Weekend Headlines
Bloomberg:
- China can create 12 million jobs this year, about half the number needed should the economy hit its growth target, a government official said. The shortfall of 12 million jobs will be larger than last year, according to Yin Weimin, minister of Human Resources and Social Security. New university graduates, workers from the countryside and low-income city residents have the biggest difficulty in landing jobs, Yin said. Opportunities at export-oriented companies have plunged because of the international financial crisis, while industry upgrades also helped reduce jobs at labor-intensive companies, he said. “The unemployment situation remains severe,” Yin said. “The gap between supply and demand of labor has further widened.”
- Barclays Bank PLC today stopped selling new shares of its iPath natural gas exchange-traded notes, the latest of $10 billion worth of exchange-traded products squeezed by potential limits on commodity speculation. The new and anticipated limits by the Commodity Futures Trading Commission have so far affected exchange-traded products including the largest agricultural, natural gas and broad-based commodity funds in the U.S.
- European Central Bank officials led by President Jean-Claude Trichet greeted mounting evidence of an economic recovery with caution, suggesting they won’t rush to reverse their emergency stimulus. “We see some signs confirming that the real economy is starting to get out of the period of freefall,” Trichet said at the Federal Reserve’s annual symposium in Jackson Hole, Wyoming, on Aug. 22. This “does not mean at all that we do not have a very bumpy road ahead of us.” The wariness indicates the ECB won’t soon rein in the steps it took to staunch the deepest slump since the 1930s, such as by charging banks a higher interest rate when it next lends them unlimited money for a year. While the economy may be expanding again after contracting 0.1 percent in the second quarter, it’s dependent on policy makers for support and is threatened by the highest unemployment rate in a decade and the weakest bank lending on record.
- Warner Chilcott Ltd.(WCRX) may announce as early as tomorrow that it will buy Procter & Gamble Co.’s(PG) prescription-drug business, the Wall Street Journal reported, citing unidentified people familiar with the matter. Warner Chilcott will pay about $3 billion for the unit, the newspaper said. Six banks led by JPMorgan Chase & Co. and Bank of America Corp. will provide $4 billion in financing, including $1 billion to refinance existing Warner Chilcott debt, the Journal reported.
- The Obama administration is freeing up $85.4 million to help Mexico fight drug cartels, settling a debate over whether to withhold the money because of allegations the Mexican military is carrying out murders and other crimes.
- Scotland’s decision to release Lockerbie bomber Abdel Basset Ali al-Megrahi from prison gives comfort to terrorists around the world and makes a “mockery of the rule of law,” FBI Director Robert Mueller said. “I am outraged at your decision,” Mueller said in a letter to Scottish Justice Secretary Kenny MacAskill dated Aug. 21 and posted on the FBI’s Web site. “Your action rewards a terrorist even though he never admitted to his role in this act of mass murder.” Al-Megrahi, who is dying of prostate cancer, was released on Aug. 20 by MacAskill. He was sentenced in 2001 to serve 27 years for the 1988 killing of 270 people in the bombing of Pan Am Flight 103 over the Scottish town of Lockerbie. On arrival at Tripoli’s airport, al-Megrahi, 57, was greeted by hundreds of people cheering and waving Scottish flags. MacAskill said Aug. 20 he was “conscious that there are deeply held feelings, and that many will disagree with whatever my decision.” While MacAskill rejected a request by Libya to transfer al-Megrahi to a prison in the North African country, the decision to release him due to illness defied calls from the U.S. government and many American relatives of the victims. “You have given the family members of those who died continued grief and frustration,” Mueller wrote. “You have given those who sought to assure that the persons responsible would be held accountable the back of your hand.”
- U.S. tourists threatened to boycott Scotland over the release of Lockerbie bomber Abdel Basset Ali al-Megrahi, as Scottish First Minister Alex Salmond acknowledged the “hurt” caused by his government’s decision.
- Senator John McCain said there aren’t enough U.S. troops in Afghanistan and the top American commander in the country should suggest a specific number. McCain, a Republican from Arizona, said in an interview broadcast today that General Stanley McChrystal, the American commander in Afghanistan, should specify how many troops he needs, Congress should debate it and the president should make the final decision. McChrystal is due to provide an assessment of U.S. security strategy by early September. President Barack Obama has made fighting a resurgent Islamist Taliban movement in Afghanistan a top priority of his Democratic administration. U.S. forces there are scheduled to reach 68,000 by year’s end.
