The UK Emergency Budget - Fisher Capital Management Report Part 1

Fisher Capital Management Report  - The UK has had an emergency budget and it could have been much

worse. The heavy lifting is being done by a rise in VAT bringing in

£13 billion. On the spending side the cuts are achieved by freezing

public sector pay, indexing state benefits to the CPI rather than the

faster-rising RPI and freezing child benefits. State pensions will be

indexed to the higher of wages or the CPI but the pension age will

be raised to 66 fairly soon.

The disappointment for the UK is on the tax side where compromises

with the worst aspects of the Lib Dems are apparent. CGT goes up

to 28% for top earners … a mistake.

The UK Emergency Budget - Fisher Capital Management Report: The 50% top tax rate and associated rise in the top marginal rate

on pensions have been left alone. There is a Bank Levy bringing in

£2 billion … defensible, just, at this level but it needs remembering

that taxpayers generally make money out of bailouts because they

get assets at knock-down prices and are able to hold them until

times are better. Then there are cuts in corporation taxes on both

large and big firms, which is to be welcomed.

But there is no clear logic here; no sense that the tax system is to

be remoulded, to give incentives for entrepreneurs, inward investors

to the UK and indeed home investors.

The main question that most people will be asking is whether the

fiscal arithmetic will come off and the deficit come down as planned

to 1.1% of GDP by 2015/16. The answer depends entirely now on

growth. Contrary to most people’s comments, cutting spending as

planned is not really that difficult.

The UK Emergency Budget - Fisher Capital Management Report: Much of it will involve simply freezing programmes in real terms

and also cutting pay in real terms, which the announced freeze on

pay will do. Probably some programmes can actually be cut without

much trouble given the considerable decline in public sector

productivity in the last decade … in other words value for money

in the public sector has never been worse.

The main issue is whether UK GDP will grow as forecast, at 2–3%

in the next few years. If it does, then revenues will recover

substantially.

Already the PSBR figures have come in some £10 billion below the

original projections and that seems to be because the original growth

figures for 2010 were too low.

There are good reasons for thinking growth of this order will occur.

The world economy is recovering rapidly, led by the East — China,

India and East Asia. These countries are achieving extremely rapid

rates of productivity growth by moving people out of lowproductivity

agriculture mainly into high-productivity

manufacturing. Hence their fast growth.

The problem for the West is that these countries also pre-empt

available supplies of raw materials such as oil. So if the West grows

any faster than its present moderate recovery, it would trigger

renewed surges in raw material prices, which in turn would reduce

Western productivity growth (factories are less profitable as those

prices rise).

So there is a built-in drag on western growth. But nevertheless

growth of the 2–3% order is in line with productivity growth at

current raw material prices.

One concern for the UK is whether the spending cuts and tax rises

themselves will derail the recovery. This is something that Labour

is emphasising.

However, the programme is spread out over five years and this

should be gradual enough to be absorbed with monetary policy

remaining supportive.

Fisher Capital Management News: Equity Markets

Equity Markets: All the major equity markets, and most of the emerging markets, Are stable over the past month. There had been expectations that the Fed might introduce further quantitative easing measures at its recent OMC meeting, and this provided some support for the markets in the early part of the month; but it made only very modest.

Government Bond Markets: The major government bond markets have made further significant gains over the past month, despite the funding pressures resulting form huge fiscal deficits, and the renewed concerns about debt defaults.

Short-term interest rates have remained low, and monetary policy has been supportive; but it has been the enhanced “safe haven” status of these markets that has provided most of the momentum, as investors have sought “shelter from the current storm”. However the moves have surprised most commentators, and this has led to warnings about “bond bubbles” that will not be sustained.

Financial Markets: Sentiment in the financial markets has deteriorated. Signs of slowdown in the Chinese economy, have produced a much more cautious view of prospects for the rest of this year and in 2011; and there have been renewed fears about banking problems in Europe, and the likelihood of sovereign debt defaults. There have also been further indications of the conflicting views of central banks about the most appropriate response to the current problems.

