Last Updated: 1:40am BST 26/05/2008
George Soros, 'the man who broke the Bank of England', tells Edmund Conway of his fears for the economy
'This is a period of wealth destruction. The people who make money will be few and far between. There will be a lot more money lost than made." When George Soros - the phenomenally successful hedge fund manager - says this, you know something is wrong, very wrong. And indeed it is. The 77-year-old billionaire sinks back into the sofa in his Chelsea townhouse and exhales.
He has managed to make money almost consistently for over half a century - from his early days as one of the world's first major hedge fund traders to his involvement in Black Wednesday as the man who "broke the Bank of England", and in the latter years generating multi-billion-dollar annual profits throughout the 1990s. The conditions today are almost uniquely dismal, however.
"I think this is probably more serious than anything in our lifetime," he says. In short, his feeling is that the United States and Britain are facing a recession of a scale greater than the early-1990s, greater even than the 1970s.
"I think the dislocations will be greater because you also have the implications of the house price decline, which you didn't have in the 1970s - so you had stagflation and transfer of purchasing power to the oil producing countries, but here you also have the housing crisis in addition to that."
· The financial crisis in full
Such apocalypticisms would be less worrying were it not that Soros was among the few prominent experts who warned of the dire consequences facing the American economy years ago, when the housing bubble was still inflating.
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But even cottoning on to the big economic story early on hasn't meant guaranteed success. He returned from retirement last summer, and no sooner had he started trading than he pulled hundreds of millions of dollars of investment out of the US and the UK. It was enough to help him to a 32pc return last year. But amid the turbulence of 2008, he admits he is barely breaking even.
One of the problems is that leverage, the juice that has driven the hedge fund and finance trade in recent years, has all but dried up; the other is that the impending economic slump will be far-reaching and painful.
In the UK, the economic clouds are particularly dark, he says. "House prices have risen over the years and are further away from sustainable than in practically any other country, in terms of household indebtedness and the relationship of house prices to incomes." The slump may be more gentle than in the US, he adds, but it will be more drawn out.
"This is going to be compounded by the fact that the financial industry weighs more heavily on the economy than in other countries, because London is the centre of the global financial system, and you have the unfortunate condition that the Bank of England is bound into inflation targeting, and is not in a position to lower interest rates until you have an economic slowdown."
The nice decade, he says, borrowing a phrase from Bank Governor Mervyn King, is over and now the Bank has struck a "Faustian bargain between economic slowdown and inflation".
Ah, the Bank of England. There can be few more eventful relationships between one man and a bank than this one. There is no doubt he remains proud of his central role in Black Wednesday, when he helped drive Britain out of the Exchange Rate Mechanism, making around a billion dollars in the process. He is reminded of it by the fact that sterling has recently fallen some 20pc against the euro.
"It's much better than the straitjacket sterling was in when I broke the Bank of England."
For which, by the way, he is, rightly, unapologetic: "The ERM would have been abandoned even if I had never been born."
The son of the ERM, meanwhile, the euro, looks unbreakable in comparison - by speculators, at least.
But as hedge funds and other speculators pile in to the current crude oil boom, the Hungarian-born investor instead focuses on the wider picture - maintaining his estimated $8.5bn (£4.3bn) fortune, much of which he spends on his philanthropic and political ventures - most notably his Open Society Institute, which has a particular focus on Eastern Europe. However, don't try to read any of his politics into his trades, he insists.
"As a hedge fund manager, I do not claim to be serving the public interest. I am in the business to make money," he says. "It's a difficult point for people to understand and there's a general attitude when they see people profiting to say that markets are immoral, or making money by speculating is immoral.
"It's really the job of the authorities to set the rules, and there are times when some people break the rules or engage in improper activities, like the sub-prime mortgages. The impact fell particularly heavily on black and Hispanic minorities.
"It is a scandal, and I think you can blame [former Federal Reserve chairman Alan] Greenspan for not regulating the mortgage industry. But that's very different from speculating in government bonds or financial instruments, and that's a difficult point to get across, but I feel very strongly.
"Markets play a very useful role and they are amoral, not immoral."
Comments
Interesting Reading but probably over dramatic. Soros is after all a speculator himself and wants to see the markets move. He probably is already hedged in the direction he wants to lead us.
Personally, the UK housing markets needs to come down drastically, maybe, as bad as the US but probably not as fast so Soros may be right about timing.
Oil and commodities (including food) will fall as nothing goes up forever (basic logic "what goes up, must come down").
If Food prices keep rising, people will start dieing and "Speculation" should have no part in Global Famines surely.
I would not be surpised to see Oil at,or below, $60 this year or early next so hedge Funds should be careful.
The financial system DOES need regulation and Goverments have a responsibility in this. Free markets are good in theory but in practice they leave a lot to be desired.
All this from an ex Natwest Banker, now an entrepreneur in North America who is looking to a brighter future when these clouds pass as they surely will!
Posted by John on May 26, 2008 6:42 AM
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I wonder if Soros is gambling on revaluation of the Gulf currencies? It will be interesting to see what brings them down, revaluation or an oil price crash. But Soros is usually a bit early with his forecasts, and maybe on oil too.
George is of course correct, but it is too easy to blame the B of E. Their brief is to keep inflation in check using an indicator that strips out rises in house prices. The cost of housing makes up about 30% - 40% of most people's budget. If the cost of housing rises it is of course inflationary but the CPI didn't show it.
Had the BoE raised interest rates 5 years ago to burst the bubble we would not be in this predicament now. Gordon Brown claimed all the credit for giving them independence but the mistake was to give them the wrong target.
Don't blame the B of E, they just did their job.
KC Yoon
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Showing posts with label News. Show all posts
Showing posts with label News. Show all posts
Monday, May 26, 2008
Saturday, March 1, 2008
Credit crisis throws AIG into "uncharted waters"
By Lilla Zuill
NEW YORK, Feb 29 (Reuters) - American International Group, on the heels of reporting its largest-ever loss, said on Friday the subprime crisis had thrown it into "uncharted waters" that were likely to remain choppy through 2008.
The world's biggest insurer did not rule out further write-downs and losses but said the crisis that led to a $5.3 billion fourth-quarter loss was not expected to be material in the long run.
Its shares fell 7 percent and led other insurers lower. The KBW Insurance Index <.KIX> was down 2 percent, with AIG the biggest drag.
"We are in unchartered waters," Chief Executive Martin Sullivan said on a conference call on Friday, a day after reporting AIG's largest quarterly loss since it was founded in 1919.
The world's largest insurer said the loss stemmed largely from a $11.12 billion write-down of a super senior credit swap portfolio in its AIG Financial Products unit.
AIG said it had not incurred a realized loss in the credit swap portfolio since it entered this business in 1998, but it forecast potential realized losses of $900 million over time, based on current analysis.
Sullivan said the financial products business had provided high returns over its history, and while all businesses are reviewed periodically, there was no immediate plan to shed it.
AIG's difficulty in valuing its derivatives portfolio earned it a rebuke from its auditor, which earlier this month cited "material weakness" in the company's internal controls.
"We have already begun the process to remediate the material weakness identified by (PricewaterhouseCoopers)," Sullivan said, indicating that AIG could take the rest of 2008 to do so.
Joe Cassano, head of AIG Financial Products, has agreed to leave AIG but will remain a consultant, Sullivan said.
Deterioration in U.S. residential and credit markets also took a hit on two other AIG units, he said.
United Guaranty posted an operating loss of $348 million, and American General Finance reported $9 million in fourth-quarter operating income after increasing its provision for finance receivable losses and a decline in mortgage banking revenues.
AIG said the deterioration in its credit swaps had raised the concern of rating agencies, resulting in its being assigned a negative outlook or having its ratings put under review for possible downgrade.
As a result, the insurer said it was prudent to preserve capital, and said it was suspending its share buyback program for the foreseeable future.
Goldman Sachs analyst Tom Cholnoky, in a research note, said investors were likely to worry about future write-downs and could also be rattled by the suspension of share repurchases.
AIG shares were down $3.70 to $46.45 in morning trade on the New York Stock Exchange.
NEW YORK, Feb 29 (Reuters) - American International Group
The world's biggest insurer did not rule out further write-downs and losses but said the crisis that led to a $5.3 billion fourth-quarter loss was not expected to be material in the long run.
Its shares fell 7 percent and led other insurers lower. The KBW Insurance Index <.KIX> was down 2 percent, with AIG the biggest drag.
"We are in unchartered waters," Chief Executive Martin Sullivan said on a conference call on Friday, a day after reporting AIG's largest quarterly loss since it was founded in 1919.
The world's largest insurer said the loss stemmed largely from a $11.12 billion write-down of a super senior credit swap portfolio in its AIG Financial Products unit.
AIG said it had not incurred a realized loss in the credit swap portfolio since it entered this business in 1998, but it forecast potential realized losses of $900 million over time, based on current analysis.
Sullivan said the financial products business had provided high returns over its history, and while all businesses are reviewed periodically, there was no immediate plan to shed it.
AIG's difficulty in valuing its derivatives portfolio earned it a rebuke from its auditor, which earlier this month cited "material weakness" in the company's internal controls.
"We have already begun the process to remediate the material weakness identified by (PricewaterhouseCoopers)," Sullivan said, indicating that AIG could take the rest of 2008 to do so.
Joe Cassano, head of AIG Financial Products, has agreed to leave AIG but will remain a consultant, Sullivan said.
Deterioration in U.S. residential and credit markets also took a hit on two other AIG units, he said.
United Guaranty posted an operating loss of $348 million, and American General Finance reported $9 million in fourth-quarter operating income after increasing its provision for finance receivable losses and a decline in mortgage banking revenues.
AIG said the deterioration in its credit swaps had raised the concern of rating agencies, resulting in its being assigned a negative outlook or having its ratings put under review for possible downgrade.
As a result, the insurer said it was prudent to preserve capital, and said it was suspending its share buyback program for the foreseeable future.
