China is now buying US distressed real estate (better than & not riskier like US Treasuries) - standing taller & a threat

Speaking of China's current account surplus, the dragon nation now seems all set to take advantage of the cheap real estate available in the US currently. As per a Moneynews report, China's US$ 300 bn sovereign-wealth fund (SWF) is preparing to aggressively scoop up distressed real estate assets in the US, a smart move considering that with the impending hyper inflation in the US, real estate surely looks a better investment than US Treasuries.

Interestingly, the vice president of the Bank of China has recently been quite vocal in his criticism of Wall Street for its complacency in the wake of the financial crisis. He is known to have said recently, "You go to Wall Street, the people feel the crisis never happened. It's not only overconfidence, it's over-myopic. This is too much." Looks like Wall Street's arrogance isn't going to take a lot of time to come back!

And now, another American bastion has fallen. As per Moneynews, such has been the damage done to corporate earnings in the US following the crisis that for the first time, profits posted by the top 500 Chinese companies have gone way ahead of their US counterparts. Net profits for the Chinese companies stood at US$ 171 bn in 2008, significantly higher than those posted by the US companies, which came in at US$ 99 bn. A big achievement for China indeed as while it remains the fastest growing economy in the world; its GDP is still less than a third of the US.

And once again, it is the banking industry that seemed to have made all the difference. While many of the US banks remained mired in losses, half of the top 10 profit-makers on the Chinese list turned out to be financial companies. Clearly, the US' banking industry has left its economy nowhere to hide.

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Lehman Brothers' obituary - Is it time to change the idiom from 'Too Big To Fail' to 'Too Big May Fail'?

The month of September marks an anniversary that markets would love to forget. The bankruptcy of Lehman Brothers that snowballed into a global financial catastrophe had several lessons to teach.

Almost years after this crisis, the US and most large economies in Europe have managed to recover from recession. Global and particularly emerging markets have again limped back to optimism. But does this mean that we have left behind the risks that surfaced a year ago? While the massive correction in real estate prices has certainly tempered greed, there is a collective opinion amongst bankers that bailing out large entities at the cost of taxpayer money is not in the best interest of the nation. The G-20 finance misters have a clear resolve to ensure that entities that put the interest of the economy at risk for their vested interests will be brought to task.

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Finally, a Tax Reform of Substance

Recently, the Finance Minister proposed the new Direct Tax Code that is likely to be effective from 2011. This proposed Code will in effect replace the Income Tax Act, 1961. Broadly it proposes to:

• Raise the tax slabs for individuals substantially as per the table below:
  

  Tax Rate	Existing (Rs)	Proposed (Rs)
  Nil	160,000	160,000
  10%	160,001-300,000	160,001-1,000,000
  20%	300,001-500,000	1,000,001-2,500,000
  30%	Above 500,000	Above 2,500,000

  (Source: Direct Tax Code Bill, 2009)
• Increase the Section 80C limit from Rs 1 lacs to Rs 3 lacs
• Make the investments in saving schemes like provident fund, life insurance, New Pension Schemes, EET (Exempt-Exempt-Tax). This will be applicable to all contributions made after the commencement of the Code
• Scrap the exemption on the interest on home loans of Rs 1.5 lacs
• Abolish Securities Transaction Tax (STT). This will bring down the transaction cost for investors
• Remove the distinction between short-term and long-term Capital Gains Tax. This means capital gains will be taxed irrespective of the investment horizon
• Raise the wealth tax limit to Rs 500 lacs and lower the rate to 0.25%

The new Direct Tax Code has to be first passed by Parliament before it can be implemented. When implemented, it will boost savings of individuals.

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