HONG KONG (Reuters) - Chinese stocks sank 6 percent to a three-month low on Monday, weighing on Asian shares, sapping investor willingness to take risks and giving the yen an added boost after Japanese voters swept the opposition into power.
The election results, while widely anticipated, sparked some short-term buying of yen on hopes that new policies will support consumer spending in an economy trapped in deflation and haunted by a weak growth outlook, though domestic stocks slipped on exporter weakness.
Major European stock futures fell 0.9 percent , following commodity prices lower, in trade thinned by a holiday in London. U.S. stock futures fell 0.6 percent and U.S. Treasury futures were up 0.2 percent.
Outside of Japan, volatility in Shanghai, a market largely closed to foreigners, has curbed risk taking and has been weighing on the Australian dollar, which is a common target for investors searching for bigger returns because of its relatively high yields.
Shanghai-listed shares dropped 6.2 percent on the day, on track to post losses of 21 percent in August, only the second month that the composite index has fallen more than 20 percent in the last 15 years.
The index also crucially dropped below the 125-day moving average, what is viewed by many domestic investors as the threshold for bear and bull markets.
Fears that banks will rein in their lending after a torrid first six months of the year and an abundant supply of expected new shares have been knocking Chinese shares lower for the last month, often weighing on global investor sentiment about holding riskier assets.
Shares of Bank of China, the country's biggest foreign exchange lender, were down 3.9 percent in Shanghai and the top drag on the market. Hong Kong's Hang Seng dropped 1.8 percent to a one-month low in sympathy with Shanghai.
Tokyo's Nikkei share average fell 0.4 percent. Large exporters Canon Inc and Honda Motor Corp were among the biggest drags on the Nikkei, losing around 3.3 percent and 1.8 percent, respectively, on the stronger yen.
Australian stocks also performed relatively well, falling only 0.2 percent. Shares of Australia and New Zealand Banking Group Ltd jumped 4.1 percent after the country's fourth-largest lender said it was starting to see bad debt provisions bottom out.
The MSCI index of Asia Pacific stocks traded outside Japan slid 1.3 percent. The selling was widespread, hitting the consumer discretionary, energy, telecommunications and materials sectors.
ASIA STOCK'S VALUATIONS QUESTIONED
Asian stocks are trading at a price-to-book valuation of 1.1 times, above the 30-year average of 0.7 times and around the same level at the peak of the last bull market.
Investors since March had been justifying the premium based on the region's growth prospects and its expected speedy recovery from the global downturn. Yet in August developed markets, such as the United States and Europe, have attracted investors away from emerging markets thanks to better economic data.
The Asian stock rally sputtered in July and August for two reasons, according to Mark Matthews, Asia Pacific strategist with Fox-Pitt Kelton ini Hong Kong.
"The first is that the U.S. in particular and the developed world in general are experiencing economic recoveries that are more robust than previously expected. The second is that there is policy shift in China, and even the doves there are happy that asset prices are no longer rising quickly," he said in a note.
YEN FOR YEN
In the currency market, the yen got an early boost on the clear-as-day election result, which eliminated any uncertainty about Japan's political leadership. The sharp selloff in Shanghai equities also supported the yen as dealers sought a safe haven.
The U.S. dollar fell 0.7 percent to 92.75 yen, the lowest since July 13, and the euro dropped 1 percent to 132.28 yen.
The sharp decline in Chinese stocks "has muddied the picture as well as to whether it's a reaction to the election victory or risk aversion. It's probably a bit of a combination of both," said a dealer at a European bank in Hong Kong about the yen strength.
The Australian dollar was off 0.6 percent to US$0.8373, though was largely unchanged in August.
The yield on the benchmark 10-year U.S. Treasury note slipped to 3.43 percent, down sharply since hitting 4 percent on June 10.
The creeping rise of risk aversion in markets pushed down oil prices, with U.S. crude for October delivery down 0.7 percent to $72.22 a barrel. Brent was down 0.9 percent to $72.12 a barrel.
Monday, August 31, 2009
June qtr GDP up 6.1 pct, meets forecasts
NEW DELHI (Reuters) - India's economy grew 6.1 percent in the June quarter from a year earlier, roughly in line with forecasts, as government stimulus measures helped spur demand, although a poor monsoon threatens to crimp growth later in the year even as it drives inflation.
The economy accelerated from its 5.8 percent rate in the previous quarter, data showed on Monday, propelled by a pick-up in activity in the mining, manufacturing, electricity and services sectors from the previous quarter.
Growth was just above analysts' median forecast of 6 percent annual expansion, and economists said weakness in agriculture could be offset by growth in manufacturing and services later in the year.
Abheek Barua, chief economist at HDFC Bank in New Delhi, expects growth for the full year of 5.8 percent, with agriculture declining by 3 percent, although strength in industrial output and services may prompt him to lift his forecast.
He expects the Reserve Bank of India to hold off on any tightening measures until the end of 2009.
"I think by January they would want to send some kind of monetary signal to thwart inflationary expectations," he said.
"By April policy we will see the first rate hike of 25 basis points preceded by a 50 basis point increase in CRR (cash reserve ratio)," he said.
Data showed manufacturing output expanded 3.4 percent in the June quarter while farm output was up 2.4 percent.
The services sector grew 7.8 percent in the June quarter, compared with 10.2 percent in the same year-ago period.
The benchmark stock index trimmed losses to 1 percent from 1.1 percent before the data release.
The benchmark 10-year bond yield was unmoved at 7.45 percent, its highest in 9-½ months, from before the release of the data. The partially convertible rupee was unchanged at 48.85/87 from earlier.
MONSOON BLUES
In the 2008/09 fiscal year to March 31, India's economy grew 6.7 percent, its weakest in six years and well below rates of 9 percent or more in the previous three years.
Just as early signs of recovery were visible with rising sales of cars and homes, the economy was jolted by the worst rainfall since 1972, with drought-like conditions engulfing 40 percent of the country's districts.
However, last week the Reserve Bank of India warned that the poor monsoon is more likely to drive inflation than to curb growth. The index of food prices jumped 13.3 percent in the year through Aug 15, even as India's wholesale price index fell for the 11th straight week.
The Reserve Bank of India (RBI) cut its key lending rate by 425 basis points between October and April, while the government has slashed duty rates and stepped up spending to pump-prime the economy and prevent massive job losses.
Last month, the RBI estimated growth during 2009/10 at 6 percent with an upward bias. The finance minister said last week growth could rebound to 8 percent next year.
Saturday, August 29, 2009
Billionaire Ross Invests in Satyam After Losing Bid for Control
Aug. 28 (Bloomberg) -- Billionaire investor Wilbur Ross has acquired the second-largest stake in Satyam Computer Services Ltd.’s U.S. securities, after missing out in an April auction for control of the Indian software developer.
Invesco Private Capital Inc., controlled by Ross, bought 1.8 million American depositary receipts, according to filings to the Securities & Exchange Commission. The securities, equivalent to two of Satyam’s Indian shares, were worth $3.11 apiece at the end of June, according to the filing. Ross in April offered the equivalent of 80 cents per depository receipt for a controlling stake.
Satyam, at the centre of India’s biggest corporate fraud, has more than doubled since Pune-based Tech Mahindra Ltd., a software provider, won the auction on April 13. The government took over the management of Satyam after founder Ramalinga Raju’s January admission that he overstated assets by $1 billion.
Tech Mahindra Chairman Anand Mahindra, who outbid billionaire Ross and Larsen & Toubro Ltd. with a $579 million offer in April, has said he’s taking a “calculated risk” in buying Satyam before the company restates accounts and without clarity on liabilities from lawsuits in the U.S.
Ross, who made his fortune taking over bankrupt steel, coal and textile companies, offered 20 rupees and Larsen bid 45.9 rupees a share, Satyam Chairman Kiran Karnik said on April 13.
Ross didn’t immediately respond to e-mailed questions about his investment in Satyam.
The investment makes Invesco the second-largest shareholder in Satyam’s depository receipts, behind Security Investors LLC, according to data compiled by Bloomberg.
Ross invested in SpiceJet Ltd. India’s second-largest budget airline, in July last year after record fuel costs deepened the Indian carrier’s losses. In February 2007, Ross acquired OCM India Ltd. a worsted suiting maker, for about $37 million, in his first investment in India.
Invesco Private Capital Inc., controlled by Ross, bought 1.8 million American depositary receipts, according to filings to the Securities & Exchange Commission. The securities, equivalent to two of Satyam’s Indian shares, were worth $3.11 apiece at the end of June, according to the filing. Ross in April offered the equivalent of 80 cents per depository receipt for a controlling stake.
Satyam, at the centre of India’s biggest corporate fraud, has more than doubled since Pune-based Tech Mahindra Ltd., a software provider, won the auction on April 13. The government took over the management of Satyam after founder Ramalinga Raju’s January admission that he overstated assets by $1 billion.
Tech Mahindra Chairman Anand Mahindra, who outbid billionaire Ross and Larsen & Toubro Ltd. with a $579 million offer in April, has said he’s taking a “calculated risk” in buying Satyam before the company restates accounts and without clarity on liabilities from lawsuits in the U.S.
Ross, who made his fortune taking over bankrupt steel, coal and textile companies, offered 20 rupees and Larsen bid 45.9 rupees a share, Satyam Chairman Kiran Karnik said on April 13.
Ross didn’t immediately respond to e-mailed questions about his investment in Satyam.
The investment makes Invesco the second-largest shareholder in Satyam’s depository receipts, behind Security Investors LLC, according to data compiled by Bloomberg.
Ross invested in SpiceJet Ltd. India’s second-largest budget airline, in July last year after record fuel costs deepened the Indian carrier’s losses. In February 2007, Ross acquired OCM India Ltd. a worsted suiting maker, for about $37 million, in his first investment in India.
U.S. Economy: Spending Climbs on ‘Cash for Clunkers’
Aug. 28 (Bloomberg) -- Consumer spending in the U.S. rose in July as Americans jammed auto showrooms to take advantage of the “cash for clunkers” program while avoiding other purchases.
The 0.2 percent gain in spending was in line with forecasts and followed a 0.6 percent increase in June, the Commerce Department said today in Washington. Excluding cars, purchases were flat. Consumer sentiment was little changed in August, a separate report showed.
Auto dealers benefited from the Obama administration’s incentive plan, which ended this month, while retailers such as Kohl’s Corp. and J.C. Penney Co. struggled to lure customers shaken by mounting job losses. Spending gains aren’t likely to be sustained as incomes stagnate and households pay down debt, casting doubt on the strength of the economic recovery.
“The cash-for-clunkers program helped auto sales but hurt other sales, which shows consumption remains weak,” said Christopher Low, chief economist at FTN Financial in New York. “Consumers don’t want to spend on other things and cannot spend, to some extent, because income growth is still anemic.”
The Reuters/University of Michigan final index of consumer sentiment dipped to 65.7, better than forecast, from 66 in July. A preliminary reading for August was 63.2.
Stocks Fell
Stocks dropped after early gains. The Standard & Poor’s 500 Index closed down 0.2 percent at 1,028.93. The yield on the benchmark 10-year Treasury note was 3.45 percent at 5:02 p.m. in New York, down from 3.46 percent yesterday.
Economists forecast consumer spending would rise 0.2 percent, according to the median of 75 estimates in a Bloomberg News survey. The June spending figure was revised from an initial estimate of 0.4 percent.
Incomes were unchanged after dropping 1.1 percent in the prior month. The decrease in income in June reflected the fading boost from government stimulus-related tax cuts and transfers. Wages and salaries posted the first gain of the year, increasing 0.1 percent after a decline of 0.3 percent the prior month.
The savings rate fell to 4.2 percent from 4.5 percent in June as spending increased while incomes stagnated.
Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, jumped 1.8 percent last month after increasing 0.8 percent in the prior month. Spending on motor vehicles and parts jumped 6.4 percent, the biggest increase in 11 months.
Spending Breakdown
Purchases of non-durable goods decreased 0.3 percent for a second month. Spending on services, which account for almost 60 percent of all outlays, climbed 0.1 percent.
Consumer spending, which accounts for about 70 percent of the economy, fell at a 1 percent pace in the second quarter, revised figures from the Commerce Department showed yesterday. The economy shrank at a 1 percent annual rate from April to June, less than analysts’ median forecast.
While economists project that spending will start growing again this quarter, much of the gain will be driven by programs such as the “cash-for-clunkers” plan.
The program provided a “short-term boost” while taking away from future growth, said Peter Boockvar, equity strategist at Miller Tabak & Co. in New York. Consumers “remain under major stress,” he said.
Auto industry data showed sales of cars and light trucks rose to an 11.2 million unit annual pace in July, the most since September, after the government offered credits of up to $4,500 to trade in gas guzzlers for more fuel-efficient cars.
Retail Sales
The boost from the auto plan failed to overcome cuts at other merchants, according to government figures released on Aug. 13. Sales at retailers in July fell 0.1 percent, the first drop in three months.
Forecasts call for below-average gains in spending because of stagnant incomes, a lack of jobs and an unemployment rate that may reach 10 percent early next year for the first time since 1983, according to a Bloomberg survey taken this month.
Purchases will probably climb at an average 1.6 percent quarterly rate through June 2010, compared with a 2.8 percent gain on average during the six-year expansion that ended in December 2007, the survey showed.
Stores Struggling
Company results signal shoppers are under pressure. J.C. Penney, the third-largest U.S. department-store chain, issued a third-quarter earnings forecast that trailed analysts’ estimates and said sales may fall 3 percent to 5 percent from the same period last year. Kohl’s said second-quarter profit fell 3 percent as sales at stores open for at least a year declined.
“People are still going to shop a little less and spend a little less than they have in the past,” Kevin Mansell, chief executive officer of Menomonee Falls, Wisconsin-based Kohl’s, said in a telephone interview on Aug. 13.
Today’s Commerce Department report also showed inflation decelerated. The price gauge tied to spending patterns dropped a record 0.8 percent from July 2008.
The Federal Reserve’s preferred gauge of prices, which excludes food and fuel, rose 0.1 percent from the previous month and was up 1.4 percent from a year earlier, the smallest gain since September 2003.
Adjusted for inflation, spending increased 0.2 percent following a 0.1 percent gain the prior month.
The 0.2 percent gain in spending was in line with forecasts and followed a 0.6 percent increase in June, the Commerce Department said today in Washington. Excluding cars, purchases were flat. Consumer sentiment was little changed in August, a separate report showed.
Auto dealers benefited from the Obama administration’s incentive plan, which ended this month, while retailers such as Kohl’s Corp. and J.C. Penney Co. struggled to lure customers shaken by mounting job losses. Spending gains aren’t likely to be sustained as incomes stagnate and households pay down debt, casting doubt on the strength of the economic recovery.
“The cash-for-clunkers program helped auto sales but hurt other sales, which shows consumption remains weak,” said Christopher Low, chief economist at FTN Financial in New York. “Consumers don’t want to spend on other things and cannot spend, to some extent, because income growth is still anemic.”
The Reuters/University of Michigan final index of consumer sentiment dipped to 65.7, better than forecast, from 66 in July. A preliminary reading for August was 63.2.
Stocks Fell
Stocks dropped after early gains. The Standard & Poor’s 500 Index closed down 0.2 percent at 1,028.93. The yield on the benchmark 10-year Treasury note was 3.45 percent at 5:02 p.m. in New York, down from 3.46 percent yesterday.
Economists forecast consumer spending would rise 0.2 percent, according to the median of 75 estimates in a Bloomberg News survey. The June spending figure was revised from an initial estimate of 0.4 percent.
Incomes were unchanged after dropping 1.1 percent in the prior month. The decrease in income in June reflected the fading boost from government stimulus-related tax cuts and transfers. Wages and salaries posted the first gain of the year, increasing 0.1 percent after a decline of 0.3 percent the prior month.
The savings rate fell to 4.2 percent from 4.5 percent in June as spending increased while incomes stagnated.
Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, jumped 1.8 percent last month after increasing 0.8 percent in the prior month. Spending on motor vehicles and parts jumped 6.4 percent, the biggest increase in 11 months.
Spending Breakdown
Purchases of non-durable goods decreased 0.3 percent for a second month. Spending on services, which account for almost 60 percent of all outlays, climbed 0.1 percent.
Consumer spending, which accounts for about 70 percent of the economy, fell at a 1 percent pace in the second quarter, revised figures from the Commerce Department showed yesterday. The economy shrank at a 1 percent annual rate from April to June, less than analysts’ median forecast.
While economists project that spending will start growing again this quarter, much of the gain will be driven by programs such as the “cash-for-clunkers” plan.
The program provided a “short-term boost” while taking away from future growth, said Peter Boockvar, equity strategist at Miller Tabak & Co. in New York. Consumers “remain under major stress,” he said.
Auto industry data showed sales of cars and light trucks rose to an 11.2 million unit annual pace in July, the most since September, after the government offered credits of up to $4,500 to trade in gas guzzlers for more fuel-efficient cars.
Retail Sales
The boost from the auto plan failed to overcome cuts at other merchants, according to government figures released on Aug. 13. Sales at retailers in July fell 0.1 percent, the first drop in three months.
Forecasts call for below-average gains in spending because of stagnant incomes, a lack of jobs and an unemployment rate that may reach 10 percent early next year for the first time since 1983, according to a Bloomberg survey taken this month.
Purchases will probably climb at an average 1.6 percent quarterly rate through June 2010, compared with a 2.8 percent gain on average during the six-year expansion that ended in December 2007, the survey showed.
Stores Struggling
Company results signal shoppers are under pressure. J.C. Penney, the third-largest U.S. department-store chain, issued a third-quarter earnings forecast that trailed analysts’ estimates and said sales may fall 3 percent to 5 percent from the same period last year. Kohl’s said second-quarter profit fell 3 percent as sales at stores open for at least a year declined.
“People are still going to shop a little less and spend a little less than they have in the past,” Kevin Mansell, chief executive officer of Menomonee Falls, Wisconsin-based Kohl’s, said in a telephone interview on Aug. 13.
Today’s Commerce Department report also showed inflation decelerated. The price gauge tied to spending patterns dropped a record 0.8 percent from July 2008.
The Federal Reserve’s preferred gauge of prices, which excludes food and fuel, rose 0.1 percent from the previous month and was up 1.4 percent from a year earlier, the smallest gain since September 2003.
Adjusted for inflation, spending increased 0.2 percent following a 0.1 percent gain the prior month.
