Israel to Begin Investing Reserves in U.S Equities

The Bank of Israel will begin today a pilot program to invest a portion of its foreign currency reserves in U.S. equities.

The investment, which in the initial phase will amount to 2 percent of the $77 billion reserves, or about $1.5 billion, will be made through UBS AG and BlackRock Inc. (BLK), Bank of Israel spokesman Yossi Saadon said in a telephone interview today. At a later stage, the investment is expected to increase to 10 percent of the reserves.

A small number of central banks have started investing part of their reserves in equities. About 9 percent of the foreign- exchange reserves of Switzerland’s central bank were invested in shares at the end of the third quarter, the Swiss bank said on its website.

The investment will be made in equity index trackers and will include between 1,500 to 2,000 shares, among them stocks like Apple Inc. (AAPL), Saadon said.

The central bank decided to add equities to its investment portfolio in order to diversify, reduce risk and give better performance, Barry Topf, senior adviser to Governor Stanley Fischer, said in a Dec. 1 interview.

The 10 Most Expensive Art Sales of 2011

The art world is changing. While Chinese auctions surged from ninth place in 2000 to first in overall art sales in 2010, 2011 marked another watershed: The priciest individual art purchases of the year at auction were works from China. Otherwise, global investors continued a stream of record-breaking purchases last year favoring 20th century America, especially Pop Art, and 20th century English and European works, notably Viennese. For the first time Warhol outsold Picasso, but the gross sales of those two giants fell into third and fourth place behind China’s Zhang Daqian, who does not appear in Worth’s annual list below, and Qi Baishi, who tops it.

1. $65.5 million

Eagle Standing on Pine Tree; Four-Character Couplet in Seal Script | Qi Baishi

Just short of 9’ tall, this imposing work with bold calligraphy by peasant-born Qi Baishi was once a birthday present to Chinese nationalist leader Chiang Kai-shek. Today it’s considered a national treasure in China and a jewel in the crown of a new world order, at least as far as fine art sales are concerned. The artist was a self-taught painter, carver and calligrapher whose 93 years spanned the end of feudal China and the beginning of its modern age. It was sold from the collection of art investor Liu Yiqian at China Guardian Auctions in Beijing to the Hunan TV & Broadcast Intermediary Co. on May 22nd.

2. $62.1 million

Zhichuan Resettlement | Wang Meng

The surging Chinese market is made even more unpredictable by the fact that auction houses often don’t use estimates. For a landscape with calligraphy featuring travelers on horseback by Wang Meng, one of four renowned masters of the Yuan Dynasty in the 14th century, bidding began at $1,500 at the Beijing Poly International Auction house on June 4th. The final price was $62,117,492 higher.

3. $61.7 million

1949-A-No. 1 | Clyfford Still

The rare opportunity to buy not one, but four works by American Abstract Expressionist pioneer Clyfford Still caused wallets to open wide at Sotheby’s Contemporary Art Evening Sale in New York in November. Sotheby’s director Lisa Dennison secured 1949-A-No. 1, the darkest of three related paintings, for a new high for a Still at auction. Dennison is believed to have purchased it on behalf of Qatari royals.

4. $43.2 million

I Can See the Whole Room...and There’s Nobody In It! | Roy Lichtenstein

This eye-through-a-peephole comic-inspired painting, its title writ large in cartoon-speak, was among other booty won by dealer Guy Bennett at Christie’s Post-War Contemporary Evening Sale in New York. Topping Christie’s record-breaking sale of Oh... Alright… for $42.6 million in 2010, this new highest sale price for a Roy Lichtenstein has at last dethroned the prince of Pop, Andy Warhol, at least for a single year. Lichtenstein, whose comic-inspired period remains his most enduring contribution, once said he began such explorations to please his children.

5. $42.9 million

Venice, a View of the Rialto Bridge, Looking North, From the Fondamenta del Carbon | Francesco Guardi

This monumental but rarely seen depiction of the Grand Canal, owned for over a century by the descendants of Sir Edward Guinness—yes, that Guinness—became the only Old Master in 2011’s top 10 when it sold slightly above its high estimate at Sotheby’s London in July. The sale broke records not only for the artist and for a depiction of Venice, but for any “view painting” ever. It is one of four related works Guardi completed in the late 1760s; they are widely regarded as the artist’s masterpieces.