Currency Markets: Uncertainty has been the main feature of the currency markets over the past month. The dollar has recovered from earlier weakness after the Fed made only very modest changes in its monetary policy at the latest OMC meeting, and is ending the period basically unchanged; sterling has weakened slightly against the dollar but is higher against the euro; and the euro has also fallen back against most other currencies as the fears about sovereign debt defaults in Europe have increased.

But the feature of the currency markets over the month has been the sharp appreciation of the yen because of its enhanced “safe haven” status. The move is obviously an unwelcome development for the Japanese authorities, and there has been considerable speculation about intervention by the Bank of Japan to reverse it; but there has been no action so far.

Short-Term Rates: There have been no changes in short-term rates in the major financial centres this month. Commodity markets have followed the trend in the other markets, improving in the early part of the period, but falling back towards month-end. The main features have been the continued strength of wheat prices after the Russian decision to suspend wheat and grain exports, and the sharp fall in oil prices.

Fisher Capital Management Korea is a leading global financial institution holding extensive relationships with financial institutions, institutional investors and corporations across the world. As a full service company Fisher Capital Management Korea provides a full range of investment banking services including advanced risk management, corporate strategy and structure, plus raising capital through debt and equity markets. With this as our backbone we continue to provide a client service second to none.

Shaw Capital Management News -Foreign Exchange Markets 2010 Part 4

Prospects therefore remain disappointing, and are being made worse by the differences that exist between member countries. The European Central Bank therefore faces a difficult situation. It continues to forecast “moderate” growth and “moderate” inflation; but it is being severely criticised for failing to address the problems of a two-speed economy, and for its unwillingness so far to face the threat that the deteriorating situation in Greece could quickly begin to destabilise other member countries and have serious consequences for the financial stability and growth prospects of the entire area.

It is not surprising therefore that investors and speculators have started to reduce their exposure to the euro.

Shaw Capital Management News - Foreign Exchange Markets 2010 Part 4: - The critical question therefore is whether the fall of the euro is now over. Since the currency is unlikely to receive any real support from the general background situation in the euro-zone, everything depends on the developing debt situation, and particularly on the situation in Greece; and also on the possibility of support operations from stronger member countries and from the European Central Bank, and the European Commission. The situation remains uncertain. The central bank appears to be reluctant to offer help, and the German government, which might have been expected to become involved, has also made no response so far.

Shaw Capital Management News - But the European Commission has endorsed the latest plans by the Greek government to introduce an across-the-board freeze on public sector wages and cuts in allowances that are expected to reduce the overall public sector wage bill by around 4%.

This may encourage support from elsewhere; however the Commission has warned that it will not tolerate any slippage from the target and will if necessary demand tougher action from the government to ensure that it stays on course.

But it is far from clear that the Greek government can obtain the necessary support in parliament even for the present proposed measures, and so the uncertainty will continue.

It is therefore likely that there will be further falls in the euro over the coming weeks.

Sterling has improved slightly over the past month, helped by the weakness of the euro.

Shaw Capital Management News - The background situation in the UK remains unattractive, and there have already been threats that its AAA credit rating is at risk unless there are credible measures to reduce the massive fiscal deficit after the forthcoming general election is over.

Shaw Capital Management News - Foreign Exchange Markets 2010 Part 4: - The European Central Bank therefore faces a difficult situation. It continues to forecast “moderate” growth and “moderate” inflation; but it is being severely criticised for failing to address the problems of a two-speed economy, and for its unwillingness so far to face the threat that the deteriorating situation in Greece could quickly begin to destabilize other member countries and have serious consequences for the financial stability and growth prospects of the entire area.

But the UK is not constrained by membership of the European single currency system, and so there is no immediate risk of a default on its sovereign debts.