Wall Street Journal:
- Goldman’s(GS) Trading Tips Reward Its Biggest Clients. Goldman Sachs Group Inc. research analyst Marc Irizarry's published rating on mutual-fund manager Janus Capital Group Inc. was a lackluster "neutral" in early April 2008. But at an internal meeting that month, the analyst told dozens of Goldman's traders the stock was likely to head higher, company documents show. The next day, research-department employees at Goldman called about 50 favored clients of the big securities firm with the same tip, including hedge-fund companies Citadel Investment Group and SAC Capital Advisors, the documents indicate. Readers of Mr. Irizarry's research didn't find out he was bullish until his written report was issued six days later, after Janus shares had jumped 5.8%. Every week, Goldman analysts offer stock tips at a gathering the firm calls a "trading huddle." But few of the thousands of clients who receive Goldman's written research reports ever hear about the recommendations. At the meetings, Goldman analysts identify stocks they think are likely to rise or fall due to earnings announcements, the direction of the overall market or other short-term developments. Some of their recommendations differ from ratings printed in Goldman's widely circulated research reports. Some Goldman traders who make bets with the firm's own money attend the meetings. Critics complain that Goldman's distribution of the trading ideas only to its own traders and key clients hurts other customers who aren't given the opportunity to trade on the information. Securities laws require firms like Goldman to engage in "fair dealing with customers," and prohibit analysts from issuing opinions that are at odds with their true beliefs about a stock. Steven Strongin, Goldman's stock research chief, says no one gains an unfair advantage from its trading huddles, and that the short-term-trading ideas are not contrary to the longer-term stock forecasts in its written research. Former Goldman client George Klopfer of Park City, Utah, who was unaware of the trading tips until recently, says the practice is unfair. "When I joined Goldman as a client, I got all these fancy brochures saying they put the client first," he says. "I just don't want to have to worry about them or big clients trading on stuff like this. I was at the end of the food chain." He says he pulled out most of the $20 million in his account earlier this year after losing money on several Goldman funds. Since the trading huddles began about two years ago, Goldman has supplied "trading ideas" on hundreds of stocks to the traders and top clients, according to internal documents reviewed by The Wall Street Journal. Some analysts have gotten into big trouble by contradicting themselves. In 2003, former Merrill Lynch & Co. technology analyst Henry Blodget agreed to a lifetime ban from the securities industry after touting stocks that he disparaged in private emails. These days, analysts must juggle growing demands from trading units at their firms. Such operations have emerged as big moneymakers, fueling the record $3.44 billion in net income at Goldman in the second quarter. A large portion of Goldman's profit came from trades done for mutual funds, pension funds, endowments, hedge funds and other big institutional investors. Proprietary trading, in which Goldman makes bets with its own capital, accounts for about 10% of its profits. Analysts have a financial incentive to give clients useful information. Goldman sets aside roughly 50% of money allotted each year to analyst compensation to distribute based on feedback from trading customers. The idea was controversial with some Goldman research staffers. "I am not sure we should be giving recommendations that go against our research," said one Goldman employee at a meeting where the trading huddles were discussed, according to one attendee. Compliance officers sit in on almost all the meetings, Goldman says. Research analysts say they have been guided on what language to use in the huddles. Words like "buy" and "sell" are to be avoided, while "run up," "give back" and "oversold" are encouraged. Internal documents reviewed by the Journal initially tracked the trading-huddle tips as "buy" or "sell," but now refer to them as "up" or "down." Research-department employees prepare telephone scripts, then call top clients, typically several hours after the meeting has ended. Goldman says its in-house traders are prohibited from trading on the tips until after they've been relayed to clients. Documents reviewed by the Journal indicate that anywhere from six to 60 clients are contacted, depending on the investment. Typically, traders who wager firm capital are walled off from those handling customer orders so that they don't take advantage of information about client trading, which securities regulations forbid. Goldman says its franchise risk managers don't trade on client information and must first share trading-huddle tips with clients before acting on the tips themselves.
