Russian Economy Stagnates, Why Not Focus on Commodities? By Jason Galanis

By Jason Galanis

Years after Russia forwent commodities as their primary growth sector, I, Jason Galanis, believe Russia now faces significant challenges in their economy—their economy may be more stagnant than anticipated.

In light of the annual VTB Russia Calling investor conference earlier this month, various investors and business leaders haven’t heard much different regarding the Russian economic situation. Some market analysts described it as ‘more of the same.’

Jason Galanis

Jason Galanis: “How detrimental has Russia’s choice to not focus on the commodities sector for economic growth?”

One market observer, Central Bank governor Elvira Nabiullina, commented that ‘Russia’s problems are structural issues.’ Another, Sberbank CEO Herman Gref, commented that ‘companies [just] aren’t investing.’

It seems as if Russia’s steadfast instance of remaining monopolistic, yet open is what’s causing it to stagnate. The government is said to primarily depend of various state-owned gas and oil companies, such as the notable Rosneft and Gazprom, which has caused nearly half of the economy to sustain no competition.

Of course, observers and experts say nothing will change unless movements are made to ‘fix’ the underlying issues that may be causing the Russian economy to stagnate—that is, the core issues with both corporate and political governance.

On an ironic note, the shrinking markets, despite the open economy, may be one problem that could be fixed. Amidst the talk at the Russia Calling conference, some experts have suggested that ‘they would deepen and widen the local debt market to keep money going into Russia without solely relying on government banks.’

It’s a solution that highlights the fact that much of the movements in the Russian economy are being controlled by ‘the personal or political decisions from a select few.’

The issues with civil war in Eastern Ukraine, along with their response to such issues, more or less have caused human activity to stagnate in Russia as well. A tightening market and tightening policies have caused natives to move—and those who can’t move remain unable to stimulate the economy due to rising inflation rates.

It’s a situation where ‘stubborn’ might be the word to describe the state of Russia’s economy. Whether Russia officials, including famously steadfast President Vladimir Putin, will budge regarding their fast stagnating country remains to be seen.

Kazakhstan’s International Dollar Bond Deal by Jason Galanis

By Jason Galanis

Recently, Kazakhstan issued $2.5 billion worth of 10-year and 30-year bonds. This was the first time since 2000 that the nation sold dollar-denominated bonds in the international market and I, Jason Galanis, am shocked it took this long.

A nation with a BBB+ rating from Standards & Poor’s and Fitch Ratings, Kazakhstan is now returning to the debt markets after taking a hiatus that lasted about 14 years. The return is said to be the nation’s move in benefiting from the market’s now lower borrowing costs.

Jason Galanis

Jason Galanis: “Kazahkstan bonds back in the market…”

The nation’s finance minister, Bakhyt Sultanov, released a statement regarding Kazakhstan’s return to the market. The statement read that ‘their primary objective was to create a sovereign benchmark that fairly reflected years of progressive reforms in the economy, in addition to the strength of their government balance sheet and their focus on further diversifying their economy.’

In light of their market return, the country ended up selling at least $1.5 billion worth of 10-year bonds, which yielded 1.5 percentage points. In addition, they also sold at least $1 billion worth in 30-year bonds, putting them 2 percentage points.

Several lenders, including JPMorgan Chase & Co., arranged the sale of the bonds, however various investors requested long term securities over the initially pitched 5-year notes. The extended term securities were suggested in order to further bolster the nation’s yield curve.

The Kazakhstan return to the market has also occurred after the International Capital Market Association make changes to sovereign bond contracts, which would prevent the marred restructuring from Argentina’s debts from occurring once more.

This past August, the IMCA announced changes that would change current collective action clauses. This would allow eligible investors to make changes in bond contracts, those that bind all holders of such bonds. Kazakhstan will be one of the first nations to offer sovereign bonds adhering to those new rules, reflected in the country’s return to selling bonds.

Storms of All Types Can’t Keep Philippines Down by Jason Galanis

By Jason Galanis

The Philippines has arguably suffered more than any other country in recent history from natural disasters and financial storms. I, Jason Galanis, therefore believe it is a model for resiliency.

Despite all this hardship, according to a recent report, the Philippines are actually in a place where they will continue to do better economically. Their economy, in short, is doing better than it has done in a number of years, and the World Bank seemed to confirm this in their latest report.

