interest rates – Beacon at Bangsar http://beaconatbangsar.com/ Sat, 19 Mar 2022 10:32:18 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 https://beaconatbangsar.com/wp-content/uploads/2021/03/cropped-icon-32x32.png interest rates – Beacon at Bangsar http://beaconatbangsar.com/ 32 32 Buy now, pay later Loans will soon appear on credit reports https://beaconatbangsar.com/buy-now-pay-later-loans-will-soon-appear-on-credit-reports/ Sat, 19 Mar 2022 10:32:18 +0000 https://beaconatbangsar.com/buy-now-pay-later-loans-will-soon-appear-on-credit-reports/

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If you use buy now, pay later loans, account activity may soon show up on your credit report.


Key points

  • The three credit bureaus plan to include data on buy-now-pay-later loans in consumer credit reports.
  • This change could help consumers who use BNPL’s services improve their credit.
  • With this news, consumers should consider how their BNPL account activity could positively and negatively impact their credit.

Buy now, pay later (BNPL) loans are growing in popularity because they provide a convenient way to pay for larger expenses over time. These loans have not previously been reported on consumer credit reports. But that is about to change.

Buy now, pay later loans are attractive. Some of these loans offer a 0% interest rate for a limited period, while others offer low interest rates. Consumers can pay off debt in regular installments and spread the cost of expensive purchases.

Since many BNPL services do not apply for firm credit for approval, this is a great loan option for people with minimal credit history. It may be more difficult for these consumers to obtain approval for other financial products, such as credit cards.

We conducted a survey to examine the popularity of BNPL services. We have found that over half of Americans have used BNPL loans and these services continue to grow in popularity.

Typically, these loans do not show up on credit reports. However, the three credit bureaus recently announced plans to include buy now, pay later, payment and account data, and activity on consumer credit reports. But it won’t be an overnight change.

Here’s why BNPL loan data wasn’t released sooner

BNPL’s service activity has generally not been reported in credit reports, as this type of data does not integrate well with the current system, which analyzes revolving credit and long-term loans such as mortgages. and car loans.

Because BNPL services are installment loans, some consumers take out multiple BNPL loans per year. With most current credit models, taking out multiple BNPL loans could be considered risky. For this reason, including such activity in credit reports could penalize consumers.

But industry experts believe that consumers should be able to benefit from BNPL’s services and have the opportunity to improve their credit by making responsible choices with these loans. This includes regular and one-time payments and repayment of BNPL loan balances.

Although the credit bureaus will soon be reporting this data, they want to take steps to protect consumers from the immediate potential negative impact on credit of including this data without first adjusting the current system.

It will take time for the industry to adapt and make room for BNPL loans – so consumers should not expect instant changes.

What to expect from the three credit bureaus

Eventually, all three credit bureaus will report some BNPL data, but how they process that data will vary. Here’s what we know so far:

Experian

Experian plans to launch its own product, The Buy Now Pay Later Bureau™, in the spring of 2022. This product will include essential BNPL account data. Initially, BNPL data will be stored separately from Experian’s central credit bureau data and may be requested by lenders.

Equifax

During the first quarter of 2022, Equifax will formulate a standard process for including BNPL data in traditional consumer credit reports. This includes the implementation of a new commercial industry code used to classify industry. The long-term plan is to include this data in regular consumer credit reports.

Trans Union

TransUnion recently launched its own new BNPL credit reporting service, called Point-of-Sale Suite Solutions. The credit bureau will include BNPL data in its reports. This data will appear on a separate part of credit reports and will be made available to lenders.

What this means for consumers

If you use BNPL’s services, you can expect relevant data to appear on your credit file very soon. Although it won’t happen right away, it will eventually become a reality.

For consumers who are new to establishing credit, including BNPL on their credit file could offer a way to establish credit and improve their credit score. But to benefit, consumers will need to make responsible choices, such as making payments on time.

Whatever personal finance tools you use, it’s important to choose wisely and be careful. Do your best not to ignore your debts, make late payments or miss payments.

BNPL loans can be beneficial, but they can cause you financial stress if you are not careful. Only take BNPL loans if you can afford to make regular payments without ignoring your other financial obligations. Always consider the impact of your actions on your financial well-being.