- Mexico decriminalized small amounts of marijuana, cocaine and heroin on Friday, in a move that creates one of the world's most permissive narcotics markets and that opponents say could complicate President Felipe Calderón's war against illegal drug cartels. The law goes beyond what is allowed in many other countries by making it legal to possess small amounts of a wide array of drugs. For instance, the new law allows the equivalent of about five joints of marijuana or four lines of cocaine.
- Treasury Secretary Timothy Geithner said Friday that government officials acted appropriately in their dealings with Goldman Sachs Group Inc. during the heat of the financial crisis last year. Some lawmakers have questioned whether ties between government officials and Goldman Sachs influenced their decisions about which financial firms should be saved. "We have been forced to do just extraordinary things and, frankly, offensive things to help save the economy," Mr. Geithner said. Questions were raised about the government's decision to allow the collapse of Lehman Brothers, a Goldman Sachs competitor, and the decision to prop up American International Group Inc., a counterparty to Goldman that subsequently paid the Wall Street firm about $13 billion.
- The political fallout from Scotland's release of the convicted Lockerbie bomber has spread through Britain, as questions arise about whether the U.K. government played a bigger role in the decision than it has publicly acknowledged. The political stakes for U.K. Prime Minister Gordon Brown mounted after a son of Libyan leader Col. Moammar Gadhafi issued a statement this weekend thanking Mr. Brown's government for the "important role" it had played in the release of Abdel Basset al-Megrahi, and U.S. criticism of the decision took on a more strident tone, with one senior official saying it "makes a mockery of the rule of law." Both Mr. Brown and the Scottish government have maintained that the decision to free Mr. al-Megrahi, the only man convicted in the 1988 bombing that claimed 270 lives, rested entirely with Scottish Justice Minister Kenny MacAskill. Mr. al-Megrahi, who has terminal prostate cancer, flew home Thursday to a hero's welcome after Mr. MacAskill released him on "compassionate grounds."
- The GOP strategy of principled opposition is winning over independents.
- Reports of fraud and intimidation from election-monitoring groups are mounting, undermining the legitimacy of Afghanistan's presidential vote and posing a challenge for the U.S. and its Western allies, who initially declared the vote a success. A linchpin of the international community's strategy here, Thursday's election was supposed to shore up the credibility of the Western-backed Afghan government threatened by a spreading Taliban insurgency. Rolling back Taliban advances and reinvigorating Afghanistan's development are the key goals of President Barack Obama's administration, which has poured tens of thousands of additional U.S. troops into the country in recent months.
CNBC.com: After a Year of Crisis, Bernanke’s Star is Rising.
- Dow Jones has been talking to potential buyers about the sale of its stock-market indexing business, which includes the Dow Jones Industrial Average, The Wall Street Journal reported on Friday. The Wall Street Journal, in its online edition, reported that the process is being run by Goldman Sachs(GS) , and could result in a sale, joint venture or some other type of arrangement.
NY Post:
- Jamie Dimon, the CEO of JPMorgan Chase, considered by many to be the country's most influential and successful bank executive, can add another title to his resume: Accidental media mogul. That's right. The banker, thanks to the sagging economy, which has cratered several media giants leaving the lender in the driver's seat, now holds sway over Readers Digest, Source Interlink Media and American Media Inc. -- which have combined revenues of about $5.04 billion.
NY Times:
- Goal of Unified Europe Falters Amid Downturn
- CALL them accidental entrepreneurs, unintended entrepreneurs or forced entrepreneurs. A year and a half into the Great Recession, with the jobless rate hovering near double digits, corporate refugees like Lisa Marie Grillos of San Francisco are trying to fend for themselves. Along with her brother Hernan Barangan, Mrs. Grillos started Hambone Designs, after her full-time contract position with Williams-Sonoma as a production manager wasn’t renewed in January. The new company makes bicycle bags that hold things like keys, wallets and cellphones. “You have the time — why not focus your energy on something, rather than just trolling Craigslist and sitting and watching TV?” Mrs. Grillos says. “It’s really taking matters in my own hands.”
LA Times:
- With increasing vigor, public health experts and think tanks are calling for extra taxes on foods and drinks that are heavy in calories and light on nutrition. New York Gov. David Paterson proposed an 18% soda tax last year as a budget-balancing measure, only to abandon it three months later in the face of stiff public opposition. Lawmakers in at least five other states have gone on the record in support of the idea. Junk-food taxes are often mentioned as a way to help fund a restructuring of the healthcare system, though no one in Congress has endorsed them.