It has therefore been able to benefit from the problems affecting some other European countries.

Shaw Capital Management News - Foreign Exchange Markets 2010 Part 4: - The latest figures from the Office of National Statistics indicate that the UK just managed to move out of recession in the final quarter of last year. The estimate of growth of only 0.1% in the quarter was a considerable disappointment, and it is expected that it will be revised higher; but clearly the economy is not performing very well.

Government spending remains strong, and there was a surge in retail sales in the run-up to Christmas; but the anecdotal evidence suggests that consumers became much more cautious again in January.

The latest meeting of the Monetary Policy Committee of the Bank of England was concerned by the poor reaction so far to the dramatic measures that have been introduced to counter the recession, and reacted to this situation by leaving UK base rates unchanged once again at 0.5%.

Shaw Capital Management News - Foreign Exchange Markets 2010 Part 4: - It clearly has no intention of moving to an “exit strategy” until there is convincing evidence that a sustainable recovery in the economy is underway.

It did announce that purchases of market securities under the quantitative easing programme would now be discontinued after the £200 billion target has been reached; but its main priority is to continue to provide support for the fragile economic recovery.

Fiscal policy is also likely to remain unchanged until after the election, because the necessary measures to reduce the huge deficit will be unpopular, and might influence the outcome of that election.

Sterling is therefore receiving no real support from the domestic background situation, and in other circumstances might have been expected to move lower.

Shaw Capital Management News - Foreign Exchange Markets 2010 Part 4: - But the problems affecting the other major global currencies, and particularly the problems affecting the euro, have at least delayed any further falls. The yen has improved over the past month, despite a generally unfavourable domestic background situation, and some attempts by the Japanese authorities to prevent its appreciation against other currencies.

It has achieved an enhanced “safe haven” status in the current storm in the currency markets, and on the back of the relative success of its exports. But conditions in the Japanese economy remain very weak, and there has even been the threat of a downgrade of its credit rating unless measures are introduced to reduce its massive fiscal deficit.

However it does not appear that this threat will prevent the new Japanese government from introducing further measures to stimulate the economy, and urging the Bank of Japan to intervene in the markets to weaken the yen, and so its prospects remain very uncertain.

Shaw Capital Management Korea: World Economy and Raw Material Shortages

Shaw Capital Management Korea: World Economy and Raw Material Shortages - We have seen major developing economies like China and India apply the brakes earlier this year, as inflation grew on the back of commodity shortages.

World growth was running at 4.5%, only 1% or so below the record growth rates of the mid-2000s. This was too fast for raw material supplies to accommodate with current technology.

Shaw Capital Management Korea: - World productivity growth has been slowed down by this raw material shortage … this in our view was the cause of the sharp slowdown in 2006 which in its turn caused the collapse of demand for houses in the US and so the sub-prime crisis.

It will take a decade for new technology and possibly new supplies to allow renewed productivity growth; with plentiful supplies of raw materials this was the era of computer-led growth in productivity.

As growth has been slowed worldwide, so already slow growth in developed countries has slowed even further. This is inevitable.

If these countries were to speed up, demand for commodities would rise faster, spurring sharp price rises, which in turn would force them to slow back down.

Shaw Capital Management Korea: - It is convenient to focus on shortage of credit and excess debt post-banking crisis. But the fundamentals would not permit much growth even if there were plenty of credit and no debt; if the latter situation were the case, then monetary policy would need to tighten. As it is monetary policy can remain easy with the banks in endless disarray.

Seen against this background, the slowdown is natural and should not surprise us. Equally natural is that equity markets are settling, while bond yields fall, with inflation being held down and return on capital depressed by slow productivity growth.

Shaw Capital Management Korea: World Economy and Raw Material Shortages - However, none of this implies a return to recession in OECD countries. This would be prevented by a return to quantitative easing and even a deferral of fiscal tightening. Governments and central banks in the OECD are under no pressure from inflation to force down activity. Debt/GDP ratios are rising and this is forcing fiscal tightening. But the pace of this is a matter of choice.