If you’re looking for tips and advice on how to improve your finances, check out our personal finance resources.

The Ascent’s Best Personal Loans for 2022

The Ascent team has scoured the market to bring you a shortlist of the best personal loan providers. Whether you’re looking to pay off debt faster by lowering your interest rate or need extra money to make a big purchase, these top picks can help you reach your financial goals. Click here for the full rundown of The Ascent’s top picks.

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Debt maturity and central bank hikes loom in Russia https://beaconatbangsar.com/debt-maturity-and-central-bank-hikes-loom-in-russia/ Fri, 11 Mar 2022 23:20:00 +0000 https://beaconatbangsar.com/debt-maturity-and-central-bank-hikes-loom-in-russia/

A man walks out of a currency exchange office in Saint Petersburg, Russia, January 26, 2022. REUTERS/Anton Vaganov

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LONDON, March 11 (Reuters) – The cost of Russia’s invasion of Ukraine will become much clearer next week, with a previously unthinkable sovereign default looming, other central bank emergency measures probable and a guaranteed stock market crash in the event of a reopening.

Moscow’s “special operation” in its former Soviet neighbor has cut Russia off from key parts of global financial markets by the West, triggering its worst economic crisis since the fall of the Soviet Union in 1991.

Wednesday could mark another low. The government must pay $117 million on two of its dollar-denominated bonds. But he signaled that he wouldn’t, or if he did, it would be in rubles, which would amount to a default. Read more

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Technically it has a 30 day grace period, but that’s a minor point. If that happened, it would represent its first international default since the Bolshevik Revolution more than a century ago.

“Default is very imminent,” said Roberto Sifon, a top analyst at S&P Global, which just hit Russia with the world’s largest-ever sovereign credit rating downgrade. Read more

That state-run energy giants Gazprom and Rosneft have made international bond payments in recent days and that around $200 billion in still-unlicensed government reserves leave a glimmer of hope that may not happen, even if those odds seem bleak.

Russia’s international debt default looms

Wednesday could be busy for other reasons as well.

Russian financial newspaper Vedomosti reported that central bank and Moscow stock exchange sources said this week that suspended local stock and bond trading could resume by then.

It would be chaotic at least in the short term. Big Russian companies, also listed on the London and New York markets, saw these international stocks plummet to virtually zero when the crisis hit and have now come to a halt. Read more

“A lot of financial institutions are sitting on Russian assets that they want to get rid of but they can’t,” said Rabobank currency strategist Jane Foley.

“They really have no choice but to sit on it. But that means when they are allowed to trade, the selling can be quite persistent.”

Ruble plunges as conflict triggers unprecedented sanctions

RECESSION

It won’t stop there. Russia’s central bank is due to meet on Friday after already more than doubling interest rates to 20% and implementing sweeping capital controls to try to prevent a full-scale financial crisis. Read more

Western investment banks like JPMorgan now expect the economy to plunge 7% this year due to a combination of bank run fears, sanctions damage and an instant spike in inflation. caused by a 40% drop in the ruble.

This compares to the 3% growth forecast at the start of the year. It also means a peak-to-trough dive of around 12%, which would be bigger than the 10% drop in the 1998 ruble crisis, the 11% lost in the global financial crisis, and the 9% drop of the COVID-19 pandemic. .

“The CBR might raise rates a bit more, that would be the safest guess at the moment,” said Arthur Budaghyan, chief emerging markets strategist at BCA Research.

However, the most crucial measures at this stage could be new capital controls to try to keep the financial system in a cocoon.

“It’s much more important to make sure the banks can operate, can still process payments and keep credit flowing to the economy so that it can at least function to some extent,” Budaghyan said.

The Russian stock market plunges much more than in other crises
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Reporting by Marc Jones; Editing by David Gregorio

Our standards: The Thomson Reuters Trust Principles.

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Four common investment misconceptions https://beaconatbangsar.com/four-common-investment-misconceptions/ Mon, 28 Feb 2022 16:37:42 +0000 https://beaconatbangsar.com/four-common-investment-misconceptions/

One of the biggest misconceptions I come across in the financial advice industry is that as you get older you need to reduce your equity allocation. While this philosophy may be based on some truth, it oversimplifies reality. Many people unnecessarily choose an asset allocation that they believe is safe, but which could actually jeopardize their future goals.

