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MOST CRITICAL TIPPING POINT ARTICLES TODAY | |||
SENTIMENT - Extreme Levels of Complacency Extreme Complacency Trumps Macro's Biggest 5-Week Plunge In Two Years 05-07-13 Zero Hedge Of course, it doesn't matter (for now) but today's JOLTS data internals and Consumer Credit's miss just piled on to the misery and pushed Bloomberg's US Macro Surprise Index to its lowest in seven months. What is worse is the rate of collapse - the last five weeks have dropped faster than at any time since May 2011. The current level of US macro data suggests the S&P should be over 200 points lower - but as the charts below show relative volatility levels are more complacent now than in the pre-crisis vinegar strokes in 2008. US Macro data is anything but positive (no matter what your are told)...
Which suggests the But that does not seem to matter - as realized volatilities are now elevated in practically NO asset classes compared to 2008's exuberance where 84% of asset classes were at least showing some 'risk'...pre-crash and nowehere is the total lack of concern about downside risk any more evident than in the distribution of returns that the options market current implies for the S&P 500. The following chart shows an extreme perspective that downside risk is being priced out of options prices to the same extent as it was in the previosu bubble peak in 2006... As opposed to VIX (which merely tracks the perspective of market participants about volatility - two-sided risk), the chart above is a pure measure of the 'downside' risk and shows that complacency is at its highs... Source: Bloomberg and Citi |
05-08-13 | SENTIMENT | ANALYTICS |
RISK - Credit Bubble
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05-08-13 | CREDIT BONDS YIELD |
ANALYTICS |
1971 SUSPENSION OF GOLD EXCHANGE - The Triggering Event Visualizing The Collapse Of Fiat Currencies 05-07-13 Zero Hedge
THE PROPAGANDA that came with leaving the Gold Standard Listen Closely to how a flawed decison is sold to the American People.
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05-08-13 | THESIS | |
FEDERAL RESERVE - A Flawed Financial Foundation 11 Reasons Why The Federal Reserve Should Be Abolished Michael Snyder of The Economic Collapse blog via ZH
If the American people truly understood how the Federal Reserve system works and what it has done to us, they would be screaming for it to be abolished immediately. It is a system that was designed by international bankers for the benefit of international bankers, and it is systematically impoverishing the American people. The Federal Reserve system is the primary reason why our currency has declined in value by well over 95 percent and our national debt has gotten more than 5000 times larger over the past 100 years. The Fed creates our "booms" and our "busts", and they have done an absolutely miserable job of managing our economy. But why do we need a bunch of unelected private bankers to manage our economy and print our money for us in the first place? Wouldn't our economy function much more efficiently if we allowed the free market to set interest rates? And according to Article I, Section 8 of the U.S. Constitution, the U.S. Congress is the one that is supposed to have the authority to "coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures". So why is the Federal Reserve doing it? Sadly, this is the way it works all over the globe today. In fact, all 187 nations that belong to the IMF have a central bank. But the truth is that there are much better alternatives. We just need to get people educated. The following are 11 reasons why the Federal Reserve should be abolished... #1 The Greatest Period Of Economic Growth In The History Of The United States Happened When There Was No Central Bank Did you know that the greatest period of economic growth in U.S. history was between the Civil War and 1913? And guess what? That was a period when there was no central bank in the United States at all. The following is from Wikipedia...
So if our greatest period of economic prosperity was during a time when there was no Federal Reserve, then why shouldn't we try such a system again? #2 The Federal Reserve Is Systematically Destroying The Value Of The U.S. Dollar The United States never had a persistent, ongoing problem with inflation until the Federal Reserve was created in 1913. If you do not believe this, just check out the inflation chart in this article. The Federal Reserve systematically penalizes those that try to save their money. Inflation is a tax, and the value of each one of our dollars goes down a little bit more every single day. But over time, it really adds up. In fact, the value of the U.S. dollar has fallen by 83 percent since 1970. Anyone that goes to the grocery store on a regular basis knows how painful inflation can be. The following is a list that shows how prices for many of the things that we buy on a regular basis absolutely skyrocketed between 2002 and 2012...