CNNMoney.com:
- Sales of existing homes rose in July for the fourth consecutive month, lending support to economists who argue a recovery is near. Sales of previously owned single-family homes were up 7.2% compared with June and 5% from July 2008, The National Association of Realtors (NAR) reported Friday. The monthly gain was the largest on record for existing-home sales, which NAR has tracked since 1999. "The housing market has decisively turned for the better," said Lawrence Yun, NAR's chief economist. "A combination of first-time buyers taking advantage of the housing stimulus tax credit and greatly improved affordability conditions are contributing to higher sales." Gene Munster has seen the future of television and it has an Apple (AAPL) logo on it. In a note to clients Thursday, Piper Jaffray's senior analyst offered a scenario by which Apple would enter the cut-throat TV market by 2011 with an Apple-branded television set with digital video recording and home media functions (music, movies, games, interactive TV) built-in.
Business Week:
Latest in Stimulus: ‘Cash for Refrigerators’ Coming this fall, a clunkers-type program to boost sales of energy-efficient home appliances will authorize rebates of $50 to $200.
Boston Globe:
- US defense planners view global climate change as a national security threat because it could create millions of new refugees and intensify conflicts over resources. But a diverse group of specialists is warning that the Pentagon’s involvement in helping address climate change carries its own dangers. A new debate is unfolding over whether linking climate change too closely with security planning will create a self-fulfilling prophecy, running the risk that the United States will rely too heavily on its armed forces to deal with global problems. “Once you try to securitize the problem, you also securitize the solution,’’ said Adil Najam, director of the Boston University’s Center for the Study of the Longer-Range Future. “The solution to those problems is not in the Pentagon,’’ he added. “It is moms and pops driving SUVs.’’
- Massachusetts has the most expensive family health insurance premiums in the country, according to a new analysis that highlights the state’s challenge in trying to rein in medical costs after passage of a landmark 2006 law that mandated coverage for nearly everyone. The report by the Commonwealth Fund, a nonprofit health care foundation, showed that the average family premium for plans offered by employers in Massachusetts was $13,788 in 2008, 40 percent higher than in 2003. Over the same period, premiums nationwide rose an average of 33 percent. With the state’s law often cited as a model for a national health care overhaul, advocates on various sides of the issue said the report underscores the urgency of including cost controls in any large-scale federal or state overhaul.
Politico:
- Senator Chuck Schumer (D-N.Y.) is signaling that he's nearly ready to give up on bipartisan health care reform talks in favor of options that could be pursued solely by Democrats. On NBC's "Meet the Press" Sunday, Schumer made three separate mentions of trying to push a health care bill through the Senate with all 60 Democratic votes, regardless of whether Republicans are on board. "We could get a public option that could be passed with the 60 Democratic votes we have," Schumer said. While insisting that he prefers a bipartisan approach, Schumer said his patience for the Senate Finance Committee negotiations is running out. "They’re bending over backwards but at some point soon after we get back, if we don’t have a bipartisan bill we’ll never be able to meet the goal of having a bill signed into law by the end of the year," the New York Democrat said. "We are considering alternatives. They include just getting 60 Democratic votes and maybe an occasional Republican here or there….They include looking at reconciliation which only needs 51……It's looking less and less likely that certainly the Republican leadership in the House and Senate will go for a bipartisan bill." Sen. Orrin Hatch (R-Utah), who joined Schumer on the show, said Democrats should not try to use reconciliation to force through a bill which could not overcome a filibuster in the Senate. "If they use that, that would be an abuse of the process," Hatch said. He also said creating a government health plan open to all would be a grave mistake. "If we do that, we’ll bankrupt the country."