Shaw Capital Management Korea: World Economy and Raw Material Shortages - “As far as monetary policy is concerned, the need remains to stimulate recovery of the banks since they remain the primary channel of intermediation”

Furthermore there are investment opportunities in the present environment: high returns to technological advance in commodity use, for example, and to exploration for new sources of supply.

Exports are growing well, as capital goods flow to the fast-growing developing world. Consumption is no longer depressed but rather beginning to grow.

Shaw Capital Management Korea: World Economy and Raw Material Shortages - As far as monetary policy is concerned, the need remains to stimulate recovery of the banks since they remain the primary channel of intermediation, despite all the ways in which firms and individuals have managed to find alternative finance sources since the banking crisis.
This points to further quantitative easing. Interest rate policy has become irrelevant; the rates at which private loans are being made bears little relation any more to the rates of interest on government short-term loans.

Shaw Capital Management Korea: The very low rates central banks are charging banks for loans are merely a subsidy to banks; better instead to release banks from the neurotic demands currently being made by regulators for much more capital, for greater caution in loan-making and so on.

Meanwhile it is time to restore official interest rates to their proper function as regulators of the private rate of interest; they should now be raised towards more normal rates.

Shaw Receives Full Notice to Proceed on Duke Energy's Dan River Combined Cycle Plant

BATON ROUGE, La., Mar 01, 2011 (BUSINESS WIRE) -- The Shaw Group Inc. (NYSE: SHAW) today announced it received full notice to proceed on a new gas-fired facility at Duke Energy's Dan River Steam Station in North Carolina.

Scheduled to begin operation in late 2012, the new 620-megawatt natural gas-fired combined-cycle generating unit will replace two older units at the facility. At the peak of construction, the project will employ more than 400 workers.

"This project demonstrates Duke's commitment to providing cleaner energy and jobs for its local communities," said Clarence Ray, chief executive officer of Shaw's Power Group. "Shaw is proud to help Duke ensure an affordable, reliable and cleaner energy supply for the future."

In March 2010, Duke awarded Shaw an engineering, procurement, construction and commissioning services contract for the construction of the new facility, and Shaw began working under a limited notice to proceed.

The undisclosed value of the contract will be included in Shaw's Power segment's backlog of unfilled orders in the second quarter of fiscal year 2011.

Also as a part of Duke's long-term plan to add new generation, modernize the fleet and maintain a diverse fuel portfolio, Shaw is constructing a new 620-megawatt gas-fired unit at Duke's Buck Steam Station in North Carolina, which is scheduled for completion in late 2011. The similarities and close timing of the two projects allow for maximum use of design replication and other synergies that are resulting in significant savings to Duke Energy.

The Buck and Dan River projects will use state-of-the art environmental control technology to minimize plant emissions. These controls, combined with the retirement of the older units on the two sites, will help reduce environmental emissions of NOX and SO2 at the sites.

The Shaw Group Inc. (NYSE: SHAW) is a leading global provider of engineering, construction, technology, fabrication, remediation and support services for clients in the energy, chemicals, environmental, infrastructure and emergency response industries. A Fortune 500 company with fiscal year 2010 annual revenues of $7 billion, Shaw has approximately 27,000 employees around the world and is the power sector industry leader according to Engineering News-Record's list of Top 500 Design Firms. For more information, please visit Shaw's website at www.shawgrp.com.

This press release contains forward-looking statements and information about our current and future prospects, operations and financial results, which are based on currently available information. Actual future results and financial performance could vary significantly from those anticipated in such statements.