Goldman Sachs analyst Tom Cholnoky, in a research note, said investors were likely to worry about future write-downs and could also be rattled by the suspension of share repurchases.
AIG shares were down $3.70 to $46.45 in morning trade on the New York Stock Exchange.
Saturday, February 16, 2008
Greenspan Says U.S. Economy Is `On the Edge' of a Recession
By Vivien Lou Chen
Feb. 15 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said the U.S. economy is on the verge of its first recession in six years as falling home values hurt consumer spending.
``We are clearly on the edge,'' Greenspan told a group of energy-industry executives yesterday at the Cambridge Energy Research Associates' 27th annual CERAWeek conference in Houston. He reiterated comments from last month that the odds of an economic contraction are ``50 percent or better.''
Greenspan's view has evolved from a year ago, when he saw a one-in-three chance of a recession, citing slowing profit growth and becoming one of the first economists to warn of the risk. Now, Wall Street firms including Merrill Lynch & Co. and Goldman Sachs Group Inc. are forecasting a contraction in the aftermath of the worst housing downturn in a quarter century.
Fed Chairman Ben S. Bernanke, Greenspan's successor, acknowledged ``downside'' risks to the expansion yesterday, while telling lawmakers he expects growth to pick up later this year. He reiterated the central bank is prepared to take ``timely'' action to aid the economy as needed.
``While we are at stall speed in the U.S. at the moment, we haven't yet seen the discontinuity that characterizes recession,'' Greenspan said during a question-and-answer session yesterday. ``American business was in such extra-good shape before this problem hit. Otherwise we would be talking about how long and how deep. We are not there yet.''
Credit Availability
The lack of available credit ``hasn't been a major problem yet for American business,'' he added. Among consumers, though, spending has been slowed by falling home values, which leaves homeowners with less capital to borrow against, Greenspan said.
``Home prices will continue to weaken,'' the 81-year-old former Fed chief said. ``When a bubble breaks, you go to primordial fear.''
Separately, the former chairman, a Republican, gave a nod toward Republican presidential candidate John McCain, comparing him with ex-President Ronald Reagan. He made the remarks after his predecessor at the Fed's helm, Paul Volcker, last month endorsed Democratic candidate Barack Obama, the Illinois senator.
``John McCain has the same roots as Reagan, being a Goldwater Republican,'' Greenspan said. McCain, like the late Barry Goldwater, is a senator from Arizona. McCain ``is a conservative and has many of the same characteristics that Reagan did.''
Bernanke, 54, told the Senate Banking Committee yesterday that Fed officials lowered their forecasts for growth after the U.S. lost jobs in January, and declining home and stock values threatened consumer spending.
Growth Forecast
Economists predict economic growth will slow to a 0.5 percent pace in the first quarter from the annualized rate of 0.6 percent recorded in the previous three months, according to a Bloomberg News survey this month.
Traders anticipate the Fed will cut the benchmark interest rate by half a point, to 2.5 percent, by March 18, after 2.25 percentage points of reductions since September. Last month, policy makers reduced rates by 1.25 percentage point, the fastest easing of monetary policy in two decades.
Some Fed officials, such as Dallas Fed President Richard Fisher and Philadelphia Fed chief Charles Plosser, warned that the central bank must also monitor inflation as it lowers rates. Fisher said this month that rate cuts can have the potential to ``juice up inflation.''
Faster inflation, combined with slower growth, is a condition known as stagflation, which throttled the U.S. economy in the 1970s.
No `Stagflation'
``Stagflation is too strong a term for what we are on the edge of,'' Greenspan said yesterday. ``I trust we have enough sense to come up with policies to avoid that.''
He also told the group of energy-industry executives that a mandatory cap on carbon emissions ``will lead to lower levels of economic activity and significantly higher unemployment.''
Greenspan left the Fed in January 2006 after almost two decades at the helm. He has returned to his role as a private economic forecaster, speaking at conferences and to groups of bankers and investors, while consulting for clients such as Deutsche Bank AG.
During a Jan. 24 speech in Vancouver, the former chairman said he's worried that an ``inevitable'' global recession will create a backlash that forces countries to retreat from world markets. He then put the probability of a U.S. recession at ``50 percent or more, but we're not there yet.''
In November, he told a Sao Paulo, Brazil, audience that the odds of a recession were less than 50 percent.
Feb. 15 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said the U.S. economy is on the verge of its first recession in six years as falling home values hurt consumer spending.
``We are clearly on the edge,'' Greenspan told a group of energy-industry executives yesterday at the Cambridge Energy Research Associates' 27th annual CERAWeek conference in Houston. He reiterated comments from last month that the odds of an economic contraction are ``50 percent or better.''
Greenspan's view has evolved from a year ago, when he saw a one-in-three chance of a recession, citing slowing profit growth and becoming one of the first economists to warn of the risk. Now, Wall Street firms including Merrill Lynch & Co. and Goldman Sachs Group Inc. are forecasting a contraction in the aftermath of the worst housing downturn in a quarter century.
Fed Chairman Ben S. Bernanke, Greenspan's successor, acknowledged ``downside'' risks to the expansion yesterday, while telling lawmakers he expects growth to pick up later this year. He reiterated the central bank is prepared to take ``timely'' action to aid the economy as needed.
``While we are at stall speed in the U.S. at the moment, we haven't yet seen the discontinuity that characterizes recession,'' Greenspan said during a question-and-answer session yesterday. ``American business was in such extra-good shape before this problem hit. Otherwise we would be talking about how long and how deep. We are not there yet.''
Credit Availability
The lack of available credit ``hasn't been a major problem yet for American business,'' he added. Among consumers, though, spending has been slowed by falling home values, which leaves homeowners with less capital to borrow against, Greenspan said.
``Home prices will continue to weaken,'' the 81-year-old former Fed chief said. ``When a bubble breaks, you go to primordial fear.''
Separately, the former chairman, a Republican, gave a nod toward Republican presidential candidate John McCain, comparing him with ex-President Ronald Reagan. He made the remarks after his predecessor at the Fed's helm, Paul Volcker, last month endorsed Democratic candidate Barack Obama, the Illinois senator.
``John McCain has the same roots as Reagan, being a Goldwater Republican,'' Greenspan said. McCain, like the late Barry Goldwater, is a senator from Arizona. McCain ``is a conservative and has many of the same characteristics that Reagan did.''
Bernanke, 54, told the Senate Banking Committee yesterday that Fed officials lowered their forecasts for growth after the U.S. lost jobs in January, and declining home and stock values threatened consumer spending.
Growth Forecast
Economists predict economic growth will slow to a 0.5 percent pace in the first quarter from the annualized rate of 0.6 percent recorded in the previous three months, according to a Bloomberg News survey this month.
Traders anticipate the Fed will cut the benchmark interest rate by half a point, to 2.5 percent, by March 18, after 2.25 percentage points of reductions since September. Last month, policy makers reduced rates by 1.25 percentage point, the fastest easing of monetary policy in two decades.
Some Fed officials, such as Dallas Fed President Richard Fisher and Philadelphia Fed chief Charles Plosser, warned that the central bank must also monitor inflation as it lowers rates. Fisher said this month that rate cuts can have the potential to ``juice up inflation.''
Faster inflation, combined with slower growth, is a condition known as stagflation, which throttled the U.S. economy in the 1970s.
No `Stagflation'
``Stagflation is too strong a term for what we are on the edge of,'' Greenspan said yesterday. ``I trust we have enough sense to come up with policies to avoid that.''
He also told the group of energy-industry executives that a mandatory cap on carbon emissions ``will lead to lower levels of economic activity and significantly higher unemployment.''
Greenspan left the Fed in January 2006 after almost two decades at the helm. He has returned to his role as a private economic forecaster, speaking at conferences and to groups of bankers and investors, while consulting for clients such as Deutsche Bank AG.
During a Jan. 24 speech in Vancouver, the former chairman said he's worried that an ``inevitable'' global recession will create a backlash that forces countries to retreat from world markets. He then put the probability of a U.S. recession at ``50 percent or more, but we're not there yet.''
In November, he told a Sao Paulo, Brazil, audience that the odds of a recession were less than 50 percent.
Thursday, February 14, 2008
Singapore Dollar Declines as Government Cuts Growth Forecast
By David Yong and Lilian Karunungan
Feb. 14 (Bloomberg) -- The Singapore dollar fell to the lowest in more than a week after the government cut its economic growth forecast for this year.
Gross domestic product will probably expand between 4 percent and 6 percent, lower than an earlier estimate of 4.5 percent to 6.5 percent, the trade ministry said in a statement today. The economy grew 7.7 percent in 2007. The government trimmed its estimate because of concern that the U.S., Singapore's biggest export market, will enter a recession.
``The numbers reinforce the idea that Singapore is the most open economy in Asia and is exposed to the slowdown in the U.S., Europe and Japan,'' said Cem Karacadag, an economist at Credit Suisse in Singapore. ``The Monetary Authority of Singapore will continue to allow only a modest pace of appreciation in the currency until uncertainties over global growth risks diminish.''
The island's currency fell 0.1 percent to S$1.4184 against the U.S. dollar as of 9:38 a.m. in Singapore, according to data compiled by Bloomberg. It dropped to as low as S$1.4214.
The central bank in October said it would allow ``slightly'' faster appreciation in the island's dollar. The MAS uses the currency instead of interest rates to control monetary policy.
The monetary stance remains ``appropriate,'' the MAS said today.
Credit Suisse forecasts Singapore growth at 6 percent this year.
Feb. 14 (Bloomberg) -- The Singapore dollar fell to the lowest in more than a week after the government cut its economic growth forecast for this year.
Gross domestic product will probably expand between 4 percent and 6 percent, lower than an earlier estimate of 4.5 percent to 6.5 percent, the trade ministry said in a statement today. The economy grew 7.7 percent in 2007. The government trimmed its estimate because of concern that the U.S., Singapore's biggest export market, will enter a recession.