Even the price of water has absolutely soared in recent years. According to USA Today, water bills have actually tripled over the past 12 years in some areas of the country. So how can the Federal Reserve get away with claiming that we are in a "low inflation" environment? Well, what Ben Bernanke never tells you is that the way that the government calculates inflation has changed more than 20 times since 1978. The truth is that the real rate of inflation is somewhere between five and ten percent right now, but you will never hear about this on the mainstream news. #3 The Federal Reserve Is A Perpetual Debt Machine The Federal Reserve system was designed to be a trap. The intent of the bankers was to trap the U.S. government in an endless debt spiral from which it could never possibly escape. But most Americans don't understand this. In fact, most Americans don't even understand where money comes from. If you don't believe this, just go out on the street and ask regular people where money comes from. The responses will be something like this... "Duh - I don't know. I've got to get home to watch American Idol." This is why it is so important to get people educated. I think that most Americans would be horrified to learn that the creation of more money in our system also involves the creation of more debt. The following is a summary of money creation that comes from one of my previous articles...
So what does the Federal Reserve do with those Treasury bonds? I went on to explain what happens...
Men like Thomas Edison and Henry Ford could not understand why we would adopt such a foolish system. For example, Thomas Edison was once quoted in the New York Times as saying the following...
Unfortunately, today most Americans don't even understand how the system works. They just assume that we have the best system in the entire world. Sadly, the reality is that the system is working just as the international bankers that designed it had hoped. The United States has the largest national debt in the history of the world, and we are stealing more than 100 million dollars from our children and our grandchildren every single hour of every single day in a desperate attempt to keep the debt spiral going. #4 The Federal Reserve Is A Centrally-Planned Financial System That Is The Antithesis Of What A Free Market System Should Be Why do we need someone to centrally-plan our financial system? Isn't that the kind of thing they do in communist China? Why do we need someone to tell us what interest rates are going to be? Why do we need someone to determine what "the target rate of inflation" should be? If we actually had a free market system, the free market would be the one "managing" our economy. But instead, we have become so accustomed to central planning that any alternatives seem to be absolutely unthinkable. For example, CNBC cannot possibly imagine a world where the Fed (or some similar institution) was not running things...
I've got an idea - let's let the free market "manage" U.S. interest rates and the American economy. I know, it's a crazy idea, but I have a sneaking suspicion that it just might work beautifully. #5 The Federal Reserve Creates Bubbles And Busts Do you remember the Dotcom bubble? Or what about the housing bubble? By dramatically distorting interest rates and financial behavior, the Federal Reserve creates economic bubbles and the corresponding economic busts. And guess what? When will the American people decide that they have had enough? If you can believe it, there have been 10 different economic recessions since 1950. And of course the Federal Reserve even admits that it helped create the Great Depression of the 1930s. Perhaps it is time to try something different. #6 The Federal Reserve Is Privately Owned It has been said that the Federal Reserve is about as "federal" as Federal Express is. Most Americans still believe that the Federal Reserve is a "federal agency", but that is simply not true. The following comes from factcheck.org...
And even the Federal Reserve itself has argued that it is "not an agency" of the federal government in court. So why is there still so much confusion about this? We should not be allowing a private entity that is owned and dominated by the banks to make decisions that dramatically affect the daily lives of all the rest of us. #7 The Federal Reserve Greatly Favors The "Too Big To Fail" Banks Since the Federal Reserve is owned by the banks, should we be surprised that it serves the interests of the banks? In particular, the Fed has been extremely good to the "too big to fail" banks. Over the past several decades, those banks have grown tremendously in both size and power. Back in 1970, the five largest U.S. banks held 17 percent of all U.S. banking industry assets. Today, the five largest U.S. banks hold 52 percent of all U.S. banking industry assets. #8 The Federal Reserve Gives Secret Bailouts To Their Friends The Federal Reserve is the only institution in America that can print money out of thin air and loan it to their friends any time they want to. For example, did you know that the Federal Reserve made 16 trillion dollars in secret loans to their friends during the last financial crisis? The following list is taken directly from page 131 of a GAO audit report, and it shows which banks received secret loans from the Fed...