The foundation of this argument is based on the principle of the investment time horizon. The simplified thought is this: as we age and have fewer years to live, our time horizon must shorten. Although we all have an expiration date, our assets do not. When it comes to investment assets, time horizon and life expectancy are not necessarily the same thing. And even when they are, many continue to misallocate assets based on an erroneous assessment of risk.

Here are four common investment misconceptions.

Age equals time horizon

The time horizon should be the most important determining factor in choosing the percentage of stocks, bonds (or CDs) and cash that make up your investment portfolio. Rather than relying on the adage “your age should equal your bond allocation,” investors should look at their likely future cash needs in tranches.

• First bucket: immediate needs. This includes withdrawals that are expected to occur within the next 12-18 months. These assets should be invested in money market accounts or current (chequing/savings) accounts with little or no market volatility.

• Bucket two: intermediate needs. Money that you expect to withdraw in more than two years, but in less than eight to ten years. Funds for tuition, vehicles and major home repairs are examples. The timing of these expenditures is reasonably foreseeable. These funds should be invested in higher-yielding, time-limited investments, such as high-quality bonds or bank CDs. The maturity date should roughly coincide with the scheduled withdrawal date.

• Bucket three: Long-term needs. You don’t expect to need this money in the next eight to ten years. These funds should be invested in stocks and other risky assets. These assets have higher expected returns, but they come with greater short-term volatility.

The stock market is very risky

When we talk about risk in financial terms, we usually refer to volatility, or how much an investment can gain or lose value. From quarter to quarter or year to year, the value of stocks can go up and down dramatically. However, if we look at returns over longer holding periods – like five and 10 years – the volatility drops dramatically. This happens because stocks historically tend to sell off dramatically, recover over time, and eventually reach new highs before the cycle repeats itself. Historically, these cycles take seven to ten years to fully unfold.

• Diversification is important here because a stock is a small piece of ownership in a company. Some companies never recover, and the stock price reflects that; but as an economy recovers, the market not only participates, but generally leads the way.

• Long-term equity returns are nearly double those of bonds. According to the NYU Stern Database, the S&P 500 stock index has an average annualized return of around 10%, dating back to when the index had only 90 stocks in 1928. US Treasuries have yielded a just under 5% over the same period.

Government bonds are less risky than stocks

Unlike stock returns, bond returns are limited by mathematics. A bond is simply a $1,000 chunk of a much larger loan. Once the loan is created, the terms of the loan do not change. The “total return” of a bond comes from the interest paid (the coupon payment), plus or minus any change in price. The price of a bond will change as prevailing interest rates change. When rates fall, the bond becomes more valuable because it has to pay a higher coupon than the prevailing market interest rate. Therefore, as prevailing interest rates fall, existing bonds gain in value; as rates rise, existing bonds lose value.

• Bonds cannot repeat their historical performance. Over the past 50 years, bonds have experienced a prolonged period of systemic decline in interest rates. Interest on a US Treasury bill fell from 16.3% in May 1981 to 0.03% in December 2008. During this period, US Treasury bills earned an annualized return of 9.77%. Most of this performance can be attributed to the steady decline in market interest rates.

• With current market interest rates at zero, historical yields are no longer relevant to future return expectations — if we assume that rates cannot fall well below zero. This means that as the Fed raises rates to fight inflation, the prices of existing bonds will fall, crippling future bond yields and virtually guaranteeing that they will struggle to keep up with inflation.

You cannot lose cash

With the rise of cryptocurrency and alternative assets, we need to rethink our definition of money. Technically, money is simply a store of the value of our labor. It has taken many forms throughout history, but its purpose has always remained the same. We earn it when we work and keep it until we want to exchange it for something of value.

• If the storage unit of our currency decreases in value, it will take more units to buy the goods we want in the future. It’s inflation. In 2021, the consumer price index increased by 7%. This means that the work we did in early January 2021 bought 7% less goods by the end of the year. If we assume a working year of 250 days, that means we lost 17.5 working days due to inflation. Holding cash can and does lead to loss of money.

Ah, making decisions…

Armed with this knowledge of important misconceptions, what decisions should investors make? Here are three suggestions:

• Invest for your needs, not for your age.