``The numbers reinforce the idea that Singapore is the most open economy in Asia and is exposed to the slowdown in the U.S., Europe and Japan,'' said Cem Karacadag, an economist at Credit Suisse in Singapore. ``The Monetary Authority of Singapore will continue to allow only a modest pace of appreciation in the currency until uncertainties over global growth risks diminish.''
The island's currency fell 0.1 percent to S$1.4184 against the U.S. dollar as of 9:38 a.m. in Singapore, according to data compiled by Bloomberg. It dropped to as low as S$1.4214.
The central bank in October said it would allow ``slightly'' faster appreciation in the island's dollar. The MAS uses the currency instead of interest rates to control monetary policy.
The monetary stance remains ``appropriate,'' the MAS said today.
Credit Suisse forecasts Singapore growth at 6 percent this year.
Tuesday, February 5, 2008
Gold Increases in Asia on U.S. Negative Real Interest Rates
By Feiwen Rong
Feb. 4 (Bloomberg) -- Gold rose in Asia after the biggest decline in 11 weeks as negative real interest rates in the U.S. increased demand for the metal as an alternative investment.
The Federal Reserve cut borrowing costs by 1.25 percentage point to 3 percent in January. The three-month U.S. dollar London interbank offered rate, a lending benchmark that fluctuates depending on how willing banks are to lend to each other, fell below 3.1 percent on Feb. 1, the lowest since 2005, according to the British Bankers' Association.
The rate cuts pushed the ``real 3-month Libor rate even further into negative territory'' which has ``serious implications for the gold prices,'' analysts at Credit Suisse said in a report Feb. 1. ``Since gold is a non-yielding asset, its price should benefit, particularly in an environment of negative real rates.''
Bullion for immediate delivery gained as much as $7.42, or 0.8 percent, to $912.90 an ounce and traded at $909.45 at 3:56 p.m. Singapore time. The metal rose to a record $936.92 Feb. 1, before closing down 2.2 in the biggest one-day drop since Nov. 15. Silver for immediate delivery was little changed at $16.80 an ounce.
U.S. consumer prices rose 4.1 percent in the 12 months ended Dec. 31.
Gold also benefited from a rising euro against the dollar on speculation the European Central Bank will keep interest rates at a six-year high this week.
South Africa
Power shortages in South Africa also drove bullion's rally last week. Miners including Anglo Platinum Ltd. and Gold Fields Ltd. were raising electricity consumption to 90 percent of normal levels on Feb. 1 to boost output after cuts last week.
``The situation remains shaky,'' the Credit Suisse report said. Eskom Holdings Ltd., South Africa's state-owned power utility, said a generator at its Tutuka power station tripped late Feb. 2, reducing power supply by a further 640 megawatts.
Bullion for December delivery on the Tokyo Commodity Exchange fell 1.5 percent to 3,146 yen a gram ($916 an ounce) at the 5 p.m. local time.
Bullion for June delivery on the Shanghai Futures Exchange, the most active contract, closed down 3.15 yuan, or 1.4 percent, to 215.6 yuan a gram ($933 an ounce).
Gold for April delivery was little changed at $914.30 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange at the same time.
Feb. 4 (Bloomberg) -- Gold rose in Asia after the biggest decline in 11 weeks as negative real interest rates in the U.S. increased demand for the metal as an alternative investment.
The Federal Reserve cut borrowing costs by 1.25 percentage point to 3 percent in January. The three-month U.S. dollar London interbank offered rate, a lending benchmark that fluctuates depending on how willing banks are to lend to each other, fell below 3.1 percent on Feb. 1, the lowest since 2005, according to the British Bankers' Association.
The rate cuts pushed the ``real 3-month Libor rate even further into negative territory'' which has ``serious implications for the gold prices,'' analysts at Credit Suisse said in a report Feb. 1. ``Since gold is a non-yielding asset, its price should benefit, particularly in an environment of negative real rates.''
Bullion for immediate delivery gained as much as $7.42, or 0.8 percent, to $912.90 an ounce and traded at $909.45 at 3:56 p.m. Singapore time. The metal rose to a record $936.92 Feb. 1, before closing down 2.2 in the biggest one-day drop since Nov. 15. Silver for immediate delivery was little changed at $16.80 an ounce.
U.S. consumer prices rose 4.1 percent in the 12 months ended Dec. 31.
Gold also benefited from a rising euro against the dollar on speculation the European Central Bank will keep interest rates at a six-year high this week.
South Africa
Power shortages in South Africa also drove bullion's rally last week. Miners including Anglo Platinum Ltd. and Gold Fields Ltd. were raising electricity consumption to 90 percent of normal levels on Feb. 1 to boost output after cuts last week.
``The situation remains shaky,'' the Credit Suisse report said. Eskom Holdings Ltd., South Africa's state-owned power utility, said a generator at its Tutuka power station tripped late Feb. 2, reducing power supply by a further 640 megawatts.
Bullion for December delivery on the Tokyo Commodity Exchange fell 1.5 percent to 3,146 yen a gram ($916 an ounce) at the 5 p.m. local time.
Bullion for June delivery on the Shanghai Futures Exchange, the most active contract, closed down 3.15 yuan, or 1.4 percent, to 215.6 yuan a gram ($933 an ounce).
Gold for April delivery was little changed at $914.30 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange at the same time.
Bernanke Makes Bulls From Dollar Bears Seeing Growth (Update)
By Bo Nielsen
Feb. 4 (Bloomberg) -- Ben S. Bernanke's decision to lower interest rates 1.25 percentage points last month will end the dollar's two-year slide, according to the world's biggest currency traders.
For the first time since 2003, investors are focused on relative growth prospects rather than absolute borrowing costs, according to Geoffrey Yu, a London-based strategist with UBS AG, the No. 2 trader. The steepest cuts by a Federal Reserve chairman in seven years will support economic growth in the U.S. as Europe slows, said BNP Paribas SA, the most accurate currency forecaster Bloomberg tracks. The dollar will gain at least 9 percent against the euro this year, UBS and BNP predict.
``We're not chasing dollar weakness any lower,'' said Robert Robis, a fixed-income manager in New York at OppenheimerFunds Inc., which oversees $260 billion. ``The Fed's actions have avoided a long recession and we may start to see a recovery later this year.''
Robis has reduced the share of euro-denominated assets versus those linked to the dollar in his $9 billion portfolio. It now holds less than the benchmark index because he expects the U.S. currency to outperform. As recently as November, he was ``overweight'' the euro against the dollar.
Futures traders cut the value of contracts benefiting from a drop in the dollar to $13.9 billion as of Jan. 29, according to Charlotte, North Carolina-based Bank of America Corp., the second-largest U.S. bank by assets. That's down from a record $32.3 billion in November.
Yield Advantage
The dollar has gained 1.1 percent versus the euro to $1.4802 since sinking to an all-time low of $1.4967 on Nov. 23. The currency appreciated even as the yield advantage on a two- year German bund more than doubled to 1.28 percentage points over a comparable Treasury note, making bunds more appealing to international investors. The last time the spread was so large was 2002, when the euro surged 18 percent against the dollar.
Paris-based BNP, the most accurate of 31 firms surveyed about their currency predictions for the second half of 2007, is among the most bullish on the dollar in 2008 with its forecast of $1.36 per euro by yearend. Zurich-based UBS predicts $1.35. The median estimate calls for a 5.4 percent increase to $1.40 by the end of this year and a 6 percent gain to $1.32 in 2009. The dollar weakened 10.6 percent in 2007 and 11.4 percent in 2006 after strengthening 12.6 percent in 2005.
Fed Versus ECB
While two Fed cuts slashed the target rate for overnight loans between banks to 3 percent in nine days, the European Central Bank kept its benchmark rate unchanged at a seven-year high of 4 percent in an attempt to curb inflation. The ECB will keep rates unchanged at its Feb. 7 meeting, according to all 55 economists surveyed by Bloomberg News.
``If aggressive cuts by the Fed can stimulate the economy, then the U.S. will definitely lead the way in terms of economic recovery,'' Yu said. ``The ECB is behind the curve, so it's time to move back'' into the dollar, he said.
Deutsche Bank AG, the world's largest currency trader, predicts an 8 percent gain in the dollar this year as the euro- zone economy expands 1.6 percent, lagging behind the 1.9 percent growth projected for the U.S. For 2009, Frankfurt-based Deutsche Bank puts growth at 2.6 percent in the U.S. and 1.9 percent in Europe.
Maxime Tessier, head of foreign exchange at Caisse de Depot et Placement in Montreal, isn't counting on Bernanke. It may be too late for lower borrowing costs to keep the U.S. out of a recession, he said. The Labor Department said Feb. 1 that payrolls fell by 17,000 in January, the first decline since August 2003.
2001 Reprisal
``From our vantage point it doesn't look very good and every week we re-evaluate the U.S. economy, it has deteriorated,'' said Tessier, whose firm manages $143 billion. ``It's too early to position your portfolio for a dollar rebound because a month from now the currency could be in rally mode, but it could also be a lot lower.''
The U.S. is entering the ``worst consumer recession since 1980,'' and the dollar will fall to $1.57 by the end of March before recovering to its current $1.48 by yearend, according to David Rosenberg, chief economist for North America in New York at Merrill Lynch & Co. The firm is the world's largest brokerage.
The dollar has benefited from Fed rate cuts before. During the first six months of 2001, the currency gained 10 percent against the euro as the central bank slashed its target 2.75 percentage points to below the ECB's benchmark refinance rate following the bursting of the technology bubble.
``We still believe the U.S. promises good returns,'' Sultan bin Sulayem, the chairman of state-owned investment group Dubai World, said Jan. 25 at the World Economic Forum in Davos, Switzerland. Dubai World agreed in August to invest as much as $5.1 billion in Kirk Kerkorian's Las Vegas-based casino group MGM Mirage.