If you will notice, a number of the banks listed above are foreign banks. Why is the Fed allowed to print money out of thin air and lend it to foreign banks? #9 The Federal Reserve Is Paying Banks Not To Lend Money Did you know that the Federal Reserve is actually paying U.S. banks not to lend money? That doesn't make sense. Our economy is based on credit, and small businesses desperately need loans in order to operate. But the Fed has decided to pay banks not to risk their money. Section 128 of the Emergency Economic Stabilization Act of 2008 allows the Federal Reserve to pay interest on "excess reserves" that U.S. banks park at the Fed. So the big banks can just send their cash to the Fed and watch the money come rolling in risk-free. As the chart below demonstrates, the banks have taken great advantage of this tremendous deal... #10 The Federal Reserve Has An Astounding Track Record Of Failure Over the past ten years, the Federal Reserve has been an abysmal failure when it comes to running the economy. But despite a track record of failure that would make the Chicago Cubs look like a roaring success, Barack Obama actually decided to nominate Ben Bernanke for a second term as the Chairman of the Federal Reserve. What a mistake. Just check out some of the things that Bernanke said prior to the last financial crisis. The following is an extended excerpt from an article that I published previously... ***** In 2005, Bernanke said that we shouldn't worry because housing prices had never declined on a nationwide basis before and he said that he believed that the U.S. would continue to experience close to "full employment"....
In 2005, Bernanke also said that he believed that derivatives were perfectly safe and posed no danger to financial markets....
In 2006, Bernanke said that housing prices would probably keep rising....
In 2007, Bernanke insisted that there was not a problem with subprime mortgages....
In 2008, Bernanke said that a recession was not coming....
A few months before Fannie Mae and Freddie Mac collapsed, Bernanke insisted that they were totally secure....
***** There are many, many more examples that could be listed, but hopefully you get the point. And now it is happening again. Bernanke is telling the American people that everything is going to be just fine and that no major problems are ahead. Do you believe him this time? #11 The Federal Reserve Is Unaccountable To The American People What is the most important political issue to most Americans? Survey after survey has shown that the American people care about the economy more than anything else. So why do we allow an unelected, unaccountable entity that is privately-owned to make our economic decisions for us? The Federal Reserve has become so powerful that it has been called "the fourth branch of government". Every four years, presidential candidates argue about who will be best at managing the economy, but the truth is that it is the Fed that manages our economy. We are told that the "independence" of the Federal Reserve is absolutely critical, but don't the American people deserve to have a say in the running of the economy? Our system is broken. It is a system that will continue to create more bubbles and more debt until the entire thing finally collapses for good. Thomas Jefferson once stated that if he could add just one more amendment to the U.S. Constitution it would be a ban on all government borrowing....
But instead of banning government borrowing, we have allowed ourselves to become enslaved to a system where government borrowing actually creates our money. We do not need to have a central bank. There are much better alternatives. We just need to get people educated. |
05-08-13 | THESIS | MOST CRITICAL TIPPING POINT ARTICLES THIS WEEK - May 5th - May 11th 2013 |
RISK REVERSAL | 1 | ||
JAPAN - DEBT DEFLATION | 2 | ||
BOND BUBBLE | 3 | ||
EU BANKING CRISIS |
4 |
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SOVEREIGN DEBT CRISIS [Euope Crisis Tracker] | 5 | ||
AUSTERITY - Over in Europe Before it Was Every Implemented France Declares Austerity Over as Germany Offers Wiggle Room 05-06-13 Bloomberg French Finance Minister Pierre Moscovici declared the era of austerity over after his German counterpart offered flexibility on deficit cutting amid renewed bickering between Europe’s two biggest economies. “We’re witnessing the end of the dogma of austerity” as the only tool to fight the euro debt crisis, Moscovici said yesterday on Europe 1 radio. “We’ve been pleading for a growth policy for a year. Austerity on its own impedes growth.” Coalition lawmakers in Germany are pushing back against the two-year extension for France to meet European Union deficit rules floated by Olli Rehn, the EU economic and monetary affairs commissioner. “We made it clear to our government, the chancellor and finance minister that in the case of France a one-year delay to 2014 to fulfill the euro’s deficit rules is the absolute limit for us,” Norbert Barthle, budget-policy spokesman for Schaeuble’s Christian Democratic Union, said in a May 3 telephone interview from his constituency in southwestern Germany. “France must show that it’s willing to tackle structural reforms.” |