Friday, August 28, 2009
3G spectrum bids to start at 3,500cr, WiMAX 1,750 cr
NEW DELHI: The deadlock over the reserve price for third-generation radio frequency auction, vital for services such as video-calling and high-speed internet access on mobile phones, was finally resolved on Thursday when the empowered group of ministers (EGoM) headed by finance minister Pranab Mukherjee fixed it at Rs 3,500 crore. This means, any telecom company bidding for pan-India 3G spectrum will have to pay a minimum of Rs 3,500 crore as the auctions will begin at this price.
This is nearly Rs 500 crore lower than the base price that telecom minister A Raja and the finance minister had agreed to during a meeting with Prime Minister Manmohan Singh in June ‘09. At the same time, this is nearly Rs 1,500 crore more than the price specified by telecom regulator Trai, which had said the base price must be only Rs 2,020 crore.
The EGoM also decided that a total of five players will be allowed to offer 3G services in every circle, of which one slot will be reserved for state-owned telcos BSNL & MTNL. Again, this is in variation to Mr Raja and Mr Mukherjee’s earlier decision to have seven players per circle.
“The EGoM has decided that 3G radio frequencies will have a reserve price of Rs 3,500 crore. This is final. We have also decided that the reserve price for WiMAX spectrum will be Rs 1,750 crore. We hope to complete the auctions within 90 days from Thursday and we expect to get a minimum of Rs 25,000 crore from these auctions,” Mr A Raja told ET.
He also added that the Department of Telecom had presented three options to the EGoM—retaining the reserve price at Rs 2,020 crore as recommended by Trai, double it to Rs 4,040 crore as demanded by the finance minister, or agree to a figure of Rs 3,500 crore.
All telcos said they would bid for 3G spectrum: “We welcome the government’s decision to expeditiously complete the planned auction of 3G spectrum. We believe 3G will drive the wireless broadband revolution in both urban and rural India, contributing to inclusive growth. Bharti Airtel looks forward to participating in the auction,” Bharti Airtel CEO and joint MD Manoj Kohli said.
According to a communication ministry official, the logic for fixing Rs 3500 crore as the base price is that it satisfies The Department of Telecom which suggested Rs 2,020 crore as the base price and the finance ministry’s recommendation of Rs 4,040 crore.
The EGoM has arrived at this figure (Rs 3,500 crore) by doubling the reserve price for Delhi, Mumbai and category A circles and increasing it 1.5 times for Kolkata and category B circles retaining the current base price for category C circles.
The government had decided to refer the matter to an EGoM despite telecom minister A Raja and finance minister Pranab Mukherjee reaching a consensus in June 09 during a meeting with Prime Minister Manmohan Singh on doubling the 3G reserve price to Rs 4,040 crore and allowing up to seven players (including BSNL & MTNL) per circle to offer these high-end services. This was because, the new UPA government wanted to avoid any further controversy on the auctions of frequencies for 3G and WiMAX.
Asked on the EGoM’s decision, Prashant Singhal, partner and telecom industry leader, Ernst & Young said: “The increase in the reserve price for 3G auctions to from Rs 2,020 crore to Rs 3,500 crore, with a 4-slot bidding, could see some competition in lucrative markets, such as Metros, A circles, but may still not see a lot of bidding and traction in the B and C circles.
Over 75 per cent increase in the reserve price within a year’s time and that too with the economic recession could be a dampener to the excitement in the Indian telecom industry. The high base price would mean that operators would raise the cost of services to the consumer. That in turn could prove to be a negative to the growth of 3G in India.”
In addition to Mr Raja and Mr Mukherjee, the other members of the nine-member EGoM include home minister P Chidambaram, defence minister A K Antony, agriculture minister Sharad Pawar, law minister Veerappa Moily, information & broadcasting minister Ambika Soni, planning commission deputy chairman Montek Singh Ahluwalia and minister of state in the Prime Minister’s Office Prithviraj Chavan.
This is nearly Rs 500 crore lower than the base price that telecom minister A Raja and the finance minister had agreed to during a meeting with Prime Minister Manmohan Singh in June ‘09. At the same time, this is nearly Rs 1,500 crore more than the price specified by telecom regulator Trai, which had said the base price must be only Rs 2,020 crore.
The EGoM also decided that a total of five players will be allowed to offer 3G services in every circle, of which one slot will be reserved for state-owned telcos BSNL & MTNL. Again, this is in variation to Mr Raja and Mr Mukherjee’s earlier decision to have seven players per circle.
“The EGoM has decided that 3G radio frequencies will have a reserve price of Rs 3,500 crore. This is final. We have also decided that the reserve price for WiMAX spectrum will be Rs 1,750 crore. We hope to complete the auctions within 90 days from Thursday and we expect to get a minimum of Rs 25,000 crore from these auctions,” Mr A Raja told ET.
He also added that the Department of Telecom had presented three options to the EGoM—retaining the reserve price at Rs 2,020 crore as recommended by Trai, double it to Rs 4,040 crore as demanded by the finance minister, or agree to a figure of Rs 3,500 crore.
All telcos said they would bid for 3G spectrum: “We welcome the government’s decision to expeditiously complete the planned auction of 3G spectrum. We believe 3G will drive the wireless broadband revolution in both urban and rural India, contributing to inclusive growth. Bharti Airtel looks forward to participating in the auction,” Bharti Airtel CEO and joint MD Manoj Kohli said.
According to a communication ministry official, the logic for fixing Rs 3500 crore as the base price is that it satisfies The Department of Telecom which suggested Rs 2,020 crore as the base price and the finance ministry’s recommendation of Rs 4,040 crore.
The EGoM has arrived at this figure (Rs 3,500 crore) by doubling the reserve price for Delhi, Mumbai and category A circles and increasing it 1.5 times for Kolkata and category B circles retaining the current base price for category C circles.
The government had decided to refer the matter to an EGoM despite telecom minister A Raja and finance minister Pranab Mukherjee reaching a consensus in June 09 during a meeting with Prime Minister Manmohan Singh on doubling the 3G reserve price to Rs 4,040 crore and allowing up to seven players (including BSNL & MTNL) per circle to offer these high-end services. This was because, the new UPA government wanted to avoid any further controversy on the auctions of frequencies for 3G and WiMAX.
Asked on the EGoM’s decision, Prashant Singhal, partner and telecom industry leader, Ernst & Young said: “The increase in the reserve price for 3G auctions to from Rs 2,020 crore to Rs 3,500 crore, with a 4-slot bidding, could see some competition in lucrative markets, such as Metros, A circles, but may still not see a lot of bidding and traction in the B and C circles.
Over 75 per cent increase in the reserve price within a year’s time and that too with the economic recession could be a dampener to the excitement in the Indian telecom industry. The high base price would mean that operators would raise the cost of services to the consumer. That in turn could prove to be a negative to the growth of 3G in India.”
In addition to Mr Raja and Mr Mukherjee, the other members of the nine-member EGoM include home minister P Chidambaram, defence minister A K Antony, agriculture minister Sharad Pawar, law minister Veerappa Moily, information & broadcasting minister Ambika Soni, planning commission deputy chairman Montek Singh Ahluwalia and minister of state in the Prime Minister’s Office Prithviraj Chavan.
RBI surplus jumps 66.6 per cent
The Reserve Bank of India’s (RBI’s) transferable surplus to the Government of India for 2008-09 jumped 66.6 per cent to Rs 25,009 crore from Rs 15,011 crore in the previous year.
According to the RBI Annual Report, the surplus has come primarily due to increased earnings from domestic investments.
The income from domestic sources in 2008-09 at Rs 9,935.77 crore was higher compared with the last year’s level of Rs 5,867.52 crore, primarily on account of an increase in ‘Interest on Domestic Securities and LAF operations,’ which increased from Rs 4,533.87 crore in 2007-08 to Rs 8,683.11 crore in 2008-09 and ‘Interest on Loans and Advances,’ which increased from Rs 325.60 crore in 2007-08 to Rs 1,254.80 crore in 2008-09. The investment in Government of India securities increased by Rs 1,26,086.86 crore, from Rs 72,540.33 crore as on June 30, 2008, to Rs 1,98,627.19 crore as on June 30, 2009, on account of purchase of special securities from the oil marketing companies (ie oil bonds) under the special market operations and increase in the open market operations.
The surplus thus included Rs 1,436.00 crore towards the interest differential on special securities converted into marketable securities for compensating the government for the difference in interest expenditure, which the government had to bear consequent on conversion of such special securities.
The report further stated that unlike the significant expansion in balance sheets of the central banks of several advanced economies that resulted from their policy responses to the crisis, the behaviour of the Reserve Bank’s balance sheet was distinctly different. This is because specific measures, such as reduction in CRR and unwinding of the government’s MSS balances implied corresponding contraction in the central bank’s liabilities, even as both measures were the key channels for injecting large liquidity into the financial system. Thus, through contraction in the balance sheet size, the Reserve Bank could expand the availability of liquidity in the system. On the asset side of the balance sheet too, the contraction was driven by a decline in foreign assets.
During the year, gross income and expenditure of the Reserve Bank were at Rs 60,731.98 crore and Rs 8,217.88 crore, respectively, after meeting the allocation needs for both contingency reserve (CR) and asset development reserve (ADR).
Earnings from foreign and domestic sources were at Rs 50,796.21 crore and Rs 9,935.77 crore, respectively.
The Reserve Bank’s earnings from the deployment of foreign currency assets and gold decreased by Rs 1,087.06 crore (down 2.10 per cent), from Rs 51,883.27 crore in 2007-08 to Rs 50,796.21 crore in 2008-09. This was mainly on account of the fall in interest rates in the international markets. Before accounting for mark-to-market depreciation on securities, the rate of earnings on foreign currency assets and gold was 4.24 per cent in 2008-09 as against 5.09 per cent in 2007-08. The rate of earnings on foreign currency assets and gold, after accounting for depreciation, decreased from 4.82 per cent in 2007-08 to 4.16 per cent in 2008-09.
The foreign currency assets comprise foreign securities held in the issue department, balances held abroad and investments in foreign securities held in the banking department. These assets declined by Rs 81,010.25 crore, from Rs 12,98,552.05 crore as on June 30, 2008, to Rs 12,17,541.80 crore as on June 30, 2009. The decrease in the level of foreign currency assets was mainly on account of net sales of US dollars in the domestic foreign exchange market.
According to the RBI Annual Report, the surplus has come primarily due to increased earnings from domestic investments.
The income from domestic sources in 2008-09 at Rs 9,935.77 crore was higher compared with the last year’s level of Rs 5,867.52 crore, primarily on account of an increase in ‘Interest on Domestic Securities and LAF operations,’ which increased from Rs 4,533.87 crore in 2007-08 to Rs 8,683.11 crore in 2008-09 and ‘Interest on Loans and Advances,’ which increased from Rs 325.60 crore in 2007-08 to Rs 1,254.80 crore in 2008-09. The investment in Government of India securities increased by Rs 1,26,086.86 crore, from Rs 72,540.33 crore as on June 30, 2008, to Rs 1,98,627.19 crore as on June 30, 2009, on account of purchase of special securities from the oil marketing companies (ie oil bonds) under the special market operations and increase in the open market operations.
The surplus thus included Rs 1,436.00 crore towards the interest differential on special securities converted into marketable securities for compensating the government for the difference in interest expenditure, which the government had to bear consequent on conversion of such special securities.
The report further stated that unlike the significant expansion in balance sheets of the central banks of several advanced economies that resulted from their policy responses to the crisis, the behaviour of the Reserve Bank’s balance sheet was distinctly different. This is because specific measures, such as reduction in CRR and unwinding of the government’s MSS balances implied corresponding contraction in the central bank’s liabilities, even as both measures were the key channels for injecting large liquidity into the financial system. Thus, through contraction in the balance sheet size, the Reserve Bank could expand the availability of liquidity in the system. On the asset side of the balance sheet too, the contraction was driven by a decline in foreign assets.
During the year, gross income and expenditure of the Reserve Bank were at Rs 60,731.98 crore and Rs 8,217.88 crore, respectively, after meeting the allocation needs for both contingency reserve (CR) and asset development reserve (ADR).
Earnings from foreign and domestic sources were at Rs 50,796.21 crore and Rs 9,935.77 crore, respectively.
The Reserve Bank’s earnings from the deployment of foreign currency assets and gold decreased by Rs 1,087.06 crore (down 2.10 per cent), from Rs 51,883.27 crore in 2007-08 to Rs 50,796.21 crore in 2008-09. This was mainly on account of the fall in interest rates in the international markets. Before accounting for mark-to-market depreciation on securities, the rate of earnings on foreign currency assets and gold was 4.24 per cent in 2008-09 as against 5.09 per cent in 2007-08. The rate of earnings on foreign currency assets and gold, after accounting for depreciation, decreased from 4.82 per cent in 2007-08 to 4.16 per cent in 2008-09.
The foreign currency assets comprise foreign securities held in the issue department, balances held abroad and investments in foreign securities held in the banking department. These assets declined by Rs 81,010.25 crore, from Rs 12,98,552.05 crore as on June 30, 2008, to Rs 12,17,541.80 crore as on June 30, 2009. The decrease in the level of foreign currency assets was mainly on account of net sales of US dollars in the domestic foreign exchange market.
Thursday, August 27, 2009
Housing Data Point to Market Turnaround That May Help Economy
Aug. 27 (Bloomberg) -- The worst U.S. housing market since the Great Depression may be on the mend after prices rose in 18 of 20 U.S. cities in June, existing home sales hit a two-year high, and new home sales gained for a fourth consecutive month.
“The sense that something is changing is definitely in the air,” said Robert Shiller, the Yale University professor who, with economist Karl Case, created home price indexes in the 1980s now used by Standard & Poor’s. “After three years of decline, we might be seeing a turnaround.”
Lower home prices and government stimulus efforts have spurred demand and pared the supply of existing homes to the fewest in two years, while sending new-home inventory to a 16- year low. Real estate sales buttress consumer spending, which accounts for about 70 percent of the economy, because new owners tend to buy appliances, drapes and furniture.
The S&P/Case-Shiller home-price index, which tracks 20 metropolitan areas, showed a gain in 18 cities during June, according to an Aug. 25 report. Detroit and Las Vegas were the only two that declined. The Federal Housing Finance Agency national index showed a 0.5 percent increase during June with increases in five out of nine U.S. regions, according to an Aug. 25 government report.
“Evidence is mounting that the worst of the economic downturn is behind us,” Federal Reserve Bank of Atlanta President Dennis Lockhart said yesterday in a speech in Chattanooga, Tennessee. “The beginning stages of recovery are underway.”
‘Serious Downturn’
Other federal officials are less optimistic. The jobless rate, which hit 9.5 percent in June before dipping to 9.4 percent last month, may rise to 10 percent by the end of 2009, according to an Aug. 25 report by the White House Office of Management and Budget.
“While the danger of the economy immediately falling into a deep recession has receded, the American economy is still in the midst of a serious economic downturn,” the report said.
About 26 percent of U.S. homes with a mortgage were worth less than the amount owed, according to a Deutsche Bank AG report this month. Deutsche Bank analysts Karen Weaver and Ying Shen forecast that by the end of the year, as many as 48 percent of mortgages may be “underwater.” That means few homeowners will be able to refinance or take home equity loans to get cash.
Leading the Way
Residential construction and home sales led the way out of the previous seven recessions going back to 1960, according to David Berson, chief economist of PMI Group, a mortgage insurer in Walnut Creek, California. Home resales gained strength an average four months before the end of a recession, single-family housing starts improved for seven months, and new-home sales grew for eight months.
Improvements in the unemployment rate lagged behind the start of a recovery by an average six months, according to Berson, the former chief economist of Washington-based Fannie Mae.
Existing home sales already have reached that marker, gaining for the last four months. Single-family housing starts improved for the last five months, two months short of the recovery average, and new-home sales jumped 9.6 percent in July, the most in four years, halfway toward the average eight months of consecutive gains before the onset of economic improvement.
Purchases of new homes in July jumped 9.6 percent, more than forecast and the biggest increase in four years, to a 433,000 annual pace, figures from the Commerce Department showed yesterday in Washington. Economists had estimated new home sales would increase to a 390,000 rate, according to the median of 71 projections in a Bloomberg News survey. July’s sales pace was the highest in 10 months and exceeded all estimates, which ranged from 365,000 to 420,000.
Tax Credit
Some of the gain was fueled by a tax credit of as much as $8,000 for first-time buyers and mortgage rates set artificially low because of the Federal Reserve’s purchases of mortgage- backed securities, said Nicolas Retsinas, director of housing studies at Harvard University in Cambridge, Massachusetts.
“Will this be sustainable over the long term?” Retsinas said. “That remains to be seen.”
The median price of a new home decreased 12 percent to $210,100 from $237,300 in July 2008. Sales of new homes were down 13 percent from a year earlier.
The jump in new-home sales was led by a 32 percent surge in the Northeast. Purchases increased 16 percent in the South and 1 percent in the West. They dropped 7.6 percent in the Midwest.
Builders had 271,000 houses on the market last month, down 35 percent from July 2008 and the fewest since March 1993. It would take 7.5 months to sell all homes at the current sales pace, the shortest time since April 2007.
Existing Home Sales
U.S. sales of existing homes jumped more than forecast in July to the highest level in almost two years, according to the National Association of Realtors. Purchases climbed 7.2 percent to an annual rate of 5.24 million, the most since August 2007, according to an Aug. 21 report by the Chicago-based realtors group. The gain was the biggest since records began in 1999.
Home prices probably will fall 13 percent in the current quarter compared with the drop of 16 percent from April through June, the realtors group said in a forecast on its Web site. Price declines may slow to 2 percent in the fourth quarter before gaining 2.3 percent in the first three months of 2010, the realtors group said.
“The sense that something is changing is definitely in the air,” said Robert Shiller, the Yale University professor who, with economist Karl Case, created home price indexes in the 1980s now used by Standard & Poor’s. “After three years of decline, we might be seeing a turnaround.”
Lower home prices and government stimulus efforts have spurred demand and pared the supply of existing homes to the fewest in two years, while sending new-home inventory to a 16- year low. Real estate sales buttress consumer spending, which accounts for about 70 percent of the economy, because new owners tend to buy appliances, drapes and furniture.
The S&P/Case-Shiller home-price index, which tracks 20 metropolitan areas, showed a gain in 18 cities during June, according to an Aug. 25 report. Detroit and Las Vegas were the only two that declined. The Federal Housing Finance Agency national index showed a 0.5 percent increase during June with increases in five out of nine U.S. regions, according to an Aug. 25 government report.
