAMI) which would primarily undertake technical preparations for the launch of the monetary union and the establishment of a West African Central Bank (WACB) was established and commenced operations in March, 2001.

The WAMZ project requires all member states to meet four primary and six secondary macroeconomic convergence criteria as preconditions for take-off of the common monetary space.

The four primary criteria include that each member state must maintain end-of-year inflation rate at a single digit level; keep fiscal deficit within 4 percent of GDP; ensure that its Central Bank’s financing of fiscal deficit does not exceed 10 percent of previous year’s tax revenue; and keep to gross external reserves that cover at least three months of imports.

The six secondary convergence criteria on the other hand include; clearance and non accumulation of arrears; tax revenue that should be at least 20 percent of GDP; salary mass of not more than 35 percent of tax revenue; public investment from domestic resources of at least 20 percent; real deposit interest rate which must remain positive; and nominal exchange rate appreciation or depreciation within a band of +/- 15 percent of 2006 WAMZ exchange rate.

 But West African Monetary Institute, WAMI says that the multilateral surveillance missions it had conducted so far to assess the compliance of the member countries show that “members find it difficult to satisfy and sustain their performance on the convergence criteria.”

No country, for instance satisfied all the primary convergence criteria between 2001 and 2005, hence, the postponement of the launch of the monetary union to December, 2009.

 From 2006 to 2008, The Gambia satisfied all the 4 criteria but slipped in 2009, 2010, 2011, 2012 and 2013.

 Nigeria met all the 4 conditions in 2006, 2007 and 2013 but slipped in the other years. In 2009 and 2010, only Liberia met all the 4 criteria on its accession to the WAMZ Programme, but it failed in subsequent years. Ghana was only able to meet all the 4 criteria in 2011 while Guinea and Sierra Leone have never met all the conditions.

However, the WAMZ monetary union was originally scheduled to commence in January 2003′ after a convergence process.

Despite efforts by member states to meet the benchmarks required for the emergence of the monetary union and the single currency, the launch was postponed to July 1, 2005 due to lack of macroeconomic and structure convergence.

 Member countries also failed to simultaneously satisfy all the convergence criteria, leading to further postponements of the launch dates to 2009 and the latest on or before January 2015- which is again not likely.

 The inability of WAMZ members to fulfill these macroeconomic convergences at various times had been attributed to the negative impact of civil conflicts experienced by some of them and till recently the huge impact if the global financial crisis which slowed their progress.

 Another factor is the persistent expansionary fiscal policy being pursued by governments of these member states, which tend to frustrate efforts of their central banks on tight monetary policies.

 WAMI notes for instance, that an observable behaviour or trend regarding performance on the convergence criteria is that, since the introduction of the WAMZ Programme, member countries’ performance on the convergence criteria, especially fiscal deficit to GDP and inflation criteria, continued to deteriorate during election years.

 But despite the commitment of the countries to achieve this particular goal, the continued drag and failed attempts are particularly raising concerns as to whether the aspired monetary union is even necessary or better still, would ever come to light since even the global macroeconomic conditions remained tight and ever challenging.

Thus, Wednesday’s pronouncement by Godwin Emefiele, governor of the Central Bank of Nigeria that the planned take-off date of January 2015 for the WAMZ Monetary Union was no longer feasible only reaffirmed the apparent slow pace of achieving this lofty goal and persisting difficulties.

 Emefiele confirmed that the date was no longer likely since the preparedness study commissioned by the 32nd meeting of the Convergence Council showed that the performance of Member States’ on the convergence scale relative to requirements for the establishment of a monetary union was still inadequate.

He said member countries’ business cycle synchronisation in terms of real GDP, inflation, broad money and interest rates remained weak, while their level of institutional preparedness for the monetary union was still not sufficient.

On a positive note, however, the CBN governor said the same study found that member countries continued to make remarkable progress towards the establishment of a common market and the implementation of the ECOWAS Trade Integration Protocols and Convention as well as significant progress towards reforms of their financial systems. The Zone is also making significant progress especially in building necessary infrastructure and institutional capacity to support the establishment of a sound monetary union, Emefiele also said.

 ”It is important that we remind ourselves of the need for the buy-in of all Member States in the WAMZ Project. We need to constantly up-date ourselves with the level of progress made, challenges and level of cooperation required,” he advised.

