Category Archives: economy

Bill Gates is going to become the world’s first trillionaire

Bill Gates is well on his way to becoming the world’s first ever trillionaire.

According to a report from Oxfam, we could get our first trillionaire in the next 25 years thanks to the exponential growth of existing wealth.

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EU threatens UK with astronomical £500BILLION Brexit DIVORCE BILL

THE EUROPEAN Parliament’s top Brexit negotiator has said Britain could face a £500billion (€600bn) Brexit divorce bill – ten times the figure initially expected.

Late last year it was widely reported Eurocrats were planning on slapping the UK with a £50billion (€60billion) exit bill as punishment for voting to abandon Brussels in the June referendum.

The EU defended the demand as it argued Britain had unpaid budget commitments, pension liabilities and loan guarantees to honour.

Continue reading EU threatens UK with astronomical £500BILLION Brexit DIVORCE BILL

Three events that shaped our world

Ingram Pinn illustration

If there is one lesson from the past 100 years it is that we are doomed to co-operate

This year is the 100th anniversary of the start of the first world war, the 70th anniversary of D-Day and the 25th anniversaries of the collapse of the Soviet empire and the savage crackdown around Tiananmen Square . 

Continue reading Three events that shaped our world

Dollar Spikes To Highest Level Against Yen Since 2008

The Scottish vote for independence is sending shockwaves through the currency markets. And not just the British pound, because the Japanese yen just fell out of bed.

The yen has fallen to 109 against the US dollar, its lowest level since September 2008

Continue reading Dollar Spikes To Highest Level Against Yen Since 2008

8 Myths About The Super Rich

unnamedThe ultra high net worth (UHNW) population – made up of individuals with a net worth of US$30 million or more – grew to 199,235 individuals in 2013, with a combined wealth of US$27,770 billion. In other words, 0.003% of the world’s population holds, in assets, the equivalent of almost 38% of the world’s GDP in 2013.

The importance and influence of the world’s UHNW individuals is increasing across various industries – from wealth management to luxury as well as philanthropy, amongst others. While many firms, brands and non-profit organisations specifically target UHNW individuals, little research on this population had been undertaken until recently.

Wealth-X – the leading provider of intelligence on the UHNW population – is filing this gap, in an effort to support organisations that engage directly with this segment of the world’s population. This report highlights why this research is so relevant across industries.

1. The world’s wealthiest inherited all their money

This is a misconception. 65% of the world’s UHNW individuals are self-made, with a further 16% having only partly inherited their wealth, before going off to make their own fortunes. In other words, only 19% of the world’s UHNW population has fully inherited its wealth.

In terms of fortunes, we also see that UHNW individuals with inherited wealth also have the lowest average net worth of US$130 million, as opposed to US$142 million for self-made UHNW individuals. Even for the world’s 2,170 billionaires, 60% have made their fortunes themselves, with a further 20% being classified as inheritance/self-made.

2. The majority of super wealthy are investment bankers

While it is true that the finance, banking & investment industry is the single largest category from which UHNW individuals have derived their wealth, it is not still far from accounting for over 50% of the UHNW population.

At the moment, 19% of the world’s UHNW population is primarily engaged in that industry – meaning the majority are not. This broad industry accounts for all categories of finance, from investment banking to hedge funds, private equity, venture capital, etc. Consequently, this is a misconception.

3. “Technopreneurs are all hoody wearing college dropouts in their 20s”

While this certainly is the image prevalent with the technopreneur working at his/her start-up, the average age for an UHNW individual from the technology industry is 54, and many of these individuals are highly educated. In fact, the technology industry accounts for only 4.1% of the world’s wealthiest, a surprisingly small contribution given the large amount of media coverage this segment of the UHNW population receives.

4. “I have to go to an Ivy League University to be an UHNW individual”

Although Harvard tops the ranking of the school with the most UHNW alumni, Harvard graduates only account for a small portion of the world’s UHNW population. It is also worth noting that although the universities with the largest UHNW alumni population are from the Ivy League – specifically six of the top ten global universities (by number of UHNW alumni) are Ivy Leagues – their combined UHNW alumni population is under 7,000 individuals, or 3.5% of the world’s total UHNW population.

Furthermore, over 27,000 UHNW individuals, or 13.6% of the world’s total UHNW population, do not have a higher education at all.

5. Wealthy are immune to economic cycles

The ultra wealthy do react differently to economic cycles, with many seemingly impervious to the fluctuations in the global economy. They are “high beta,” thus their wealth tends to rise and fall more than most people’s wealth as it is tied to financial markets more than middle class individuals who have most of their wealth tied up in property.