6. $40.7 million

La Lecture | Pablo Picasso

This gentle, lyrical rendering of Pablo Picasso’s mistress Marie-Thérèse Walter asleep sold in a spirited contest at Sotheby’s London for nearly twice its low estimate to an anonymous buyer assisted by a Sotheby’s specialist for Russian clients. The spare, light-toned painting from Picasso’s “lovestruck” period out-earned his less flattering depiction of rival muse Dora Maar, which sold for $29.1 million later in the year at Christie’s London to Greek financier Dimitri Mavrommatis. The Modern master’s reign as the best-selling artist for several years running was ended in 2011 by China’s Zhang Daqian. Picasso’s combined auction record for 2011: $360,308,105. Zhang Daqian’s: $721,799,891.

7. $40.4 million

Litzlberg am Attersee | Gustav Klimt

This vibrant image of a lakeside town nestled at the base of Gustav Klimt’s jewel-carpet of a mountain also carries the fascination of a darker provenance. It was first owned by patrons of the artist whose heir, Amalie Redlich, inherited the painting—in its original Josef Hoffmann frame—in 1927. Redlich and her daughter, Mathilde, were deported from Vienna in Hitler’s “final solution” in 1941 and never heard from again. The seized painting hung in Salzburg’s Museum of Modern Art for decades until its government-ordered return to a grandson was negotiated, a deal which stipulated that a portion of the proceeds from the sale of the Klimt would facilitate the building of a wing in Salzburg honoring the Redlichs. Purchased at Sotheby’s New York by Zurich art dealer David Lachenmann on behalf of a private collector, this work is also an excellent example of Klimt’s influence upon his most famous student, the artist next on our list.

8. $40.1 million

Houses With Laundry (Suburb II) | Egon Schiele

With Gustav Klimt’s mosaiclike bright colors laid in against Egon Schiele’s own moodier grays, this rare cityscape sold at Sotheby’s London near the low estimate, but still a new record for Vienna’s once infamous firebrand. One of only three notable Schiele cityscapes to appear at auction in the last decade, this sale also settled a longstanding Nazi-theft dispute, begun in 1998. The seller, the Leopold Museum of Vienna, will pay $19 million to heirs of Lea Bondi Jaray (who fled Vienna in 1939), as part of a deal allowing it to maintain ownership of her stolen Schiele, Portrait of Wally.

9. $38.4 million

Self-Portrait | Andy Warhol

Andy Warhol’s first important self-portrait, consisting of four separate likenesses, was commissioned for $1,600 in 1963 by Detroit collector Florence Barron. The Barron family sold the piece—originally commissioned by Barron as a portrait of her before she changed her mind and suggested Warhol paint himself—for a record $38,442,500 at Christie’s New York’s Post-War and Contemporary Art Evening Sale last May. The work was battled over in a record 16-minute bidding war, netting the largest purse yet paid for a self-portrait of Warhol, from a European buyer. The artist’s total gross in 2011: over $375 million, placing him third behind the Chinese phenoms Zhang Daqian and Qi Baishi, who tops this list.

10. $37.1 million

Three Studies for Portrait of Lucian Freud | Francis Bacon

Sotheby’s London office was confident about this one. Not seen in public since 1965 and held by the same secretive owner during that time, these typically gruesome studies of Francis Bacon’s friend/competitor Lucian Freud were expected to spark the excitement of rediscovery. But no one anticipated the frenzy of interest it provoked: After a 10-bidder free-for-all spanning four continents, an anonymous buyer in the room brought the hammer down well over twice the high estimate. Bacon’s gross sales for 2011 place him as the 11th best-selling artist in the world last year, behind no fewer than seven Chinese artists.