Analysts say that that benefits of adopting a monetary union is almost as huge as the costs.

 It has been argued that the potential benefits of a monetary union are questionable and that the potential costs could be very serious. A successful monetary union, basically requires that the economies joining it are broadly the same, especially in regard to their response to external and internal inflation shocks.

 While it leads to greater competition, lower prices, and more international trade and investment because there is greater price transparency, for instance,  joining a monetary union can lead to larger economic fluctuations, budget deficits (in the case of negative asymmetric shock) and particularly a possible moral hazard in the legislation and execution of government budgets.

Therefore, a hasty launch, without getting the strong macroeconomic fundamentals right would be disastrous, following experience from the recent financial crisis of the Eurozone. And for Nigeria, it would even be more catastrophic being the largest economy among the WAMZ states and indeed Africa.

Kadre Desire Ouedrago, President of ECOWAS Commission confirms this, as he warned that it is critical to draw lessons from successive postponements of missed deadlines in 2003, 2005, 2009 and probably 2015 for WAMZ, and also to take into consideration the factors behind the euro crisis, which were hugely fiscal and budgetary problems.

 ”It is clear that the intended aim is not to rush to create a currency without a solid foundation,” he also affirms.

And according to Okonjo-Iweala, “Nigeria being the largest economy in Africa is likely to bear the brunt of any union or launch that is not based on solid grounds.

“Therefore, before we go in, it is very important to make sure we get everything right to ensure sustainability because if this does not happen, members will begin to exit when they cannot keep up with the criteria.”

Onyinye Nwachukwu

Both decisions were unanimous and broadly in line with analysts expectations. So the question is, what to expect from these two countries?

BRAZIL

Capital Economics said in a report that it expects Brazils central bank to keep the Selic at 11%, at least until the October presidential elections.

Its central bank is not fully independent, and rate hikes to fight the countrys high inflation (6.5% year-on-year last month) could slow an economy that is already performing very poorly.

After the elections, Capital Economics expects the central bank to turn once again its attention to bringing down inflation. It forecasts the Selic to reach 12% during 2015. The latest installment from the central banks weekly forecast survey also shows that local economists expect the Selic to remain at 11% during the rest of 2014 and hit 12% at the end of next year.

CHILE

The central banks latest rate cut came on the back of an economy that continues to slow, while inflationary pressures have weakened.

The Chilean government reduced earlier this week its growth forecast for 2014 to 3.2% from 3.4%, and Capital Economics estimates that Chiles economy could grow a mere 2.8% this year.

EuroAmerica and BBVA Research said in separate reports that they expect the central bank to bring down the monetary policy rate to 3.25% by year-end, with the aim of stimulating the slowing economy. BBVA Research said that it sees the central banks monetary easing process reducing the key rate to at least 3.25%, given the Chilean economys need for more stimuli.

Saudi Arabia’s robust economic growth and strong purchasing power are good signs for attracting foreign investment, says Anees Ahmed Moumina, CEO of SEDCO Holding Group.
“Since it was founded in 1976 by the late Salem bin Mahfouz, SEDCO has become one of Saudi Arabia’s leading groups in Shariah-compliant wealth management,” Moumina told Arab News in an exclusive interview.
Saudi Arabia has been a great attraction for foreign investors. Its foreign direct investment (FDI) continues to be strong, he said.

These are highlights of the interview:

What investment prospects do you see in Saudi Arabia?
Due to its good economy, the Kingdom has several prospects. Its strong GDP and purchasing power are good signs for investment in Saudi Arabia, especially in real estate, hospitality, religious tourism, medical and consumer items, and the manufacturing sector.

How can Saudi Arabia attract more foreign investment?
Saudi Arabia has been a great attraction for foreign investors. Its foreign direct investment (FDI) continues to be strong. Saudi Arabian General Investment Authority (SAGIA) has been facilitating and monitoring investments. With clear guidelines, SAGIA has been promoting partnership of Saudi companies with their strong counterparts — both locally and internationally. SEDCO is a good partner for foreigner investors due to strong corporate governance which is needed.

What solution do you see for Saudi Arabia’s housing shortage?
Construction of more houses for low- and mid-income people in growing areas. At the same time, there is a need for promoting awareness of transition (temporary) accommodation rather than permanent houses. The mortgage law has the potential to boost the real estate market from all ends.