• Think carefully about your projected expenses and use the “bucket” methodology. This should be the basis for the award decision.

• Resist changing your allocations based on market conditions. Market timing is incredibly difficult because it requires two perfectly synchronized decisions: when to exit and when to return.

The information provided here is not investment, tax or financial advice. You should consult a licensed professional for advice regarding your specific situation.

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Fairfax stock is a buy after reporting its best year https://beaconatbangsar.com/fairfax-stock-is-a-buy-after-reporting-its-best-year/ Mon, 21 Feb 2022 09:14:00 +0000 https://beaconatbangsar.com/fairfax-stock-is-a-buy-after-reporting-its-best-year/

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Fairfax (OTCPK: FRFHF) was one of my top holdings for almost four years, and during that time it was a lousy investment. Prem Watsa, the once-legendary value investor, had to clean up some stupid mistakes, but Fairfax still couldn’t regain investor confidence.

Figure 1 shows the strong underperformance of FRFHF against the S&P 500 index measured during my early purchases of the company.

Fig. 1

Fairfax stock price performance against the S&P 500

BAML and author’s calculations

The guilty? Poor investments and a difficult interest rate environment.

blackberry (NYSE:BB), Greece, inflation hedges, short markets, new African consumer banks. They have all eaten away at the insurance company’s book value, while its portfolio of fixed-income assets continues to languish at rates near zero.

Figure 2 presents the investment performance of FRFHF broken down over several time periods. In the early days of the business, it can be seen that the investments performed well. But in recent years, performance has been mediocre at best.

Figure 2

Growth in book value per share, average combined ratio, investment performance

Fairfax Annual Report 2020

Over the past decade, FRFHF has struggled to reach 5% on its investment portfolio, while the S&P 500 has steadily hit new highs, fueled by growth and technology stocks. This led to below-average growth in book value well below its self-imposed target of 15% per year.

This year, however, Fairfax posted record performances for its 36-year history on nearly every key metric:

  • $26.5 billion in revenue up 34% over the previous year
  • 3.4 billion USD in net profit up almost 15 times from the previous year
  • 15 billion USD in equity, up 20% compared to the previous year
  • Consolidated combined ratio: 95% less than 97.8% the previous year

The real question now is: what is the next step? Does this performance mark the long-awaited turning point for stocks or another false start for this Berkshire (NYSE: BRK.A) desire? Let’s first look at the core business of the company: insurance to better understand the management of tomorrow.

The driving force: insurance

Fairfax has spent years building a global insurance platform and creating a conservative underwriting culture. From 1985 to 2021, global premiums grew at a compound rate of 23% to nearly $23 billion or $1,000 per share.

At the same time, the average combined ratio of its insurance portfolio continued to decline. In Figure 2, from 1986 to 1990, the company had an average consolidated combined ratio of 106.7%. Over the past five years, its average consolidated combined ratio has been 98.7% with a median of 97.3%.

Combined ratios are a key measure of the profitability of insurance companies. They measure expected insurance losses plus underwriting costs relative to earned premiums. The lower the combined ratio, the more profitable the insurance company.

They are also an important indication of whether insurance float or premiums collected but not yet paid have a cost. Profitable underwriting for insurance companies, as in the case of Fairfax, means that the returns on investment all go to shareholders.

Figure 3

2017-2021 annual combined ratios for Fairfax Insurance

Fairfax Annual Reports

We can see in Figure 3 that Fairfax has significantly improved its combined ratio from 106.6% in 2017 to 95% in 2021. The difficult market conditions, when insurance companies have the power to raise prices , certainly helped. Gross written premiums at Fairfax increased 25% to $23.9 billion in 2021 from a year ago.

Expect these conditions to persist in the form of social inflation or a tendency for juries to award higher amounts to plaintiffs; disasters crowd out weak carriers; and rising general inflation to conspire for a hard market.

Despite these positive developments, Fairfax investors should beware of some difficult to quantify risks.

Climate change and its impact on weather conditions can put pressure on (re)insurance companies. The view that there will be more frequent, severe and unexpected weather disasters cannot be ignored. For example, Fairfax’s explosive year included another $1.1 billion in catastrophe losses, reducing its combined ratio by 7.2 points; excluding catastrophes, the combined ratio would have been 87.8%!