“Evidence is mounting that the worst of the economic downturn is behind us,” Federal Reserve Bank of Atlanta President Dennis Lockhart said yesterday in a speech in Chattanooga, Tennessee. “The beginning stages of recovery are underway.”
‘Serious Downturn’
Other federal officials are less optimistic. The jobless rate, which hit 9.5 percent in June before dipping to 9.4 percent last month, may rise to 10 percent by the end of 2009, according to an Aug. 25 report by the White House Office of Management and Budget.
“While the danger of the economy immediately falling into a deep recession has receded, the American economy is still in the midst of a serious economic downturn,” the report said.
About 26 percent of U.S. homes with a mortgage were worth less than the amount owed, according to a Deutsche Bank AG report this month. Deutsche Bank analysts Karen Weaver and Ying Shen forecast that by the end of the year, as many as 48 percent of mortgages may be “underwater.” That means few homeowners will be able to refinance or take home equity loans to get cash.
Leading the Way
Residential construction and home sales led the way out of the previous seven recessions going back to 1960, according to David Berson, chief economist of PMI Group, a mortgage insurer in Walnut Creek, California. Home resales gained strength an average four months before the end of a recession, single-family housing starts improved for seven months, and new-home sales grew for eight months.
Improvements in the unemployment rate lagged behind the start of a recovery by an average six months, according to Berson, the former chief economist of Washington-based Fannie Mae.
Existing home sales already have reached that marker, gaining for the last four months. Single-family housing starts improved for the last five months, two months short of the recovery average, and new-home sales jumped 9.6 percent in July, the most in four years, halfway toward the average eight months of consecutive gains before the onset of economic improvement.
Purchases of new homes in July jumped 9.6 percent, more than forecast and the biggest increase in four years, to a 433,000 annual pace, figures from the Commerce Department showed yesterday in Washington. Economists had estimated new home sales would increase to a 390,000 rate, according to the median of 71 projections in a Bloomberg News survey. July’s sales pace was the highest in 10 months and exceeded all estimates, which ranged from 365,000 to 420,000.
Tax Credit
Some of the gain was fueled by a tax credit of as much as $8,000 for first-time buyers and mortgage rates set artificially low because of the Federal Reserve’s purchases of mortgage- backed securities, said Nicolas Retsinas, director of housing studies at Harvard University in Cambridge, Massachusetts.
“Will this be sustainable over the long term?” Retsinas said. “That remains to be seen.”
The median price of a new home decreased 12 percent to $210,100 from $237,300 in July 2008. Sales of new homes were down 13 percent from a year earlier.
The jump in new-home sales was led by a 32 percent surge in the Northeast. Purchases increased 16 percent in the South and 1 percent in the West. They dropped 7.6 percent in the Midwest.
Builders had 271,000 houses on the market last month, down 35 percent from July 2008 and the fewest since March 1993. It would take 7.5 months to sell all homes at the current sales pace, the shortest time since April 2007.
Existing Home Sales
U.S. sales of existing homes jumped more than forecast in July to the highest level in almost two years, according to the National Association of Realtors. Purchases climbed 7.2 percent to an annual rate of 5.24 million, the most since August 2007, according to an Aug. 21 report by the Chicago-based realtors group. The gain was the biggest since records began in 1999.
Home prices probably will fall 13 percent in the current quarter compared with the drop of 16 percent from April through June, the realtors group said in a forecast on its Web site. Price declines may slow to 2 percent in the fourth quarter before gaining 2.3 percent in the first three months of 2010, the realtors group said.
Trade Policy: Govt eyes $200 bn export; doles out sops
NEW DELHI: India today extended tax holiday and duty refund for exporters, while allowing duty free capital goods import under its Foreign Trade Policy to insulate them from protectionism induced by recession abroad.
Unveiling the five-year policy, Commerce Minister Anand Sharma set a target of USD 200 billion worth exports for next fiscal, a feat that India failed to achieve in 2008-09 due to a slump in global demand in the face of financial crisis.
"India has not been affected to the same extent as other economies of the world, yet our exports have suffered a decline in the last 10 months due to a contraction in demand in the traditional markets. The protectionist measures being adopted by some of these countries have aggravated the problem," he said, presenting his first trade policy.
While exports for the April-June quarter contracted by 31 per cent, Sharma set a growth target of 15 per cent for FY'10.
"I would be hesitant to hazard a guess on the nature and extent of this recovery and the time the major economies will take to return to there pre-recession growth levels," he said, encouraging exporters to look beyond traditional markets like the US and western Europe.
Extension of income tax holiday for export units for one more year and continuance of duty refund scheme till Decemer 2010 and enhanced assistance for the scheme for development of markets are among the measures in the FTP.
The aim of the policy, which would be reviewed after two years, would be to "arrest and reverse declining trend of exports," Sharma said.
Exports have been on a decline for the past 10 months. Exports in FY'09 amounted to USD 168 billion and the country hopes to maintain the same level this fiscal.
Expressing confidence that the country would be able to achieve a 25 per cent growth rate after two years, Sharma said, "By 2014, we expect to double India's exports of goods and services."
The long-term policy objective, he added, will be to double India's share in global trade by 2020. India's share in global merchandise trade went up from 0.83 per cent in 2003 to 1.45 per cent in 2008.
"Announcing the FTP in this economic climate is indeed a daunting task. We cannot remain oblivious to declining demand in the developed world and we need to set in motion the strategies and policy measures which catalyse the growth of exports," he said.
The government, he added, would encourage exports through a "mix of measures including fiscal incentives, institutional changes, procedural rationalisation and efforts for enhance market access across the world and diversification of export markets.
The policy, Sharma said, would provide a special thrust to the employment-oriented sectors which have witnessed job losses in the wake of recession, especially in the fields of textiles, leather and handicrafts.
Tuesday, August 25, 2009
Reader's Digest files for bankruptcy protection
The publisher of the world's largest-circulated magazine Reader's Digest, sold across dozens of countries including India, today filed for bankruptcy protection in the US.
Reader's Digest Association (RDA) in a statement said that "it has filed voluntary pre-arranged petitions under Chapter 11 of the United State Bankruptcy Code, as part of the company's previously announced restructuring plan".
The filing for bankruptcy protection by RDA is aimed at reducing its debt burden by 75 per cent and to strengthen future financial position.
"The filing applies only to the RDA's US businesses-- its operations in Canada, Latin America, Europe, Africa, Asia and Australia-New Zealand will not be part of the filing," RDA said.
RDA, a global multi-brand media and marketing company based in the US, has offices in 44 countries and sells books, magazines, music, video and educational products reaching a customer base of 130 million in 78 countries.
It publishes 94 magazines, including 50 editions of Reader's Digest, the world's largest-circulated magazine and sells approximately 40 million books, music and video products across the world each year.
Prior to the filing, more than 80 per cent of the company's senior secured lenders had signed on to the agreement in principle.
Reader's Digest Association (RDA) in a statement said that "it has filed voluntary pre-arranged petitions under Chapter 11 of the United State Bankruptcy Code, as part of the company's previously announced restructuring plan".
The filing for bankruptcy protection by RDA is aimed at reducing its debt burden by 75 per cent and to strengthen future financial position.
"The filing applies only to the RDA's US businesses-- its operations in Canada, Latin America, Europe, Africa, Asia and Australia-New Zealand will not be part of the filing," RDA said.
RDA, a global multi-brand media and marketing company based in the US, has offices in 44 countries and sells books, magazines, music, video and educational products reaching a customer base of 130 million in 78 countries.
It publishes 94 magazines, including 50 editions of Reader's Digest, the world's largest-circulated magazine and sells approximately 40 million books, music and video products across the world each year.
Prior to the filing, more than 80 per cent of the company's senior secured lenders had signed on to the agreement in principle.
Bernanke to Be Nominated by Obama for Second Term as Fed Chief
Aug. 25 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke, who led the biggest expansion of the central bank’s power in its 95-year history to battle the worst economic slump since the Great Depression, will be nominated to a second term by President Barack Obama.
Bernanke “has led the Fed through the one of the worst financial crises that this nation and this world have ever faced,” Obama said in remarks prepared for delivery today in Martha’s Vineyard, Massachusetts, where Bernanke is to join him.
“As an expert on the causes of the Great Depression, I’m sure Ben never imagined that he would be part of a team responsible for preventing another,” Obama said. “But because of his background, his temperament, his courage, and his creativity, that’s exactly what he has helped to achieve.”
Bernanke’s nomination for a second four-year term starting Jan. 31 requires Senate approval and was endorsed by the head of the Banking Committee, Christopher Dodd. The Fed chief will still face tough questioning from lawmakers who say he was slow to recognize the severity of the mortgage crisis and didn’t do enough to protect American consumers while leading bailouts of financial firms including Bear Stearns Cos. and American International Group Inc.
“While I have had serious differences with the Federal Reserve over the past few years, I think reappointing Chairman Bernanke is probably the right choice,” Dodd, a Connecticut Democrat, said yesterday in a statement. “There will be a thorough and comprehensive confirmation hearing.”
Stocks, Treasuries
Asian stocks fell and Treasuries advanced as Bernanke’s nomination confirmed expectations of investors, who focused instead on lower profits at Chinese companies and evidence of increasing loan losses in the U.S. Japan’s Nikkei 225 Stock Average slipped 0.7 percent to 10,506.55 at 2:11 p.m. in Tokyo. The yield on the 10-year Treasury note declined one basis point to 3.46 percent, according to data compiled by Bloomberg.
Obama decided to reappoint Bernanke because he wanted to keep together the team that had weathered the crisis, an administration official said. The official said Treasury Secretary Timothy Geithner, Chief of Staff Rahm Emanuel and National Economic Council Chairman Larry Summers all recommended Bernanke be reappointed.
Bernanke, 55, slashed the main interest rate almost to zero and pumped $1 trillion into the banking system to unfreeze credit markets. He now must guide the world’s largest economy back to growth and reduce unemployment approaching 10 percent while shrinking the Fed’s balance sheet to prevent a surge in inflation.
Challenges Ahead
“It’s not just that he’s done a great job of dealing creatively with the financial crisis,” said Richard Berner, co- head of global economics at Morgan Stanley in New York. “He has the capacity to deal with the challenges that lie ahead -- continuing to help the economy and markets heal and engineering the exit strategy when it’s appropriate to do so.”
Obama, a Democrat, continues a recent tradition of bipartisanship in his decision to nominate Bernanke, a Republican, to a second term.
Bernanke’s predecessor and fellow Republican, Alan Greenspan, served as Fed chief for 18 years while gaining renomination by three presidents, including Bill Clinton, a Democrat. President Ronald Reagan kept Paul Volcker, first selected by Jimmy Carter, for a second term.
Almost 75 percent of investors surveyed in the first Quarterly Bloomberg Global Poll had a favorable view of the chairman in July. By almost a three-to-one margin, they said Bernanke had earned another four-year term.
Exit Strategy
“Wall Street can rest a little easier,” said Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Having a new chairman come in at this late date would put the Fed-engineered solution to both the recovery and the exit strategy at risk.”
The Standard & Poor’s 500 Index has risen 52 percent since a recession low on March 9. The S&P lost 38.5 percent last year. Credit markets have also recovered: The London Interbank Offered Rate for three months loans in dollars fell to 0.39 percent on Aug. 24. The rate surged as high as 4.81 percent in October.
Bernanke’s nomination comes as the world’s biggest economy is poised for renewed growth.
The economy will expand 2 percent or more in the four quarters through June, the first such streak in more than four years, according to the median of 53 forecasts in a Bloomberg News survey of economists. Gross domestic product has fallen 3.9 percent since the recession began in December 2007.
Corporate Bonds
The Libor-OIS spread, a gauge of financial stress, fell to 20 basis points Aug. 24. The spread soared to 364 basis points on Oct. 10 last year after Lehman Brothers Holdings Inc.’s collapse. Greenspan said in a June 2008 interview he wouldn’t consider credit markets back to “normal” until the spread was at 25 basis points.
Companies have sold a record $794 billion of dollar- denominated investment-grade corporate bonds this year, according to data compiled by Bloomberg. That’s up from $599 billion in the same period last year.
“Prospects for a return to growth in the near term appear good,” Bernanke said in an Aug. 21 speech at the Kansas City Fed’s annual symposium in Jackson Hole. Still, he warned of “critical challenges” ahead and added: “We have an enormous amount of work to do.”
Economists predict the unemployment rate, now 9.4 percent, could climb above 10 percent, curbing consumer spending and limiting the strength of the recovery.
MIT Degree
Ben Shalom Bernanke grew up in Dillon, South Carolina, where his family owned a pharmacy opened by his Austrian immigrant grandfather. He went north to Harvard University in Cambridge, Massachusetts, graduating summa cum laude with a bachelor’s degree in economics, then received a doctorate in economics from the neighboring Massachusetts Institute of Technology in 1979.
A self-described “Great Depression buff,” Bernanke joined the central bank as a governor in 2002 after serving as chairman of Princeton University’s economics department. President George W. Bush appointed Bernanke chairman of the Council of Economic Advisers in 2005 before naming him a few months later to the top Fed post.
“I did spend a lot of my career studying the Great Depression and other financial crises,” Bernanke said in a town-hall-style meeting on July 26 organized by PBS television. “And I didn’t expect it would be so helpful, so useful, as it has been.”
By his own admission, Bernanke was slow to recognize the severity of the mortgage meltdown at the heart of the recession.
“I and others were mistaken early on in saying that the subprime crisis would be contained,” he said in an interview last November with the New Yorker magazine.
Discount Rate Cut
In August 2007, the collapse in credit markets forced Fed policy makers to lower the discount rate just two weeks after declaring inflation was their paramount challenge. The next month, the Fed cut its benchmark federal funds rate for the first time in four years.
Bernanke came under fire for failing to prevent the collapse of Lehman Brothers, which triggered the biggest drop in the S&P 500 Index since Sept. 11, 2001, and deepened the credit freeze.
“The sentiment all over the world was that such a dramatic bankruptcy of a signature institution was impossible,” said Jean-Claude Trichet, president of the European Central Bank, in a June 15 interview.
Bernanke called Lehman’s failure “unavoidable” in his Jackson Hole speech. No buyer could be found, he said, and the investment bank didn’t have enough collateral to qualify for a Fed loan large enough to save it.
AIG Bailout
Two days after Lehman’s bankruptcy filing, the Fed took control of AIG in an $85 billion bailout designed to prevent the worst financial collapse in history.
As Lehman’s collapse sent shock waves through financial markets, Bernanke launched unprecedented programs -- one to contain fallout from a run on money-market funds, and another to buy short-term debt from companies such as General Electric Co.
Bernanke also supported then-Treasury Secretary Henry Paulson’s proposal for a $700 billion Troubled Asset Relief Program, initially intended to buy toxic assets from banks and later used to purchases equity stakes in the lenders themselves.
In December, with the economy contracting, the Fed’s key interest rate was slashed almost to zero, where it has remained. In the following months, the Fed launched programs to pump money into the economy through purchases of mortgage-backed debt, U.S. Treasuries and securities backed by auto loans, credit cards and commercial-property mortgages.
‘Uncharted Territory’
“This last couple of years has been clearly a move through uncharted territory, and as we’ve seen it’s taken a lot of unconventional moves to try to deal with the situation,” said Robert Parry, former president of the San Francisco Federal Reserve Bank. “There’s been a lot of innovation that’s gone on, and it seems to me that much of it has been successful.”
Yet the expansion of Fed authority has put Bernanke in the crosshairs of critics in Congress. Some lawmakers have accused the Fed of overstepping its authority and failing to properly supervise the financial firms that packaged and sold the mortgage-backed securities at the heart of the crisis.
“I’ve been astounded and shocked by certain regulatory malfeasance of the Federal Reserve and the reserve banks in the regulatory process in the last several years,” said Alabama Senator Richard Shelby, the ranking Republican on the Banking Committee.
Bank of America
Other lawmakers accused Bernanke of improperly pressuring Bank of America Corp. Chief Executive Officer Kenneth Lewis to proceed with its planned acquisition of Merrill Lynch & Co. The House Oversight Committee subpoenaed and released dozens of Fed e-mails and other documents. Bernanke told the panel in June that the central bank acted with the “highest integrity.”
The Fed chairman “has stepped on some landmines,” said Raymond Stone, managing director at Stone & McCarthy Research in Skillman, New Jersey. “Some were his fault, most weren’t.”
There’s little indication that Bernanke would fail to gain Senate approval. The Fed chief has cultivated relationships with key members of Congress, winning their respect while they criticized some of the central bank’s actions.
Senator Charles Schumer, a member of the Banking Committee and a New York Democrat, endorsed Bernanke’s reappointment, calling him “the right choice for these tough times.”
The recession “could have been considerably worse without Ben Bernanke’s strong and resolute actions,” Schumer said in a statement.
Bernanke “has led the Fed through the one of the worst financial crises that this nation and this world have ever faced,” Obama said in remarks prepared for delivery today in Martha’s Vineyard, Massachusetts, where Bernanke is to join him.
“As an expert on the causes of the Great Depression, I’m sure Ben never imagined that he would be part of a team responsible for preventing another,” Obama said. “But because of his background, his temperament, his courage, and his creativity, that’s exactly what he has helped to achieve.”
Bernanke’s nomination for a second four-year term starting Jan. 31 requires Senate approval and was endorsed by the head of the Banking Committee, Christopher Dodd. The Fed chief will still face tough questioning from lawmakers who say he was slow to recognize the severity of the mortgage crisis and didn’t do enough to protect American consumers while leading bailouts of financial firms including Bear Stearns Cos. and American International Group Inc.
“While I have had serious differences with the Federal Reserve over the past few years, I think reappointing Chairman Bernanke is probably the right choice,” Dodd, a Connecticut Democrat, said yesterday in a statement. “There will be a thorough and comprehensive confirmation hearing.”
Stocks, Treasuries
Asian stocks fell and Treasuries advanced as Bernanke’s nomination confirmed expectations of investors, who focused instead on lower profits at Chinese companies and evidence of increasing loan losses in the U.S. Japan’s Nikkei 225 Stock Average slipped 0.7 percent to 10,506.55 at 2:11 p.m. in Tokyo. The yield on the 10-year Treasury note declined one basis point to 3.46 percent, according to data compiled by Bloomberg.