Foreign Holdings
Middle Eastern and Asian investors have poured up to $39 billion into U.S. banks since August, according to Bloomberg calculations. Foreign holdings of U.S. securities rose a net $149.9 billion in November, the most in 22 months, the Treasury Department said last month in Washington. In October, the gain was $92.2 billion.
Investors say there are encouraging signs that business investment will hold up. Last week the House and Senate Finance Committees approved a fiscal stimulus package of as much as $157 billion proposed by President George W. Bush. The same day the Labor Department said the economy was shedding jobs, the Institute for Supply Management said its manufacturing index rose in January.
``A lot of the people are finding this is a good time to get back in the dollar,'' said Scott Ainsbury, a money manager who helps oversee $12 billion in currencies at FX Concepts Inc., a New York-based hedge fund.
Feb. 4 (Bloomberg) -- Ben S. Bernanke's decision to lower interest rates 1.25 percentage points last month will end the dollar's two-year slide, according to the world's biggest currency traders.
For the first time since 2003, investors are focused on relative growth prospects rather than absolute borrowing costs, according to Geoffrey Yu, a London-based strategist with UBS AG, the No. 2 trader. The steepest cuts by a Federal Reserve chairman in seven years will support economic growth in the U.S. as Europe slows, said BNP Paribas SA, the most accurate currency forecaster Bloomberg tracks. The dollar will gain at least 9 percent against the euro this year, UBS and BNP predict.
``We're not chasing dollar weakness any lower,'' said Robert Robis, a fixed-income manager in New York at OppenheimerFunds Inc., which oversees $260 billion. ``The Fed's actions have avoided a long recession and we may start to see a recovery later this year.''
Robis has reduced the share of euro-denominated assets versus those linked to the dollar in his $9 billion portfolio. It now holds less than the benchmark index because he expects the U.S. currency to outperform. As recently as November, he was ``overweight'' the euro against the dollar.
Futures traders cut the value of contracts benefiting from a drop in the dollar to $13.9 billion as of Jan. 29, according to Charlotte, North Carolina-based Bank of America Corp., the second-largest U.S. bank by assets. That's down from a record $32.3 billion in November.
Yield Advantage
The dollar has gained 1.1 percent versus the euro to $1.4802 since sinking to an all-time low of $1.4967 on Nov. 23. The currency appreciated even as the yield advantage on a two- year German bund more than doubled to 1.28 percentage points over a comparable Treasury note, making bunds more appealing to international investors. The last time the spread was so large was 2002, when the euro surged 18 percent against the dollar.
Paris-based BNP, the most accurate of 31 firms surveyed about their currency predictions for the second half of 2007, is among the most bullish on the dollar in 2008 with its forecast of $1.36 per euro by yearend. Zurich-based UBS predicts $1.35. The median estimate calls for a 5.4 percent increase to $1.40 by the end of this year and a 6 percent gain to $1.32 in 2009. The dollar weakened 10.6 percent in 2007 and 11.4 percent in 2006 after strengthening 12.6 percent in 2005.
Fed Versus ECB
While two Fed cuts slashed the target rate for overnight loans between banks to 3 percent in nine days, the European Central Bank kept its benchmark rate unchanged at a seven-year high of 4 percent in an attempt to curb inflation. The ECB will keep rates unchanged at its Feb. 7 meeting, according to all 55 economists surveyed by Bloomberg News.
``If aggressive cuts by the Fed can stimulate the economy, then the U.S. will definitely lead the way in terms of economic recovery,'' Yu said. ``The ECB is behind the curve, so it's time to move back'' into the dollar, he said.
Deutsche Bank AG, the world's largest currency trader, predicts an 8 percent gain in the dollar this year as the euro- zone economy expands 1.6 percent, lagging behind the 1.9 percent growth projected for the U.S. For 2009, Frankfurt-based Deutsche Bank puts growth at 2.6 percent in the U.S. and 1.9 percent in Europe.
Maxime Tessier, head of foreign exchange at Caisse de Depot et Placement in Montreal, isn't counting on Bernanke. It may be too late for lower borrowing costs to keep the U.S. out of a recession, he said. The Labor Department said Feb. 1 that payrolls fell by 17,000 in January, the first decline since August 2003.
2001 Reprisal
``From our vantage point it doesn't look very good and every week we re-evaluate the U.S. economy, it has deteriorated,'' said Tessier, whose firm manages $143 billion. ``It's too early to position your portfolio for a dollar rebound because a month from now the currency could be in rally mode, but it could also be a lot lower.''
The U.S. is entering the ``worst consumer recession since 1980,'' and the dollar will fall to $1.57 by the end of March before recovering to its current $1.48 by yearend, according to David Rosenberg, chief economist for North America in New York at Merrill Lynch & Co. The firm is the world's largest brokerage.
The dollar has benefited from Fed rate cuts before. During the first six months of 2001, the currency gained 10 percent against the euro as the central bank slashed its target 2.75 percentage points to below the ECB's benchmark refinance rate following the bursting of the technology bubble.
``We still believe the U.S. promises good returns,'' Sultan bin Sulayem, the chairman of state-owned investment group Dubai World, said Jan. 25 at the World Economic Forum in Davos, Switzerland. Dubai World agreed in August to invest as much as $5.1 billion in Kirk Kerkorian's Las Vegas-based casino group MGM Mirage.
Foreign Holdings
Middle Eastern and Asian investors have poured up to $39 billion into U.S. banks since August, according to Bloomberg calculations. Foreign holdings of U.S. securities rose a net $149.9 billion in November, the most in 22 months, the Treasury Department said last month in Washington. In October, the gain was $92.2 billion.
Investors say there are encouraging signs that business investment will hold up. Last week the House and Senate Finance Committees approved a fiscal stimulus package of as much as $157 billion proposed by President George W. Bush. The same day the Labor Department said the economy was shedding jobs, the Institute for Supply Management said its manufacturing index rose in January.
``A lot of the people are finding this is a good time to get back in the dollar,'' said Scott Ainsbury, a money manager who helps oversee $12 billion in currencies at FX Concepts Inc., a New York-based hedge fund.
Bank of England May Cut Interest Rate a Quarter Point to 5.25%
By Jennifer Ryan
Feb. 4 (Bloomberg) -- The Bank of England will probably cut its key interest rate for the second time in three months this week, setting aside concern that inflation will accelerate as economic growth slows, a survey showed.
The nine-member Monetary Policy Committee will lower the rate by a quarter point to 5.25 percent on Feb. 7, according to 58 of the 61 economists in a Bloomberg News survey. Two expect a half-point cut and one forecasts no change.
Falling house prices and higher market lending rates have put the U.K. economy on course for its worst performance since the end of the last recession in 1992. At the same time, Governor Mervyn King has indicated inflation pressures will keep the bank from following the Federal Reserve and slashing rates further in coming months.
``There is clearly a sense at the bank that rates are restrictive and need to come down,'' said Matthew Sharratt, an economist at Bank of America Corp. in London. ``Worries about inflation mean there won't be the same kind of aggressive easing as we've been seeing from the Fed.''
King, reappointed by Prime Minister Gordon Brown on Jan. 30, says the Bank of England faces a ``difficult balancing act'' in 2008. House prices fell the most since 2000 in the fourth quarter, mortgage approvals dropped to a nine-year low and the threat of a U.S. recession is dragging down global growth prospects.
U.K. manufacturing expanded at the slowest pace in more than two years last month, a survey by the Chartered Institute of Purchasing and Supply showed.
Constraints
Growth is slowing as pricing pressures increase. King said Jan. 22 that oil and food prices may drive inflation above 3 percent this year from 2.1 percent in December, matching the fastest pace in a decade. Consumers' inflation expectations for the next 12 months jumped to the highest since at least 2005, a report commissioned by Citigroup Inc. showed.
``There are constraints on how many reductions they can make,'' said Alan Castle, an economist at Lehman Brothers Holdings Inc. in London.
The Bank of England has been slower than the Fed in cutting rates. The Fed has reduced its benchmark by one-and-a-quarter percentage points since Jan. 22, its fastest easing of policy since 1990, after banks including Goldman Sachs Group Inc. and Citigroup Inc. forecast the first U.S. recession since 2001 and global equity markets tumbled.
The slowdown was sparked by a slump in U.S. house prices that's forced banks worldwide to post more than $133 billion in asset writedowns and credit losses. The U.S. economy unexpectedly lost jobs in January for the first time in more than four years, the Labor Department said Feb. 1.
`Relatively Soft'
Some economists say contagion from the U.S. slowdown will force the Bank of England to ignore inflation risks again and cut rates further after next week's move.
``Economic growth and expectations of growth are relatively soft,'' said George Buckley, an economist at Deutsche Bank AG in London. ``We see a cut at the next meeting and then another in April or May. The risks are that they move earlier.''
The Bank of England will reduce its benchmark to 4.5 percent by the end of the year, according to the median forecast of 44 economists in a Bloomberg News survey.
King says the circumstances are presenting the bank with its biggest dilemma since it was given rate-setting independence in 1997. The bank will probably have to write at least one letter to Chancellor of the Exchequer Alistair Darling this year explaining why it can't keep inflation below the government's 3 percent limit, he says.
``It will be harder this time for the bank to be confident that inflation will fall back to target,'' said Castle. ``But if growth deteriorates further, we'll see deeper rate cuts.''
Feb. 4 (Bloomberg) -- The Bank of England will probably cut its key interest rate for the second time in three months this week, setting aside concern that inflation will accelerate as economic growth slows, a survey showed.
The nine-member Monetary Policy Committee will lower the rate by a quarter point to 5.25 percent on Feb. 7, according to 58 of the 61 economists in a Bloomberg News survey. Two expect a half-point cut and one forecasts no change.
Falling house prices and higher market lending rates have put the U.K. economy on course for its worst performance since the end of the last recession in 1992. At the same time, Governor Mervyn King has indicated inflation pressures will keep the bank from following the Federal Reserve and slashing rates further in coming months.