What do you think is the impact of labor regulations on businesses?
Labor regulations protecting the interests of Saudi job seekers are good from the point of view of long-term economic growth. We all must take the responsibility to educate, train and enable Saudis for jobs.

Do you have any special advice for the youth?
Follow your passion in your studies by setting life’s objectives. Of course, they should focus on education and seek early work experience and training. They should aim to join companies in the well-organized sector for a good training experience and not very much look at the monetary gain. The youth should also understand the value of money. This could be done through the Riyali Program. Riyali financial literacy program has grown to become a national movement of youth empowerment that has been well received by the Saudi community and acknowledged by the country’s leaders.

Can you give a brief background about SEDCO Holding Group?
SEDCO Holding Group was founded in 1976 by the late Salem bin Mahfouz, and is recognized as a leading Shariah-compliant organization with a diverse spectrum of operating companies in industries, including real estate development and management, travel and tourism, hospitality, automobile leasing, casual dining, pharmaceutical, in addition to managing private and public equity holdings in Saudi Arabia and around the world.

What are the most important local and regional investment sectors for SEDCO?
SEDCO’s direct investments focus on the sectors of wealth and asset management, real estate development and management, hotel management, travel and tourism, automobile leasing, real estate professional services, property management, casual dining franchises, information technology services and health care.
SEDCO typically seeks to create new business or partner with large and medium-sized private companies with a strong track record of profitability and future growth potential. SEDCO also adds value to investee companies by assisting them in realizing their growth plans and applying strong corporate governance practices.
What are the business lines of the group? And what challenges does your company face?
SEDCO Holding’s business activities are widely diversified and fall under three main business lines — real estate, private and public equity holdings within Saudi Arabia and around the world, and wholly and partly owned operating companies. All of which operate according to Shariah laws and principles. Looking back on 2013, it was a very satisfactory period in terms of performance; targets were substantially increased from previous years and we were able to achieve them. At the same time, we continued to absorb the changes that have taken place while making further progress with the restructuring that is integral to our growth.

Can you elaborate on SEDCO’s business lines?
SEDCO’s operating company portfolios cover more than 20 operating companies in various business segments. These include: SEDCO Capital, SEDCO Development, Elaf Group, Auto World, Intimaa, Tarfeeh, Nahdi Medical Company, Red Sea Markets, Ewaan, Bonnon Coffee, Ejada, Al-Mahmal Trading, Al-Mahmal Development, Arabian Farms, Tazweid, Al-Nakheel Center, Tent Souk and others. SEDCO owns and manages a diverse portfolio of local and global real estate, ranging from prime city center properties in some of the world’s great capitals to vacant land with good potential for high-yield development. Global real estate assets include sites in the Americas, Europe, the Far East, India, GCC and Levant region. Local real estate assets include shopping malls, hotels, apartment blocks, office buildings, industrial units and prime undeveloped land across Saudi Arabia. Financial investments are split into public equity and private equity. Public equity portfolios span the globe and are managed using an active approach. Private equity is globally diversified by region, business sector, in management style and investment class.

Do you face any difficulties in proposing innovative solutions that are Shariah-compliant?
On the contrary, there is a growing global interest in Shariah-compliant products and services. When David Cameron unveiled the 200 million-pounds sukuk at the 2013 World Islamic Economic Forum in London, this made Britain the first non-Muslim country to launch Shariah bonds. This is a solid example of the global awareness in finding solutions in non-interest loan systems. SEDCO is among the leaders in providing Shariah-compliant investment solutions. Since it was founded in 1976 by the late Salem bin Mahfouz it has become one of Saudi Arabia’s leading groups in Shariah-compliant wealth management.

Did SEDCO face any challenges with their investments in the Arab Spring countries?
All companies with investments in “Arab Spring” countries faced challenges. However, our diversified investment portfolio combined with the work done by our risk management department with their extensive systems and controls to identify, measure, monitor, and manage risks has managed to help our investment performance and position them for growth in the future. An example would be Dar Al-Fouad Hospital in Egypt which despite the regions uncertainty has operated at roughly 90 percent of capacity throughout 2013, and is expected to exceed this figure in 2014.