Obama decided to reappoint Bernanke because he wanted to keep together the team that had weathered the crisis, an administration official said. The official said Treasury Secretary Timothy Geithner, Chief of Staff Rahm Emanuel and National Economic Council Chairman Larry Summers all recommended Bernanke be reappointed.
Bernanke, 55, slashed the main interest rate almost to zero and pumped $1 trillion into the banking system to unfreeze credit markets. He now must guide the world’s largest economy back to growth and reduce unemployment approaching 10 percent while shrinking the Fed’s balance sheet to prevent a surge in inflation.
Challenges Ahead
“It’s not just that he’s done a great job of dealing creatively with the financial crisis,” said Richard Berner, co- head of global economics at Morgan Stanley in New York. “He has the capacity to deal with the challenges that lie ahead -- continuing to help the economy and markets heal and engineering the exit strategy when it’s appropriate to do so.”
Obama, a Democrat, continues a recent tradition of bipartisanship in his decision to nominate Bernanke, a Republican, to a second term.
Bernanke’s predecessor and fellow Republican, Alan Greenspan, served as Fed chief for 18 years while gaining renomination by three presidents, including Bill Clinton, a Democrat. President Ronald Reagan kept Paul Volcker, first selected by Jimmy Carter, for a second term.
Almost 75 percent of investors surveyed in the first Quarterly Bloomberg Global Poll had a favorable view of the chairman in July. By almost a three-to-one margin, they said Bernanke had earned another four-year term.
Exit Strategy
“Wall Street can rest a little easier,” said Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Having a new chairman come in at this late date would put the Fed-engineered solution to both the recovery and the exit strategy at risk.”
The Standard & Poor’s 500 Index has risen 52 percent since a recession low on March 9. The S&P lost 38.5 percent last year. Credit markets have also recovered: The London Interbank Offered Rate for three months loans in dollars fell to 0.39 percent on Aug. 24. The rate surged as high as 4.81 percent in October.
Bernanke’s nomination comes as the world’s biggest economy is poised for renewed growth.
The economy will expand 2 percent or more in the four quarters through June, the first such streak in more than four years, according to the median of 53 forecasts in a Bloomberg News survey of economists. Gross domestic product has fallen 3.9 percent since the recession began in December 2007.
Corporate Bonds
The Libor-OIS spread, a gauge of financial stress, fell to 20 basis points Aug. 24. The spread soared to 364 basis points on Oct. 10 last year after Lehman Brothers Holdings Inc.’s collapse. Greenspan said in a June 2008 interview he wouldn’t consider credit markets back to “normal” until the spread was at 25 basis points.
Companies have sold a record $794 billion of dollar- denominated investment-grade corporate bonds this year, according to data compiled by Bloomberg. That’s up from $599 billion in the same period last year.
“Prospects for a return to growth in the near term appear good,” Bernanke said in an Aug. 21 speech at the Kansas City Fed’s annual symposium in Jackson Hole. Still, he warned of “critical challenges” ahead and added: “We have an enormous amount of work to do.”
Economists predict the unemployment rate, now 9.4 percent, could climb above 10 percent, curbing consumer spending and limiting the strength of the recovery.
MIT Degree
Ben Shalom Bernanke grew up in Dillon, South Carolina, where his family owned a pharmacy opened by his Austrian immigrant grandfather. He went north to Harvard University in Cambridge, Massachusetts, graduating summa cum laude with a bachelor’s degree in economics, then received a doctorate in economics from the neighboring Massachusetts Institute of Technology in 1979.
A self-described “Great Depression buff,” Bernanke joined the central bank as a governor in 2002 after serving as chairman of Princeton University’s economics department. President George W. Bush appointed Bernanke chairman of the Council of Economic Advisers in 2005 before naming him a few months later to the top Fed post.
“I did spend a lot of my career studying the Great Depression and other financial crises,” Bernanke said in a town-hall-style meeting on July 26 organized by PBS television. “And I didn’t expect it would be so helpful, so useful, as it has been.”
By his own admission, Bernanke was slow to recognize the severity of the mortgage meltdown at the heart of the recession.
“I and others were mistaken early on in saying that the subprime crisis would be contained,” he said in an interview last November with the New Yorker magazine.
Discount Rate Cut
In August 2007, the collapse in credit markets forced Fed policy makers to lower the discount rate just two weeks after declaring inflation was their paramount challenge. The next month, the Fed cut its benchmark federal funds rate for the first time in four years.
Bernanke came under fire for failing to prevent the collapse of Lehman Brothers, which triggered the biggest drop in the S&P 500 Index since Sept. 11, 2001, and deepened the credit freeze.
“The sentiment all over the world was that such a dramatic bankruptcy of a signature institution was impossible,” said Jean-Claude Trichet, president of the European Central Bank, in a June 15 interview.
Bernanke called Lehman’s failure “unavoidable” in his Jackson Hole speech. No buyer could be found, he said, and the investment bank didn’t have enough collateral to qualify for a Fed loan large enough to save it.
AIG Bailout
Two days after Lehman’s bankruptcy filing, the Fed took control of AIG in an $85 billion bailout designed to prevent the worst financial collapse in history.
As Lehman’s collapse sent shock waves through financial markets, Bernanke launched unprecedented programs -- one to contain fallout from a run on money-market funds, and another to buy short-term debt from companies such as General Electric Co.
Bernanke also supported then-Treasury Secretary Henry Paulson’s proposal for a $700 billion Troubled Asset Relief Program, initially intended to buy toxic assets from banks and later used to purchases equity stakes in the lenders themselves.
In December, with the economy contracting, the Fed’s key interest rate was slashed almost to zero, where it has remained. In the following months, the Fed launched programs to pump money into the economy through purchases of mortgage-backed debt, U.S. Treasuries and securities backed by auto loans, credit cards and commercial-property mortgages.
‘Uncharted Territory’
“This last couple of years has been clearly a move through uncharted territory, and as we’ve seen it’s taken a lot of unconventional moves to try to deal with the situation,” said Robert Parry, former president of the San Francisco Federal Reserve Bank. “There’s been a lot of innovation that’s gone on, and it seems to me that much of it has been successful.”
Yet the expansion of Fed authority has put Bernanke in the crosshairs of critics in Congress. Some lawmakers have accused the Fed of overstepping its authority and failing to properly supervise the financial firms that packaged and sold the mortgage-backed securities at the heart of the crisis.
“I’ve been astounded and shocked by certain regulatory malfeasance of the Federal Reserve and the reserve banks in the regulatory process in the last several years,” said Alabama Senator Richard Shelby, the ranking Republican on the Banking Committee.
Bank of America
Other lawmakers accused Bernanke of improperly pressuring Bank of America Corp. Chief Executive Officer Kenneth Lewis to proceed with its planned acquisition of Merrill Lynch & Co. The House Oversight Committee subpoenaed and released dozens of Fed e-mails and other documents. Bernanke told the panel in June that the central bank acted with the “highest integrity.”
The Fed chairman “has stepped on some landmines,” said Raymond Stone, managing director at Stone & McCarthy Research in Skillman, New Jersey. “Some were his fault, most weren’t.”
There’s little indication that Bernanke would fail to gain Senate approval. The Fed chief has cultivated relationships with key members of Congress, winning their respect while they criticized some of the central bank’s actions.
Senator Charles Schumer, a member of the Banking Committee and a New York Democrat, endorsed Bernanke’s reappointment, calling him “the right choice for these tough times.”
The recession “could have been considerably worse without Ben Bernanke’s strong and resolute actions,” Schumer said in a statement.
RBS Said Likely to Sell Asia Businesses to Standard Chartered
Aug. 24 (Bloomberg) -- Royal Bank of Scotland Group Plc, the biggest bank owned by the U.K. government, may sell its units in India and China to Standard Chartered Plc as soon as next month, a person familiar with the situation said.
The retail and commercial banking assets are valued at $300 million to $400 million, said the person, who declined to be identified because the talks are confidential. An official at Standard Chartered in London declined to comment.
“RBS is in ongoing discussions with bidders for the remaining assets it has decided to sell in Asia and will make further announcements, as appropriate, in due course,” said Fiona MacRae, an Edinburgh-based spokeswoman for RBS.
The sale of RBS’s assets in China has faltered and has a 30 percent chance of success because more of the RBS customers than Standard Chartered expected are locked into specific products, making it harder to shift them to alternatives, the Financial Times reported today.
RBS is reducing its presence or withdrawing from two thirds of the 54 countries in which it does business after posting the biggest loss in U.K. corporate history last year and receiving government funding.
The retail and commercial banking assets are valued at $300 million to $400 million, said the person, who declined to be identified because the talks are confidential. An official at Standard Chartered in London declined to comment.
“RBS is in ongoing discussions with bidders for the remaining assets it has decided to sell in Asia and will make further announcements, as appropriate, in due course,” said Fiona MacRae, an Edinburgh-based spokeswoman for RBS.
The sale of RBS’s assets in China has faltered and has a 30 percent chance of success because more of the RBS customers than Standard Chartered expected are locked into specific products, making it harder to shift them to alternatives, the Financial Times reported today.
RBS is reducing its presence or withdrawing from two thirds of the 54 countries in which it does business after posting the biggest loss in U.K. corporate history last year and receiving government funding.
Asian Stocks Fall, Treasuries Gain as Demand for Risk Eases
Aug. 25 (Bloomberg) -- Asian stocks fell and Treasuries advanced as lower profit at Chinese companies and evidence of increasing loan losses in the U.S. sapped demand for risky assets. South Africa’s rand and the Australian dollar dropped as commodity prices declined.
Jiangxi Copper Co. sank 5.7 percent in Shanghai after posting a 61 percent decline in first-half net income and metals retreated. Aluminum Corp. of China Ltd., which reported its third quarterly net loss, fell 2.7 percent in Hong Kong. Chinese equities posted the region’s worst performance as the nation’s premier warned the economic recovery isn’t stable yet. KB Financial Group Inc. lost 2.9 percent in Seoul as SunTrust Banks Inc. said U.S. lenders face more credit losses.
The MSCI Asia Pacific Index lost 0.4 percent to 112.95 as of 4:11 p.m. in Tokyo. The index rallied 2.5 percent yesterday, the most since May 19. Companies on the gauge are priced at an average 24 times estimated earnings, up from 13.7 times at the end of 2008.
“Companies aren’t yet seeing the signs of improvement coming through, even though the market is anticipating it,” said Matt Riordan, who helps manage about $3.8 billion at Paradice Investment Management in Sydney. “We need to start seeing some pretty broad profit upgrades coming through driven by revenues rather than cost cutting. Until then, we’ll be cautious.”
China’s Shanghai Composite Index sank 2.6 percent after the Wen Jiabao, the nation’s premier, said yesterday that excess industrial capacity may limit growth and authorities can’t be “blindly” optimistic. Japan’s Nikkei 225 Stock Average slipped 0.8 percent. Hong Kong’s Hang Seng Index lost 1.1 percent.
NGK, Woolworths
Among stocks that gained today, NGK Insulators Ltd. rallied 3.7 percent in Tokyo after the Nikkei newspaper said the company won an order from Abu Dhabi. Australia’s Woolworths Ltd., the country’s biggest retailer, rose 2.2 percent on plans for a joint venture with U.S. home-improvement chain Lowe’s Cos.
Futures on the Standard & Poor’s 500 Index lost 0.2 percent. The U.S. gauge dropped 0.1 percent yesterday, erasing an earlier 0.9 percent advance, following SunTrust’s comments. Taylor, Bean & Whitaker Mortgage Corp., the 12th-largest U.S. mortgage lender, also filed for bankruptcy protection, while Fitch Ratings said more delinquent U.S. mortgage holders are failing to catch up with their payments.
Treasuries rose for a second day amid speculation the global financial crisis won’t end this year. The yield on the 10-year note declined two basis points to 3.46 percent, according to data compiled by Bloomberg.
Fading Momentum?
“I’m favoring longer maturities,” said Hideo Shimomura, who oversees $4 billion in non-yen bonds as chief fund investor in Tokyo at Mitsubishi UFJ Asset Management Co., a unit of Japan’s largest bank. “Looking toward next year, the momentum in the economy will fade. The trend for inflation is down.”
Jiangxi Copper, China’s biggest producer of the metal, sank 5.7 percent to 37.20 yuan after saying first-half profit slumped 61 percent because of lower prices.
Copper futures in New York sank 1.4 percent in after-hours trading, following yesterday’s 1.3 percent gain. Oil prices lost 1 percent, erasing yesterday’s advance.
South Africa’s rand lost 0.5 percent versus the dollar today, while the Australian dollar fell 0.4 percent. The two currencies have moved along with the Reuters/Jefferies CRB Index of 19 raw materials about 90 percent of the time this year, Bloomberg data show. The commodities gauge, which hasn’t yet traded today, rose 0.8 percent yesterday.
‘Cautious’ Investors
“We’re not out of the woods on a global recovery basis so, though things look better, investors are being cautious,” said Phil Burke, chief foreign-exchange dealer at JPMorgan Chase Bank in Sydney.
Aluminum Corp., known as Chalco, lost 2.7 percent to HK$8.96. The company aims to break even or at least curb losses in the second half on expectations of an improvement in the market, Chairman Xiong Weiping said at a news conference today.
About 18 percent of the 538 companies in the MSCI Asia Pacific Index that posted results since early July have missed analysts’ profit estimates, according to data compiled by Bloomberg. A third of those companies have reported better-than- estimated earnings, helping drive the stock index to the highest level in almost 11 months on Aug. 14.
“The market is no longer cheap,” said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors, which manages about $75 billion. “The question is whether the rally is justified by the pick-up in economic data and earnings.”
Empty Shelves
Wesfarmers Ltd. slumped 3.5 percent to A$24.80. Australia’s second-largest retailer is stocking more fresh fruit and vegetables than it can sell to reverse the reputation its Coles supermarket division has for empty shelves and win market share, CEO Richard Goyder said in an interview.
KB Financial retreated 2.9 percent to 54,400 won following comments from James Wells III, chief executive officer of Atlanta-based SunTrust. Mizuho Financial Group Inc., Japan’s third-biggest bank by market value, slipped 1.8 percent to 225 yen. Daiwa Securities Group Inc. Japan’s second-largest brokerage, fell 3.2 percent to 551 yen.
“This credit cycle has yet to play itself out,” Wells said in a speech to the Rotary Club of Atlanta. “We do not expect things to improve for the banking industry in the very near future.”
China Construction Bank Corp. fell 4.3 percent to 5.53 yuan in Shanghai. Chairman Guo Shuqing said yesterday “excess liquidity” from explosive loan growth in the first half of the year has led to asset bubbles.
Credit Losses
Global credit losses and writedowns by financial institutions have totaled $1.6 trillion since 2007, according to data compiled by Bloomberg. The financial crisis helped drag the U.S. and Japan into recession and caused the collapse of Lehman Brothers Holdings Inc. and Bear Stearns Cos.
Nouriel Roubini, the New York University professor who predicted the financial crisis, wrote in the Financial Times yesterday the chance of a double-dip recession is increasing because of risks related to ending global monetary and fiscal stimulus.
Suncorp-Metway Ltd., Australia’s third-largest insurer, sank 2.8 percent to A$7.58. Net income in the 12 months ended June 30 fell 40 percent to A$348 million ($291 million) as the company set aside more money to cover bad debt. Impairment losses on loans soared 10-fold to A$710 million.
NGK climbed 3.7 percent to 2,270 yen. The company won a 60 billion yen ($639 million) order from Abu Dhabi to supply rechargeable batteries for power management systems, the Nikkei newspaper reported.
Woolworths rose 2.2 percent to A$28.63. The company said it will start a joint venture with North Carolina-based Lowe’s and open more than 150 stores over the next five years.
South Korea’s Daewoo Engineering & Construction Co. surged 9.2 percent to 14,800 won after Edaily reported Blackstone Group LP, KKR & Co. and Permira Holdings Ltd. may bid for the company.
Jiangxi Copper Co. sank 5.7 percent in Shanghai after posting a 61 percent decline in first-half net income and metals retreated. Aluminum Corp. of China Ltd., which reported its third quarterly net loss, fell 2.7 percent in Hong Kong. Chinese equities posted the region’s worst performance as the nation’s premier warned the economic recovery isn’t stable yet. KB Financial Group Inc. lost 2.9 percent in Seoul as SunTrust Banks Inc. said U.S. lenders face more credit losses.
The MSCI Asia Pacific Index lost 0.4 percent to 112.95 as of 4:11 p.m. in Tokyo. The index rallied 2.5 percent yesterday, the most since May 19. Companies on the gauge are priced at an average 24 times estimated earnings, up from 13.7 times at the end of 2008.
“Companies aren’t yet seeing the signs of improvement coming through, even though the market is anticipating it,” said Matt Riordan, who helps manage about $3.8 billion at Paradice Investment Management in Sydney. “We need to start seeing some pretty broad profit upgrades coming through driven by revenues rather than cost cutting. Until then, we’ll be cautious.”
China’s Shanghai Composite Index sank 2.6 percent after the Wen Jiabao, the nation’s premier, said yesterday that excess industrial capacity may limit growth and authorities can’t be “blindly” optimistic. Japan’s Nikkei 225 Stock Average slipped 0.8 percent. Hong Kong’s Hang Seng Index lost 1.1 percent.
NGK, Woolworths
Among stocks that gained today, NGK Insulators Ltd. rallied 3.7 percent in Tokyo after the Nikkei newspaper said the company won an order from Abu Dhabi. Australia’s Woolworths Ltd., the country’s biggest retailer, rose 2.2 percent on plans for a joint venture with U.S. home-improvement chain Lowe’s Cos.
Futures on the Standard & Poor’s 500 Index lost 0.2 percent. The U.S. gauge dropped 0.1 percent yesterday, erasing an earlier 0.9 percent advance, following SunTrust’s comments. Taylor, Bean & Whitaker Mortgage Corp., the 12th-largest U.S. mortgage lender, also filed for bankruptcy protection, while Fitch Ratings said more delinquent U.S. mortgage holders are failing to catch up with their payments.
Treasuries rose for a second day amid speculation the global financial crisis won’t end this year. The yield on the 10-year note declined two basis points to 3.46 percent, according to data compiled by Bloomberg.
Fading Momentum?
“I’m favoring longer maturities,” said Hideo Shimomura, who oversees $4 billion in non-yen bonds as chief fund investor in Tokyo at Mitsubishi UFJ Asset Management Co., a unit of Japan’s largest bank. “Looking toward next year, the momentum in the economy will fade. The trend for inflation is down.”