``There is clearly a sense at the bank that rates are restrictive and need to come down,'' said Matthew Sharratt, an economist at Bank of America Corp. in London. ``Worries about inflation mean there won't be the same kind of aggressive easing as we've been seeing from the Fed.''
King, reappointed by Prime Minister Gordon Brown on Jan. 30, says the Bank of England faces a ``difficult balancing act'' in 2008. House prices fell the most since 2000 in the fourth quarter, mortgage approvals dropped to a nine-year low and the threat of a U.S. recession is dragging down global growth prospects.
U.K. manufacturing expanded at the slowest pace in more than two years last month, a survey by the Chartered Institute of Purchasing and Supply showed.
Constraints
Growth is slowing as pricing pressures increase. King said Jan. 22 that oil and food prices may drive inflation above 3 percent this year from 2.1 percent in December, matching the fastest pace in a decade. Consumers' inflation expectations for the next 12 months jumped to the highest since at least 2005, a report commissioned by Citigroup Inc. showed.
``There are constraints on how many reductions they can make,'' said Alan Castle, an economist at Lehman Brothers Holdings Inc. in London.
The Bank of England has been slower than the Fed in cutting rates. The Fed has reduced its benchmark by one-and-a-quarter percentage points since Jan. 22, its fastest easing of policy since 1990, after banks including Goldman Sachs Group Inc. and Citigroup Inc. forecast the first U.S. recession since 2001 and global equity markets tumbled.
The slowdown was sparked by a slump in U.S. house prices that's forced banks worldwide to post more than $133 billion in asset writedowns and credit losses. The U.S. economy unexpectedly lost jobs in January for the first time in more than four years, the Labor Department said Feb. 1.
`Relatively Soft'
Some economists say contagion from the U.S. slowdown will force the Bank of England to ignore inflation risks again and cut rates further after next week's move.
``Economic growth and expectations of growth are relatively soft,'' said George Buckley, an economist at Deutsche Bank AG in London. ``We see a cut at the next meeting and then another in April or May. The risks are that they move earlier.''
The Bank of England will reduce its benchmark to 4.5 percent by the end of the year, according to the median forecast of 44 economists in a Bloomberg News survey.
King says the circumstances are presenting the bank with its biggest dilemma since it was given rate-setting independence in 1997. The bank will probably have to write at least one letter to Chancellor of the Exchequer Alistair Darling this year explaining why it can't keep inflation below the government's 3 percent limit, he says.
``It will be harder this time for the bank to be confident that inflation will fall back to target,'' said Castle. ``But if growth deteriorates further, we'll see deeper rate cuts.''
Friday, February 1, 2008
Nonfarm Payrolls Sank 17,000 in January, First Drop in Four Years
U.S. employment unexpectedly tumbled last month for the first time in more than four years, fueling worries that the U.S. economy, which already limped into 2008, might soften further or even slip into recession in coming months. Nonfarm payrolls fell 17,000 in January, the Labor Department said Friday, the first drop since August 2003, when payrolls slid 42,000. Gains in services like health care, retail trade and leisure offset declines in other sectors including manufacturing, construction, financial services and government. The unemployment rate fell, as expected, to 4.9% from 5%.
Microsoft Makes $44.6 Billion Bid for Yahoo
Microsoft said it has made a cash-and-stock offer to buy Yahoo for $31 a share, in a deal valuing the company at $44.6 billion.
"We have great respect for Yahoo!, and together we can offer an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market," said Microsoft Chief Executive Steve Ballmer. "We believe our combination will deliver superior value to our respective shareholders and better choice and innovation to our customers and industry partners."
"We have great respect for Yahoo!, and together we can offer an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market," said Microsoft Chief Executive Steve Ballmer. "We believe our combination will deliver superior value to our respective shareholders and better choice and innovation to our customers and industry partners."
Thursday, January 31, 2008
MBIA Reports $2.3 Billion Loss in Fourth Quarter
from The Wall Street Journal
Jan. 31, 2008
MBIA lost $2.3 billion in the fourth quarter of 2007, compared with net income of $181 million a year earlier. The substantial loss amounted to $18.61 a share, compared with net income of $1.32 a share in the final quarter of 2006. The bond insurer, which released the results shortly after midnight, said writedowns in its credit-derivatives portfolio rose to $3.5 billion -- more than 10 times as large as its writedown in the third quarter, a sign of the rapidly worsening effects of the U.S. housing-market downturn.
Earlier, MBIA announced it a deal with Warburg Pincus in which the private-equity fund agreed to buy $500 million worth of the bond insurer's shares at $31 each.
Jan. 31, 2008
MBIA lost $2.3 billion in the fourth quarter of 2007, compared with net income of $181 million a year earlier. The substantial loss amounted to $18.61 a share, compared with net income of $1.32 a share in the final quarter of 2006. The bond insurer, which released the results shortly after midnight, said writedowns in its credit-derivatives portfolio rose to $3.5 billion -- more than 10 times as large as its writedown in the third quarter, a sign of the rapidly worsening effects of the U.S. housing-market downturn.
Earlier, MBIA announced it a deal with Warburg Pincus in which the private-equity fund agreed to buy $500 million worth of the bond insurer's shares at $31 each.
FOMC Cuts Fed-Funds Rate by 1/2 Point
from The Wall Street Journal
Jan. 30, 2008
The Federal Reserve lowered its key federal-funds rate by one-half percentage point, to 3%, capping an unprecedented eight-day period in which officials slashed rates massively to ward off recession risks. Officials signaled they're willing to ease still further in coming weeks - a reflection of the risk management approach to policy that officials have now embraced. But they also suggested that the recent cuts may be enough to keep the economy on track. The vote was 9-1; Dallas Fed President Richard Fisher dissented, preferring no rate change.
Jan. 30, 2008
The Federal Reserve lowered its key federal-funds rate by one-half percentage point, to 3%, capping an unprecedented eight-day period in which officials slashed rates massively to ward off recession risks. Officials signaled they're willing to ease still further in coming weeks - a reflection of the risk management approach to policy that officials have now embraced. But they also suggested that the recent cuts may be enough to keep the economy on track. The vote was 9-1; Dallas Fed President Richard Fisher dissented, preferring no rate change.
Australian, N.Z. Dollars Rise to Two-Week Highs on Fed Rate Cut
By David McIntyre and Emma O'Brien
Jan. 31 (Bloomberg) -- The Australian and New Zealand dollars rose to the highest level in more than two weeks after the Federal Reserve cut its benchmark interest rate, attracting investors to the countries' higher yielding bonds.
Australia's rate advantage increased to a three-year high and New Zealand's to the widest in almost 15 years after the Fed cut rates by a half percentage point to 3 percent. Australia's dollar has gained 6.9 percent and New Zealand's jumped 11 percent since Sept. 18, when the Fed cut borrowing costs for the first time in four years in a bid to reignite growth.
``The Australian and New Zealand dollars were boosted by the Fed rate cut,'' said Sue Trinh, a currency strategist at RBC Capital Markets in Sydney. ``The U.S. dollar is weak right across the board with the Fed leaving the door wide open for further rate cuts.''
The Australian dollar, known as the Aussie, traded as high as 90.16 U.S. cents, the strongest since Jan. 15. It bought 89.13 cents at 10:06 a.m. in Sydney compared with 88.87 cents late in Asia yesterday.
The New Zealand dollar, dubbed the kiwi, climbed 0.5 percent to 78.26 U.S. cents and touched 79.16 cents, the strongest since Jan. 16.
Australia's dollar may reach 90.20 cents and New Zealand's may touch 79.35 cents today, which are resistance levels for the currencies, Trinh said. Resistance is where orders to sell a currency may be clustered.
Trade Deficit
New Zealand's dollar held gains after a government report showed the country's annual trade deficit narrowed to the smallest in two years as soaring prices for dairy products drove exports to a record. Rising overseas shipments, which make up 30 percent of the economy, may drive New Zealand's growth and generate demand for the currency.
The shortfall shrank to NZ$5.31 billion ($4.2 billion) in 2007 from NZ$5.69 billion in the 12 months through Nov. 30, Statistics New Zealand said in Wellington today. That beat the median estimate of NZ$5.5 billion in a Bloomberg News survey of nine economists.
The Fed said in a statement that downside risks to growth remain, suggesting policy makers may reduce rates again.
Australia's rate premium has increased to 3.75 percentage points, the highest since September 2004. New Zealand's rate advantage widened to 5.25 points, the most since February 1993.
The kiwi has gained the most among the 16 most-traded currencies since the Fed started cutting in September as investors were attracted to the country's 8.25 percent rate, one of the highest among developed economies. The Aussie has also benefited because of Australia's 11-year high 6.75 percent rate, which traders are betting will be raised next week.
Australian government bonds strengthened, pushing the yield on the 10-year note down 2 basis points to 6.04 percent. New Zealand's equivalent yield rose 2 basis points to 6.30 percent. A basis point equals 0.01 percentage point.
Jan. 31 (Bloomberg) -- The Australian and New Zealand dollars rose to the highest level in more than two weeks after the Federal Reserve cut its benchmark interest rate, attracting investors to the countries' higher yielding bonds.
Australia's rate advantage increased to a three-year high and New Zealand's to the widest in almost 15 years after the Fed cut rates by a half percentage point to 3 percent. Australia's dollar has gained 6.9 percent and New Zealand's jumped 11 percent since Sept. 18, when the Fed cut borrowing costs for the first time in four years in a bid to reignite growth.
``The Australian and New Zealand dollars were boosted by the Fed rate cut,'' said Sue Trinh, a currency strategist at RBC Capital Markets in Sydney. ``The U.S. dollar is weak right across the board with the Fed leaving the door wide open for further rate cuts.''
The Australian dollar, known as the Aussie, traded as high as 90.16 U.S. cents, the strongest since Jan. 15. It bought 89.13 cents at 10:06 a.m. in Sydney compared with 88.87 cents late in Asia yesterday.
The New Zealand dollar, dubbed the kiwi, climbed 0.5 percent to 78.26 U.S. cents and touched 79.16 cents, the strongest since Jan. 16.