However, it is not true that they are not affected by economic cycles. Indeed, the UHNW population declined by 20% between 2008 and 2009, and its wealth by 22% in the same period. During the crisis, the wealth of billionaires fell by more than the S&P500, with a 47% fall in 2009. Nonetheless, even if their wealth falls, their consumption patterns continue to be far larger than the average individual’s.

6. Chinese wealthy growing faster than everyone else

Last year, both China’s UHNW population and wealth declined, and it remains only the second biggest Asian UHNW economy, behind Japan. The United States still has three times the billionaires of China, and Wealth-X forecasts that it will take just over twenty years for Asia to overtake North America, let alone China. Last year, the fastest growing UHNW economies were:

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7. The wealthy don’t give back

There are many ways in which the UHNW give back, and traditional philanthropy is merely one of these ways. The average UHNW philanthropist donates US$25 million over his lifetime, rising up to $100m for billionaire philanthropists.

However, only a third of the world’s UHNW individuals are estimated to have donated at least $1m, which is less 1% of their average net worth. Nonetheless, other types of giving back such as impact investing, microfinancing, or simply job creation are prevalent across the UHNW population.

8. The world’s UHNW individuals all fly by private jet and own asuperyacht

Only a small proportion of the world’s individuals have a high enough net worth to afford a 30-meter plus superyacht without overinvesting. Wealth-X estimates that only about 20% of the world’s UHNW population, or under 40,000 individuals, can afford superyachts and/or private planes.

As a result, the chartering of both these luxury crafts have become more prominent, and many UHNW individuals and their families still travel on commercial airlines, albeit in first or business class. Although there are cases of extravagant living, the majority of the world’s UHNW do not live ostentatious lives, but they can treat themselves to things and experiences they really want.

Armenia Hopes to Become Glittering Gateway for Russian Diamonds

A diamond deal that gives Armenia duty-free access to rough diamonds from Russia could offer Alrosa, the semi-government-owned Russian diamond company that provides roughly 27 percent of the world’s rough-diamond supplies, a dodge from potential European-Union sanctions, Armenian diamond-industry professionals believe.

About half of Alrosa’s yearly sales occur through the international diamond market in Antwerp, Belgium, a member of the EU. Although the company, which accounts for the bulk of Russia’s diamond mining, does not yet feature on a sanctions list for Russian actions in Ukraine, it has stated that it has begun to work “out some options for reducing this risk;” namely, by increasing sales to clients “in other jurisdictions.”

Enter Armenia. Once the center of the Soviet Union’s diamond-refining operations, the South-Caucasus country today counts on exports of refined diamonds for about 10 percent of its total annual volume of approximately $1 billion in exports.

That share has slumped dramatically over the past decade from a peak of 40 percent in the early 2000’s (diamond exports peaked at $327 million in 2003), but Armenian refiners see the diamond agreement with Russia as a way for the sector to regain its financial sparkle.

“This is a great opportunity,” Edgar Hovhannisian, the general director of Dimotech, an Armenian refining factory owned by Antwerp -based Rosy Blue, one of the world’s top diamond manufacturers. “We are expanding, [and] have ordered a half a million dollars’ worth of machines in anticipation of a higher volume of production.”

Under the terms of the agreement, ratified in late June, Armenian importers would be able to purchase an unlimited amount of rough diamonds from Russia without paying the usual 6.5-percent duty. Armenian President Serzh Sargsyan and Russian President Vladimir Putin signed the deal last December, before the Ukrainian crisis erupted. It is not contingent upon Armenia finally joining Putin’s trade club, the Eurasian Union.

To encourage things along, the Armenian government has dropped its 20-percent Value Added Tax on imported diamonds.

But the agreement with Moscow is not all glitter, critics warn. It effectively strengthens Armenia’s economic dependence on Russia; if Armenia joins the Union — the most recent projected date is this October – its refiners will have to pay an 18-percent duty on rough diamonds imported from outside countries, which may sell diamonds for lower prices.

Diamond refiners in the village of Nor Hatchn, the hub of Armenia’s diamond operations, about 60 kilometers north of the capital, Yerevan, see no problems with the deal, however. Only 20 of the 200-some diamond workshops that existed in Nor Hatchn during the early post-Soviet period still function today.

With access to duty-free Russian roughs to refine, though, “[t]he situation will shift significantly,” predicted Chaminda Nugara, Dimotech’s administration manager.

Dimotech, which employs 150 diamond workers, has opened a second factory in Armenia, and brought back ten artisans who left Armenia after the 2008 global financial crisis, when demand for refined diamonds slumped.