Which country has opportunities?
The GCC as a whole and the UAE Expo 2020 plans will make an impact and open up several investment projects. Saudi Arabia is still a promising growth market which offers stability, economic expansion and the largest budget of SR855 billion for 2014. Saudi Arabia is the largest economy in the Middle East and North Africa, holding a 25 percent share of the Arab GDP. This is partly due to its geographic location, which provides easy access to export markets to Europe, Asia and Africa. The Kingdom also has a continuously expanding domestic market (annual population growth of 3.5 percent), which is adding to a young and consuming population with strong buying power.

What are your regional expansion plans for 2014?
Looking ahead, growth and business generation will remain a top priority. We plan to expand our investments in the Saudi market by venturing into new acquisitions with like-minded investors. This will help develop and diverse our portfolio. We are also examining potential joint ventures with international companies and are confident of bringing some of these to fruition over the next 12 months.

What are the areas you focus on for HR development?
In terms of people, our core asset, we are focused on building on our reward and accountability mentality, creating long-term incentives for executives and introducing special coaching and team-building programs. Adopting a best practice recruitment system and introducing iRecruitment (internal recruitment practice), creating career path guides to help employees focus on measurable development plans, and updating all job descriptions to reflect actual role expectation are the other areas. We have also taken a number of initiatives to improve the working environment such as ‘It’s better to take the stairs,’ which encourages employees to use the stairs instead of the elevators; other employee initiatives include the SEDCO football league and ‘green apples’ which highlights the benefits of healthy living. In 2014, the focus will be on work/life balance, teamwork and recognition.

In terms of corporate responsibility, what is SEDCO’s primary focus?
SEDCO’s social responsibility efforts focus on four pillars — its employees, the sectors it operates in, the environment and the broader community. Our flagship CSR program is Riyali financial literacy program, which was launched in September 2012 to address the need to educate the Saudi population on financial literacy and empower people with the personal financial skills required to achieve a desirable standard of living. Now in its second year, SEDCO’s Riyali financial literacy program has grown and is well received by the Saudi community and acknowledged by the country’s leaders. Riyali has won many awards, including Makkah Excellence Award in Social Responsibility in 2013.

You mentioned corporate governance. Can you tell us more?
SEDCO is a unique family business, which practices strong corporate governance. It is driven by the scale, scope and complexity of SEDCO’s businesses as well as the shareholders vision of a professional, transparent and ethical organization. It has been critical in building our reputation as a capable, ethical and responsive business group. We apply best practice in corporate governance, our board of directors comprises eight members, five of whom are from outside the family and are chosen from prominent local and international experts. Corporate governance has paved the way for future growth, including the ability to attract investors, both locally and internationally. It has improved SEDCO’s access to capital and financial markets. It has provided grounds for a smooth inter-generational transfer of wealth and growth of family assets. Furthermore, it has strengthened the confidence of shareholders in the management, and implemented better systems of internal control, thus leading to greater accountability and improved profit margins. It has also laid the ground for a clear separation between management and shareholders. The corporate governance process has enabled SEDCO to distinguish itself from many other regional family businesses, whose shareholders are frequently involved in the management of day-to-day activities. It has been recognized by the Institute of Directors as best-in-class for the region.

The Internet offers many online calculators useful to estate planning practitioners and readily available at no, or modest, cost. (The calculators listed are free unless otherwise mentioned.) But Web resources tend to be moving targets. I last addressed the Latest in Internet Calculators on Aug. 11. 2009, and much has changed since then. So, here are updates, corrections and the latest links to web-based calculators. These and many other calculators are also listed and categorized in my ebook, The Electronic Practice.

Often you can use these quick, standalone calculators without having to launch larger, more comprehensive estate or financial planning programs.Included are resources that you may wish to suggest to clients for their personal use.

Online calculator functions vary from simple numeric calculations to more elaborate Java-based graphic presentations. Such online calculators include mathematical, business and tax calculations. Java-based calculators require the simple installation of the Java technology on your computer.

Generic calculators

Moffsoft FreCalc is a free, downloadable, calculator that offers a virtual tape display, keeps track of your calculations and can be printed, copied or saved to a text file. It also features a visible memory value (status bar).It has several color schemes to choose from and an option to run in the Windows XP, Vista or Windows 7 system tray. The more advanced Moffsoft Calculator 2 software has additional financial and business functions and is priced at $19.95.

