Quarterly report, December 31, 2009

The global economy further improved in Q3 2009, thanks to the massive stimulus packages put in place by governments and restocking by companies (see chart). The key factor for 2010 will be whether governments, especially in the USA, succeed in converting the state‐driven upturn into a selfsustaining recovery. Private consumption, which accounts for 70% of GDP, will play a key role. Consumer spending is likely to be adversely affected, for some considerable time, by the need of US households to reduce their heavy debt burden and by the high unemployment level. That being so, the US economy may well lose ground again in the second half of the year as the fiscal policy incentives are due to expire in mid‐2010 and inventories will have been rebuilt by then.

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Quarterly Report - September 30, 2009

The global economy bottomed out in recent months. Certain emerging economies reported double‐digit growth in GDP for the second quarter, while other countries such as the US have yet to achieve a turnaround. The continued contraction of GDP in the US in the second quarter was attributable to the dramatic destocking occurring at businesses. The latest stock figures indicate that the widespread reduction in stocks is gradually reaching an end and that restocking will commence again slowly. We therefore predict possible fourth‐quarter growth for the US. The global economy could grow next year, buoyed by the massive stimulus packages worldwide. We are still convinced that government economic stimuli on such a large scale do not have a permanent effect. When the monetary and fiscal policy stimuli begin running out in early 2011, the upturn in the US in particular will run out of steam. The prospect of a much larger money supply will probably lead to a period of stagflation in the longer term.

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Quarterly Report ‐ June 30, 2009

A number of leading indicators improved during the last quarter. In the United States, the purchasing managers’ index (ISM) for industry has been rising for the last four months. Private consumption is no longer declining at an annualized rate of 4%, as it was at the end of 2008, and improved slightly. This upturn is driven by the mammoth stimulus packages enacted by governments. In the last quarterly report, we mentioned that governments were using these stimulus packages to do everything they could to stop the economy from sliding into a depression and thus enable it to recover in the short term. We are still convinced (see last quarterly report) that massive government economic stimuli like these do not have a permanent effect. The economy could grow in the short to medium term, but we are bound to see another downturn in the medium to long term.

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Quarterly Report ‐ March 31, 2009

Consumer confidence in the economy fell to new historic lows worldwide in Q1 2009 as the jobless rate rose sharply. The mood at companies brightened slightly from their previous gloom thanks to massive government intervention. Retail sales dropped less than expected in February following an unexpected increase in January. The growth in retail sales can be traced to price discounts at companies, which are reducing their inventories dramatically. Orders for durables rose unexpectedly in February after declining to a record low in January for the sixth consecutive month. In terms of general observations, economic indicators have declined less drastically since the start of the year or have recovered slightly from their historic lows. If the leading indicators continue to gain ground over the next two or three months, we can confidently say that the economy has bottomed out.

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VVT Quarterly Report

Quarterly Report 31 of December 2008

Economic Environment (Review)

The most important US economic data sank to their lowest levels for many decades, and reflect the current weak state of the US economy. In November, for example, the sentiment barometer for the service sector compiled by Supply Management fell to the lowest level recorded since data was first collected in 1997. The sentiment within the manufacturing sector, as measured by the Chicago Purchasing Manager Index, also recorded its sharpest decline in November since April 1982. Consumer sentiment in the USA presents a similar picture. This fell to a level last seen in 1975. The number of US citizens claiming unemployment benefit rose to 6.7 % at the end of November. The global economy posted a similarly gloomy performance; all indicators point towards recession, with some of the most important falling to the lowest level recorded in decades. In addition, the economies of the emerging markets were not immune to these developments, being also hit by the ongoing financial crisis.
Despite the worldwide interest rate cuts and the massive support for banks provided by governments, commercial banks remain reluctant to pass on the flow of liquidity. Instead of using the money to ease the credit crunch, banks have been depositing the money with the Federal Reserve or have been investing in safe Treasury Bills. This is having dramatic consequences on the real economy. In November alone, US commercial banks bought treasury bills worth $100 billion. In comparison to 2007, this represents a rise of over 60%.The difference between the return on three-month Libor and the return on US three-month Treasury Bills (T-Bills) is called the TED spread, and is a good mood indicator for the level of trust amongst banks. The higher the TED spread, the less the banks trust each other The TED spread eased slightly in recent days. This indicates that confidence has improved slightly amongst banks. However, the TED spread remains at a high level.

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Good marks for the Financial Market Authority Liechtenstein

The International Monetary Fund (IMF), which assessed the Financial Market Authority in 2007, has announced its positive findings. The IMF final report, published the end of June 2008, gives good marks to the Liechtenstein supervisory authorities. Already in the general report on the Liechtenstein financial center, which was published in March, the IMF had certified the Principality of Liechtenstein’s high standards in its fight against money laundering and financing of terrorism.

The Financial Market Authority Liechtenstein (FMA) has made substantial progress on the path toward a modern and internationally recognized supervisory authority. Moreover, information exchange and cooperation between the FMA and foreign supervisory authorities functions smoothly. These are the summarized findings of the IMF assessment, which focused on banking supervision, securities supervision, and measures against money laundering and financing of terrorism. The IMF classifies Liechtenstein as an Offshore Financial Center (OFC), since many Liechtenstein financial intermediaries mainly offer services to non-residents. At the end of 2007, the FMA counted 2,089 financial intermediaries subject to FMA supervision. The IMF assessment of banking supervision was carried out on the basis of the recommendations by the Basel Committee on Banking Supervision, while securities supervision was analyzed with respect to compliance with the standards of the International Organization of Securities Commissions (IOSCO).