Australia's dollar may reach 90.20 cents and New Zealand's may touch 79.35 cents today, which are resistance levels for the currencies, Trinh said. Resistance is where orders to sell a currency may be clustered.
Trade Deficit
New Zealand's dollar held gains after a government report showed the country's annual trade deficit narrowed to the smallest in two years as soaring prices for dairy products drove exports to a record. Rising overseas shipments, which make up 30 percent of the economy, may drive New Zealand's growth and generate demand for the currency.
The shortfall shrank to NZ$5.31 billion ($4.2 billion) in 2007 from NZ$5.69 billion in the 12 months through Nov. 30, Statistics New Zealand said in Wellington today. That beat the median estimate of NZ$5.5 billion in a Bloomberg News survey of nine economists.
The Fed said in a statement that downside risks to growth remain, suggesting policy makers may reduce rates again.
Australia's rate premium has increased to 3.75 percentage points, the highest since September 2004. New Zealand's rate advantage widened to 5.25 points, the most since February 1993.
The kiwi has gained the most among the 16 most-traded currencies since the Fed started cutting in September as investors were attracted to the country's 8.25 percent rate, one of the highest among developed economies. The Aussie has also benefited because of Australia's 11-year high 6.75 percent rate, which traders are betting will be raised next week.
Australian government bonds strengthened, pushing the yield on the 10-year note down 2 basis points to 6.04 percent. New Zealand's equivalent yield rose 2 basis points to 6.30 percent. A basis point equals 0.01 percentage point.
Corn Falls on Concern U.S. Economic Slump to Reduce Demand
By Jeff Wilson
Jan. 30 (Bloomberg) -- Corn dropped on concern an interest- rate cut by the U.S. Federal Reserve won't keep the economy out of a recession, reducing global demand for food, fuel and animal feed.
U.S. economic growth slowed to an annual rate of 0.6 percent in the fourth quarter, half the rate forecast, Commerce Department data showed today. The Federal Open Market Committee cut its benchmark interest rate by half a percentage point to 3 percent following the Jan. 22 emergency rate reduction, the fastest 1.25 percent easing of monetary policy since 1990.
``A global slowdown will have an impact on demand,'' said Sid Love, a grain analyst for Kropf and Love Consulting in Overland Park, Kansas. ``Prices are likely to hold firm into February'' the month that federal crop insurance rates are set based on average futures prices in Chicago, Love said.
Corn futures for March delivery fell 2.5 cents, or 0.5 percent, to $4.985 a bushel on the Chicago Board of Trade. The price still has climbed 9.4 percent in January, heading for the fifth straight monthly gain.
The most-active contract reached a record $5.1925 on Jan. 15. Futures climbed 17 percent last year on record demand for grain used to make ethanol and feed livestock.
Corn also fell on speculation import demand from Mexico, the second-biggest buyer of the crop, will decline.
Mexican economic growth will slow to 2.8 percent in 2008, the lowest in three years, from an estimated 3.2 percent in 2007, the Finance Ministry said today. The government had forecast 3.7 percent expansion.
Near Recession
The U.S. economy edged closer to recession in the fourth quarter as home construction fell the most in 26 years and Americans cut back on spending, government data showed.
``If these recession fears are realized, we could see a slowdown in global demand,'' said Marty Foreman, a grain analyst for Doane Agricultural Services Co. in St. Louis. ``A slowdown doesn't change things immediately, but for now, we can say prices are high enough.''
Corn prices also fell on speculation U.S.-produced ethanol may face increased competition from Brazilian supplies, which are made from sugar, said Chad Henderson, a market analyst for Prime-Ag Consulting Inc. in Brookfield, Wisconsin.
Ethanol import tariffs that have ``helped protect'' U.S. ethanol producers will be addressed in the 2009 budget set for release Feb. 4, Energy Secretary Samuel Bodman said yesterday. The U.S. industry ``is pretty close to being able to stand on its own,'' Bodman said after giving a speech in Washington.
``The elimination of the ethanol import tariff could change the outlook for corn demand,'' Henderson said. ``Imports could reduce demand for Midwestern ethanol'' on the East Coast and West Coast, where imports would be cheaper, Henderson said.
Corn is the biggest U.S. crop, valued at a record $33.8 billion in 2006, followed by soybeans at $19.7 billion, government figures show.
Jan. 30 (Bloomberg) -- Corn dropped on concern an interest- rate cut by the U.S. Federal Reserve won't keep the economy out of a recession, reducing global demand for food, fuel and animal feed.
U.S. economic growth slowed to an annual rate of 0.6 percent in the fourth quarter, half the rate forecast, Commerce Department data showed today. The Federal Open Market Committee cut its benchmark interest rate by half a percentage point to 3 percent following the Jan. 22 emergency rate reduction, the fastest 1.25 percent easing of monetary policy since 1990.
``A global slowdown will have an impact on demand,'' said Sid Love, a grain analyst for Kropf and Love Consulting in Overland Park, Kansas. ``Prices are likely to hold firm into February'' the month that federal crop insurance rates are set based on average futures prices in Chicago, Love said.
Corn futures for March delivery fell 2.5 cents, or 0.5 percent, to $4.985 a bushel on the Chicago Board of Trade. The price still has climbed 9.4 percent in January, heading for the fifth straight monthly gain.
The most-active contract reached a record $5.1925 on Jan. 15. Futures climbed 17 percent last year on record demand for grain used to make ethanol and feed livestock.
Corn also fell on speculation import demand from Mexico, the second-biggest buyer of the crop, will decline.
Mexican economic growth will slow to 2.8 percent in 2008, the lowest in three years, from an estimated 3.2 percent in 2007, the Finance Ministry said today. The government had forecast 3.7 percent expansion.
Near Recession
The U.S. economy edged closer to recession in the fourth quarter as home construction fell the most in 26 years and Americans cut back on spending, government data showed.
``If these recession fears are realized, we could see a slowdown in global demand,'' said Marty Foreman, a grain analyst for Doane Agricultural Services Co. in St. Louis. ``A slowdown doesn't change things immediately, but for now, we can say prices are high enough.''
Corn prices also fell on speculation U.S.-produced ethanol may face increased competition from Brazilian supplies, which are made from sugar, said Chad Henderson, a market analyst for Prime-Ag Consulting Inc. in Brookfield, Wisconsin.
Ethanol import tariffs that have ``helped protect'' U.S. ethanol producers will be addressed in the 2009 budget set for release Feb. 4, Energy Secretary Samuel Bodman said yesterday. The U.S. industry ``is pretty close to being able to stand on its own,'' Bodman said after giving a speech in Washington.
``The elimination of the ethanol import tariff could change the outlook for corn demand,'' Henderson said. ``Imports could reduce demand for Midwestern ethanol'' on the East Coast and West Coast, where imports would be cheaper, Henderson said.
Corn is the biggest U.S. crop, valued at a record $33.8 billion in 2006, followed by soybeans at $19.7 billion, government figures show.
Japanese Stocks Fall After U.S. Growth Slows, S&P Ratings
By Masaki Kondo and Patrick Rial
Jan. 31 (Bloomberg) -- Japanese stocks dropped after growth slowed in the U.S., the world's biggest economy, and Standard & Poor's slashed ratings on subprime mortgage securities, raising concern banks will be forced to report more investment losses.
Canon Inc., which forecast its slowest annual profit growth this decade, plunged by the most in five months. Mitsubishi UFJ Financial Group Inc. fell for second day.
The U.S. economy grew 0.6 percent in the fourth quarter, falling from 4.9 percent in the prior three months and the slowest since the first quarter of last year. S&P lowered its credit rating on $270.1 billion of subprime mortgage bonds and said it may cut an equivalent amount of collateralized debt obligations.
``Investors were jolted back to the reality that economic growth is weakening,'' said Yoji Takeda, who oversees $1.1 billion at RBC Investment (Asia) Ltd. in Hong Kong. ``There's no end in sight yet to the subprime problem and it's unclear to what extent banks will post losses.''
The Nikkei 225 Stock Average lost 169.27, or 1.3 percent, to 13,175.76 as of 9:51 a.m. in Tokyo, while the broader Topix index retreated 21.36, or 1.6 percent, to 1,298.75.
Shares of companies relying on overseas sales also fell after the yen strengthened against the dollar to as high as 106.03 from 106.84 yesterday, after the U.S. Federal Reserve cut its benchmark interest rate by half a point to 3 percent.
The Nikkei has lost 14 percent in January and the Topix has dropped 12 percent, the worst month for both since Aug. 1998.
Nikkei futures expiring in March slumped 1.6 percent to 13,200 in Osaka and fell 1.5 percent to 13,200 in Singapore.
Jan. 31 (Bloomberg) -- Japanese stocks dropped after growth slowed in the U.S., the world's biggest economy, and Standard & Poor's slashed ratings on subprime mortgage securities, raising concern banks will be forced to report more investment losses.
Canon Inc., which forecast its slowest annual profit growth this decade, plunged by the most in five months. Mitsubishi UFJ Financial Group Inc. fell for second day.
The U.S. economy grew 0.6 percent in the fourth quarter, falling from 4.9 percent in the prior three months and the slowest since the first quarter of last year. S&P lowered its credit rating on $270.1 billion of subprime mortgage bonds and said it may cut an equivalent amount of collateralized debt obligations.
``Investors were jolted back to the reality that economic growth is weakening,'' said Yoji Takeda, who oversees $1.1 billion at RBC Investment (Asia) Ltd. in Hong Kong. ``There's no end in sight yet to the subprime problem and it's unclear to what extent banks will post losses.''
The Nikkei 225 Stock Average lost 169.27, or 1.3 percent, to 13,175.76 as of 9:51 a.m. in Tokyo, while the broader Topix index retreated 21.36, or 1.6 percent, to 1,298.75.
Shares of companies relying on overseas sales also fell after the yen strengthened against the dollar to as high as 106.03 from 106.84 yesterday, after the U.S. Federal Reserve cut its benchmark interest rate by half a point to 3 percent.