Martindales Calculators On-Line Center is the mother lode of calculators. It has thousands of calculators for every conceivable math, financial, business and statistics calculation.

Calculators.com provides links scientific calculators and a variety of calculators for special industries and special purposes, including financial calculations.

Amortization schedules

Time Value Software offers the TValue V. 5.30 amortization software, the ultimate amortization program that does sophisticated loan amortization calculation and amortization schedule preparation and also addresses other loans and investments.It now includes troubled debt restructuring. Pricing begins with the single-user edition at $149, with annual service at $35 per user. Whats New in TValue Amortization Software since Version 4.0.

Interest.Com lists a variety of online and shareware loan and mortgage, interest and savings calculators, including a 401k calculator.

Mortgage-Calc.com presents free convenient/basic web-based mortgage, amortization and financial calculators.

Collections of mortgage, financial and tax calculators

ThomsonReuters offers the Quickfinder Tax amp; Financial Tools, targeted taxand utility toolstax calculators, tax worksheets, Affordable CareAct tools, client handouts and organizers, financial calculators, forms and flowcharts. A license for 5 users at one location is $99.

Pine Grove Software provides web-based investment, loan, personal finance and retirement calculators, as well as various time value and amortization fee-based software products. Features and pricing are on their Product Comparison page. Pine Grove also offers a variety of free online calculators.

Financial Planning Toolkit has a variety of mortgage, retirement planning, savings and tax planning calculators, with line charts and schedules. It also offers some estate planning forms.

The Giamarco, Mullins amp; Horton website presents calculators for business valuation, personal finance (HSA, life insurance needs, savings), loan amortization and comparison, college saving, retirement (savings, IRAs, MDRs, Social Security and others) and estate tax planning, with detailed explanations of calculations and concepts and helpful graphic displays.

Fiscal Agents Financial Tools offers a number of retirement, mortgage and loan calculators, as well as personal financial planners. The site is Canadian, but many of the calculators are generally useful.

The Colorado State Bank and Trust Calculators address home financing, saving for college, saving for retirement (including 401(k) and Roth IRA conversion) and investing.

CalcXML presents personal finance calculators for a number of purposes, including auto, cash flow, college, credit, home and mortgage, tax, insurance, paycheck, qualified plans, retirement, saving and investment. Their products include consumer calculators to present on your website. They also publish the Financial Portal planning tool.

Time Value Software, TCalc Online Financial Calculators has many online mortgage, personal, investment, retirement and lease calculators for consumers, including personal financial planning, future/present value, IRAs, savings, loans, leasing, etc. Any of these calculators may be purchased for integration into your own website.

Bloomberg.com offers free calculators for currency conversion, mortgages, retirement and 401(k) savings.

MoneyChimp has calculators for future value adjusted for inflation, compound interest, social security contributions, investing methodologies, bond yields, Social Security and Medicare contributions and Roth IRA income and contribution limits.

Bank Rate presents free mortgage payment, savings, CD interest, life insurance need calculators and a variety of investment, retirement and financial planning calculators.

Mortgage Loan.com features numerous calculators that perform nearly every conceivable mortgage-related calculation. It also has calculators for home equity, CD/investment returns, debt/credit optimizing and payoff, student loans, personal finance, income tax and retirement (401(k), minimum distribution requirements (MDRs), 72t, Roth and traditional IRAs). The calculators are available as widgets that can be added to your website.

DailyFinance has calculators for consumer calculation of mortgage/auto loans, retirement (including Roth IRA), college planning, savings and a variety of personal finance issues.

Boggleheads Tools and calculators provides numerous links to online calculators that include college savings, IRA, life expectancy (lifestyle amp; IRS), loan and mortgage, retirement, social security, required minimum distribution, portfolio tools and taxable equivalent yields. It also includes explanations of many of the calculations.

Financial management calculators

Wachowiczs Web World presents a wide variety of financial management calculators, spreadsheets and links, including securities valuation, intermediate and long-term financing and tools for financial analysis and planning (search for calculators).

Cpisitesolutions.com has a wide variety of interactive financial problem solvers. Enter your criteria to generate dynamic graphs and personalized reports.

The FINRA website provides interactive financial tools and calculators.