Jiangxi Copper, China’s biggest producer of the metal, sank 5.7 percent to 37.20 yuan after saying first-half profit slumped 61 percent because of lower prices.
Copper futures in New York sank 1.4 percent in after-hours trading, following yesterday’s 1.3 percent gain. Oil prices lost 1 percent, erasing yesterday’s advance.
South Africa’s rand lost 0.5 percent versus the dollar today, while the Australian dollar fell 0.4 percent. The two currencies have moved along with the Reuters/Jefferies CRB Index of 19 raw materials about 90 percent of the time this year, Bloomberg data show. The commodities gauge, which hasn’t yet traded today, rose 0.8 percent yesterday.
‘Cautious’ Investors
“We’re not out of the woods on a global recovery basis so, though things look better, investors are being cautious,” said Phil Burke, chief foreign-exchange dealer at JPMorgan Chase Bank in Sydney.
Aluminum Corp., known as Chalco, lost 2.7 percent to HK$8.96. The company aims to break even or at least curb losses in the second half on expectations of an improvement in the market, Chairman Xiong Weiping said at a news conference today.
About 18 percent of the 538 companies in the MSCI Asia Pacific Index that posted results since early July have missed analysts’ profit estimates, according to data compiled by Bloomberg. A third of those companies have reported better-than- estimated earnings, helping drive the stock index to the highest level in almost 11 months on Aug. 14.
“The market is no longer cheap,” said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors, which manages about $75 billion. “The question is whether the rally is justified by the pick-up in economic data and earnings.”
Empty Shelves
Wesfarmers Ltd. slumped 3.5 percent to A$24.80. Australia’s second-largest retailer is stocking more fresh fruit and vegetables than it can sell to reverse the reputation its Coles supermarket division has for empty shelves and win market share, CEO Richard Goyder said in an interview.
KB Financial retreated 2.9 percent to 54,400 won following comments from James Wells III, chief executive officer of Atlanta-based SunTrust. Mizuho Financial Group Inc., Japan’s third-biggest bank by market value, slipped 1.8 percent to 225 yen. Daiwa Securities Group Inc. Japan’s second-largest brokerage, fell 3.2 percent to 551 yen.
“This credit cycle has yet to play itself out,” Wells said in a speech to the Rotary Club of Atlanta. “We do not expect things to improve for the banking industry in the very near future.”
China Construction Bank Corp. fell 4.3 percent to 5.53 yuan in Shanghai. Chairman Guo Shuqing said yesterday “excess liquidity” from explosive loan growth in the first half of the year has led to asset bubbles.
Credit Losses
Global credit losses and writedowns by financial institutions have totaled $1.6 trillion since 2007, according to data compiled by Bloomberg. The financial crisis helped drag the U.S. and Japan into recession and caused the collapse of Lehman Brothers Holdings Inc. and Bear Stearns Cos.
Nouriel Roubini, the New York University professor who predicted the financial crisis, wrote in the Financial Times yesterday the chance of a double-dip recession is increasing because of risks related to ending global monetary and fiscal stimulus.
Suncorp-Metway Ltd., Australia’s third-largest insurer, sank 2.8 percent to A$7.58. Net income in the 12 months ended June 30 fell 40 percent to A$348 million ($291 million) as the company set aside more money to cover bad debt. Impairment losses on loans soared 10-fold to A$710 million.
NGK climbed 3.7 percent to 2,270 yen. The company won a 60 billion yen ($639 million) order from Abu Dhabi to supply rechargeable batteries for power management systems, the Nikkei newspaper reported.
Woolworths rose 2.2 percent to A$28.63. The company said it will start a joint venture with North Carolina-based Lowe’s and open more than 150 stores over the next five years.
South Korea’s Daewoo Engineering & Construction Co. surged 9.2 percent to 14,800 won after Edaily reported Blackstone Group LP, KKR & Co. and Permira Holdings Ltd. may bid for the company.
Monday, August 24, 2009
Asian Stocks Advance on Signs Global Recovery Is Strengthening
Aug. 24 (Bloomberg) -- Asian stocks rose, led by commodities producers, as copper and oil prices increased and sales of existing homes in the U.S. surged the most on record, fueling speculation a global economic recovery is strengthening.
BHP Billiton Ltd., the world’s biggest mining company, gained 4.1 percent in Sydney. Woodside Petroleum Ltd. rose 3.9 percent, and Komatsu Ltd., a Japanese maker of construction equipment added 2.7 percent. Hyundai Motor Co., South Korea’s largest automaker, climbed 5.3 percent in Seoul after the company appointed a new vice chairman.
“The fundamentals of the global economy and corporate earnings are improving, supporting the resilience of the market,” said Yoshinori Nagano, a senior strategist at Tokyo- based Daiwa Asset Management Co., which oversees the equivalent of $91 billion. “The housing report confirmed the U.S. is clearly on a path to recovery.”
The MSCI Asia Pacific Index rose 2.1 percent to 112.37 as of 10:33 a.m. in Tokyo, with about 14 times as many stocks gaining as retreating. All 10 industry groups climbed, led by materials producers. Japan’s Nikkei 225 Stock Average added 3.1 percent to 10,559.40, with only four stocks falling. All Asian benchmark gauges open for trading advanced.
In New York, the Standard & Poor’s 500 Index climbed 1.9 percent on Aug. 21 to a level not seen since Oct. 6. Purchases of existing U.S. homes jumped 7.2 percent in July, the most since the tallies began in 1999, the National Association of Realtors said. Federal Reserve Chairman Ben S. Bernanke said the global economy is “beginning to emerge” from recession.
Mining, Oil
BHP added 4.1 percent to A$38.11 after copper futures climbed 5.1 percent in New York on Aug. 21, the steepest gain since June 1. Rio Tinto Group Ltd., the world’s third-biggest mining company, advanced 4.2 percent to A$58.70.
Komatsu, the world’s second-largest maker of construction machinery, rose 2.7 percent in Tokyo, and Mitsubishi Corp., a Japanese trading company that gets more than a third of its sales from commodities, advanced 3.6 percent.
Woodside Petroleum, Australia’s second-largest oil and gas producer, rose 3.9 percent to A$48.40. Also in Sydney, Santos Ltd., an explorer seeking to develop three liquefied natural gas projects, climbed 4 percent to A$15.50. Inpex Corp., Japan’s biggest energy explorer, surged 4.3 percent to 750,000 yen.
Oil traded near a 10-month high in New York today on speculation demand will increase as the global economy emerges from the deepest recession since World War II.
Australian Banks
Australian banks rallied on speculation a recovery will reduce loan losses and spur credit growth. National Australia Bank Ltd., the nation’s largest by assets, climbed 2.9 percent to A$26.42 in Sydney. Australia & New Zealand Banking Group Ltd., Australia’s fourth-biggest lender, gained 2.8 percent to A$19.57.
Shares on the MSCI Asia Pacific Index traded at 23.7 times their estimated net income on Aug. 21, the lowest level in a month. The gauge dropped 3.2 percent last week, the most since the five days ended June 19, on concern China will curb bank lending, hampering growth.
Hyundai Motor rallied 5.3 percent to 108,500 won, as the company named Chung Eui Sun, the only son of the company’s chairman, vice chairman in charge of planning and sales.
Japanese exporters got a further boost from the strengthening dollar, which lifts the value of overseas sales at Japanese companies when converted into their home currency. The dollar gained to as much as 94.70 yen today from 93.77 at the close of Tokyo stock trading on Aug. 21.
Canon Inc., the world’s biggest maker of digital cameras and which gets a third of its sales from the Americas, added 4.9 percent to 3,670 yen. Honda Motor Co., a carmaker which gets more than half its sales in North America, gained 3.2 percent to 3,050 yen, while bigger rival Toyota Motor Corp. rose 3 percent to 4,100 yen.
“Japanese exporters are discounted as investors are wary of U.S. consumer spending,” said Tomochika Kitaoka, a senior strategist at Mizuho Securities Co. in Tokyo. “The home-sales report will likely help narrow this discount.”
BHP Billiton Ltd., the world’s biggest mining company, gained 4.1 percent in Sydney. Woodside Petroleum Ltd. rose 3.9 percent, and Komatsu Ltd., a Japanese maker of construction equipment added 2.7 percent. Hyundai Motor Co., South Korea’s largest automaker, climbed 5.3 percent in Seoul after the company appointed a new vice chairman.
“The fundamentals of the global economy and corporate earnings are improving, supporting the resilience of the market,” said Yoshinori Nagano, a senior strategist at Tokyo- based Daiwa Asset Management Co., which oversees the equivalent of $91 billion. “The housing report confirmed the U.S. is clearly on a path to recovery.”
The MSCI Asia Pacific Index rose 2.1 percent to 112.37 as of 10:33 a.m. in Tokyo, with about 14 times as many stocks gaining as retreating. All 10 industry groups climbed, led by materials producers. Japan’s Nikkei 225 Stock Average added 3.1 percent to 10,559.40, with only four stocks falling. All Asian benchmark gauges open for trading advanced.
In New York, the Standard & Poor’s 500 Index climbed 1.9 percent on Aug. 21 to a level not seen since Oct. 6. Purchases of existing U.S. homes jumped 7.2 percent in July, the most since the tallies began in 1999, the National Association of Realtors said. Federal Reserve Chairman Ben S. Bernanke said the global economy is “beginning to emerge” from recession.
Mining, Oil
BHP added 4.1 percent to A$38.11 after copper futures climbed 5.1 percent in New York on Aug. 21, the steepest gain since June 1. Rio Tinto Group Ltd., the world’s third-biggest mining company, advanced 4.2 percent to A$58.70.
Komatsu, the world’s second-largest maker of construction machinery, rose 2.7 percent in Tokyo, and Mitsubishi Corp., a Japanese trading company that gets more than a third of its sales from commodities, advanced 3.6 percent.
Woodside Petroleum, Australia’s second-largest oil and gas producer, rose 3.9 percent to A$48.40. Also in Sydney, Santos Ltd., an explorer seeking to develop three liquefied natural gas projects, climbed 4 percent to A$15.50. Inpex Corp., Japan’s biggest energy explorer, surged 4.3 percent to 750,000 yen.
Oil traded near a 10-month high in New York today on speculation demand will increase as the global economy emerges from the deepest recession since World War II.
Australian Banks
Australian banks rallied on speculation a recovery will reduce loan losses and spur credit growth. National Australia Bank Ltd., the nation’s largest by assets, climbed 2.9 percent to A$26.42 in Sydney. Australia & New Zealand Banking Group Ltd., Australia’s fourth-biggest lender, gained 2.8 percent to A$19.57.
Shares on the MSCI Asia Pacific Index traded at 23.7 times their estimated net income on Aug. 21, the lowest level in a month. The gauge dropped 3.2 percent last week, the most since the five days ended June 19, on concern China will curb bank lending, hampering growth.
Hyundai Motor rallied 5.3 percent to 108,500 won, as the company named Chung Eui Sun, the only son of the company’s chairman, vice chairman in charge of planning and sales.
Japanese exporters got a further boost from the strengthening dollar, which lifts the value of overseas sales at Japanese companies when converted into their home currency. The dollar gained to as much as 94.70 yen today from 93.77 at the close of Tokyo stock trading on Aug. 21.
Canon Inc., the world’s biggest maker of digital cameras and which gets a third of its sales from the Americas, added 4.9 percent to 3,670 yen. Honda Motor Co., a carmaker which gets more than half its sales in North America, gained 3.2 percent to 3,050 yen, while bigger rival Toyota Motor Corp. rose 3 percent to 4,100 yen.
“Japanese exporters are discounted as investors are wary of U.S. consumer spending,” said Tomochika Kitaoka, a senior strategist at Mizuho Securities Co. in Tokyo. “The home-sales report will likely help narrow this discount.”
World Economy Emerging From Worst Recession Since World War II
Aug. 22 (Bloomberg) -- The global economy may be coming out of the worst recession since World War II as record-low interest rates and trillions of dollars in fiscal stimulus spur demand.
Sales of existing U.S. homes jumped in July to the highest level since August 2007, and German service industries expanded this month for the first time in almost a year, reports yesterday showed. The Japanese economy grew for the first time in five quarters, according to a report earlier this week.
“There is no question the global economy is healing and emerging from recession,” Kenneth Rogoff, a Harvard University professor and former chief economist for the International Monetary Fund, said in a Bloomberg Television interview yesterday.
Federal Reserve Chairman Ben S. Bernanke and other global policy makers cautioned that the recovery is likely to be muted, indicating they would not soon remove all the stimulus injected into the financial system.
“Strains persist in many financial markets across the globe,” Bernanke said in a speech yesterday at the Kansas City Fed’s annual symposium in Jackson Hole, Wyoming. “The economic recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels.”
The U.S. housing market, which led the way into the recession, is showing signs of righting itself after almost four years of declines. The 7.2 percent rise in sales of existing homes last month was the biggest since the National Association of Realtors began keeping records in 1999.
Housing Stabilizes
U.S. stocks gained for a fourth day, sending the Standard & Poor’s 500 Index to the highest level since October. The S&P 500 added 1.9 percent to 1,026.13, giving it a 2.2 percent advance this week. The dollar and Treasuries fell, while oil rose to a 10-month high.
The news yesterday followed a report earlier in the week that single-family housing starts rose in July for the fifth consecutive month to reach the highest level since October.
“Although some of our markets are still stuck in the mud, many are improving,” Robert Toll, Chairman and Chief Executive Officer of Toll Brothers Inc., told Wall Street analysts on Aug. 12. “It does feel as if the fence sitters are looking for reasons to jump in on the side of buying.” Horsham, Pennsylvania-based Toll is the largest U.S. luxury homebuilder.
Demand has been boosted by government tax credits for first-time buyers and near record-low borrowing costs engineered by the Fed, which has coupled a cut in its benchmark interest rate to near zero with purchases of mortgage-backed securities.
The index of U.S. leading economic indicators, which is supposed to presage activity three to six months ahead, rose in July for a fourth consecutive month, the New York-based Conference Board reported on Aug. 20.
German Sentiment
In Germany, Europe’s largest economy, “business sentiment among service providers strengthened in August and was the most positive since January 2006,” Markit Economics said yesterday, pointing to its purchasing managers’ survey.
“The recession is over,” said Klaus Baader, chief European economist at Societe Generale SA in London, who called the Markit data an “incredible reading.”
German investors are also upbeat. Their confidence jumped to its highest level in more than three years in August, the Mannheim, Germany-based ZEW Center for European Economic Research said on Aug. 18.
Chancellor Angela Merkel, who faces national elections next month, is spending about 85 billion euros ($122 billion) in an effort to rekindle economic growth, including a 2,500-euro payment for consumers who scrap an old car and buy a new one. New-vehicle registrations in Germany rose 23 percent in the first five months of 2009 from the year-earlier period.
Japanese GDP
Japan’s economy is also being boosted by government measures ahead of an election. Prime Minister Taro Aso, whose party is trailing in opinion polls before the Aug. 30 parliamentary elections, has put forward a 25 trillion yen ($265 billion) stimulus plan.
The 3.7 percent rise in Japanese gross domestic product in the second quarter followed an 11.7 percent contraction in the first three months of the year. Exports led the revival of the world’s second-largest economy last quarter, jumping by 6.3 percent.
The IMF may increase its forecast for the global economic rebound next year as signs of growth return, John Lipsky, the fund’s first deputy managing director, said yesterday.
The Washington-based lender last month predicted the world economy will expand 2.5 percent in 2010 after contracting 1.4 percent this year.
Recovery ‘Anticipated’
“We’re on track in broad terms for the kind of recovery we had anticipated,” Lipsky said in a Bloomberg Television interview from Jackson Hole. “But to get that recovery requires continued policy effort -- accommodative monetary policy, stimulative fiscal policy -- to make sure that growth shows up.”
European Central Bank President Jean-Claude Trichet sounded a similar note, telling the Jackson Hole conference that it’s too soon to say a recovery can be sustained and that policy makers need to maintain efforts to restore confidence.
“We know that we have an enormous amount of work to do and we should be as active as possible,” Trichet said. The ECB has cut its benchmark interest rate to a record 1 percent and is buying covered bonds and flooding banks with money.
Sales of existing U.S. homes jumped in July to the highest level since August 2007, and German service industries expanded this month for the first time in almost a year, reports yesterday showed. The Japanese economy grew for the first time in five quarters, according to a report earlier this week.
“There is no question the global economy is healing and emerging from recession,” Kenneth Rogoff, a Harvard University professor and former chief economist for the International Monetary Fund, said in a Bloomberg Television interview yesterday.
Federal Reserve Chairman Ben S. Bernanke and other global policy makers cautioned that the recovery is likely to be muted, indicating they would not soon remove all the stimulus injected into the financial system.
“Strains persist in many financial markets across the globe,” Bernanke said in a speech yesterday at the Kansas City Fed’s annual symposium in Jackson Hole, Wyoming. “The economic recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels.”
The U.S. housing market, which led the way into the recession, is showing signs of righting itself after almost four years of declines. The 7.2 percent rise in sales of existing homes last month was the biggest since the National Association of Realtors began keeping records in 1999.
Housing Stabilizes
U.S. stocks gained for a fourth day, sending the Standard & Poor’s 500 Index to the highest level since October. The S&P 500 added 1.9 percent to 1,026.13, giving it a 2.2 percent advance this week. The dollar and Treasuries fell, while oil rose to a 10-month high.
The news yesterday followed a report earlier in the week that single-family housing starts rose in July for the fifth consecutive month to reach the highest level since October.
“Although some of our markets are still stuck in the mud, many are improving,” Robert Toll, Chairman and Chief Executive Officer of Toll Brothers Inc., told Wall Street analysts on Aug. 12. “It does feel as if the fence sitters are looking for reasons to jump in on the side of buying.” Horsham, Pennsylvania-based Toll is the largest U.S. luxury homebuilder.
Demand has been boosted by government tax credits for first-time buyers and near record-low borrowing costs engineered by the Fed, which has coupled a cut in its benchmark interest rate to near zero with purchases of mortgage-backed securities.
The index of U.S. leading economic indicators, which is supposed to presage activity three to six months ahead, rose in July for a fourth consecutive month, the New York-based Conference Board reported on Aug. 20.
German Sentiment
In Germany, Europe’s largest economy, “business sentiment among service providers strengthened in August and was the most positive since January 2006,” Markit Economics said yesterday, pointing to its purchasing managers’ survey.