05-06-13 | EU FRANCE |
5- Sovereign Debt Crisis |
CHINA BUBBLE | 6 | ||
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MACRO News Items of Importance - This Week | |||
GLOBAL MACRO REPORTS & ANALYSIS |
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US ECONOMIC REPORTS & ANALYSIS |
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CENTRAL BANKING MONETARY POLICIES, ACTIONS & ACTIVITIES | |||
QE - A 1142 Point SPX Market Distortion This Is The S&P With And Without QE 05-06-13 Zero Hedge For a while there, it seemed that even the densest of career economists who try to pass for stock pundits on financial comedy TV, were starting to get that without the Fed's (and the ECB's, and the BOE's, and the BOJ's) QE, the market would be much, much lower (whether 500 points lower as Gundlach suggested or much more, remains unclear). After all: by now it should have been clear to most that QE is doing nothing for the economy, and everything for the stock and bond market (here we certainly agree: there is a bond bubble, which by implication there is an even more massive stock bubble too - anyone who says the two are unlinked can be immediately put on mute). This is why we presented this chart previously: And is also why in January, we showed this update of the calendar days with and without QE: And yet, judging by the roster of TV guests appearing on assorted cable stations, the confusion is back again. So just to set the record straight, and make it so easy even Jeremy Siegel gets it, below is a chart showing the absolute performance of the S&P, starting with March 18, 2021 when full-blown QE1 was announced, and adding up all the S&P points "gained" under some QE regime: QE1 (2009-2010), QE2 (2010-2011), Operation Twist, QE3 and QE4 (2011 until today) on one hand, while subtracting all the S&P points "lost" when there was no QE or no advance notification of QE from the Fed, such as the period from the end of QE1 (March 31, 2021) until the QE2 announcement at Jackson Hole in August 2010, and from the end of QE2 on June 30, 2021 until the start of Operation Twist on September 21, 2011. The chart below is sufficiently self-explanatory that not even career economists will need assistance to grasp it. One final point: for all those who say the Fed's QE has "been successful", or the stock market is sufficiently strong and does not need any more forced liquidity injections, here is a simple suggestion: just end it. Crickets. |
05-07-13 | US MONETARY |
CENTRAL BANKS |
CENTRAL BANKS - $10 Trillion In and $10 Trillion to Go The "Price" Of Record High Markets: $10 Trillion In Seven Years 05-02-13 JPM Asset Management CIO Michael Cembalest via BI By now everyone, even CNBC, admits that the only reason stocks are where they are is due to the G-7 central banks. What many may not know, however, is how we got here, and where we will be at the end of this year. The answer, as provided by JPM Asset Management CIO Michael Cembalest in the chart below, is at the dot in the top right. This will represent the addition of $10 trillion in liquidity, or alternatively the conversion of the "planetary nebula" of central bank balance sheet expansion, in the past seven years. And considering that, as we explained yesterday, there is another $10-11 trillion in scarce "quality collateral" that has to be injected into the financial markets via central banks collateral transformations, the number in yet another 7 years will be at $20 trillion if not exponentially higher, or higher than where US GDP will be. Cembalest's take:
Luckily, nothing bad happened in 1929. The difference this time, as is now very obvious, is that in the event the central banks fail at preserving the perpetual growth of what may truly be the final bubble (yes, a preposterous assumption), the central banks are already all in, unlike all previous credit, risk-asset, and housing bubbles. So who becomes the "bad bank" to the central banks when confidence in the "lender of last resort" finally gives way? Full note here |
05-06-13 | GLOBAL MONETARY |
CENTRAL BANKS |
Market Analytics | |||
TECHNICALS & MARKET ANALYTICS |
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PATTERNS - Crowded Trades Normally Tip the Boat The Most Crowded Trades 05-06-13 BofAML Global Research via ZH Herd-mentality, group-think, safety-in-numbers, or lemmings. When a trade becomes one-sided, we are often taught that contrarianism is the smarter position. When a trade becomes extremely one-sided, the market is at its most fragile. There are currently three trades that have become not just consensus, but are near record levels of extreme positioning - and with the help of leverage (and record margin levels) this all adds up to a risk-on market (since all the three trades are on the same side of the long central bank largesse, short safety view) that is over-prone to more significant corrections. Join the crowd or join the smarter money? Crowded Trade #1 - US Equities. Crowded Trade #2 - Short JPY Crowded Trade #3 - Short Precious Metals and it's at record-levels of margin... Current levels of both Net Free Credits and Margin Debt indicate extremely bullish sentiment in the equity market, the implication is contrarian bearish.