Cost of living calculators

The Department of Labor, Bureau of Labor Statistics supplies the Consumer Price Indices.

The Federal Reserve Bank of Minneapolis website compares the worth of a dollar between years using the Consumer Price Index.

Toms Inflation Calculator lets you chooseUS Price Inflation, US Wage Inflation or US Medical Cost Inflation data sets to compare between years.

The Measuring Worth web page provides a variety of ways to calculate the relative value of US dollars and British pounds over time and provides currency exchange rates.

Compound interest calculations

Pine Grove Software offers a number of calculators, including the Compound and Simple Interest Calculator, which calculates compound interest, including days between dates.Free to non-commercial users. These calculators may be linked to from your website.

The MoneyChimp website offers a free periodic and continuously compounding interest calculator with formulas explaining the calculations.

Capital gain

Moneychimp also provides a freecapital gains calculator.

Corporate income tax calculations

The Denver Tax Software C Corp Tax Calculator computes regular corporate tax, uses personal service corporation (PSC) rates, handles capital loss carry forwards to the current year and computes what any capital loss carry forward would be to future years, treats Section 1231 gains as capital gains and Section 1231 losses as ordinary losses, allows NOL (Net Operating Loss) carry forwards and computes the charitable deduction limitation if needed. Its a free download.

Quick income and estate tax estimates

Docstoc income tax calculator features linked information and rules.

John Hancock Life Insurance furnishes a basic estate tax and gift tax calculators.

A simple calculator for federal Estate tax at the current year rates is available at CalcXML.

Other tax calculations

KJE Computer Solutions, Financial Calculators supplies a simple calculator for estimating self-employment tax.

The Internal Revenue Serviceoffers its Alternative Minimum Tax (AMT) Assistant to determine whether a given taxpayer is subject to AMT.Its an electronic version of the AMT Worksheet in the 1040 Instructions.

The TimeValue TaxInterest program (one user license $149) performs all types of IRS penalty and interest calculations.

Social Security

The Social Security Administration has online quick benefit calculators that also generate charts, and a Retirement Estimator that computes benefits based on an individuals exact retirement history.

Bankrate.com has a Java based Social Security monthly benefit estimator that is the best of this type of calculator.

CalcXML presents How Much Of My Social Security Benefit May be Taxed?, which estimates the income tax increment resulting from Social Security benefits.

Life expectancy

Living to 100 asks 40 questions and states that it uses the most current and carefully researched medical and scientific data in order to estimate how old you will live to be.

Dean P. Foster (professor, Department of Statistics, Wharton University of Pennsylvania) publishes a life expectancy calculator using both current life expectancy tables and adjustments for life style.

IPhone amp; iPad Calculators

A wide variety of calculators for the Iphone and iPad are available at AppsGoneFree.

The Windows 7 Calculator

The Windows 7 calculator is analyzed in Kaelin, The Hidden gems found in the Windows 7 calculator (12/18/2011 TechRepublic) with a gallery of its functions. It includes standard, scientific and statistics calculators and keeps a history of your calculations. It has unit conversions, mortgage and vehicle lease worksheets and calculates the difference between two dates. See also, How to use the calculator in Windows 8 (WikiHow).

Summary

Cost and convenience are major factors in selecting computing facilities.Online calculators often perform frequently needed calculations that arent included in commercial software packages or that would require your firing up a major program.They also may provide a way to check calculations made by other software.A number of the listed calculators may be incorporated into your website as a service to your clients.

Trusts amp; Estatesmagazine is pleased to present the monthlyTechnology Reviewby Donald H. Kelleya respected connoisseur of the software and Internet resources wealth management advisors use to further their practices.

Kelley is a lawyer living in Highlands Ranch, Colo., and is of counsel to the law firm of Kelley, Scritsmier amp; Byrne, PC of North Platte, Neb. He is the co-author of theIntuitive Estate PlannerSoftware, (Thomson West 2004). He has served on the governing boards of the American Bar Association Real Property Probate and Trust Section and the American College of Tax Counsel. He is a past regent, and past chair of the Committee on Technology in the Practice, of the American College of Trust and Estate Counsel.

Trusts amp; Estateshas asked Kelley to provide his unvarnished opinions on the tech resources available in the practice today. His columns are edited for readability only. Send feedback and suggestions for articles directly to him atdon@dhkelley.com.






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