The Nikkei has lost 14 percent in January and the Topix has dropped 12 percent, the worst month for both since Aug. 1998.
Nikkei futures expiring in March slumped 1.6 percent to 13,200 in Osaka and fell 1.5 percent to 13,200 in Singapore.
Wheat Falls as Argentina Eliminates Restrictions on Exports
By Tony C. Dreibus
Jan. 30 (Bloomberg) -- Wheat fell for the second straight day after Argentina, the world's fourth-largest exporter of the grain, planned to end temporary limits on shipments next month.
The lifting of restrictions will free up about 2 million metric tons of wheat for sale overseas, eroding demand for supplies from the U.S., the biggest exporter, analysts said. Argentina halted registrations in November to curb rising domestic food prices.
``That's business that we would've gotten if Argentina wouldn't have allowed those exports,'' said Larry Glenn, owner of Glenn Commodities in Wichita, Kansas. ``That's five weeks worth of export business if we sold 400,000 a week.''
Wheat for March delivery fell 21.5 cents, or 2.3 percent, to $9.225 a bushel on the Chicago Board of Trade. The announcement yesterday in Buenos Aires that shipments would resume by Feb. 15 sent wheat tumbling 19 cents, or 2 percent, after the price earlier rose the exchange's 30-cent limit, or 3.1 percent.
Wheat futures still have doubled in the past year and reached a record $10.095 on Dec. 17 after importers began buying U.S. grain on concern supplies would fall short of demand.
Higher prices have hurt profit at Kellogg Co., the largest cereal maker in the U.S. Fourth-quarter earnings dropped 3.3 percent, partly because of higher wheat costs, the company said today. Net income fell to $176 million, or 44 cents a share, from $182 million, or 45 cents, a year earlier. Sales increased 8.1 percent to $2.79 billion.
Minneapolis Rally
On the Minneapolis Grain Exchange, contracts for high- protein spring wheat extended a rally, reaching a record in overnight trading on concern farmers in the U.S. and Canada may not seed enough acres in April and May.
Inventories of spring varieties are low after drought curbed yields in southern Canada and the northern U.S. in 2007. With corn and soybean prices at or near records, farmers may sow more of those crops rather than wheat, analysts said.
``Things are awful tight for spring-wheat supplies and demand's been high for quality wheat,'' Glenn said.
Wheat for March delivery in Minneapolis rose 16 cents, or 1.2 percent, to $13.43 a bushel after reaching $13.55, the highest ever. The price has jumped the 30-cent limit in six of the past nine sessions. Futures have surged 30 percent this month and more than doubled in the past year.
Futures for delivery in September and December fell the exchange limit on speculation stockpiles of spring wheat will rise as record prices encourage growers to plant more of the grain. Spring wheat is harvested starting in August.
Wheat was the fourth-biggest U.S. crop in 2006, valued at $7.7 billion, behind corn, soybeans and hay, government data show.
Jan. 30 (Bloomberg) -- Wheat fell for the second straight day after Argentina, the world's fourth-largest exporter of the grain, planned to end temporary limits on shipments next month.
The lifting of restrictions will free up about 2 million metric tons of wheat for sale overseas, eroding demand for supplies from the U.S., the biggest exporter, analysts said. Argentina halted registrations in November to curb rising domestic food prices.
``That's business that we would've gotten if Argentina wouldn't have allowed those exports,'' said Larry Glenn, owner of Glenn Commodities in Wichita, Kansas. ``That's five weeks worth of export business if we sold 400,000 a week.''
Wheat for March delivery fell 21.5 cents, or 2.3 percent, to $9.225 a bushel on the Chicago Board of Trade. The announcement yesterday in Buenos Aires that shipments would resume by Feb. 15 sent wheat tumbling 19 cents, or 2 percent, after the price earlier rose the exchange's 30-cent limit, or 3.1 percent.
Wheat futures still have doubled in the past year and reached a record $10.095 on Dec. 17 after importers began buying U.S. grain on concern supplies would fall short of demand.
Higher prices have hurt profit at Kellogg Co., the largest cereal maker in the U.S. Fourth-quarter earnings dropped 3.3 percent, partly because of higher wheat costs, the company said today. Net income fell to $176 million, or 44 cents a share, from $182 million, or 45 cents, a year earlier. Sales increased 8.1 percent to $2.79 billion.
Minneapolis Rally
On the Minneapolis Grain Exchange, contracts for high- protein spring wheat extended a rally, reaching a record in overnight trading on concern farmers in the U.S. and Canada may not seed enough acres in April and May.
Inventories of spring varieties are low after drought curbed yields in southern Canada and the northern U.S. in 2007. With corn and soybean prices at or near records, farmers may sow more of those crops rather than wheat, analysts said.
``Things are awful tight for spring-wheat supplies and demand's been high for quality wheat,'' Glenn said.
Wheat for March delivery in Minneapolis rose 16 cents, or 1.2 percent, to $13.43 a bushel after reaching $13.55, the highest ever. The price has jumped the 30-cent limit in six of the past nine sessions. Futures have surged 30 percent this month and more than doubled in the past year.
Futures for delivery in September and December fell the exchange limit on speculation stockpiles of spring wheat will rise as record prices encourage growers to plant more of the grain. Spring wheat is harvested starting in August.
Wheat was the fourth-biggest U.S. crop in 2006, valued at $7.7 billion, behind corn, soybeans and hay, government data show.
Crude Oil Follows Equities Lower After Fed Cuts Interest Rates
By Margot Habiby and Mark Shenk
Jan. 31 (Bloomberg) -- Crude oil fell for the first time in six days as U.S. stocks declined after the Federal Reserve cut its benchmark interest rate to bolster the economy of the world's biggest energy-consuming country.
Oil gained the past five sessions in anticipation of the Fed reducing interest rates by half a percentage point to 3 percent. The move yesterday, coupled with the Jan. 22 emergency cut of three-quarters of a point, is the fastest easing of monetary policy since 1990.
``The market has rallied in both equities and oil over the past few days on the assumption that we were going to get a 50 basis point cut,'' said Jeff Spittel, an analyst at Natixis Bleichroeder Inc. in Houston. ``We got it, and I think there are people trying to square off positions.''
Crude oil for March delivery dropped as much as $1.28, or 1.4 percent, to $91.05 a barrel in after-hours trading on the New York Mercantile Exchange. It was at $91.16 at 8:15 a.m. in Singapore.
The contract rose 69 cents, or 0.8 percent, to $92.33 yesterday, the highest settlement since Jan. 14. Prices slumped in later trading with share prices gave up their gains.
U.S. stocks fell for the first time this week on concern that bond insurers guaranteeing $2.4 trillion in securities will lose AAA credit ratings. The Standard & Poor's 500 index fell 6.49, or 0.5 percent, to 1,355.81 and is down 7.7 percent this year. The Dow Jones Industrial Average lost 37.47, or 0.3 percent, to 12,442.83.
Economy
``The bottom-line is that people are worried about the economy,'' said Mark Waggoner, president of Excel Futures Inc. in Huntington Beach, California. The Fed ``is probably going to have to lower rates again'' and that will push the dollar lower and hold oil in a trading range $86 and $95, he said.
Brent crude for March settlement yesterday rose 53 cents, or 0.6 percent, to $92.53 a barrel on London's ICE Futures Europe exchange yesterday, the highest close since Jan. 14.
A U.S. Energy Department report yesterday showed that oil stockpiles rose a for a third time last week, and by more than analysts expected. Gasoline stockpiles increased for a 12th week.
Refineries operated at 85 percent of capacity, the lowest since March 2006, according to the department.
``You're probably going to see more builds from here but that's because refinery runs are coming down and that's because of normal seasonal maintenance,'' Excel's Waggoner said. ``Imports are high and demand is still pretty strong.''
The Organization of Petroleum Exporting Countries will keep its output target unchanged at 29.67 million barrels a day when it meets in Vienna tomorrow, according to 29 of 32 analysts surveyed between Jan. 24 and 28 by Bloomberg News. The 13-member group produces more than 40 percent of the world's oil.
``The world has sufficient supply, even oversupplied in some places,'' Qatar's Abdullah bin Hamad al-Attiyah said in a Bloomberg Television interview in Doha yesterday. ``So to increase, I don't think this is on the agenda.''
Jan. 31 (Bloomberg) -- Crude oil fell for the first time in six days as U.S. stocks declined after the Federal Reserve cut its benchmark interest rate to bolster the economy of the world's biggest energy-consuming country.
Oil gained the past five sessions in anticipation of the Fed reducing interest rates by half a percentage point to 3 percent. The move yesterday, coupled with the Jan. 22 emergency cut of three-quarters of a point, is the fastest easing of monetary policy since 1990.
``The market has rallied in both equities and oil over the past few days on the assumption that we were going to get a 50 basis point cut,'' said Jeff Spittel, an analyst at Natixis Bleichroeder Inc. in Houston. ``We got it, and I think there are people trying to square off positions.''
Crude oil for March delivery dropped as much as $1.28, or 1.4 percent, to $91.05 a barrel in after-hours trading on the New York Mercantile Exchange. It was at $91.16 at 8:15 a.m. in Singapore.
The contract rose 69 cents, or 0.8 percent, to $92.33 yesterday, the highest settlement since Jan. 14. Prices slumped in later trading with share prices gave up their gains.
U.S. stocks fell for the first time this week on concern that bond insurers guaranteeing $2.4 trillion in securities will lose AAA credit ratings. The Standard & Poor's 500 index fell 6.49, or 0.5 percent, to 1,355.81 and is down 7.7 percent this year. The Dow Jones Industrial Average lost 37.47, or 0.3 percent, to 12,442.83.
Economy
``The bottom-line is that people are worried about the economy,'' said Mark Waggoner, president of Excel Futures Inc. in Huntington Beach, California. The Fed ``is probably going to have to lower rates again'' and that will push the dollar lower and hold oil in a trading range $86 and $95, he said.
