Economic Review and Outlook
First Quarter 2016 e-Newsletter
 
Doug Williams
Economic Review and Outlook

Late last year an investment strategist at a major European bank urged his clients to "sell everything." Apparently, some of his clients and a good many other investors acted upon that draconian advice as major equity market indices in the US and abroad declined sharply in January and through February before recovering to near year end levels in March.

The strategist's advice, investor sentiment, and resulting market volatility reflect growing uncertainty about the duration of the current US economic cycle, now the third longest expansion in the post- World War II period. Indeed, China's growth is slowing to a more mature and pedestrian pace, other key emerging market economies like Russia and Brazil are contracting, Europe and Japan are struggling to stay out of recession, and the US economy continues to expand at a rate well below historic trends.

US economic data, while typically mixed, indicate sustainable growth. Anecdotal evidence suggests consumers will spend more and business managers will continue to invest in new capacity to grow. Further, the Federal Reserve has affirmed its intent to gradually normalize monetary policy by increasing interest rates over time. In contrast, the European Central Bank and the Bank of Japan have implemented negative interest rates on bank reserves and expanded quantitative easing programs to stimulate economic activity. The result is a strengthening US dollar and tighter financial conditions here and abroad.

This divergence of economic performance and  monetary policies among the major economies is unsustainable in an interdependent world. Will the rest of the world pull the US into a recession or will the US lift global growth?

All economic cycles eventually end and this one will not change that pattern; however, I believe reports of the economy's demise are premature. Look for US GDP to grow around 2% this year and the Federal Reserve to increase interest rates one or two times before year end. Longer term, growth oriented fiscal policies are needed in the US and structural reform is imperative abroad to harmonize monetary policy and sustain global growth. Even then, periodic market corrections and economic recessions will remain the unpredictable norm and the bane of economic forecasters and investment strategists.
 
Business Email Scams a Top Fraud Threat
to Treasury and Finance Professionals
  
Criminals reportedly stole nearly $750 million from more than 7,000 U.S. businesses between October 2013 and August 2015. Combined with international victims, the FBI estimates that more than $1.2 billion has been lost due to business email compromise (BEC) scams, also known as "CEO fraud". BEC scams often begin with a phishing email that gives a fraudster access to a company employee's email account. Stu Sjouwerman, founder and CEO of IT security firm KnowBe4, explained that for an extended period of time-sometimes several months-the fraudster will monitor a compromised employee's email and determine who initiates wires and who requests them. From there, they'll either spoof an email or create a domain that's close to the company that they are targeting. "The domain will look really close to the domain of that particular company and they'll send an email from the CEO," he said. "It looks like it's totally real."

When you receive an email from one of your contacts, do you just accept that you are talking to that person? Do you know for sure that the person you're communicating with is who they say they are? Even if you're familiar with your contact's writing style, remember someone else could be familiar with that as well and could be copying them. This is the way treasury and finance professionals need to be thinking in the current threat environment. Once people actually begin to think about things differently, they can better understand the threats.
 
Best Practices for Handling BEC Scams
  
  • Be wary of irregular emails that are sent from C-suite executives, as they are used to trick employees into acting with urgency. Review emails that request transfer of funds to determine if the request are out of the ordinary.
  • Register all company domains that are similar to the actual company domain.
  • Confirm requests for funds transfers. When using phone verification, use previously known numbers and not the numbers provided in an email request.
  • Know the habits of your customers when it comes to payment habits and amounts. Flag anything out of the ordinary.
 
If you believe you've been the victim of this type of attack, you should immediately contact the sending bank and contact your local FBI office. The FBI, working with the Financial Crimes Enforcement Network (FinCEN), might be able to help return or freeze the funds. File a detailed complaint with www.IC3.gov. Be sure to identify the incident as a "BEC" scam.

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