Whether the global economic mood is sunny or stormy, whether stocks are running with the bulls or hibernating with the bears, it is Izzy Tapoohi’s job to convince investors to put their money in Israel.
The Australian-born Tapoohi heads Israel Bonds, the brokerage firm that sells Israeli government debt. Like all governments, Israel needs to raise money when its budgetary spending outweighs its revenues. The question is, how much of a premium do they have to pay to borrowers, who need to be convinced that Israel Bonds offer them a better return with less risk of losing their investment? The way investors answer that question can make a big difference for Israel when it comes time to pay up; the amount Israel spends on paying its debt interest alone every year adds up to as much as two-thirds of the defense budget.
Under Tapoohi’s lead, annual US domestic sales at Israel Bonds have risen from $600 million to $1.1 billion, and despite the difficult global economic circumstances and tough challenges Israel faces at home, he is optimistic about continued growth.
Speaking to The Jerusalem Post
from his New York offices, Tapoohi gives his take on BDS, the slowdown in China, and explains why despite it all, he remains bullish on Israel.
Let’s start with where you’re sitting. What’s going on in the US economy, and how has that affected the success of Israel Bonds?
The US economy is in better shape than the rest of the world, but obviously it’s not growing fast enough.
The uneven global growth outlook is strengthening the US dollar, making exports more expensive. That will slow down the growth in the US economy.
The recent stock market declines are further hurting consumer spending; when people see the stocks go up, they feel richer and are more prepared to spend.
But there are some positive signs in the American economy. Last year there were three million jobs added. Plus, homes, not stocks, are usually the biggest investment people make, and the Shiller index [which measures housing prices] is up, so people feel wealthier, so they can spend more. Furthermore, oil prices are low, which is good for consumers.There’s been a lot of concern over the poor economic showings in China in recent days. How great a role does Asia play when it comes to Israel?
On Black Monday, when China’s stocks were crashing, our call center was busier than it had been in many months. So obviously people appreciate that bonds are a secure place to park your money.
People are concerned with China and, let’s be realistic, it’s the second-biggest economy and investors anticipated that it would pull the world economy forward. The Chinese say growth is 7 percent, but the government controls their figures, so it’s hard to know.So how does all of that affect Israel Bonds?
When the US consumers see red signs all over the stock market, everyone wants to run to a more secure investment.
So they move to bonds. Israel Bonds are special in that they’re non-tradable. It’s a serious investment; you hold onto it.
So if someone pays $1,000, they’ll get back that amount plus interest. The advantage is that there’s no mark-tomarket, which can change the value of the bond over time. So if you are an insurance company that covers a 30-year-old who will retire at 70, they can buy an Israel bond, roll it over a few times, and it’ll be ready to go for their retirement. Mind you, 85% of US retail sales are $25,000 and below, and we have almost 600,000 bond holders, so we see that it’s not just big institutions buying them.Are people buying bonds as a way of supporting Israel?
Most people are just looking for a good investment. They’re not only looking at Israel Bonds as a way to support Israel, they’re looking at it also as a good investment.Do you think people see Israel’s economy as risky, given the security situation?
I don’t believe that people look at it as a major risk. Remember, if you took a 10-year bond, we would add 70 basis points for country risk. But people don’t see that as a major problem per se. The fundamentals of the Israeli economy are sound. The poor growth in the last quarter was unusual. But Israel is regarded as an island of stability in the Middle East.
When people ask about Iran and how that affects Israel, I ask if they ask the same question about investing in Korea or in Samsung given their northern neighbors.
They’re aware there are some rough neighborhoods, but we know how to control it.You mentioned the poor growth last quarter, and here in Israel we constantly hear about Israel’s vast economic challenges. Why do you see Israel’s economy as so good?
Well, its debt-to-GDP ratio is good, there’s low inflation, low unemployment, solid consumer spending.
The lower second-quarter figures resulted from the devaluation of the euro, the strength of the shekel, low prices for raw material, especially phosphate, and the uncertainty of the budget and when it would pass. But all of those factors will change in the next few quarters.
Once the structure of the gas industry is determined, it will also have a positive effect on growth. I’m very bullish on the Israeli economy, and this is why we’ve been so successful selling an additional half-billion dollars domestically each year since I’ve been here.
Almost $800m of our sales are retail.There’s a big debate over the budget now, and the new deficit target is expected to increase our debt burden for the first time since 2009. How does the fiscal policy affect bond sales?
It’s not significant. The budget deficit has been overrun, but not significantly.
And if you analyze every other economy in the world – remember we’re part of the global village – we’ve done well. We’re more concerned in Israel than outside. Rating agencies look at the cumulative effect and praise Israel’s debt management.
There’s not a big difference between running the economy of a country and running a business; 60% debt isn’t so bad in a business. You just don’t want your credit rating to get too bad, so you have to ensure fiscal responsibility. I don’t believe that if you need a year or two of small overspending that it will make the difference. A 3.2% deficit is fine, just don’t let it get up to 4%.You argue in the pages of the Post that Israel’s economy should get top marks, and there are certainly plenty of macroeconomic indicators to support that. But what about the poverty and inequality that are rampant, and among the worst in the OECD? Should those get top marks as well?
When I say top marks, I look at Israel on a macro level. On the micro level, we have to deal with the inequality, but again, I’m looking at a global situation.
I read daily about the global economy.
The inequality is even higher here in the US. We have two sectors in Israel that alter the picture. One is the haredi community. If someone wants 15 kids, that’s fine, but they can’t expect to sit in a yeshiva and that the rest of the citizens are going to carry them on their shoulders. We need to get them into the workforce.
The other group is the Arab community.
There are challenges they face, sure, but what is wrong is that at the end of the day, the men are working and the women can’t work, for various sociological reasons. Two-worker families in Israel generally aren’t under the poverty line.
I think if we dealt with those two issues it would makes an enormous difference to the income disparity.Have you found any impact from BDS?
They’re attacking us everywhere, including through Israel Bonds. We say it’s an economic issue. The idea of BDS is to bring Israel down on its knees economically. We’re fighting against it behind the scenes. Has it affected us? Very little. I think it’s more in the headlines. But the states and municipalities that are investing in Israel Bonds say that not only is there an economic advantage, but also a message to the BDS movement.
It’s marginal, and in many respects, it’s actually positive, because there’s a backlash, and people buy Israel Bonds just to make a point.