But the 'smart money' is hedging... Based on BofAML's exposure analysis, macro hedge funds continued to add to their shorts in risk assets including the S&P 500, NASDAQ 100 and commodities. Charts: BofAML |
05-07-13 | PATTERNS | ANALYTICS |
SENTIMENT - "Don't Fight the Fed" What Is Obvious About This Market? 05-05-13 OfTwoMinds Charles Hugh Smith What is "obvious" to those embedded in the conventional, MSM/state-manufactured worldview is not the same as what is obvious to those outside the asylum. Longtime readers know my analytic perspective is based on what psychiatrist/author R.D. Laing called the Politics of Experience.
Survival+ 6: The Politics of Experience (April 2, 2021)
Survival+ 7: Simulacrum and the Politics of Experience (April 3, 2021)
In his prescient 1972 lecture, The Obvious, Laing explained the inherent difficulty of understanding "the obvious" when a systemic madness is taken as "normal":
To a considerable extent what follows is an essay in stating what I take to be obvious. It is obvious that the social world situation is endangering the future of all life on this planet. To state the obvious is to share with you what (in your view) my misconceptions might be. The obvious can be dangerous. The deluded man frequently finds his delusions so obvious that he can hardly credit the good faith of those who do not share them. We can summarize one aspect of this analysis by asking: what is "obvious" to those inside a system and what is "obvious" to those outside the system? Our experience of what is "obvious" says a lot about our cultural context and assumptions: the manufacture of our "news" and consensus, the mystification of our experience via propaganda and simulacra, what we perceive as "normal" relationships, work, goals, etc.
What is "obvious" to most participants is that the stock rally is fueled by central bank liquidity and quantitative easing, and since there is no limit in sight to these policies, there is also no limit to the stock market running higher.
It is also "obvious" that betting against this trend is an excellent way to lose money, so the number of people shorting the market dwindles with each push higher.
Equally "obvious" is the incentive to borrow money via margin to invest in the rising market: the higher it goes, the more you can borrow, and the more you borrow and plow into the market, the more you make. It is a wonderful self-reinforcing feedback loop.
Thus record-high margin debt is not a warning sign but evidence that the music is still playing, so by all means, keep on dancing:
Near-Record NYSE Margin Debt Leads to Caution (Bloomberg)
That the disconnect between the real economy and the stock market is widening is obvious, but there doesn't seem to be any intrinsic reason why it can't continue widening. As a result, many analysts are calling for a brief retrace and then another leg up to new highs. Others see a serious decline (10%+) this summer and a new high in Q4 2013 or Q1 2014.
In other words, what might be obvious to those outside the system--that all liquidity-driven bubbles end badly, usually when participants are convinced there is nothing to restrain the trend from going higher--is not at all obvious to participants and those cheering them on (the MSN, the Federal government and the Fed).
What I sense is a near-universal resignation of those attempting to call a top in the market, an acceptance that the trend is up for the foreseeable future and that trying to short this market (i.e. profit from a decline) is a fool's game.
The number of those willing to short the market, i.e. take the other side of the trade, has dwindled. Every sharp rally like last Friday's eliminates entire divisions of shorts, leaving the trade even more one-sided.
Yes, the market is manipulated and totally dependent on central bank QE, liquidity and outright buying of stocks and bonds. But the market is not as stable as presumed, and one-sided trades tend to capsize when everyone who feels safe being on one side of the boat least expects it.
Every trader wants to short the market after it becomes obvious the trend has reversed. But since there are so few shorts left, the decline (should one ever be allowed to happen) might not be orderly enough for everyone to pile on board. More likely, the train will leave with few on board and the initial drop will leave everyone who was convinced the uptrend was permanent standing shell-shocked on the platform with margin calls in hand.
When it is obvious the trend has reversed, it will be too late to profit from it.