Among the factors that could cause future events or transactions to differ from those we expect are those risks discussed in our Annual Report on Form 10-K for the fiscal year ended August 31, 2010, our Quarterly Reports on Form 10-Q for the quarters ended February 28, 2010, May 31, 2010 and November 30, 2010, and other reports filed with the Securities and Exchange Commission (SEC). Please read our "Risk Factors" and other cautionary statements contained in these filings. Our current expectations may not be realized as a result of, among other things:

•             Changes in our clients' financial conditions, including their capital spending;

•             Our ability to obtain new contracts and meet our performance obligations;

•             Client contract cancellations or modifications to contract scope;

•             Worsening global economic conditions;

•             Changes to the regulatory environment;

•             Litigation or arbitration decisions;

•             Failure to achieve projected backlog.

As a result of these risks and others, actual results could vary significantly from those anticipated in this press release, and our financial condition and results of operations could be materially adversely affected. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, the occurrence of certain events or otherwise.

SOURCE: The Shaw Group Inc.

Media and Financial Contact:

The Shaw Group Inc.

Gentry Brann, 225-987-7372

gentry.brann@shawgrp.com

Shaw Capital Management: Debit Policy is Working Well in UK & US Part 1 of 2

World wide recovery appears to have firmed up. In the UK the statistics have lagged behind the anecdotal signs of the same thing. No one still believes the ONS’s peculiar decision to call a revised GDP drop of 0.2% in the third quarter (now revised down from an initial estimate of 0.4%). The UK now have not merely surveys of purchasing managers but also employment, production and retail sales figures, all of which suggest that the economy levelled off in the third quarter and could have possibly also

started expanding then, and was definitely expanding in the fourth. The most troubling aspect of the recovery in western economies including the UK is the lack of credit growth to the non-bank private sector. However, this has been accompanied by a general easing in monetary conditions, as

measured by other indicators, such as rates of interest on corporate loans and bonds, and the cost of equity capital.

Shaw Capital Management Korea: Debit Policy is Working Well in UK & US - So it appears that the policy easing carried out by virtually all western central banks has succeeded in offsetting at least much of the effects of the credit crunch created by the banking crisis.

Another feature has been the willingness of western governments to allow their budget balances to move into heavy deficit.

The way to think of this is that governments will eventually have to pay off these deficits by either cutting spending services to the private sector or raising taxes on it. Hence these deficits are loans to the private sector to perform current services or avoid collecting current taxes; these loans will be paid off in the future. The government is effectively giving credit to the private sector that has dried up through the usual channels.

Shaw Capital Management Korea: Debit Policy is Working Well in UK & US - Some people would like to debate whether such government deficits are effective in supporting the economy; however it should be obvious that in a credit crunch all credit provision is likely to be effective in offsetting the credit shortage. One can agree that in normal times deficit multipliers could well be low because rational consumers will work out that they must pay future taxes to pay for the deficits and hence they may well save in response, so offsetting the direct deficit stimulus.

However in a credit crunch this argument is irrelevant because the private sector is liquidity-constrained. So monetary and fiscal policy have both been dominated by the need to provide a substitute for bank credit. They have done so and been rather effective in this.

Shaw Capital Management Korea: Debit Policy is Working Well in UK & US - As long as the recovery does not raise inflation and require interest rates to rise, and money creation to be stopped and reversed, the government deficits have been costless because financed by money creation at zero interest rate therefore.

The burning question is when is the turning point, when ‘monetary exit’ must be started, turning these deficits into expensive processes that could violate sustainability conditions, and hence precipitating the necessity of fiscal exit also.

From the UK or US perspective there is no real reason to rush to the exit.  Both countries’ public debt/GDP ratios are quite low, in the region of 50 80% respectively. There is no history of outright default, or of refusal to pay taxes. The main issue concerns the possibility of using inflation as a partial default tool.

Shaw Capital Management Korea: Debit Policy is Working Well in UK & US - In the UK there has been a formal inflation target of 2% or so for 17 years; in the US there is no formal target but a widespread assumption encouraged by the Fed that there effectively is one of the same order. Since debt has been issued over a long period on the assumption of such a target, the gain to the Treasury from a burst of inflation would be large; it would act like a windfall tax on bond investors.