“The recession is over,” said Klaus Baader, chief European economist at Societe Generale SA in London, who called the Markit data an “incredible reading.”
German investors are also upbeat. Their confidence jumped to its highest level in more than three years in August, the Mannheim, Germany-based ZEW Center for European Economic Research said on Aug. 18.
Chancellor Angela Merkel, who faces national elections next month, is spending about 85 billion euros ($122 billion) in an effort to rekindle economic growth, including a 2,500-euro payment for consumers who scrap an old car and buy a new one. New-vehicle registrations in Germany rose 23 percent in the first five months of 2009 from the year-earlier period.
Japanese GDP
Japan’s economy is also being boosted by government measures ahead of an election. Prime Minister Taro Aso, whose party is trailing in opinion polls before the Aug. 30 parliamentary elections, has put forward a 25 trillion yen ($265 billion) stimulus plan.
The 3.7 percent rise in Japanese gross domestic product in the second quarter followed an 11.7 percent contraction in the first three months of the year. Exports led the revival of the world’s second-largest economy last quarter, jumping by 6.3 percent.
The IMF may increase its forecast for the global economic rebound next year as signs of growth return, John Lipsky, the fund’s first deputy managing director, said yesterday.
The Washington-based lender last month predicted the world economy will expand 2.5 percent in 2010 after contracting 1.4 percent this year.
Recovery ‘Anticipated’
“We’re on track in broad terms for the kind of recovery we had anticipated,” Lipsky said in a Bloomberg Television interview from Jackson Hole. “But to get that recovery requires continued policy effort -- accommodative monetary policy, stimulative fiscal policy -- to make sure that growth shows up.”
European Central Bank President Jean-Claude Trichet sounded a similar note, telling the Jackson Hole conference that it’s too soon to say a recovery can be sustained and that policy makers need to maintain efforts to restore confidence.
“We know that we have an enormous amount of work to do and we should be as active as possible,” Trichet said. The ECB has cut its benchmark interest rate to a record 1 percent and is buying covered bonds and flooding banks with money.
Friday, August 21, 2009
Microsoft, Sony slug it out over living-room "hub"
SAN FRANCISCO (Reuters) - Microsoft Corp's (MSFT.O) Xbox 360 and Sony Corp's (6758.T) PlayStation 3 are locked in a battle to control entertainment in the living room beyond video games, a competition that is only growing more intense with the increasing popularity of digital distribution.
The two rivals have tens of millions of users, making them well-placed to capitalize if a critical mass of consumers begins to move toward a single "digital hub" that offers a buffet of media, including movies, TV shows, music and games.
The all-in-one hub has been touted for years as the future of home entertainment, but consumers have been slow to change, still opting to play their content on a variety of devices.
Although analysts caution that it is still early in the game, they say Microsoft --- which had a four-year head start -- is leading Sony, with steady revenue from paying subscribers and a strong slate of content deals, including partners such as Netflix (NFLX.O) and Facebook.
Although the companies do not provide sales data for their entertainment networks -- Xbox Live and the PlayStation Network (PSN) -- Jesse Divnich, an analyst with EEDAR, said sales have more than doubled year-to-date. He expects their combined revenue to top $1 billion in 2009, with Microsoft well ahead.
"We're seeing the video game systems try to take control of our living room by offering all the different services and entertainment needs we have, all in one box."
Xbox Live and PSN both offer movies, shows and videos, on top of game downloads. Neither offers music downloads, although users can play songs from their libraries.
Xbox Live Gold members pay $50 a year for additional goodies, including online multiplayer gaming and Netflix access. PSN offers online gaming for free.
But Microsoft has over the years amassed a dedicated group of gamers, said Wedbush Morgan analyst Michael Pachter, who estimates 11 million people pay for Xbox Live Gold.
"Microsoft made it simple -- do online games, then move that online game player into watching movies and the next thing you know he's going to be tuning in to Internet television. They've been very smart about it."
David Cole, founder of research firm DFC Intelligence, said the PlayStation 3's Blu-ray player broadens its appeal, but he said people are still mainly buying consoles for games.
"There are so many devices that you can use to watch video or listen to music ... now I've got to go buy a game system to do that, and a fairly expensive one?"
RACE TO BUILD A BROADER PLATFORM
Many set-top boxes, along with Apple Inc's (AAPL.O) Apple TV, offer movies and shows, but analysts say video games give consoles an advantage.
The Xbox 360 is the No. 2 home console in the United States, and sales are showing strength in a difficult economy. The PlayStation 3 is No. 3 and has struggled, but Sony just slashed its price to $299, which should help boost sales.
Nintendo's (7974.OS) Wii is the best-selling home console. Analysts say the Wii has a major opportunity to offer more content, given its huge customer base of families and more casual gamers.
But Nintendo has yet to position the Wii as a broader entertainment hub. "The focus is really about video games," said Cammie Dunaway, Nintendo of America's executive vice president of sales and marketing.
Microsoft and Sony are massive companies, with their game businesses constituting only one small part. But both emphasized their ability to leverage the strengths of the larger company to turn their console into the living room hub.
"I like our position in the race," said Shane Kim, vice president of strategy and business development for Microsoft's interactive entertainment business.
"This is the entire reason why Microsoft got into the Xbox business in the first place, why we made the strategic investment in Xbox Live ... to build a broader consumer entertainment platform."
He said recent deals with streaming-music service last.fm, pay-TV broadcasters Canal Plus and BSkyB show that the Xbox is becoming a one-stop media center.
Xbox Live launched in 2002 and has 20 million members with an installed base of more than 30 million consoles.
At the same time, Sony said its sheer breadth of expertise across technology and content gives it the edge in a battle that will be more of a marathon than a sprint.
"We're a software company, hardware company, music company, a movie studio," said Eric Lempel, director of PlayStation Network operations for Sony Computer Entertainment America.
Sony's PSN, launched in 2006, has more than 26 million members. There are 24 million PS3 consoles on the market, along with 53 million PlayStation Portables, which can also access the network.
Sony has said it plans to better utilize and expand the PSN platform. Lempel said the company has an array of devices -- from Vaio PCs to Sony-Ericsson phones -- that will be able to tap into the content on PSN, giving the company a broad reach.
The two rivals have tens of millions of users, making them well-placed to capitalize if a critical mass of consumers begins to move toward a single "digital hub" that offers a buffet of media, including movies, TV shows, music and games.
The all-in-one hub has been touted for years as the future of home entertainment, but consumers have been slow to change, still opting to play their content on a variety of devices.
Although analysts caution that it is still early in the game, they say Microsoft --- which had a four-year head start -- is leading Sony, with steady revenue from paying subscribers and a strong slate of content deals, including partners such as Netflix (NFLX.O) and Facebook.
Although the companies do not provide sales data for their entertainment networks -- Xbox Live and the PlayStation Network (PSN) -- Jesse Divnich, an analyst with EEDAR, said sales have more than doubled year-to-date. He expects their combined revenue to top $1 billion in 2009, with Microsoft well ahead.
"We're seeing the video game systems try to take control of our living room by offering all the different services and entertainment needs we have, all in one box."
Xbox Live and PSN both offer movies, shows and videos, on top of game downloads. Neither offers music downloads, although users can play songs from their libraries.
Xbox Live Gold members pay $50 a year for additional goodies, including online multiplayer gaming and Netflix access. PSN offers online gaming for free.
But Microsoft has over the years amassed a dedicated group of gamers, said Wedbush Morgan analyst Michael Pachter, who estimates 11 million people pay for Xbox Live Gold.
"Microsoft made it simple -- do online games, then move that online game player into watching movies and the next thing you know he's going to be tuning in to Internet television. They've been very smart about it."
David Cole, founder of research firm DFC Intelligence, said the PlayStation 3's Blu-ray player broadens its appeal, but he said people are still mainly buying consoles for games.
"There are so many devices that you can use to watch video or listen to music ... now I've got to go buy a game system to do that, and a fairly expensive one?"
RACE TO BUILD A BROADER PLATFORM
Many set-top boxes, along with Apple Inc's (AAPL.O) Apple TV, offer movies and shows, but analysts say video games give consoles an advantage.
The Xbox 360 is the No. 2 home console in the United States, and sales are showing strength in a difficult economy. The PlayStation 3 is No. 3 and has struggled, but Sony just slashed its price to $299, which should help boost sales.
Nintendo's (7974.OS) Wii is the best-selling home console. Analysts say the Wii has a major opportunity to offer more content, given its huge customer base of families and more casual gamers.
But Nintendo has yet to position the Wii as a broader entertainment hub. "The focus is really about video games," said Cammie Dunaway, Nintendo of America's executive vice president of sales and marketing.
Microsoft and Sony are massive companies, with their game businesses constituting only one small part. But both emphasized their ability to leverage the strengths of the larger company to turn their console into the living room hub.
"I like our position in the race," said Shane Kim, vice president of strategy and business development for Microsoft's interactive entertainment business.
"This is the entire reason why Microsoft got into the Xbox business in the first place, why we made the strategic investment in Xbox Live ... to build a broader consumer entertainment platform."
He said recent deals with streaming-music service last.fm, pay-TV broadcasters Canal Plus and BSkyB show that the Xbox is becoming a one-stop media center.
Xbox Live launched in 2002 and has 20 million members with an installed base of more than 30 million consoles.
At the same time, Sony said its sheer breadth of expertise across technology and content gives it the edge in a battle that will be more of a marathon than a sprint.
"We're a software company, hardware company, music company, a movie studio," said Eric Lempel, director of PlayStation Network operations for Sony Computer Entertainment America.
Sony's PSN, launched in 2006, has more than 26 million members. There are 24 million PS3 consoles on the market, along with 53 million PlayStation Portables, which can also access the network.
Sony has said it plans to better utilize and expand the PSN platform. Lempel said the company has an array of devices -- from Vaio PCs to Sony-Ericsson phones -- that will be able to tap into the content on PSN, giving the company a broad reach.
Pension Plans’ Private-Equity Cash Depleted as Profits Shrink
Aug. 20 (Bloomberg) -- U.S. pension funds contributed to the record $1.2 trillion that private-equity firms raised this decade. Three of the biggest investors, state pensions in California, Oregon and Washington, plunked down at least $53.8 billion. So far, they only have dwindling paper profits and a lot less cash to show the millions of policemen, teachers and other civil servants in their retirement plans.
The California Public Employees’ Retirement System, the Washington State Investment Board and the Oregon Public Employees’ Retirement Fund -- among the few pension managers to disclose details of their investments -- had recouped just $22.1 billion in cash by the end of 2008 from buyout funds started since 2000, according to data compiled by Bloomberg. That amounts to a shortfall of 59 percent. In total, they haven’t reaped a paper gain from funds formed in the past seven years.
The wisdom of those investment decisions hangs on the remaining value private-equity firms assign to companies they snapped up in 2006 and 2007, during the peak of the buyout boom. For the California, Oregon and Washington plans, that figure totaled $15.8 billion at the beginning of the year.
While some investors say they’re confident the private- equity industry’s traditional practice of taking over companies will pay off, others have been shaken by a credit contraction that froze deal-making, eroded the value of the assets on private-equity firms’ books and prevented them from cashing out in public share sales.
‘Can’t Eat IRRs’
Now pension managers on both ends of the spectrum are looking skeptically at the so-called internal rate of return buyout firms calculate to gauge their results.
“I work for over 400,000 employees, and they can’t eat IRRs,” said Gary Bruebaker, the chief investment officer of the Washington State Investment Board. “At the end of the day, I care about how much do I give you, and how much money do I get back.”
Private-equity firms pool money from so-called limited partners -- pension funds, endowments, wealthy families and sovereign wealth funds -- and use that cash, along with money borrowed from banks, for corporate takeovers. The buyout managers aim to boost profits through cost cuts, acquisitions or added lines of business, then reap a return for themselves and their investors in a public stock offering or a sale to another buyer.
The buyout firms also levy fees, typically 2 percent of the assets they oversee annually and 20 percent of profits from successful investments. That’s helped make the titans of the industry into billionaires.
Avago IPO
Stephen Schwarzman, the 62-year-old co-founder and chairman of Blackstone Group LP, the biggest private-equity firm, ranked 261st on the 2009 Forbes list of the world’s richest people, with an estimated net worth of $2.5 billion. KKR & Co. LP co- founder Henry Kravis, 65, topped that with $3 billion, while Carlyle Group co-founder David Rubenstein, 60, weighed in at $1.4 billion.
Buyout managers, and some pension funds, downplay their cash returns so far this decade and counsel patience, saying that investments often look worse in the years immediately after they’re made. Blackstone’s Schwarzman told backers on an Aug. 6 conference call he expected his New York-based firm to take some of its companies public in 2010. KKR, also in New York, sold shares in Avago Technologies Ltd. through an IPO earlier this month, raising $648 million.
Harvard’s Sales
Pension funds also say that over time, private-equity returns compare favorably to the Standard & Poor’s 500 Index, which declined 28 percent from the beginning of 2000 through the end of last year. Bruebaker says his Washington fund had an 8.2 percent average annual gain from its buyout investments in the past 10 years, compared with a 3.9 percent drop in the S&P.
While investors can sell publicly traded stocks as needed, buyout funds keep money tied up for years, said Steven Kaplan, a professor at the University of Chicago’s Booth School of Business.
“With private equity, you’re taking on a liquidity risk, which people did miscalculate,” said Kaplan, who has studied takeover returns.
University endowments and philanthropic foundations hurt by the worst economic crisis since the Great Depression have struggled to sell their stakes in private-equity funds to raise cash. Investors including Harvard University, in Cambridge, Massachusetts, planned to raise more than $100 billion through so-called secondary sales of limited partnership interests, some at discounts of at least 50 percent, people familiar with the effort said last year.
‘Money in the Ground’
Rubenstein, of Washington-based Carlyle, acknowledges that the buyout industry faces tough questions.
“People have a lot of money in the ground and today it’s probably not worth what they had intended, but a turn-around in valuations is now beginning,” Rubenstein said in an interview. “You’ll probably see general partners and limited partners focused more on multiples of equity rather than just IRRs.”
Representatives of Washington, Calpers and Oregon all said they remain committed to private equity, and pointed to the long-term nature of the investments.
“The market is in a trough,” Oregon spokesman James Sinks said. “The picture would’ve looked different at the end of 2007.” Calpers spokesman Clark McKinley noted that Calpers in June raised its target commitment to private equity to 14 percent of assets from 10 percent.
“That’s an affirmation of our confidence in the asset class,” he said.
Schwarzman and Kravis declined to comment for this article.
‘A Snapshot’
“We are hopefully toward the end of the absolute worst recession of our lifetimes,” said Washington’s Bruebaker. “If you take a snapshot right now, things might not look good. These are 10- to 12-year investments and we believe they’ll be much better than what we see today.”
Bruebaker’s fund and the Oregon Public Employees’ Retirement Fund warmed to buyouts during the 1980s, and Calpers joined in 1990. Today, among U.S. pension plans, Calpers is the largest investor in private-equity funds, while Washington and Oregon are the third- and fourth-biggest, respectively, according to San Francisco-based consulting firm Probitas Partners Inc.
The three state funds, which serve more than 2 million people, collectively more than doubled their buyout commitments in 2005, to $8 billion from $3.1 billion. They ramped up even more the next year, when commitments climbed to $18.7 billion, the data show.
Chrysler, TXU
All told, private-equity firms raked in $1.2 trillion from 2000 through 2008, according to London-based researcher Preqin Ltd. The influx of money, coupled with cheap debt-funding from Wall Street banks eager to collect fees, fueled record-setting takeovers. Nine of the 10 biggest deals were announced from 2005 to mid-2007 as buyout firms acquired the likes of hotel operator Hilton Hotels Corp. and power producer TXU Corp.
The buyouts ground to a halt after the subprime-mortgage market collapsed in late-2007, extinguishing investor demand for high-yield, high-risk debt. The dollar value of deals has dwindled to $42.2 billion so far this year from $212.2 billion in 2008, according to data compiled by Bloomberg.
Private-equity firms unable to cash out of investments have spent much of the credit crisis reworking the capital structures of their debt-laden companies. Chrysler LLC, the carmaker that Cerberus Capital Management LP bought in 2007 for $7.4 billion, and doormaker Masonite International Corp., which KKR purchased in 2005 for C$3 billion ($2.4 billion), filed for bankruptcy this year.
Marked-to-Market
At the same time, changes in accounting rules have cast a spotlight on the current value of private-equity investments.
The Financial Accounting Standards Board’s so-called Statement No. 157, which went into effect at the end of 2007, requires investors, including private-equity managers, to gauge the fair value of holdings that aren’t traded. While most buyout firms typically carried their investments at cost, FAS 157 mandates quarterly assessments of current value.
Such marking-to-market means private-equity funds must tell investors how much their stakes are worth at that moment, even if the managers are planning to hang onto them for years.
“Getting carried away by looking at mark-to-market in my personal view can lead you to an incorrect conclusion for the longer term,” Blackstone’s Schwarzman said on the Aug. 6 conference call.
Blackstone spokesman Peter Rose says it’s premature to judge recent investments, such as those made by the $21.7 billion fund the firm set up in 2007.
‘Profound Losses’
Schwarzman, who created Blackstone in 1985 with Peter G. Peterson, has said their unspent capital -- about $29 billion -- will enable them to buy companies at depressed prices and generate profits as the global economy recovers.
Others see signs that the private-equity business is undergoing a transformation. Carlyle’s Rubenstein predicted that deals in the current environment will be smaller and less reliant on debt. Individual funds already being marketed to investors won’t top $10 billion, and subsequent efforts won’t exceed $5 billion to $6 billion, he said.
“These are major structural changes taking place,” said Dayton Carr, founder of VCFA Group, a New York-based firm that buys interests in private-equity and venture-capital funds. “The basic economy has had huge issues. A lot of the funds will be smaller.”
The upheaval is reflected in the attitudes of pension-fund investors, who are watching and waiting for cash to come in the door.
“When managers are forced to put a hard value on their holdings, we’re seeing some profound losses,” said William Atwood, the executive director of the Illinois State Board of Investment, an $9 billion pension fund. “The rubber hits the road when cash is returned.”
The California Public Employees’ Retirement System, the Washington State Investment Board and the Oregon Public Employees’ Retirement Fund -- among the few pension managers to disclose details of their investments -- had recouped just $22.1 billion in cash by the end of 2008 from buyout funds started since 2000, according to data compiled by Bloomberg. That amounts to a shortfall of 59 percent. In total, they haven’t reaped a paper gain from funds formed in the past seven years.