- A Blue Dog’s lament: ‘People are scared’ Rep Allen Boyd (D-Fla.) is a skilled politician who has pretty much seen it all — a Deep South Democrat who’s managed to dispatch all opponents in his conservative-leaning Panhandle district since winning election in 1996. But as he fended off gnats buzzing through the August humidity after a morning fending off angry constituents at a town hall meeting here, Boyd confided that the depth of the unease spurred by the health care debate had caught him by surprise. “They may be in a minority, but they are a larger minority than we’ve seen in the 20-plus years that I’ve been doing this,” said Boyd of the standing-room-only crowds who have been showing up to shout, boo, mutter and, in one case, hand him an actual stack of pink slips since he returned home for recess. “I’ve never seen anything like this.” For all the cries of Astroturf fakery and ginned-up crowds, a ground zero view in a district like Boyd’s underlines that a very real sense of anger and frustration is bubbling over as summer wanes. A visit to Florida’s 2nd District also is a bracing case study in the mounting political peril some Blue Dogs like Boyd may be facing. Boyd acknowledged that after coasting to victory in a string of elections, including when a popular President George W. Bush was on top of the ticket in 2004 and national Republicans actively plotted his ouster, he may face a real threat next year at the polls. And his candor is borne out of his own up-close view from the past three weeks. While some of his colleagues took refuge in constituent-free codels and undisclosed private meetings, Boyd plunged headlong into a series of public forums throughout his district and discovered the sort of public unrest that doesn’t come around very often. “People are scared,” Boyd said twice, trying to explain what would drive his constituents away from home and work and out into the broiling Florida sun in the middle of the week to see their congressman.
- Senate Majority Leader Harry Reid (D-Nev.) trails Republican Danny Tarkanian by double digits, according to a new poll released Sunday. Tarkanian, the former University of Nevada-Las Vegas basketball star and son of the school’s longtime basketball coach, leads Reid 49 percent to 38 percent, with 13 percent undecided. Prospective challenger Sue Lowden, the state GOP chairwoman, also leads Reid in a head-to-head matchup, 45 percent to 40 percent, with 15 percent undecided.
Rasmussen Reports:
- The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 27% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as President. Forty-one percent (41%) Strongly Disapprove giving Obama a Presidential Approval Index rating of -14. These figures mark the lowest Approval Index rating yet recorded for this President. The previous low of -12 was reached on July 30 (see trends). Prior to today, the number who Strongly Approved of the President’s performance had never fallen below 29%. Some of the decline has come from within the President’s own party. Just 49% of Democrats offer such a positive assessment of the President at this time. At the other end of the spectrum, today’s total for Strongly Disapprove matches the highest level yet recorded. The 41% mark was reached just once before and that came one week ago today. Seventy percent (70%) of Republicans now Strongly Disapprove along with 49% of those not affiliated with either major party.
NJ.com:
- Direct Edge, a small, four-year-old electronic trading company on Jersey City's waterfront in Newport, sits at the center of Wall Street's newest trading flap. In its race to grow, Direct Edge helped push two market trends -- high-frequency trading and flash orders -- out from the mystique surrounding the electronic trading business and into a firestorm of controversy. High-frequency trading is the fancy Wall Street term for lightning-fast computers equipped with sophisticated and powerful algorithms that are capable of executing trading strategies. These days, about half of all the equity stocks traded in the United States are handled by such nimble computers. It is, experts have said, the imperfect future of trading.
- At this critical juncture in a badly broken real estate market, appraisals that end up lower than the sale price are jeopardizing an increasing number of sales, causing stress and frustration, and leading to fights over how the value of homes should be determined. "This is a shame because it's really affecting people's lives -- the buyers and sellers," said Meg Sullivan, a real estate agent with Coldwell Banker in Morristown. Sullivan said she had two sales recently where appraisals came in under the sales price. After years in which appraisers were accused of going along with soaring housing prices and contributing to the bubble, appraisers are now being called too conservative. New rules trying to curtail collaboration between banks and appraisers are getting blamed.
Forbes:
- Despite high costs in its offshore fields, BP is continuing to plumb the waters. On Wednesday the British energy giant was the most aggressive player in the latest Gulf of Mexico oil lease sale. BP (BP) offered the highest bid of the auction, $28.1 million, for a block in one of the most promising deepwater plays. High tabs have already come developing other deepwater projects in the region, like Atlantis and Thunder Horse, which after many delays finally came online last summer and is producing the equivalent of 300,000 barrels per day. "Although they have had problems with that asset, things are really looking up and I think it has given them a level of confidence in the future of the field and its overall production potential," Wood Mackenzie senior analyst Tom Ellacott said Thursday. "In addition to that, they had a good degree of exploration success and that has sort of paved the way for longer term development opportunities."