But that’s why a cautious and adaptive underwriting culture is needed, and I haven’t seen anything to suggest that Fairfax won’t adapt to these new climate realities. Investors, however, should take note of the progress the company has made here.

In addition, the ongoing conflict between Ukraine and Russia could negatively impact Fairfax’s European insurance business. In 2020, the company wrote gross premiums of USD 144 million in Ukraine and USD 114 million in Poland. Brit, which is a UK-based insurer, paid 13% of gross premiums that year.

Inflation will be good for Fairfax

Inflation has been an afterthought in the developed world for more than a decade, but the global pandemic has raised concerns among central bankers about runaway prices. Self-imposed lockdowns and workers reluctant to re-enter the labor market have put enormous pressure on global supply chains, causing consumer prices to rise rapidly.

The US consumer price index, for example, rose 7.5% year-on-year in January, the biggest 12-month increase since 1982. Wall Street, therefore, is forecasting up to seven rate hikes by the US Federal Reserve, while the Bank of Canada could quickly follow suit.

The insurance industry has long suffered from low rates, as their portfolios typically have a large portion of bonds to cover claims. But in a prescient move, Fairfax kept its portfolio short-term by keeping about 50% of its $43 billion in assets invested in cash and short-term instruments.

This means that as rates rise, his portfolio will be more resilient to changes in market value, as longer-dated fixed income instruments are discounted relative to better-priced ones.

Short duration assets do not face the same volatility in rising rate environments. Fairfax may also use its cash to purchase bonds and fixed income instruments when rates better reflect the credit risk being taken. A significant development since interest and dividends represented 28% of (re)insurance operating income in 2021.

Is Mr. Watsa finally giving the floor on share buybacks?

Mr Watsa has been chipping away at the company’s share count since 2018, reducing outstanding shares by an unimpressive 6% through 2020. But in a surprising year-end move, Fairfax launched a buyout of $1 billion primarily using proceeds from a sale of a minority stake in his wholly owned insurance unit of the Odyssey Group.

It was a decision Watsa had been hinting at for a while.

In his 2018 annual letter he wrote about Teledyne’s late great Henry Singleton (NYSE: TDY) fame, which retired 90% of Teledyne shares and generated a 3,000% return for shareholders during this period. Clearly, Watsa still has a long way to go to equal that record, but a stock cut of around 7% isn’t a bad start!

But the transaction was interesting beyond the mere merits of the takeover. It also gave watchful shareholders a window into the company’s undervaluation.

For $900 million, the Canada Pension Plan Investment Board and OMERS purchased a total of 9.99% or 4.995% each of Odyssey Group, the reinsurance and specialty insurance business of the Stamford, CT-based company.

This valued the unit at over $9 billion, or 1.83 times what Fairfax held for the Odyssey Group in 2020 ($4.9 billion in equity attributed to Odyssey).

How does this compare to the set?

Fairfax total common shareholders’ equity was $15 billion at the end of 2021, and the market capitalization of the entire company traded at $13.4 billion recently. The true value of the Odyssey Group was then a startling 60% of book value and 67% of market value.

When you consider Fairfax’s other attractive insurance properties, private business interests and controlling positions in Fairfax India and Africa, it is clear that the intrinsic value of the company is far greater than where the shares are listed today. today.

In sum

It can be silly to predict where the stock price will go next. I certainly didn’t have a crystal ball four years ago when I created my job at Fairfax and prices were languishing. But I continue to hold my stocks and buy on the downside taking comfort in Benjamin Graham’s mantra:

In the short term, the market is a voting machine but in the long term, it is a weighing machine.

Fairfax has been in the best shape for years.

The company’s (re)insurance operations are profitable, improving and thriving in a tough market that looks set to continue. Higher interest rates will allow the team to improve its interest income, a long thorn in investment performance. And it seems clear from the sale of the Odyssey Group’s stake that the Fairfax pieces aren’t getting the credit they deserve.

I suspect Mr. Watsa is closing the intrinsic value gap with accretive buyouts and creative financing that “weight” will be on the rise as the market begins to realize the value of this undervalued company.