“Presently, a lot of the workshops [in Nor Hatchn] are non-functional, but I think many foreign investors would be attracted by the Russian rough diamonds; especially now that access to Russian raw materials will be getting harder for European manufacturers,” predicted Nugara.

A similar diamond deal with Russia coincided with the peak in Armenia’s diamond sector in the late 1990’s and early 2000’s, when Antwerp-based Taché and Israeli diamond magnate Lev Levaev came to invest, and the country churned out annually between 200,000 to 370,000 carats of refined diamonds, according to official data.

Alrosa, though, has termed the discussion of possible EU sanctions “purely speculative.”  Nonetheless, as the Weekly Rapaport Report, a diamond-industry publication, has noted, it has begun to seek “alternative methods and markets for selling its diamonds;” most recently, by expanding exports to India, the company’s second largest market after Antwerp.

But not all experts share the optimism that Armenia will enjoy a diamond comeback as a result of its access to duty-free Alrosa diamonds.

For one, there’s the competition. Armenia does not rank among the top markets for Alrosa roughs. Drawing on Armenia’s traditional expertise in working with jewelry, the country’s hand-cut, refined diamonds have received industry certifications of excellence, but Dimotech’s Hovhannisian concedes that “Indians and the Chinese are… technologically more advanced.”

Concerns also exist about the fact that Russia does not allow Armenia to re-export the small, rough diamonds which can be included in a purchased batch and which are not considered cost-effective to refine.

Armen Yeganian, head of the Ministry of Economy’s industrial-policy department, told EurasiaNet.org, however, that the government is now negotiating with Moscow “to have the ban lifted.”

Kamo Dallakian, the director of Agates Company, a 10-person, Armenian-owned operation, reported no restrictions on a recent shopping trip to Moscow, however.

“We were granted the opportunity of a large selection,” Dallakian told EurasiaNet.org. The company already has exported its first batch of polished stones from the purchased rough Russian diamonds.

Like other interviewed companies, Agates is planning to expand in anticipation of outside demand for refined Russian diamonds.

Yerevan State University of Economics’ economist Ashot Yeghiazarian cautions, however, that “it cannot be ruled out that cooperation with [Alrosa] poses a serious risk.”

For now, though, it appears to be a risk that Armenia is willing to take.

24 European Banks Fail Finance Stress Tests says EBA

Euros

Lloyds Banking Group has “narrowly” passed a financial stress test ordered by European financial regulators to identify banks at risk of collapse in the event of an economic downturn.

Lloyds, one of four banks tested by the European Banking Association (EBA), nearly failed a benchmark set for banks to prove they are financially robust enough to withstand another banking crisis.

While Lloyds, the Royal Bank of Scotland, HSBC, and Barclays all passed the test, Lloyds only had a “capital under adverse scenario” of 6.2%, slightly above the benchmark set by the EBA of 5.5%.

The aim of the stress test is to make sure banks in Europe still have enough capital to continue lending to small and medium-sized businesses (SMEs), which rely on banks for credit, during another recession.

Across Europe 24 banks failed the stress test, based on a review of their finances up to the end of 2013. They include nine Italian banks, three Greek banks and three Cypriot banks. The worst affected was the Italian bank Monte dei Paschi, which had a capital shortfall of €2.1bn (£1.65bn, $2.6bn).

Ten banks have taken measures to bolster their balance sheets in the meantime. The remaining 14 banks in the eurozone have nine months to increase their capital buffers against losses, or risk being shut down.

Second health check

At the same time the European Central Bank (ECB) has conducted its own investigation into the financial health of Europe’s banks, with similar findings.

The ECB healthcheck – the findings of which were leaked by Bloomberg this week – found 13 of Europe’s 130 biggest banks failed the stress test after an in-depth review of their finances.

Collectively the 13 banks must increase their capital buffers against losses by €10bn.

The ECB said 25 banks in all were found to need stronger buffers, but that 12 have already made up their shortfall.

The remaining 13 now have two weeks to tell the ECB how they plan to increase their capital buffers.

The stress tests are an important step towards the ECB’s takeover as a central banking supervisor, under the Single Supervisory Mechanism scheme, on 4 November.

This move is aimed at weeding out financial problems within Europe’s largest banks before the ECB takes the role of central banking supervisor. The ECB is tasked with enforcing tough regulations on national banks, which governments may shy away from.

The European Commission said the tests had been “robust exercises, unprecedented in scale and among the most stringent worldwide”.

“Yet there is no room for complacency,” a statement said. “Rigorous and timely follow-up actions to the results of the exercises will be absolutely crucial.”

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