The Bank of Israel surprised analysts by cutting interest rates a full 50 basis points to 2.5% This is the lowest level rates have ever been in Israeli history. Clearly this is a signal that the BOI is expecting much slower economic growth moving forward. Coupled with non-existent inflation it appears that the BOI felt that a bigger rate cut than was expected was justified to hep jump-start the economy.

As a result the Shekel looks to be weakening slightly and look for a move up in Israeli bonds tomorrow.

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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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As we have mentioned here more than once, the Israeli economy may not be in as great shape as our leaders have let on. Tonight’s surprise 50 basis point cut, bringing rates down to just 3%, indicates that even the Bank of Israel is worried about a potential economic slowdown or even a recession.

With analysts lowering their ‘09 growth forecasts, Fischer who has until last week remained unrealistically optimistic, appears to have thrown in the towel an admitted that things aren’t all that rosy, and is trying to add liquidity to the Israeli banking system to try and prevent the same type of credit crisis gripping the global banking system.

While I think the local economic slowdown will continue, this aggressive move by the Bank of Israel will help stem the damage to the economy that a prolonged recession could cause.

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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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Aaron Katsman
www.IsraelNewsletter.com

It’s official. Israel is no longer an emerging market. Yesterday, ratings agency Moody’s joined Standard & Poor’s and Fitch, by upgrading its ratings for Israel. The government foreign and local currency bond ratings have been upgraded to A1 from A2, and the foreign currency ceiling for bank deposits has been upgraded to A1 from A2 as well.

This is another feather in the cap of the Israeli economy. It was only 6 years ago that Israel was on the verge of economic collapse, but thanks to then Finance Minister and former PM Benjamin Netanyahu’s courageous economic reform policy, the economy has strengthened considerably. By lowering taxes, limiting government spending and privatizing state owned industry, Israel has experienced some of the strongest growth outside China that world has seen in some time.

The sign of a strong economy is a strong currency. Over the last year, the Israeli Shekel is one of the 3-4 strongest currencies in the world.

“Fiscal reforms are paying off in terms of increased economic vibrancy, diversification and competitiveness, and to the benefit of strengthening tax revenues, in spite of tax cuts,” said Moody’s Analyst Joan Feldbaum-Vidra.

In spite of tax-cuts? Joan, it’s because of the tax cuts. This is another proof that supply- side economics is the way to go. If you increase the economic pie, you will have larger tax revenues even with lower taxes. How do you increase the pie? By cutting taxes. 

Disclosure: Author’s fund has no position in any other stock mentioned as of 4/18/08.

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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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Aaron Katsman
www.IsraelNewsletter.com

Not everything you see on CNN regarding Israel is true. While TV watchers think that Israel is a place where bombs are constantly going off, and that those who stray outside are entering a war zone, today’s news from S&P is welcome news.

In a move that solidifies Israel’s place among developed nations, Standard & Poor’s Rating Services has raised its long-term foreign currency sovereign credit rating for Israel to “A” from “A-”, the long-term local currency rating to “AA” from “A+”, and the short-term local currency rating to “A-1+” from “A-1″. S&P reiterated its short-term foreign currency rating at “A-1″.

In explaining the move, S&P credit analyst Veronique Paillat-Chayrigues says, “The upgrades reflect the improved resilience of Israel’s public finances and economy to geopolitical risks after a four-year period of uninterrupted and above-expectation fiscal consolidation, external asset accumulation, and robust economic growth.”

How about that. Israel has robust growth. You would never have known it by listening to the media.

Kudos to S&P for telling the world about the strength and resilience of the Israeli economy.

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Disclosure: Author has no position in any stocks mentioned, as of 11/26/07.

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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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