Given the financial and company services offered by the Liechtenstein financial sector, the IMF identified a particular risk of money laundering. In addition to the specializations in wealth management, fiduciary services, and life insurance products, the Liechtenstein financial center has experienced an expansion in non-banking services over the past few years, including investment undertakings and insurances. About 90% of business is offered to non-residents, who are attracted by access to discreet and flexible legal forms, bank secrecy, and attractive tax possibilities in a stable and well-regulated environment. Using risk-based counter-measures, the supervisory authorities strive to combat the risks of money laundering and financing of terrorism. Accordingly to the IMF assessment, not all available measures already meet the required standards, but the IMF assessors expect Liechtenstein to be able to close the remaining gaps with its implementation of the 3rd EU Money Laundering Directive.

In their 2008 report, the IMF assessors point out that Liechtenstein had been placed on a list of non-cooperative countries in 2000 by the FATF, the Financial Action Task Force of the OECD, but had been taken off this list again only one year later. Since then, the authorities have made substantial progress toward compliance with the FATF recommendations, which the IMF already praised during its first assessment in 2002. The progress identified at that time has since been continued by way of legislative amendments and new institutional structures. The IMF found cooperation among national authorities in the fight against money laundering and financing of terrorism to be effective. The capacity and willingness of Liechtenstein to cooperate internationally and to exchange available information has improved significantly. To achieve further improvements, the IMF calls for the legal foundations for information exchange with foreign supervisory authorities to be strengthened. The IMF also criticizes that the available legal remedies may delay the surrender of information.

Already at the beginning of March, when the first general IMF report was presented, Prime Minister Otmar Hasler noted with satisfaction that the IMF had given the Liechtenstein financial center good marks with respect to supervision and anti-money-laundering. The IMF report confirmed the reform path taken after the 2001 financial crisis, which was now being further pursued with the revision of foundation law and tax law. The report confirmed the Prime Minister’s belief that the creation of the independent and integrated Financial Market Authority (FMA) constituted an important step toward high-quality supervision and regulation of the financial center. The Government has responded positively to the IMF recommendations to intensify the prevention and prosecution of money laundering. As Prime Minister Otmar Hasler emphasized, the implementation of the 3rd EU Money Laundering Directive would encompass most of these recommendations.

Source: http://www.liechtenstein.li/en/fl-portal-aktuell?newsid=16235

Is the legal fiscal confiscation of many countries legitimate?

The latest international media developments around the topics of money laundering, tax issues and banking secrecy leave behind a mixed bag of sensations. On the one hand it is felt that a coordinated attempt to put pressure on international financial centers is made by various OECD countries in the lead of Germany and the US, which seem mainly oriented at either distracting from problems at home or at least try to fix some fiscal shortcomings. The result of this was, that the OECD committee visiting Hong Kong in spring did not receive a pleasant welcome and were left behind with a message that such behaviour when dealing with confidential information as shown by Germany, would not be seen as to strengthen relations with Hong Kong. Talks regarding exchange of information with the up and coming Asian financial centre have taken a hard hit and will most likely remain closed. On the other hand, Liechtenstein has received a very positive report during the recent visit by the IMF regarding the efforts by the financial market authorities to combat money laundering. Also, Liechtenstein has signed the Schengen/Dublin accord on February 28, 2008, it has revised it's Foundation law and is implementing the 3rd EU directive on money laundering. It has fully implemented the MiFID regulations as first European country within the accords and it has received reconfirmation of it's Triple A country rating by Standard & Poor's. Then not long after things calmed down in Liechtenstein, the Swiss Banks started to feel the pressure, which resulted in the latest media hype on UBS regarding their involvement in a Florida tax case, which may well be used in order to bring Swiss Banking secrecy and along with it, the Liechtenstein banking secrecy to the discussion table again. In any case, the arguments will continue and international financial centers will have to strengthen their capacity to properly display their efforts undertaken. The discussion will sooner or later have to change focus from a legalistic view, hich currently dominates, what is legal off-shore may not be legal onshore, versus the real topic at hand, "is the fiscal confiscation of many countries legitimate ?" We feel, that a fiscal charge to citizens should be in balance with the economic value the citizen receives from his governement. Unfortunately, in many countries, there is a substantial inbalance in what you pay for and what you get for your money. This is pure economics and until the countries will change their economic performance, the capital involved will relentlessly flow towards the places where such economic balance exists.

Financial market turmoils, are you worried enough?

Excerpt from Stephen S. Roach, Chairman Morgan Stanley Asia

America’s recession has global

implications — in contrast to the

implications of the overly optimistic

decoupling scenario.

This is likely to be a big deal for the broader global economy.

So far, the world has held up relatively well in the face of a

pre-recession downshift in the U.S. economy. That is about

to change. America’s recession is in the process of shifting

from homebuilding activity–its least global sector — to

consumer demand, its most global sector. For the rest of the

world, this transition will come as a rude awakening. Many

have been banking on a "global decoupling" — in essence,

resilience elsewhere in the world in the face of a U.S.

demand shock. In particular, there is hope that

young consumers from rapidly growing developing

economies can fill the void left by weakness in U.S.

consumers.

Don’t count on it. The U.S. consumer is, by far, the

biggest consumer in the world. Americans spent over

$9.5 trillion last year, whereas the Chinese consumer

spent around $1 trillion and Indian consumers

another $650 billion. Given the huge scale of U.S.

consumption, it is almost mathematically impossible

for Chinese and Indian consumers to fill the void left

by a meaningful pullback of the American consumer.

For export-led developing economies in Asia, as well as

for Japan, a weakening of U.S. consumption represents

a softening in one of their biggest destinations of

end-market demand. Lacking in vigor from domestic

private consumption, the likelihood of growth

slowdowns in externally-dependent Asian economies is

quite high.

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