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A modern tax system can generate more resources https://beaconatbangsar.com/a-modern-tax-system-can-generate-more-resources/ Sun, 20 Feb 2022 18:00:10 +0000 https://beaconatbangsar.com/a-modern-tax-system-can-generate-more-resources/

Ahead of the 2022-23 budget, the National Board of Revenue (NBR) has entered into discussions with various business and trade organizations, as in previous years. The Ministry of Finance does the same. The objective of the BNR is mainly to seek tax proposals from stakeholders. This is a commendable practice, which gives companies and organizations the opportunity to suggest not only how various sectors can get a break from the tax burden, but also how to improve revenue mobilization by improving the collection system. It is widely discussed that despite Bangladesh’s impressive growth, domestic resource mobilization is too low. Unfortunately, the NBR has not yet succeeded in bringing all eligible employees under the tax net. It is hoped that through these regular consultations between BNR and stakeholders, a better tax system will emerge in the near future.

The NBR plays the most important role in creating fiscal space for the government to undertake its activities. However, the goal imposed on it has not been achieved in recent years. Indeed, the objectives seem unrealistic and exceed the capacities of the BNR given its current institutional framework. It may be recalled that, in the budget for the fiscal year 2021-22, tax revenue – which includes both tax and non-tax revenue – was set at 11.3% of GDP. Of the total revenue target, tax mobilization is the highest at around 85%. In addition, for FY22, the revenue growth target was set at 27%. But the revenue growth trend in July-October FY22 indicates that achieving this goal will require more aggressive efforts, as revenue mobilization is expected to increase by 30.7% over the remainder of the fiscal year.

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Although several infrastructure projects are financed by foreign loans, the mobilization of domestic resources is crucial to achieve the short, medium and long term objectives of the government. With domestic resources, the government can prioritize its spending in line with political priorities. But the continued lack of national resources creates a real challenge for the government in delivering on these promises. At the current level of domestic resource mobilization, the implementation of its political commitments is difficult.

As Bangladesh is poised to become a developing country by 2026, greater mobilization of domestic resources will become even more important. As a developing country, we will not be eligible for foreign aid and concessional loans. Of course, the image of the country will be enhanced and the strength of our economy will help us to supply ourselves on the world market. But it can be expensive because we have to pay market interest rates to get such loans. This could increase the country’s debt burden. As the size of the economy increases, the need for additional financing will continue to increase. With the current tax collection effort, it is not possible to meet resource requirements.

It was reported in the FY22 budget speech that the number of taxpayers in Bangladesh was only 2.5 million. In a country of over 165 million people, that number is surprisingly low. There are many reasons for tax evasion. Some people feel that once they have a tax identification number (TIN), they are stuck forever and have to pay taxes even if their income is below the threshold. Some feel that it is pointless to pay taxes since they are not receiving the service expected of the government as citizens. Some think that since they have to pay bribes at government levels to do their jobs, they shouldn’t have to pay extra money in the form of taxes. So while there is a lack of awareness regarding the responsibility to pay taxes as a citizen of the country, there is also a strong argument for not doing so. It is therefore incumbent on the government to eliminate these perceptions by providing hassle-free services to citizens. Policy makers will also need to ensure that taxpayers’ money is not wasted in the name of development or siphoned off through corruption. Good governance in the implementation of development projects and economic and social programs is therefore essential to the mobilization of greater domestic resources.

As for the BNR, a number of specific measures should be taken to increase revenue mobilization. One is the implementation of electronic governance. Technology can help establish a simple procedure for tax collection and increased compliance as well. It can also be used to track people’s lifestyle to determine their tax rates. Often, there is a mismatch between people’s reported incomes and their spending habits. This is known to the NBR. With a modern system, more human resources and higher skills, the efficiency of NBR can be improved in this regard.

A number of reform measures proposed a few years ago have yet to be completed. Among the measures proposed are the upgrading of the automated customs data system (ASYCUDA), the consolidation and integration of the integrated budget and accounting system (iBAS++), the electronic filing of declarations, the electronic withholding tax (e- TDS), automated customs risk management, and the introduction of an authorized economic operator system. These measures could contribute to bring a lot of efficiency in tax management. Given that the BNR is formulating revenue measures for various sectors in the national budget for the financial year 2022-23, the operationalization of reform measures, some of which are already on the table, should not be ruled out.

Dr Fahmida Khatun is executive director of the Center for Policy Dialogue (CPD). The opinions expressed in this article are those of the author.

