Financial derivatives are sometimes a savior, but in other times, a curse. Although their earliest documented use was in the form of rice futures in the 1700s, they have grown in popularity in recent times for hedging known risks, but have also drawn criticism as a tool of speculation. American International Group, for example, lost $18 billion on credit default swaps during the financial crisis.

Nearly $40 billion has been lost in derivative-related events over the past decade, forcing government officials and regulators to develop controls to prevent such massive losses from occurring with such frequency. As a result, we have the Dodd-Frank Act, more than 2,200 pages of new rules, not including the many interpretative regulations that have followed. Hedging foreign exchange risk is a legitimate activity for any corporation engaged in cross-border commerce, but Dodd-Frank did not choose to exclude altogether this valid risk-mitigating activity.

The Commodity Futures Trading Commission is the regulatory body tasked with administering the legislation with regards to foreign exchange and with oversight of over-the-counter derivatives and swaps. (read more…)

As Barack Obama begins his second term as the 44th president of the United States, the economy is better than it was in January 2009 at the start of his first term. But what is the state of the U.S. economy? And how might it look in the future? This post looks at some of the key economic and demographic indicators by location. While the U.S. overall is doing better, conditions in local economies may vary.

Unemployment

When Barack Obama first took office in January 2009, the U.S. unemployment rate was 7.8%. During Obama’s first term that figure jumped to 10% in October 2009. The current rate was back to 7.8% as of December 2012, according to the Bureau of Labor Statistics.

Individual states have different results for unemployment depending on local economies. From January 2009 to November 2012 (the most recent available statistics by state), 27 states have a lower unemployment rate. (read more…)

Six years of recession in the U.S. has cut a $1.2 trillion-a-year construction industry into one that is worth about $800 billion a year. It also chopped more than 2 million jobs from the industry, according to data from the Associated General Contractors of America. However, a survey by AGC and co-sponsored by Computer Guidance leads AGC to look at 2013 as a potential turning point with tentative signs of recovery.

Which building sectors will grow? Which will shrink?

In general, a majority of the 1,300 AGC member firms surveyed see construction spending in 2013 to be about the same as it was in 2012. Relatively speaking, this isn’t so bad, since AGC’s chief economist, Ken Simonson, said, “Construction spending in [the] first 11 months of 2012 was up about 9% over 2011.”

But there is also some optimism. About a third of the firms surveyed report that they expect to see increased spending in health care, higher education and power construction this year. (read more…)

Now that the holidays are over, the stress of higher credit card charges arrives with the bills. NerdWallet estimates that the average U.S. household had $14,478.78 in credit card debt in 2012 and that 46.7% of U.S. households carry credit card debt. According to CreditCards.com, 2.93% of consumers are delinquent on their credit cards. Credit card usage has dropped in recent years as some consumers are concerned about developing debt they cannot pay. Who carries debt and what credit cards they use varies across consumer types.

This article explores the types of consumers who charge a lot on their credit cards each month versus those who don’t. Also, it compares the types of consumers who carry American Express and Discover cards.

Credit card debt

Americans hold more than 600 million credit cards, according to CreditCards.com. This averages out to 3.5 cards per person. Many consumers use their cards quite avidly, charging everyday purchases such as food and gas. (read more…)

With an eye on what lies ahead for the industry in 2013, SmartBrief conducted an e-mail interview with Derek Saunders, the chairman of the International Association of Credit Portfolio Managers. Mr. Saunders is the global head of portfolio management at HSBC Holdings, and he shared his insight.

What are some of the trends you see developing in international credit markets in the next year? How do you see credit-portfolio managers responding to these changes?

Credit Portfolio Management (CPM) remains extremely well positioned to respond to a very challenging environment and the trend for the financial services sector continues to be one of increased costs as new regulatory frameworks are progressively introduced. What has changed is a general and wider recognition that the Banking sector’s ability to lend—and indeed, banks are actually keen to do this– helps in part to drive the health of the underlying economy in which they operate. On the positioning of CPM, we find ourselves with something of a dilemma, on the one hand CPM functions are well placed to provide senior management informed views and analysis around strategic options for repositioning of the wider business franchise–the whole industry is going through change–and on the other, challenged Return on Equity targets and focus on cost in an environment of lower recycling has resulted in increased scrutiny for many CPM functions. (read more…)