USAToday:
- An enormous offshore field in territorial waters — the biggest Western Hemisphere oil discovery in 30 years — has Brazilians saying, "Drill, baby, drill," while environmentalists fear the nation will take a big leap backward in its hunt for crude. There has been virtually no public debate on the potential environmental costs of retrieving the billions of barrels of oil, a project one expert said will be as difficult as landing a man on the moon. "The government is whipping Brazil into a euphoria that this is going to be a solution for all our societal problems," said Sergio Leitao, director of public policies for Greenpeace Brasil. "Brazil is no longer seriously looking at alternatives." Since the national oil company Petroleo Brasileiro SA, or Petrobras, discovered the massive Tupi field off the coast of Rio de Janeiro two years ago — estimated to hold 5 to 8 billion barrels — it is the development of oil fields that has gone into overdrive. Thirty years ago, more than 85% of Brazil's oil came from foreign sources. Today, it is a net exporter. There have been a series of other discoveries since Tupi — each lying at least 115 miles (185 kilometers) offshore, more than a mile below the ocean's surface and under another 2.5 miles (4 kilometers) of earth and salt. Estimates of the entire area's recoverable oil range between 50 billion and 100 billion barrels. Brazilian President Luiz Inacio Lula da Silva hailed the finds as the nation's future, a second declaration of independence and an economic savior for 57 million Brazilians living in poverty — 30% of the population.
Reuters:
- Cerberus Capital Management's [CBS.UL] core hedge funds clients have opted to withdraw the majority of the money in the funds, the Wall Street Journal reported on Friday. Clients owning more than $4 billion of the $7.7 billion in assets in the Cerberus Partners hedge funds have opted to liquidate their holdings, rather than allow Cerberus to collect its typical fees and continue making new investments, the paper said, citing people familiar with the matter. Cerberus executives hope that some investors who have opted for withdrawals can be convinced to change their minds, the paper cited the people familiar with the matter as saying. Investors had been told they had until this week to vote on the fate of their hedge-fund holdings, the paper said.
- The Obama administration will raise its 10-year budget deficit projection to approximately $9 trillion from $7.108 trillion in a report next week, a senior administration official told Reuters on Friday.The higher deficit figure, based on updated economic data, brings the White House budget office into line with outside estimates and gives further fuel to President Barack Obama's opponents, who say his spending plans are too expensive in light of budget shortfalls. The White House took heat for sticking with its $7.108 trillion forecast earlier this year after the Congressional Budget Office forecast that deficits between 2010 and 2019 would total $9.1 trillion.
Financial Times:
- A growing number of foreign energy companies eager to tap into America’s vast natural gas reserves is looking to invest in independent companies, while estimates of US supplies continue to increase. BP and BG Group of the UK; StatoilHydro , the Norwegian energy company; and Eni , the Italian oil company, have all bought into the US gas industry in the past year to gain access to the US industry while tapping into the independent groups’ experience and technical expertise. PFC Energy, a consultancy, estimates advancements made by the independents – which carry out exploration and production of the natural gas but not refining – in developing natural gas from shale could, if taken abroad, more than quadruple gas resources, increasing supplies of this alternative option to greenhouse-intensive oil, coal and oil sands fuels. The US is now believed to have 100 years’ worth of resources, at today’s usage rates, up from about 30 years just three years ago. Given political concerns over carbon, the industry believes natural gas will have a major role in the energy future of the US and the world. This belief has stoked interest in spite of the drop in the natural gas price to about $3 per million British thermal units, down from last year’s record high of $13.694 per mBtu.
- Borrowing costs for highly rated states, cities and other public entities in the US have dropped from the crisis levels of last year to below historical norms, reflecting demand from retail investors as well as federal subsidies for the $2,700bn municipal bond market. The market for municipal bonds – or “munis” – was hit hard when the financial markets froze up last year, prompting calls for government support and greater oversight by regulators. Attractive yields and income tax breaks unique to this type of debt have attracted individual investors to the asset class.