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Column: Historic central bank drain questions ‘buy the dip’ https://beaconatbangsar.com/column-historic-central-bank-drain-questions-buy-the-dip/ Thu, 10 Feb 2022 09:28:00 +0000 https://beaconatbangsar.com/column-historic-central-bank-drain-questions-buy-the-dip/

A US 100 dollar bill is seen on December 17, 2009.

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ORLANDO, Fla., Feb 9 (Reuters) – The odds that investors will avoid a rare year of stock declines are diminishing as central banks prepare to undertake the biggest liquidity drain in history.

The US Federal Reserve, European Central Bank and Bank of England are signaling a reversal in emergency monetary settings in the event of a pandemic. The combination of higher interest rates, a halt to bond purchases and a possible reduction in their bloated balance sheets will sap billions of dollars of liquidity from global markets over the next 12 months and beyond. .

How well historically high stock prices can absorb this shock is the investment question of the year.

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Morgan Stanley analysts estimate that G4 central banks will drain $2.2 trillion of liquidity from the global financial system over 12 months, in what they called “the largest quantitative tightening in history.”

They estimate that the G4 central bank’s combined balance sheet will peak in May and that the $2.2 trillion cut will be more than four times the $500 billion drained in the last “quantitative tightening” attempt in 2018.

Morgan Stanley

It is worth noting. Global stocks fell 20% from peak to trough that year as the Fed raised rates and began shrinking its balance sheet. The eventual toll on the markets has forced the Fed to put these particular policy tools back in their box.

Could a 20% drop – technically ushering in a bear market – be on the cards this year? With the Fed under political pressure to control inflation and play politics for Main Street rather than Wall Street, and with BoE and even ECB tightening now on the table, this is a credible prospect.

Citi strategist Matt King notes that while the relationship between central bank liquidity and financial markets in the months ahead is as strong as it has been over the past decade, stocks and other markets are vulnerable.

G4 central banks expanded their balance sheets by $8 trillion in 2020 and another $3 trillion last year. Their overall balance sheet is over $26 trillion.

Aggregate

It was jet fuel for last year’s equity boom, King says, which generated total returns of nearly 30% for the S&P 500. If it’s the relative change rather than the absolute level of liquidity that drives markets, removing even a fraction of post-pandemic support could be huge.

“It’s not a global arms race in terms of crunch, but there is an interconnection in their policies, which collectively creates a global movement. And that matters for risk assets,” King said.

“QE has produced a ‘rally of everything.’ At a minimum, that liquidity is no longer pushing everything higher. So logically, you should be worried about the risk of a ‘sell of everything,'” he adds. .

City
City

Others argue that the greatest impact on asset prices of quantitative easing or tightening is felt on the announcement, as investors react quickly to reassess expected levels of interest rates, earnings companies and valuations.

Admittedly, the minutes of the Fed’s December policy meeting released on Jan. 5 detailing the QT discussion dealt a major blow to market sentiment. Wall Street and global stocks fell about 10% before managing to halve those losses.

But if Citi’s King is correct that QE or QT won’t really hit the markets until the process begins and liquidity is actually added or removed, risky assets will experience a hotter period over the next two years.

Bank of America analysts estimate that the Fed’s balance sheet will shrink to 31% of GDP by the end of this year from 36% currently, while that of the ECB will shrink to 56% of GDP from 69% currently.

These are among the boldest predictions, but if correct, it could represent cash losses of up to $1.5 trillion and $2 trillion, respectively. These are huge sums, perhaps too large for the markets.

(Views expressed here are those of the author, columnist for Reuters.)

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By Jamie McGeever; Editing by Andrea Ricci

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Is it a good idea to rent a car? https://beaconatbangsar.com/is-it-a-good-idea-to-rent-a-car/ Tue, 08 Feb 2022 02:04:13 +0000 https://beaconatbangsar.com/is-it-a-good-idea-to-rent-a-car/

If you need a car but don’t have the money or good credit to buy one, your options are limited. You can borrow a car from a family member or friend, buy a car from a “buy here, pay here” dealership, or lease a car with an option to buy. But is this last option – rent to own a car – really a good idea?

How does rent-to-own work?

A used car dealership | Dmitry Rogulin TASS via Getty Images

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