The wisdom of those investment decisions hangs on the remaining value private-equity firms assign to companies they snapped up in 2006 and 2007, during the peak of the buyout boom. For the California, Oregon and Washington plans, that figure totaled $15.8 billion at the beginning of the year.
While some investors say they’re confident the private- equity industry’s traditional practice of taking over companies will pay off, others have been shaken by a credit contraction that froze deal-making, eroded the value of the assets on private-equity firms’ books and prevented them from cashing out in public share sales.
‘Can’t Eat IRRs’
Now pension managers on both ends of the spectrum are looking skeptically at the so-called internal rate of return buyout firms calculate to gauge their results.
“I work for over 400,000 employees, and they can’t eat IRRs,” said Gary Bruebaker, the chief investment officer of the Washington State Investment Board. “At the end of the day, I care about how much do I give you, and how much money do I get back.”
Private-equity firms pool money from so-called limited partners -- pension funds, endowments, wealthy families and sovereign wealth funds -- and use that cash, along with money borrowed from banks, for corporate takeovers. The buyout managers aim to boost profits through cost cuts, acquisitions or added lines of business, then reap a return for themselves and their investors in a public stock offering or a sale to another buyer.
The buyout firms also levy fees, typically 2 percent of the assets they oversee annually and 20 percent of profits from successful investments. That’s helped make the titans of the industry into billionaires.
Avago IPO
Stephen Schwarzman, the 62-year-old co-founder and chairman of Blackstone Group LP, the biggest private-equity firm, ranked 261st on the 2009 Forbes list of the world’s richest people, with an estimated net worth of $2.5 billion. KKR & Co. LP co- founder Henry Kravis, 65, topped that with $3 billion, while Carlyle Group co-founder David Rubenstein, 60, weighed in at $1.4 billion.
Buyout managers, and some pension funds, downplay their cash returns so far this decade and counsel patience, saying that investments often look worse in the years immediately after they’re made. Blackstone’s Schwarzman told backers on an Aug. 6 conference call he expected his New York-based firm to take some of its companies public in 2010. KKR, also in New York, sold shares in Avago Technologies Ltd. through an IPO earlier this month, raising $648 million.
Harvard’s Sales
Pension funds also say that over time, private-equity returns compare favorably to the Standard & Poor’s 500 Index, which declined 28 percent from the beginning of 2000 through the end of last year. Bruebaker says his Washington fund had an 8.2 percent average annual gain from its buyout investments in the past 10 years, compared with a 3.9 percent drop in the S&P.
While investors can sell publicly traded stocks as needed, buyout funds keep money tied up for years, said Steven Kaplan, a professor at the University of Chicago’s Booth School of Business.
“With private equity, you’re taking on a liquidity risk, which people did miscalculate,” said Kaplan, who has studied takeover returns.
University endowments and philanthropic foundations hurt by the worst economic crisis since the Great Depression have struggled to sell their stakes in private-equity funds to raise cash. Investors including Harvard University, in Cambridge, Massachusetts, planned to raise more than $100 billion through so-called secondary sales of limited partnership interests, some at discounts of at least 50 percent, people familiar with the effort said last year.
‘Money in the Ground’
Rubenstein, of Washington-based Carlyle, acknowledges that the buyout industry faces tough questions.
“People have a lot of money in the ground and today it’s probably not worth what they had intended, but a turn-around in valuations is now beginning,” Rubenstein said in an interview. “You’ll probably see general partners and limited partners focused more on multiples of equity rather than just IRRs.”
Representatives of Washington, Calpers and Oregon all said they remain committed to private equity, and pointed to the long-term nature of the investments.
“The market is in a trough,” Oregon spokesman James Sinks said. “The picture would’ve looked different at the end of 2007.” Calpers spokesman Clark McKinley noted that Calpers in June raised its target commitment to private equity to 14 percent of assets from 10 percent.
“That’s an affirmation of our confidence in the asset class,” he said.
Schwarzman and Kravis declined to comment for this article.
‘A Snapshot’
“We are hopefully toward the end of the absolute worst recession of our lifetimes,” said Washington’s Bruebaker. “If you take a snapshot right now, things might not look good. These are 10- to 12-year investments and we believe they’ll be much better than what we see today.”
Bruebaker’s fund and the Oregon Public Employees’ Retirement Fund warmed to buyouts during the 1980s, and Calpers joined in 1990. Today, among U.S. pension plans, Calpers is the largest investor in private-equity funds, while Washington and Oregon are the third- and fourth-biggest, respectively, according to San Francisco-based consulting firm Probitas Partners Inc.
The three state funds, which serve more than 2 million people, collectively more than doubled their buyout commitments in 2005, to $8 billion from $3.1 billion. They ramped up even more the next year, when commitments climbed to $18.7 billion, the data show.
Chrysler, TXU
All told, private-equity firms raked in $1.2 trillion from 2000 through 2008, according to London-based researcher Preqin Ltd. The influx of money, coupled with cheap debt-funding from Wall Street banks eager to collect fees, fueled record-setting takeovers. Nine of the 10 biggest deals were announced from 2005 to mid-2007 as buyout firms acquired the likes of hotel operator Hilton Hotels Corp. and power producer TXU Corp.
The buyouts ground to a halt after the subprime-mortgage market collapsed in late-2007, extinguishing investor demand for high-yield, high-risk debt. The dollar value of deals has dwindled to $42.2 billion so far this year from $212.2 billion in 2008, according to data compiled by Bloomberg.
Private-equity firms unable to cash out of investments have spent much of the credit crisis reworking the capital structures of their debt-laden companies. Chrysler LLC, the carmaker that Cerberus Capital Management LP bought in 2007 for $7.4 billion, and doormaker Masonite International Corp., which KKR purchased in 2005 for C$3 billion ($2.4 billion), filed for bankruptcy this year.
Marked-to-Market
At the same time, changes in accounting rules have cast a spotlight on the current value of private-equity investments.
The Financial Accounting Standards Board’s so-called Statement No. 157, which went into effect at the end of 2007, requires investors, including private-equity managers, to gauge the fair value of holdings that aren’t traded. While most buyout firms typically carried their investments at cost, FAS 157 mandates quarterly assessments of current value.
Such marking-to-market means private-equity funds must tell investors how much their stakes are worth at that moment, even if the managers are planning to hang onto them for years.
“Getting carried away by looking at mark-to-market in my personal view can lead you to an incorrect conclusion for the longer term,” Blackstone’s Schwarzman said on the Aug. 6 conference call.
Blackstone spokesman Peter Rose says it’s premature to judge recent investments, such as those made by the $21.7 billion fund the firm set up in 2007.
‘Profound Losses’
Schwarzman, who created Blackstone in 1985 with Peter G. Peterson, has said their unspent capital -- about $29 billion -- will enable them to buy companies at depressed prices and generate profits as the global economy recovers.
Others see signs that the private-equity business is undergoing a transformation. Carlyle’s Rubenstein predicted that deals in the current environment will be smaller and less reliant on debt. Individual funds already being marketed to investors won’t top $10 billion, and subsequent efforts won’t exceed $5 billion to $6 billion, he said.
“These are major structural changes taking place,” said Dayton Carr, founder of VCFA Group, a New York-based firm that buys interests in private-equity and venture-capital funds. “The basic economy has had huge issues. A lot of the funds will be smaller.”
The upheaval is reflected in the attitudes of pension-fund investors, who are watching and waiting for cash to come in the door.
“When managers are forced to put a hard value on their holdings, we’re seeing some profound losses,” said William Atwood, the executive director of the Illinois State Board of Investment, an $9 billion pension fund. “The rubber hits the road when cash is returned.”
Thursday, August 20, 2009
Indian Prices Fall as Subbarao Looks Beyond Inflation
Aug. 20 (Bloomberg) -- India’s benchmark wholesale price index extended its longest decline in three decades as central bank Governor Duvvuri Subbarao says an inflation-targeting policy isn’t enough to maintain financial and economic stability.
Wholesale prices fell 1.53 percent in the week to Aug. 8 from a year earlier, the commerce ministry said in New Delhi today. That was more than the median forecast of a 1.49 percent decline in a Bloomberg News survey of 18 economists.
Subbarao is concerned that inflation may gather speed, as evidenced by upward revisions the commerce ministry has been making to the wholesale price index in recent months. The governor told a forum in the southern Indian city of Hyderabad last week that the global financial crisis has shown an exclusive focus by central banks on inflation targeting “doesn’t work.”
“The central bank can’t detach itself from its stated objective of maintaining price stability and at the same time will have to address concerns over growth and orderly financial markets,” said D. H. Pai Panandiker, president of the RPG Foundation, an economic policy group in New Delhi.
Subbarao slashed the Reserve Bank of India’s key interest rates six times between October 2008 and April 2009 to an unprecedented low. On July 28, he left the reverse repurchase rate unchanged at 3.25 percent and kept the repurchase rate at 4.75 percent and said the central bank may have to “reverse” its expansionary measures to subdue inflation.
Weak Monsoon
Bonds were little changed. The yield on the 7.02 percent note due August 2016 was unchanged at 7.10 percent as of 12:04 p.m. in Mumbai, according to the central bank’s trading system.
Gains in wholesale prices may exceed the central bank’s forecast of 5 percent by March next year as a weak monsoon threatens to reduce harvests and push up food prices. Inflation has slowed from a 16-year high of 12.91 percent in August 2008.
The India Meteorological Department on Aug. 10 lowered its monsoon forecast for a second time this season, saying showers between June and September will be 13 percent below average, compared with a 7 percent shortfall estimated in June.
Food costs, as reflected in the consumer-price indexes, are already high. India has four consumer-price gauges and uses the wholesale-price index as the benchmark because the other inflation measures don’t capture the aggregate price picture.
‘Complicates’ Policy
Consumer prices paid by farm workers jumped 11.52 percent in June from a year earlier after gaining 10.21 percent in May. Prices paid by rural workers rose 11.26 percent in June and those paid by industrial workers climbed 9.26 percent.
Subbarao says the discrepancies between these inflation measures “complicates” monetary policy. The governor claims borrowing by Prime Minister Manmohan Singh’s government to fund the widest budget deficit in 16 years also “impedes” the transmission of central bank policy.
Finance Minister Pranab Mukherjee on July 6 unveiled plans to borrow a record 4.51 trillion rupees ($93.3 billion) to fund a budget gap estimated at 6.8 percent of gross domestic product.
The central bank is worried that high government borrowings are “literally negating the interest-rate cuts of the past months,” said the RPG Foundation’s Panandiker.
In its most recent monetary policy statement released July 28, the central bank said its medium-term objective is an inflation rate of 3 percent.
Asset-Price Bubbles
Subbarao last week said inflation targeting can’t do much to provide protection against asset-price bubbles and doesn’t necessarily deliver financial or macroeconomic stability.
“The challenge thrown up by the crisis is what should be the mandate of the central bank,” he said. “If an exclusive focus on targeting of inflation has failed, how do we rejig that mandate?”
The Reserve Bank has done a “fairly decent job” in recent years to tailor its strategy according to an evolving economic environment, said Dharmakirti Joshi, an economist at Mumbai- based Crisil Ltd., the local unit of Standard & Poor’s.
“Though the central bank will have to remain focused on inflation, strict mechanical targeting is not feasible in a country like India,” Joshi said. “One reason for that is that the RBI is juggling a lot responsibilities, including managing government debt and ensuring financial markets stability.”
Wholesale prices fell 1.53 percent in the week to Aug. 8 from a year earlier, the commerce ministry said in New Delhi today. That was more than the median forecast of a 1.49 percent decline in a Bloomberg News survey of 18 economists.
Subbarao is concerned that inflation may gather speed, as evidenced by upward revisions the commerce ministry has been making to the wholesale price index in recent months. The governor told a forum in the southern Indian city of Hyderabad last week that the global financial crisis has shown an exclusive focus by central banks on inflation targeting “doesn’t work.”
“The central bank can’t detach itself from its stated objective of maintaining price stability and at the same time will have to address concerns over growth and orderly financial markets,” said D. H. Pai Panandiker, president of the RPG Foundation, an economic policy group in New Delhi.
Subbarao slashed the Reserve Bank of India’s key interest rates six times between October 2008 and April 2009 to an unprecedented low. On July 28, he left the reverse repurchase rate unchanged at 3.25 percent and kept the repurchase rate at 4.75 percent and said the central bank may have to “reverse” its expansionary measures to subdue inflation.
Weak Monsoon
Bonds were little changed. The yield on the 7.02 percent note due August 2016 was unchanged at 7.10 percent as of 12:04 p.m. in Mumbai, according to the central bank’s trading system.
Gains in wholesale prices may exceed the central bank’s forecast of 5 percent by March next year as a weak monsoon threatens to reduce harvests and push up food prices. Inflation has slowed from a 16-year high of 12.91 percent in August 2008.
The India Meteorological Department on Aug. 10 lowered its monsoon forecast for a second time this season, saying showers between June and September will be 13 percent below average, compared with a 7 percent shortfall estimated in June.
Food costs, as reflected in the consumer-price indexes, are already high. India has four consumer-price gauges and uses the wholesale-price index as the benchmark because the other inflation measures don’t capture the aggregate price picture.
‘Complicates’ Policy
Consumer prices paid by farm workers jumped 11.52 percent in June from a year earlier after gaining 10.21 percent in May. Prices paid by rural workers rose 11.26 percent in June and those paid by industrial workers climbed 9.26 percent.
Subbarao says the discrepancies between these inflation measures “complicates” monetary policy. The governor claims borrowing by Prime Minister Manmohan Singh’s government to fund the widest budget deficit in 16 years also “impedes” the transmission of central bank policy.
Finance Minister Pranab Mukherjee on July 6 unveiled plans to borrow a record 4.51 trillion rupees ($93.3 billion) to fund a budget gap estimated at 6.8 percent of gross domestic product.
The central bank is worried that high government borrowings are “literally negating the interest-rate cuts of the past months,” said the RPG Foundation’s Panandiker.
In its most recent monetary policy statement released July 28, the central bank said its medium-term objective is an inflation rate of 3 percent.
Asset-Price Bubbles
Subbarao last week said inflation targeting can’t do much to provide protection against asset-price bubbles and doesn’t necessarily deliver financial or macroeconomic stability.
“The challenge thrown up by the crisis is what should be the mandate of the central bank,” he said. “If an exclusive focus on targeting of inflation has failed, how do we rejig that mandate?”
The Reserve Bank has done a “fairly decent job” in recent years to tailor its strategy according to an evolving economic environment, said Dharmakirti Joshi, an economist at Mumbai- based Crisil Ltd., the local unit of Standard & Poor’s.
“Though the central bank will have to remain focused on inflation, strict mechanical targeting is not feasible in a country like India,” Joshi said. “One reason for that is that the RBI is juggling a lot responsibilities, including managing government debt and ensuring financial markets stability.”
Dangerous Hurricane Bill could threaten east Canada
MIAMI (Reuters) - Powerful Hurricane Bill, a dangerous Category 4 storm with 135 mph winds, raged across the open Atlantic on Wednesday, days from land but on a path that could menace Canada's eastern provinces next week.
Sweeping past the Caribbean islands and posing no threat to U.S. oil and gas installations in the Gulf of Mexico, the first hurricane of the 2009 Atlantic season was expected to charge between the U.S. East Coast and Bermuda, well offshore.
Residents of Bermuda, a mid-Atlantic British territory and reinsurance capital, were warned to prepare for the storm. The latest forecast track issued by the U.S. National Hurricane Center would take Bill more than 100 miles to the west.
But Bill's massive size -- tropical storm force winds of 39 to 73 mph extend up to 230 miles from its center -- meant Bermuda would get a good dose of heavy weather, forecasters said.
"All (computer) models keep the storm between the United States and Bermuda. Exactly how close it comes to either of those is up for debate," said National Hurricane Center forecaster Eric Blake. "The average error (in the forecast track) is 200 miles at about 3 days."
"Bermuda is expected to see large swells and areas of heavy rain and high winds. Hopefully the core of the hurricane will stay offshore," he said.
The Bermuda Sun newspaper reported that U.S. Secretary of State Hillary Clinton and her husband, former President Bill Clinton, planned to fly to Bermuda on Wednesday for a private vacation of three to four days at a beach resort. The State Department declined to officially confirm where Clinton was.
HEAVY SURF EXPECTED ON U.S. EAST COAST
Forecasters said Bill might get stronger. Its top winds were expected to peak at about 145 mph on Thursday.
Hurricanes of Category 3 or higher on the five-step Saffir-Simpson intensity scale are considered "major" storms and are the most destructive type.
The well-defined eye of Bill was located about 970 miles south-southeast of Bermuda at 5 p.m. EDT (2100 GMT) on Wednesday and the system was moving toward the northwest at 20 mph, the hurricane center said.
Its curving forecast track would take it to a position hundreds of miles (km) east of Miami by early Friday, and well off New York by Sunday.
"How close it gets to the New England coast, there's still the usual uncertainty in that long time period," former NHC director Max Mayfield said. "But the core of the hurricane, most of the models indicate it's going to remain off the coast."
Forecasters said dangerous swells and life-threatening rip currents could affect the northern Caribbean islands, the Bahamas, Bermuda and the U.S. East Coast in the next few days.
The latest forecast track from the hurricane center would take Bill slightly closer to the U.S. East. It shows the storm just south of Nova Scotia by Sunday afternoon as a Category 2 hurricane and moving directly over Newfoundland after that. But five days in advance, the forecast has an average error of several hundred miles.
Asian Stocks Advance on Crude Oil, QBE Earnings; CSL Declines
Aug. 20 (Bloomberg) -- Asian stocks gained, led by energy and finance companies, as oil prices rallied and QBE Insurance Group Ltd. reported higher first-half profit.
Woodside Petroleum Ltd., Australia’s No. 2 oil producer, climbed 4.3 percent in Sydney. QBE, Australia’s largest property and casualty insurer, advanced 7 percent. Isuzu Motors Ltd., Japan’s third-biggest maker of commercial vehicles, rallied 5.4 percent as brokerages recommended buying Japanese automakers. CSL Ltd., the world’s second-largest maker of blood plasma products, slumped 3.4 percent after Citigroup Inc. cut its recommendation on the stock.
“The consensus remains among investors that the global economy is on course for a recovery, but we have to see further improvement in the economy and company earnings for markets to go up higher,” said Kiyoshi Ishigane, a strategist at Mitsubishi UFJ Asset Management Co., which oversees about $53 billion.