Mail & Guardian:
- China is heading for big trouble. Fearful of a political backlash from the sort of deep recession in the West, Beijing has embarked on a program of reckless expansion that provides short-term gain with a cost of long-term pain. This is an unfashionable view. The conventional wisdom is that China has taken the bold steps necessary to tackle the global downturn, and that its mixture of Keynesian pump-priming and Leninist centralized control will help drag the rest of the world back to prosperity. China, despite its explosive growth in the past 30 years, remains a much smaller economy than the US. Measured by market exchange rates, the size of its economy is only about 20% that of the US or the European Union, and that limits the extent to which it can act as an economic locomotive. Nor are its economic statistics squeaky-clean. John Makin, in a piece for the American Enterprise thinktank, says China is having a "bogus boom". Dodgy accounting practices, he said, meant that goods count as sold when they leave factories, not when they are actually bought by consumers, and bank loans count towards GDP as soon as they are disbursed, even if companies hoard the cash or use the money to buy shares. Second, China's growth has been dominated by investment and exports. Consumption has accounted for a declining share of national output, in contrast to the West, which means -- as the Marxist writer Chris Harman notes in his forthcoming book Zombie Capitalism -- that the colossal increase in production cannot be absorbed domestically. Instead, the surplus goes into still higher levels of investment or is channeled into overseas markets. Though it is comforting to believe that the leadership of the Chinese Communist party calmly produced a blueprint for global recovery, the reality is different. President Hu Jintao's government is petrified by the possibility that recession will lead to social unrest. As Jonathan Fenby put it for Trusted Sources, a research group that specializes in emerging markets: "China's policy responses to the current economic downturn are being powerfully shaped by political factors, given the regime's need to maintain its claim to legitimacy through growth." Chucking money at the economy will lead to an even bigger problem of over-investment, an explosion in bad loans and a tendency for a good chunk of the increase in the money supply to leak out into speculation. This approach to crisis management is nothing new. China has responded in the way that Alan Greenspan did after the dotcom crash: it has solved the problems of one bubble by creating another. The reports of a spate of fake mortgages to buy flats on bank credit have clear echoes of the sort of malpractice associated with the subprime scandal in the US. In June, the China Banking Regulatory Commission warned of "grim credit and market risk" as a result of a fall in corporate earnings and excess capacity. It is encouraging news that Chinese leaders are aware that big trouble could lie ahead. But doing something about it is a different matter. Tackling China's underlying economic problems will be tough. But if Beijing ducks the economic challenge for political reasons, the consequences could be severe. Albert Edwards, analyst with Société Générale, says China is now an accident waiting to happen. "If the US in 2007 was a slow-motion train wreck, China will at some point soon be pile-driving straight into the buffers."
Commercial Times:
Securities Times:
- China
Weekend Recommendations
Barron's:
- Made positive comments on (MON), (CVS), (MELA), (APOL) and (COH).
- Made negative comments on (SHLD), (PCLN) and (EXPE).
Citigroup:
- Upgraded (AMD) to Buy, target $5.50.
- Downgraded (NRP) to Sell, target $16.50.
Morgan Stanley:
- Bankruptcy filings totaled 25,752 during the week of 8/15, down 18% vs the prior week and down 29% vs peak levels in April, a positive sign for consumer credit trends. The latest week's filings represent the lowest number in over two months and come after two straight weekly increases. American Express(AXP) management recently indicated that a potential risk to its optimistic view on consumer credit is an increase in bankruptcy filings higher than its forecast .
CSFB:
- Reiterated Outperform on (LPX), boosted estimates, raised target to $10.
Night Trading
Asian indices are +1.0% to +2.50% on avg.
Asia Ex-Japan Inv Grade CDS Index 135.0 -7 basis points.
Morning Preview
BNO Breaking Global News of Note
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Earnings of Note
Company/Estimate
- (ARAY)/.02
- (WINN)/.16
Upcoming Splits
- None of note
Economic Releases
8:30 am EST
- The Chicago
Other Potential Market Movers
- The $31 bln 3-month Treasury Bill Auction and the $30 bln 6-month Treasury Bill Auction
BOTTOM LINE: Asian indices are sharply higher, boosted by commodity and technology stocks in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 100% net long heading into the week.
1 comment:
I think China truly represents an economic threat to the United States. It can't beat us militarily, so it is trying to subvert our country economically.
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