The conclusion? What is "obvious" to those embedded in the conventional, MSM/state-manufactured worldview is not the same as what is obvious to those outside the asylum. |
05-06-13 | SENTIMENT | ANALYTICS |
SUPPLY EFFECT - Shortage of Investable Assets There's A Major Shortage Of Assets To Invest In 04-28-13 Citi via Cullen Roche, Pragmatic Capitalism via BI Fantastic chart and data here from Citi Research showing the issuance of various securities over the last 10 years in the Eurozone, US and Japan. It’s interesting to note the surge in treasuries that has occurred since the collapse in the GSEs and the so-called AAA bubble in real estate. It’s also interesting to note the decline in net issuance. In other words, the supply of asset issuance continues to run at a level well below pre-crisis levels. That might explain at least some of the broad upward pressure on assets in general. Here’s more excellent commentary from Citi:
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05-06-13 | FUND- MENTALS |
ANALYTICS |
LEVERAGE - Elevated Levels S-t-r-e-t-c-h-e-d! 05-02-13 Diapason Commodities via ZH Things in the 'economy' must be good - investors are nearing their most levered long to US equities ever. As Sean Corrigan notes, Net Margin (defined as NYSE Margin Debt minus Mutual Fund Liquid Assets) is within a hair of its all-time record high and relative to the March 2000 peak in the Wilshire 5000 (broadest US equity market cap), we are rapidly approaching 'peak' exuberance levels. Indicatively this should make sense since the market is at all time highs, but it is so because of central banks, not because of individual investors. So why would the investors themselves be just as stretched as the global central banks, and how does this leverage upon leverage unwind in the end? Source: Diapason Commodities |
05-06-13 | US ANALYTICS SENTIMENT
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ANALYTICS |
COMMODITY CORNER - HARD ASSETS | |||
THESIS Themes | |||
2013 - STATISM |
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2012 - FINANCIAL REPRESSION |
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The Potemkin Rally 05-06-13 David Rosenberg via Lance Roberts of Street Talk Live blog,via ZH The real fed funds rate is very negative. The last time this occurred was when Author Burns was Fed chairman. The following two decades were not kind. Furthermore, negative real rates in the past... ...have always led to asset bubbles. |
05-07-13 | THESIS | |
2011 - BEGGAR-THY-NEIGHBOR -- CURRENCY WARS |
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2010 - EXTEN D & PRETEND |
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THEMES | |||
CORPORATOCRACY - CRONY CAPITALSIM | |||
GLOBAL FINANCIAL IMBALANCE | |||
SOCIAL UNREST |
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CENTRAL PLANNING |
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STANDARD OF LIVING |
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CORRUPTION & MALFEASANCE | |||
CORRUPTION - Revenue Reporting In Question SURVEY: Company Bosses Around The World Are Lying About Revenue 05-06-13 Ernst & Young via BI LONDON, May 7 (Reuters) - Hard-pressed company bosses across much of the world are under so much pressure to deliver on growth that many have resorted to cooking the books, Ernst & Young says in its latest Fraud Survey published on Tuesday.
In India, over a third felt justified in offering cash - triple the number in western Europe. "Our survey shows that to find growth and improved performance in this environment, an alarming number appear to be comfortable with or aware of unethical conduct," David Stulb, head of E&Y's fraud investigation and dispute services practice. In Spain, ranked alongside Russia and just below Nigeria and Slovenia, 61 percent of staff believed companies often exaggerated results, compared with only 7 percent in Finland. And E&Y said the vast majority of managers from Norway to Nigeria and Russia to Greece were feeling the pressure to deliver a good financial performance over the next 12 months, despite little optimism that business conditions would improve. They were now forced to balance the risks of expanding into rapid-growth markets, where winning contracts can go hand-in-hand with corruption, cutting costs further and piling pressure on staff or suppliers - or distorting results, the firm said. E&Y warned multinationals based in mature markets they could be more vulnerable to the risks of unethical behaviour. One quarter of those asked thought watchdogs in rapid-growth markets focussed more on the behaviour of foreign businesses. The consultancy called on managers to ask more robust questions, focus on key risks, such as poor due diligence accounting checks of intermediaries and associates, and punish unethical behaviour.
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05-07-13 | THEME | |
NATURE OF WORK | |||
CATALYSTS - FEAR & GREED | |||
GENERAL INTEREST |
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Tipping Points Life Cycle - Explained
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