By Edward Wise- Worth

Canada’s Housing Market - Look Out Below

 

After years of lecturing America about loose lending, Canada now must confront a bubble of its own 

Feb 4th 2012 | TORONTO 

IN FEW corners of the world would a car park squeezed between two arms of an elevated highway be seen as prime real estate. In Toronto, however, a 75-storey condominium is planned for such an awkward site, near the waterfront. The car park next door will become a pair of 70-storey towers too. In total, 173 sky-scrapers are being built in Toronto, the most in North America. New York is second with 96.

When the United States saw a vast housing bubble inflate and burst during the 2000s, many Canadians felt smug about the purported prudence of their financial and property markets. During the crash, Canadian house prices fell by just 8%, compared with more than 30% in America. They hit new record highs by 2010. “Canada was not a part of the problem,” Stephen Harper, the prime minister, boasted in 2010.

Today the consensus is growing on Bay Street, Toronto’s answer to Wall Street, that Mr Harper may have to eat his words. In response to America’s slow economic recovery and uncertainty in Europe, the Bank of Canada has kept interest rates at record lows. Five-year fixed-rate mortgages now charge interest of just 2.99%. In response, Canadians have sought ever-bigger loans for ever-costlier homes. The country’s house prices have doubled since 2002.

Speculators are pouring into the property markets in Toronto and Vancouver. “We have foreign investors who are purchasing two, three, four, five properties,” says Michael Thompson, who heads Toronto’s economic-development committee. Last month a modest Toronto home put on the market for C$380,000 ($381,500) sold for C$570,000, following a bidding war among 31 prospective buyers. According to Demographia, a consultancy, Vancouver’s ratio of home prices to incomes is the highest in the English-speaking world.

 

 

Bankers are becoming alarmed. Mark Carney, the governor of the central bank, has been warning for years that Canadians are consuming beyond their means. The bosses of banks with big mortgage businesses, including CIBC, Royal Bank of Canada and the Bank of Montreal, have all said the housing market is at or near its peak. Canada’s ratio of household debt to disposable income has risen by 40% in the past decade, recently surpassing America’s (see chart). And its ratio of house prices to income is now 30% above its historical average—less than, say, Ireland’s excesses (which reached 70%), but high enough to expect a drop. A recent report from Bank of America said Canada was “showing many of the signs of a classic bubble”.

The consequences of such a bubble bursting are hard to predict. On the one hand, high demand for Canada’s commodity exports could cushion the blow from a housing bust. And since banks have recourse to all of a borrower’s assets, and Canadian lending standards are stricter than America’s were, a decline in house prices would probably not wreck the banks as it did in the United States.

However, the Canadian economy is still dependent on the consumer. Fears about the global economy have slowed business investment, and all levels of government are bent on austerity. The Conservative government’s next budget is expected to put forward a plan to close the federal deficit, now 2% of GDP, by 2015—modest austerity compared to Europe’s, but still a drag on the economy. Few new jobs are being created. Assuming there is no setback in Europe’s debt crunch, slowdown in America or drop in commodity prices, GDP is forecast to grow by a meagre 2% this year. If consumers start feeling less well off, Canada could slip back into recession.

The inevitable landing will probably be soft. Increases in house prices and sales volumes are slowing, and the 2015 Pan American Games in Toronto should prop up builders. “The national housing market is more like a balloon than a bubble,” says a report by the Bank of Montreal. “While bubbles always burst, a balloon often deflates slowly in the absence of a ‘pin’.”

Moreover, the government is trying to cool the market. The banking regulator is increasing its scrutiny of housing in response to concerns about speculators. The Canada Mortgage and Housing Corporation, a government mortgage-insurance agency, says it will have to start reducing its new coverage because of legal limits. And the finance ministry has cut the maximum term of publicly insured mortgages from 35 years to 30. Some bank managers are calling for it to be reduced to 25, the historical norm. Canada’s reputation for financial sobriety is not entirely unwarranted.

However, the state has refused to use its most powerful tool. To protect business investment, the central bank has made clear that it plans to keep interest rates low. As long as money stays cheap, the balloon could get bigger—perhaps big enough to become a fully fledged bubble after all.

from the print edition | The Americas