Healthy monetary and fiscal arrangements will keep on supporting development in the short term, while further structural changes would permit the nation to grow more than 5 percent per year in the long term, This, of course, means that they seem to be getting on their feet quite well despite the circumstances that they have been dealing with. The World Bank credited this to the Aquino administration’s economic programs and the very skilled, very devoted Filipino workforce that seems to have sprung up in the country.

Jason Galanis

Jason Galanis: “Is the Philippines a model for economic resilience?”

Communications Secretary Herminio Coloma Jr. said that the World Bank’s evaluation reflects the faith and trust of American and European governments and business pioneers. They trust in the robust development prospects of the Philippines, and its suitability as a center for Asian operations, particularly in view of their exceptionally talented and skilled individuals and because the government has worked hard to show their worth to the rest of the world. As time has gone on, the Philippines have just become a lot more attractive to the rest of the world.

Will this continue? Very likely. President Aquino has been doing an incredibly good job of communicating with other world leaders and with setting out a number of ambitious, but possible, goals for the country and its future economy. As time goes on, this will just become stronger and the Philippines will be that much more attractive for investors.

Campaign Finances Scrutinized More than Ever by Jason Galanis

By Jason Galanis

In recent months, there have been a number of events and questions that have come up in terms of campaign finances. I, Jason Galanis, believe it is about time our government starts cracking down on these fundraising policies.

The Supreme Court made a ruling a short while ago, where they said that they believe that individual contributions are an expression of free speech, and therefore can’t be limited. Since then, a number of organizations, Senators, and Congressmen have been raising their voices and saying that this could end up being a huge problem and that something has to be done about it.

Jason Galanis

Jason Galanis: “How much is too much when it comes to campaign financing?”

As you likely know, Constitutional amendments are incredibly difficult to put through, with the most recent being within the past 50 years – and our country is about 200 years old. But there are elected officials who are currently campaigning for a change that large and sweeping, mainly because they believe that the government is starting to be “bought off” – which is something that should have never happened in the first place and that our founding fathers would not be too pleased with.

It’s a classic case of those who have and those who don’t. It’s not equal rights if certain people have “more of a vote” because of the money that they contribute to a campaign or an individual. Everyone is supposed to have the same exact amount of pull in the government, but campaign finances make that a lot more difficult for everyone that is involved.

So will this actually bring forward a change that will help the current campaign climate? Will limits do anything to ensure that our government is working in a fair and balanced manner? These are important questions to consider, and we may see sweeping changes if enough people step up and say that this has to happen. Money can do quite a lot, but in this case, it may only be able to do so much.

Bill Gross’ Pimco Exit Impacts Bond Market by Jason Galanis

By Jason Galanis

Most financial markets follow current events in lock-step. So, I, Jason Galanis, think it shouldn’t be a surprise that the bond market is taking somewhat of a hit now that noted financial manager Bill Gross left Pimco to join Janus two weeks ago.

The bond market ultimately provides investors a mechanism for long term funding for private and public expenditures or, otherwise, used as a source of income. Therefore, the abrupt departure of Gross triggered a reaction in the Treasury market, and although the news hit the market two weeks ago, much of it is still feeling the effects.

Gross was in charge of the Pimco Total Return Fund, considered the largest bond fund. He announced that, effective immediately, he is moving to Janus Capital Management, where he will undertake managerial duties for the Janus Global Unconstrained Bond Fund. As a result of the announcement, Janus’ stock rose 36 percent.

Jason Galanis

Jason Galanis: “Bill Gross’ departure from PIMCO will continue to have a large impact on the bond market.”

Other market movements took place upon the announcement of Gross’ departure from Pimco. Treasury yields moved a little higher, moving from 2.50 to as much as 2.54 percent on 10-years. It eventually crept back to 2.52 by mid-morning trading hours.

Pimco outlook, however, took a hit, particularly the firm’s closed-end funds. The Corporate and Income Opportunity Fund fell 5 percent, while the Pimco Global Stocks PLUS and Income Fund was down well over 7 percent. The High Income Fund ended up falling well over 6 percent.

This news also comes after concerns about Pimco’s viability in the bond market has come under question. Since May 2013, Pimco has seen investors pull out more than $64 billion from the Total Return fund. Not only that, the Securities and Exchange Commission is said to be currently investigating an ETF that was run by Gross for ‘artificially giving a boost to returns.’