The MSCI Asia Pacific Index added 0.6 percent to 110.99 as of 11:14 a.m. in Tokyo. The gauge has rallied 57 percent from a more than five-year low on March 9 amid speculation the global economy is recovering.
Japan’s Nikkei 225 Stock Average advanced 0.7 percent to 10,279.19. Australia’s S&P/ASX 200 Index gained 0.4 percent, while South Korea’s Kospi Index added 0.7 percent.
Futures on the Standard & Poor’s 500 Index rose 0.1 percent. The U.S. gauge advanced 0.7 percent yesterday as energy stocks gained, while Merck & Co. led drugmakers higher after a judge upheld a patent.
Rising Valuations
The MSCI Asia Pacific Index rally since March has lifted the average valuation of shares in the gauge to 24 times estimated earnings, compared with 17 times for the S&P 500 and 14 times for the Dow Jones Stoxx 600 Index in Europe.
Woodside Petroleum advanced 5.6 percent to A$46.75 in Sydney. Inpex Corp., Japan’s largest oil explorer, gained 2.3 percent to 717,000 yen in Tokyo.
Crude oil for September delivery rallied 4.7 percent to $72.42 a barrel in New York. U.S. oil stockpiles dropped 8.4 million barrels last week, the most since the week ended May 23, 2008, a report from the Energy Department showed.
QBE Insurance surged 7 percent to A$22.20 in Sydney. The company said first-half profit climbed 19 percent on premium growth and foreign exchange gains.
Isuzu rallied 5.4 percent to 197 yen after Nikko Citigroup raised its recommendation to “hold” from “sell.” Hino Motors Ltd. advanced 2.7 percent to 382 yen after upgrades at Nikko Citigroup and Daiwa Securities.
CSL slumped 3.3 percent to A$32.02. The stock was cut to “hold” from “buy” at Citigroup.
Woodside Petroleum Ltd., Australia’s No. 2 oil producer, climbed 4.3 percent in Sydney. QBE, Australia’s largest property and casualty insurer, advanced 7 percent. Isuzu Motors Ltd., Japan’s third-biggest maker of commercial vehicles, rallied 5.4 percent as brokerages recommended buying Japanese automakers. CSL Ltd., the world’s second-largest maker of blood plasma products, slumped 3.4 percent after Citigroup Inc. cut its recommendation on the stock.
“The consensus remains among investors that the global economy is on course for a recovery, but we have to see further improvement in the economy and company earnings for markets to go up higher,” said Kiyoshi Ishigane, a strategist at Mitsubishi UFJ Asset Management Co., which oversees about $53 billion.
The MSCI Asia Pacific Index added 0.6 percent to 110.99 as of 11:14 a.m. in Tokyo. The gauge has rallied 57 percent from a more than five-year low on March 9 amid speculation the global economy is recovering.
Japan’s Nikkei 225 Stock Average advanced 0.7 percent to 10,279.19. Australia’s S&P/ASX 200 Index gained 0.4 percent, while South Korea’s Kospi Index added 0.7 percent.
Futures on the Standard & Poor’s 500 Index rose 0.1 percent. The U.S. gauge advanced 0.7 percent yesterday as energy stocks gained, while Merck & Co. led drugmakers higher after a judge upheld a patent.
Rising Valuations
The MSCI Asia Pacific Index rally since March has lifted the average valuation of shares in the gauge to 24 times estimated earnings, compared with 17 times for the S&P 500 and 14 times for the Dow Jones Stoxx 600 Index in Europe.
Woodside Petroleum advanced 5.6 percent to A$46.75 in Sydney. Inpex Corp., Japan’s largest oil explorer, gained 2.3 percent to 717,000 yen in Tokyo.
Crude oil for September delivery rallied 4.7 percent to $72.42 a barrel in New York. U.S. oil stockpiles dropped 8.4 million barrels last week, the most since the week ended May 23, 2008, a report from the Energy Department showed.
QBE Insurance surged 7 percent to A$22.20 in Sydney. The company said first-half profit climbed 19 percent on premium growth and foreign exchange gains.
Isuzu rallied 5.4 percent to 197 yen after Nikko Citigroup raised its recommendation to “hold” from “sell.” Hino Motors Ltd. advanced 2.7 percent to 382 yen after upgrades at Nikko Citigroup and Daiwa Securities.
CSL slumped 3.3 percent to A$32.02. The stock was cut to “hold” from “buy” at Citigroup.
Wednesday, August 19, 2009
Indian Stocks Fall on Monsoon, China Concerns; Mahindra Drops
Aug. 19 (Bloomberg) -- India’s benchmark stock index fell after the nation’s agriculture minister said farm output may decline because of low monsoon rains. Metal producers declined after their Chinese counterparts plunged.
Mahindra & Mahindra Ltd., India’s largest tractor maker, sank 3.7 percent after Farm Minister Sharad Pawar today said monsoon-sown rice production may decline by 10 million metric tons this year as a result of drought in a third of the country’s 626 districts. Tata Steel Ltd., the biggest producer of the alloy, slid 4 percent.
“There is uncertainty in the minds of investors how the government will overcome the drought situation,” said A.N. Sridhar, a fund manager at Sahara Asset Management Co. in Mumbai. “The rally in commodities seems to have come off as there is uncertainty over demand in China.”
The Bombay Stock Exchange’s Sensitive Index, or Sensex, fell 225.62, or 1.5 percent, to 14,809.64. The measure has lost 5.5 percent this month on concern monsoon rainfall will be deficient. The S&P CNX Nifty Index on the National Stock Exchange lost 1.5 percent to 4,394.1. The BSE 200 Index declined 1.6 percent to 1,815.11.
Mahindra lost 3.7 percent to 740.15 rupees. Jaiprakash Associates Ltd., the nation’s biggest maker of dams, slid 2.7 percent to 206.7 rupees.
Hero Honda Motors Ltd., the nation’s biggest motorcycle maker, lost 2.3 percent to 1,359.2 rupees on concern that the weak monsoon will slash spending in agricultural regions. Forty percent of Hero Honda’s sales come from rural demand.
Farm Output
ACC Ltd., India’s biggest cement maker, lost 5.2 percent to 756.3 rupees. Reliance Communications Ltd., India’s second- largest mobile-phone services operator, lost 4.6 percent to 240.2 rupees.
The monsoon season, which brings about three-quarters of India’s annual rainfall, may be the driest in seven years, the weather bureau said last week, hurting farm output in the world’s second-biggest producer of rice, sugar and wheat.
Rain in the June-September season will be 87 percent of the 50-year average, compared with 93 percent forecast in June, the India Meteorological Department said last week.
Production of oilseeds and sugar cane may also drop, Pawar said, without providing a forecast. Monsoon-sown oilseeds were planted in 15.2 million hectares compared with 16.4 million hectares a year earlier, the farm ministry said.
The government will extend a 15 rupees-a-liter subsidy on imported edible oils until March 2010, Pawar said.
China Stocks
Tata Steel lost 4 percent to 433.75 rupees. Hindalco Industries Ltd., the biggest aluminum producer, slid 3.6 percent to 102.7 rupees. Sterlite Industries (India) Ltd., the nation’s biggest copper producer, declined 1.4 percent to 610.2 rupees.
China’s stocks tumbled, briefly driving the benchmark index into a so-called bear market, on concern economic growth will falter as banks rein in lending.
The Shanghai Composite Index lost 4.3 percent to 2,785.58. The gauge has slumped 19.8 percent since Aug. 4, after more than doubling from November as China rolled out a 4 trillion yuan ($585 billion) stimulus package.
A measure of Chinese metals and materials producers dropped 6.6 percent, the worst performer among 10 industry groups on the CSI 300 Index that covers the Shanghai and Shenzhen markets.
Overseas funds sold a net 9.74 billion rupees ($200.1 million) of Indian stocks on Aug. 17, the Securities & Exchange Board of India said on its Web site. The funds have bought 366.3 billion rupees of Indian stocks this year, compared with record net sales of 530 billion rupees for the whole of 2008.
The following stocks were among the most active on the exchange:
Glenmark Pharmaceuticals Ltd. (GNP IN) plunged 15 percent to 223.25 rupees. The Indian pharmaceutical company fell the most in six months after saying its drug for lung disease wasn’t effective in a patient study.
Maruti Suzuki India Ltd. (MSIL IN) climbed 0.1 percent to 1,301.85 rupees. The maker of half the cars sold in India was raised to “buy” from “hold” at Citigroup Inc., which said the company is best positioned to benefit from a recovery in urban consumption.
Reliance Industries Ltd. (RIL IN) lost 2.9 percent to 1,885.85 rupees. India’s most valuable company is looking to sell a stake of as much in 15 percent in the Rewas port project, Mint reported, citing two people briefed on the matter. Reliance needs to sell the stake both to fund the project and to bring in specialists because it does not have expertise in handling cargo such as containers, according to the report.
Unitech Ltd. (UT IN) fell 3.2 percent to 82.5 rupees. The nation’s second-biggest real estate developer said its telecom unit, Unitech Wireless Ltd., has got a 50 billion rupee-loan from State Bank of India.
Mahindra & Mahindra Ltd., India’s largest tractor maker, sank 3.7 percent after Farm Minister Sharad Pawar today said monsoon-sown rice production may decline by 10 million metric tons this year as a result of drought in a third of the country’s 626 districts. Tata Steel Ltd., the biggest producer of the alloy, slid 4 percent.
“There is uncertainty in the minds of investors how the government will overcome the drought situation,” said A.N. Sridhar, a fund manager at Sahara Asset Management Co. in Mumbai. “The rally in commodities seems to have come off as there is uncertainty over demand in China.”
The Bombay Stock Exchange’s Sensitive Index, or Sensex, fell 225.62, or 1.5 percent, to 14,809.64. The measure has lost 5.5 percent this month on concern monsoon rainfall will be deficient. The S&P CNX Nifty Index on the National Stock Exchange lost 1.5 percent to 4,394.1. The BSE 200 Index declined 1.6 percent to 1,815.11.
Mahindra lost 3.7 percent to 740.15 rupees. Jaiprakash Associates Ltd., the nation’s biggest maker of dams, slid 2.7 percent to 206.7 rupees.
Hero Honda Motors Ltd., the nation’s biggest motorcycle maker, lost 2.3 percent to 1,359.2 rupees on concern that the weak monsoon will slash spending in agricultural regions. Forty percent of Hero Honda’s sales come from rural demand.
Farm Output
ACC Ltd., India’s biggest cement maker, lost 5.2 percent to 756.3 rupees. Reliance Communications Ltd., India’s second- largest mobile-phone services operator, lost 4.6 percent to 240.2 rupees.
The monsoon season, which brings about three-quarters of India’s annual rainfall, may be the driest in seven years, the weather bureau said last week, hurting farm output in the world’s second-biggest producer of rice, sugar and wheat.
Rain in the June-September season will be 87 percent of the 50-year average, compared with 93 percent forecast in June, the India Meteorological Department said last week.
Production of oilseeds and sugar cane may also drop, Pawar said, without providing a forecast. Monsoon-sown oilseeds were planted in 15.2 million hectares compared with 16.4 million hectares a year earlier, the farm ministry said.
The government will extend a 15 rupees-a-liter subsidy on imported edible oils until March 2010, Pawar said.
China Stocks
Tata Steel lost 4 percent to 433.75 rupees. Hindalco Industries Ltd., the biggest aluminum producer, slid 3.6 percent to 102.7 rupees. Sterlite Industries (India) Ltd., the nation’s biggest copper producer, declined 1.4 percent to 610.2 rupees.
China’s stocks tumbled, briefly driving the benchmark index into a so-called bear market, on concern economic growth will falter as banks rein in lending.
The Shanghai Composite Index lost 4.3 percent to 2,785.58. The gauge has slumped 19.8 percent since Aug. 4, after more than doubling from November as China rolled out a 4 trillion yuan ($585 billion) stimulus package.
A measure of Chinese metals and materials producers dropped 6.6 percent, the worst performer among 10 industry groups on the CSI 300 Index that covers the Shanghai and Shenzhen markets.
Overseas funds sold a net 9.74 billion rupees ($200.1 million) of Indian stocks on Aug. 17, the Securities & Exchange Board of India said on its Web site. The funds have bought 366.3 billion rupees of Indian stocks this year, compared with record net sales of 530 billion rupees for the whole of 2008.
The following stocks were among the most active on the exchange:
Glenmark Pharmaceuticals Ltd. (GNP IN) plunged 15 percent to 223.25 rupees. The Indian pharmaceutical company fell the most in six months after saying its drug for lung disease wasn’t effective in a patient study.
Maruti Suzuki India Ltd. (MSIL IN) climbed 0.1 percent to 1,301.85 rupees. The maker of half the cars sold in India was raised to “buy” from “hold” at Citigroup Inc., which said the company is best positioned to benefit from a recovery in urban consumption.
Reliance Industries Ltd. (RIL IN) lost 2.9 percent to 1,885.85 rupees. India’s most valuable company is looking to sell a stake of as much in 15 percent in the Rewas port project, Mint reported, citing two people briefed on the matter. Reliance needs to sell the stake both to fund the project and to bring in specialists because it does not have expertise in handling cargo such as containers, according to the report.
Unitech Ltd. (UT IN) fell 3.2 percent to 82.5 rupees. The nation’s second-biggest real estate developer said its telecom unit, Unitech Wireless Ltd., has got a 50 billion rupee-loan from State Bank of India.
World emerges from recession, IMF claims
It's official: the recovery has begun – although recovery will be unpredictable and protracted, according to the International Monetary Fund's chief economist.
"The recovery has started," claims Olivier Blanchard in a paper to be published by the IMF on Wednesday. "Sustaining it will require delicate rebalancing acts, both within and across countries."
He warned that recovery would be slow and complicated: "The world is not in a run-of-the mill recession. The turnaround will not be simple. The crisis has left deep scars, which will affect both supply and demand for many years to come," he said.
His comments followed the news on Monday that Japan became the latest major economy to return to growth in the second quarter, following a recovery in German and French GDP. The British economy shrank by 0.8pc in the second quarter according to the Office for National Statistics (ONS). Adam Posen, who will join the Bank of England's Monetary Policy Committee next month, conceded yesterday that the UK, along with the US, Italy and Spain, was "lagging" in economic recovery. He added he was "surprised" by news of recovery in Germany and France.
Official figures released yesterday showed that inflation remained at 1.8pc in July for the second month in a row, close to the 2pc target. Economists had predicted a fall to 1.5pc. The figures underlined unexpected resilience to deflationary pressures,
The ONS data suggested that the relative weakness of the pound was responsible, pushing up the price of imported goods and keeping inflation in positive territory despite the recession.
Charles Davis, economist at the Centre for Economics and Business Research, said: "Part of this is due to the sterling depreciation which, despite gains over the last month, is significantly weaker than a year ago."
It means the UK is the only one of the world's six biggest economies to avoid deflation. The pound rose more than
2 cents against the dollar after the inflation figures were published, closing at $1.653.
In July, price rises in games, toys, and hobby-related items – which are largely imported – helped to keep inflation at 1.8pc, offsetting falls in food inflation. Kerri Maddock at Barclays Capital said that the trend should "steer the economy away from the tail risk of outright deflation".
Although falling prices provide some relief for struggling households during recession, a sustained period of deflation in the UK caused by weak demand would likely damage the economy further, prompting businesses to produce less and therefore shed jobs, leading to higher unemployment which would in turn hit spending even further.
The continued strength of the CPI has taken the Bank of England by surprise. Governor Mervyn King said last week that despite the so-called "stickiness" shown by UK prices, the CPI rate was "more likely than not" to fall below 1pc in the coming months.
Despite the figures, economists said that inflation should start to fall again in the coming months as the impact of the weaker pound fades, while electricity and gas bills fall, food inflation drops and the full disinflationary impact of the spare capacity in the economy feeds through.
In a further surprise, the broader retail prices index (RPI), which also includes housing and mortgage costs, actually rose to -1.4pc in July from -1.6pc.
"The recovery has started," claims Olivier Blanchard in a paper to be published by the IMF on Wednesday. "Sustaining it will require delicate rebalancing acts, both within and across countries."
He warned that recovery would be slow and complicated: "The world is not in a run-of-the mill recession. The turnaround will not be simple. The crisis has left deep scars, which will affect both supply and demand for many years to come," he said.
His comments followed the news on Monday that Japan became the latest major economy to return to growth in the second quarter, following a recovery in German and French GDP. The British economy shrank by 0.8pc in the second quarter according to the Office for National Statistics (ONS). Adam Posen, who will join the Bank of England's Monetary Policy Committee next month, conceded yesterday that the UK, along with the US, Italy and Spain, was "lagging" in economic recovery. He added he was "surprised" by news of recovery in Germany and France.
Official figures released yesterday showed that inflation remained at 1.8pc in July for the second month in a row, close to the 2pc target. Economists had predicted a fall to 1.5pc. The figures underlined unexpected resilience to deflationary pressures,
The ONS data suggested that the relative weakness of the pound was responsible, pushing up the price of imported goods and keeping inflation in positive territory despite the recession.
Charles Davis, economist at the Centre for Economics and Business Research, said: "Part of this is due to the sterling depreciation which, despite gains over the last month, is significantly weaker than a year ago."
It means the UK is the only one of the world's six biggest economies to avoid deflation. The pound rose more than
2 cents against the dollar after the inflation figures were published, closing at $1.653.
In July, price rises in games, toys, and hobby-related items – which are largely imported – helped to keep inflation at 1.8pc, offsetting falls in food inflation. Kerri Maddock at Barclays Capital said that the trend should "steer the economy away from the tail risk of outright deflation".
Although falling prices provide some relief for struggling households during recession, a sustained period of deflation in the UK caused by weak demand would likely damage the economy further, prompting businesses to produce less and therefore shed jobs, leading to higher unemployment which would in turn hit spending even further.
The continued strength of the CPI has taken the Bank of England by surprise. Governor Mervyn King said last week that despite the so-called "stickiness" shown by UK prices, the CPI rate was "more likely than not" to fall below 1pc in the coming months.
Despite the figures, economists said that inflation should start to fall again in the coming months as the impact of the weaker pound fades, while electricity and gas bills fall, food inflation drops and the full disinflationary impact of the spare capacity in the economy feeds through.
In a further surprise, the broader retail prices index (RPI), which also includes housing and mortgage costs, actually rose to -1.4pc in July from -1.6pc.
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