The economic impact of the drought will be more severe in emerging markets. With the global economy slowing, the bad harvests could not have come at a worse time. India has had trouble taming its inflation and now it will get worse
The world’s food supply is in danger. Droughts around the world have slashed harvest forecasts. This time the problem is especially severe in the United States. Two consecutive La Niñas, cooler than average water temperatures in the eastern equatorial Pacific, have pushed the polar jet stream to the north opening up a large sections of the agricultural rich Midwestern US to temperatures in excess of 37°C and little rain. It has been the warmest 12-month period in the continental US since record keeping began in 1895. The effect on crops has been a disaster.
It is the worst drought in 55 years. As of late July nearly two-thirds of the US is experiencing some precipitation deficit. As of this week, the American Agriculture Department (USDA) declared 1,369 counties in 31 states as disasters. The designation is important because it allows the local farmers to qualify for aid. This is the largest number in the history of the program. The USDA also reported that 45% of US corn fields were in ‘poor’ or “very poor” condition up from 38% a week before. While 35% of the soyabean crop was in ‘poor’ or “very poor” condition, up from 30% a week ago.
Of course, the markets have reacted. The price of corn has hit a record high at $339 per metric tonne, 6% above its previous high in March 2011. Soyabean is not far behind. It is now selling at $662 per metric tonne, 20% above its all-time high reached in June 2008.
But the drought is not just a problem for the US. American corn represents 52% of the global exports in that commodity and 43% of the exports for soyabean. And the weather is not just bad in the US. Droughts and sometimes floods have also hit the Chernozem, the black earth belt that includes parts of Serbia, Bulgaria, Romania, Ukraine and Russia all the way into western Siberia. In Kazakhstan the world’s sixth largest export, the crop will be only 48% of last year’s record harvest. The price of wheat has risen 35% from May and is now selling for $356 a metric tonne. While this is still 18% below the record price of $439 reached in February 2008, it is certainly not really good news.
Profits and growth depend on good management. Yet investors have the habit of lumping countries into categories based on vague criteria and assuming correlation across the class, a sure recipe for disaster in any language
Recently I read several articles on a popular US financial website owned by the Wall Street Journal which were on emerging markets in general and in particular the markets of Poland and Turkey. I found all of these articles rather troubling. They made two of the worst mistakes that investors and analysts make when considering investing in emerging markets.
The US Senate's Permanent Sub-committee on Investigations, said HSBC was found to be doing business with Al Rajhi Bank, whose key founder was an early financial benefactor of al Qaeda, and also have provided US dollars and services to some banks in Saudi Arabia and Bangladesh despite their links to terrorist financing
Washington: A US Senate panel has accused global banking giant HSBC of exposing the country's financial system to various terror financing, money laundering and drug trafficking activities with transactions worth billions of dollars, due to poor risk control systems at the bank, reports PTI.
Among others, HSBC was found to be doing business with Saudi Arabia's Al Rajhi Bank, whose key founder "was an early financial benefactor of al Qaeda," the US Senate's Permanent Sub-committee on Investigations has said after a year-long probe into the affairs of the global banking major.
The bank has also been accused of indulging in various questionable transactions with entities from countries like Mexico, Iran, North Korea, Saudi Arabia, Bangladesh, Syria, Cuba, Sudan, Burma, Cayman Islands, Japan and Russia.
Specifically, the bank has been alleged to have provided US dollars and banking services to some banks in Saudi Arabia and Bangladesh despite links to terrorist financing.
Reacting to the report from the Senate Sub-Committee, HSBC said in a statement that it would apologise for failing to meet regulatory and customer standards in the past.
The bank said it recognises that its "controls could and should have been stronger and more effective in order to spot and deal with unacceptable behaviour."
The Senate Sub-Committee last night released a 17-page summary report of its probe. The entire 330-page report, prepared after a year-long investigation into HSBC, along with more than 100 other documents including bank records and internal emails, is being released at a hearing here today.
The hearing would include testimony from HSBC officials and federal regulators, the sub-committee Chairman and Senator Carl Levin said in a statement.
The bank operates in many jurisdictions with weak Anti-Money Laundering (AML) controls, high risk clients, and high risk financial activities, including in Asia, the Middle East, and Africa, the Senate sub-committee said.
The sub-committee said that HSBC used its US bank (HBUS) as a gateway into the US financial system for some HSBC affiliates around the world to provide dollar-denominated services to clients "while playing fast and loose with US banking rules".
"For decades, HSBC has been one of the most active global banks in the Middle East, Asia, and Africa, despite being aware of the terrorist financing risks in those regions.
"In particular, HSBC has been active in Saudi Arabia, conducting substantial banking activities through affiliates as well as doing business with Saudi Arabia's largest private financial institution, Al Rajhi Bank," the report said.
"After the 9-11 terrorist attack in 2001, evidence began to emerge that Al Rajhi Bank and some of its owners had links to financing organisations associated with terrorism, including evidence that the bank's key founder was an early financial benefactor of al Qaeda.
"In 2005, HSBC announced internally that its affiliates should sever ties with Al Rajhi Bank, but then reversed itself four months later, leaving the decision up to each affiliate.
HSBC Middle East, among other HSBC affiliates, continued to do business with the bank," it added.
The probe further said that "due to poor AML controls, HBUS exposed the US to Mexican drug money, suspicious travelers cheques, bearer share corporations, and rogue jurisdictions."