For example to reduce the debt/GDP ratio in the UK back to 40% from its current level of 56% would just require four years of inflation at 6%, only 4% over the target.

Shaw Capital Management Korea: Debit Policy is Working Well in UK & US - Tempting as this might sound, it is striking how little public interest there is in it. Inflation was highly unpopular in both countries when it was out of control in the 1970s and early 1980s; inflation targeting has proved politically successful for this reason.

China’s Economy: by Shaw Capital Management Korea

China’s Economy: by Shaw Capital Management Korea - China will continue fiscal stimulus spending and its current monetary policies this year as the country has, in the opinion of the Chinese Communist Party, not fully recovered from the economic downturn.

The Chinese economy grew 8.7% in 2009, and will expand 8.5% in 2010. The consumer price index rose 1.5% in January from a year earlier, slowing from a 1.9% rise in December.

According to the State Administration of Foreign Exchange, the currentaccount surplus dropped to $284 billion, down by about a third from $426 billion for 2008, which was a record. It is the first decline in the currentaccount balance since 2001.

Shaw Capital Management Korea - China’s exports fell last year as global demand collapsed, but the nation’s stimulus plan helped support imports. China now accounts for more than 9% of global exports, a share that has been rising since the outbreak of the financial crisis and the ensuing collapse in global trade. China’s government says it isn’t banking on an export-driven future and has tried, though so far without much success, to shift the emphasis of the economy to domestic consumption and services.

According to International Monetary Fund projections, if current trends continue, China’s share of world exports will reach 12% by 2014, a higher portion than Japan managed at the peak of its dominance in the 1980s. China’s trade deficit with the US totalled $226.83 billion in 2009 — the U.S.’s largest imbalance with any nation. Mr. Obama has promised to the Congress to “get much tougher” with China on trade rules, including currency rates,

to ensure that U.S. goods are not at a competitive disadvantage.

Shaw Capital Management Korea - India filed more trade complaints against China than any other nation in 2009, according to figures from China’s commerce ministry. “A balance of exports and imports is important,” Indian Trade Minister Anand Sharma said in January in Beijing. China’s trade surplus with India grew 46% in 2009 to $16 billion, probably aggravated by the weakening of the yuan against the Indian rupee.

China continues to remain the world’s largest foreign holder of the US dollar bonds which stands at US$895 billion. The second biggest holder of the US debt is Japan (US$760 billion).

Premier Wen will deliver the Government Work Report in the annual session of the National People’s Congress (NPC), China’s parliament, beginning on March 5. It will spell out Beijing’s economic blueprint for 2010 and economic growth targets.

Shaw Capital Management Korea - This year’s theme is balanced economic growth. The focus of new fiscal spending is set to shift away from new infrastructure investment to education, healthcare, and other pro-consumption areas. There may be a push to accelerate urbanisation outside of the large cities and in inland regions. The party will endorse measures to increase wages and income.  The government has already raised the minimum wage in cities from Beijing to Guangzhou by 10% or more early this year.

The Wen cabinet has indicated that old-age benefits for peasants will be

tried out this year and will be made available to all by 2015. Monetary policy

will focus on bringing down credit growth to a normal rate of around 17%,

from last year’s excessive 32%.

Shaw Capital Management Korea - While the 2009 NPC harped on attaining an 8% growth rate, the priority

for this year’s session is to ensure a more equitable distribution of national

income. This year’s NPC will benefit from the lifting of the global economic

gloom that hung over last year’s session.

U.S.–China bilateral relations have grown tense over President Barack

Obama’s meeting with the Dalai Lama followed by the Secretary of State,

Hillary Clinton meeting. The cyber attack on Google Inc. is widely seen as

originating in China. Google has not officially declared that the government

had any role in it.