Brent crude for March settlement yesterday rose 53 cents, or 0.6 percent, to $92.53 a barrel on London's ICE Futures Europe exchange yesterday, the highest close since Jan. 14.
A U.S. Energy Department report yesterday showed that oil stockpiles rose a for a third time last week, and by more than analysts expected. Gasoline stockpiles increased for a 12th week.
Refineries operated at 85 percent of capacity, the lowest since March 2006, according to the department.
``You're probably going to see more builds from here but that's because refinery runs are coming down and that's because of normal seasonal maintenance,'' Excel's Waggoner said. ``Imports are high and demand is still pretty strong.''
The Organization of Petroleum Exporting Countries will keep its output target unchanged at 29.67 million barrels a day when it meets in Vienna tomorrow, according to 29 of 32 analysts surveyed between Jan. 24 and 28 by Bloomberg News. The 13-member group produces more than 40 percent of the world's oil.
``The world has sufficient supply, even oversupplied in some places,'' Qatar's Abdullah bin Hamad al-Attiyah said in a Bloomberg Television interview in Doha yesterday. ``So to increase, I don't think this is on the agenda.''
Gold Rises to Record After Fed Cuts Rates, Sending Dollar Lower
By Pham-Duy Nguyen
Jan. 30 (Bloomberg) -- Gold rose to a record after the Federal Reserve lowered interest rates for the second time in nine days, weakening the dollar and boosting the appeal of the precious metal as an alternative investment.
The Fed cut the federal funds rate by half a percentage point to 3 percent, the lowest since June 2005, after an emergency reduction of 0.75 percentage point on Jan. 22. Fed cuts in 2007 totaled 1 percentage point, sending the dollar 9.5 percent lower against the euro, while gold gained 31 percent in 2007, the most since 1979.
``Gold will continue to rise,'' said Stuart Flerlage, who helps manage more than $600 million at NuWave Investment Corp. in New York. ``U.S. interest-rate cuts continue to underpin the fiat-currency play. Investors will continue to seek safe haven in one of the primary traditional stores of value.''
Gold futures for April delivery rose $7.40, or 0.8 percent, to $933.70 an ounce at 3:36 p.m. in after-hours trading on the Comex division of the New York Mercantile Exchange. Earlier, gold touched $942.20, the highest ever for a most-active contract. Before the Fed announcement, the contract had fallen $4.50 to close at $926.30.
Gold for immediate delivery also rose to a record $936.61 an ounce.
The euro rallied as much as 0.9 percent against the dollar after the announcement. Policy makers said that ``downside risks to growth remain.''
Housing Slump, Mortgage Losses
Before today's rate reduction, gold had gained 28 percent since Sept. 18, when the Fed began cutting borrowing costs because a housing slump and mounting losses in the subprime- mortgage market threatened to push the U.S. economy into a recession. The Fed had held rates steady since June 2006 before the Sept. 18 cut.
Economic growth slowed to an annual rate of 0.6 percent in the fourth quarter, compared with a 4.9 percent pace in the previous three months, the Commerce Department said today. The U.S. House of Representatives yesterday approved a $146 billion economic stimulus plan. Consumer prices last year rose 4.1 percent, the most since 1990.
``Gold is going higher on the liquidity that's being flooded into the market,'' said Frank McGhee, head metals trader at Integrated Brokerage Services LLC in Chicago. ``It's going to continue the stagflation scenario we've had for the past six months.''
Stagflation occurs when costs accelerate while growth slows.
Jan. 30 (Bloomberg) -- Gold rose to a record after the Federal Reserve lowered interest rates for the second time in nine days, weakening the dollar and boosting the appeal of the precious metal as an alternative investment.
The Fed cut the federal funds rate by half a percentage point to 3 percent, the lowest since June 2005, after an emergency reduction of 0.75 percentage point on Jan. 22. Fed cuts in 2007 totaled 1 percentage point, sending the dollar 9.5 percent lower against the euro, while gold gained 31 percent in 2007, the most since 1979.
``Gold will continue to rise,'' said Stuart Flerlage, who helps manage more than $600 million at NuWave Investment Corp. in New York. ``U.S. interest-rate cuts continue to underpin the fiat-currency play. Investors will continue to seek safe haven in one of the primary traditional stores of value.''
Gold futures for April delivery rose $7.40, or 0.8 percent, to $933.70 an ounce at 3:36 p.m. in after-hours trading on the Comex division of the New York Mercantile Exchange. Earlier, gold touched $942.20, the highest ever for a most-active contract. Before the Fed announcement, the contract had fallen $4.50 to close at $926.30.
Gold for immediate delivery also rose to a record $936.61 an ounce.
The euro rallied as much as 0.9 percent against the dollar after the announcement. Policy makers said that ``downside risks to growth remain.''
Housing Slump, Mortgage Losses
Before today's rate reduction, gold had gained 28 percent since Sept. 18, when the Fed began cutting borrowing costs because a housing slump and mounting losses in the subprime- mortgage market threatened to push the U.S. economy into a recession. The Fed had held rates steady since June 2006 before the Sept. 18 cut.
Economic growth slowed to an annual rate of 0.6 percent in the fourth quarter, compared with a 4.9 percent pace in the previous three months, the Commerce Department said today. The U.S. House of Representatives yesterday approved a $146 billion economic stimulus plan. Consumer prices last year rose 4.1 percent, the most since 1990.
``Gold is going higher on the liquidity that's being flooded into the market,'' said Frank McGhee, head metals trader at Integrated Brokerage Services LLC in Chicago. ``It's going to continue the stagflation scenario we've had for the past six months.''
Stagflation occurs when costs accelerate while growth slows.
Fed Cuts Interest Rate to 3% as U.S. Growth Falters
By Craig Torres
The Federal Reserve lowered its benchmark interest rate by half a point to 3 percent, the second cut in nine days, and indicated its willingness to do so again to prevent a U.S. recession.
``Downside risks to growth remain,'' the Federal Open Market Committee said in a statement after meeting today in Washington. In a reference to the volatility of the past five months, the Fed added that ``financial markets remain under considerable stress and credit has tightened further for some businesses and households.''
The dollar tumbled and two-year Treasury notes rose after the decision as traders anticipated another reduction at the Fed's March meeting, if not before. The cumulative reduction in rates since Jan. 22 is the fastest easing of monetary policy since 1990. The Standard & Poor's 500 Index closed 0.5 percent lower and is down 7.7 percent this year.
``They're going full-bore trying to keep the economy from recession,'' said David Resler, chief economist at Nomura Securities International Inc. in New York. ``Conditions in the market place are the driving force right now.''
Hours before the decision was announced, the Commerce Department reported that gross domestic product grew at an annual pace of 0.6 percent in the fourth quarter.
``The Fed has gotten religion and is going do what they need to do,'' said Mark Vitner, senior economist at Wachovia Corp. in Charlotte, North Carolina.
Readiness to Respond
Fed officials said they will continue to assess financial markets and the economy ``and will act in a timely manner as needed.''
``Recent information indicates a deepening of the housing contraction as well as some softening in labor markets,'' the central bank's statement also noted.
Chairman Ben S. Bernanke and the Fed's Board of Governors also voted to cut the discount rate, the cost of direct loans from the central bank, to 3.5 percent from 4 percent.
Dallas Fed President Richard Fisher dissented from today's decision, preferring no change.
Policy makers presented revised three-year economic forecasts at this week's gathering. The Fed will release the projections along with minutes of the meeting on Feb. 20.
Today's Commerce Department figures showed the Fed's preferred inflation gauge rose at a 2.7 percent annualized rate last quarter. Fed officials in October forecast the personal consumption expenditures price index minus food and energy would rise 1.6 percent to 1.9 percent in 2010, offering a measure of their longer-term inflation objective.
Inflation
``The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully,'' the Fed said in today's statement.
Wall Street firms including Morgan Stanley, Merrill Lynch & Co., Goldman Sachs Group Inc. and Citigroup Inc. are forecasting the first recession since 2001 this year. Still, executives at firms such as Dow Chemical Co. said they don't detect a downturn yet, while risks remain.
This year ``will be slower than 2007,'' Andrew Liveris, the chairman and chief executive officer of Dow Chemical, said yesterday. ``It is an inconvenience, not a catastrophe.''
United Parcel Service Inc., Caterpillar Inc. and General Electric Co. are relying on gains overseas to counter slower growth at home.
Evolution Since August
Fed policy makers have struggled since August to contain the economic damage sparked by the worst housing recession in a quarter-century. The world's largest banks and securities firms have recorded more than $133 billion in asset writedowns and credit losses since the beginning of 2007, which analysts blamed on weak and fragmented supervision and poor credit analysis.
``The Fed's move lowers the cost of financing for Wall Street which is struggling to raise capital after being hit with writedowns not seen since the Great Depression,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.
Foreclosure rates rose 75 percent in 2007 as a record amount of adjustable-rate loans to borrowers with weak or limited credit histories reset to higher rates, RealtyTrac Inc. data show. Home prices in 20 U.S. metropolitan areas fell 7.7 percent in November from a year earlier, the 11th consecutive decline, the S&P/Case-Shiller home-price index showed yesterday.
``We are in a historic housing bust right now, comparable to that of the Great Depression,'' said Robert Shiller, chief economist of MacroMarkets LLC in Madison, New Jersey, who co- founded the house-price index. ``The unraveling of that has unpredictable consequences.''
Delay in 2007
Fed officials waited until September to cut the benchmark lending rate, even though premiums on corporate bonds and lower- rated securities began to climb in late June.
By December, Fed policy makers had cut the benchmark lending rate 1 percentage point, yet still described the policy rate as ``somewhat restrictive'' as they deliberated whether to cut again that month, minutes show.
The government's December payroll report, which showed a loss of 13,000 private sector jobs, the first decline since July 2003, began to reshape Fed officials' views about risks.
Bernanke used a Jan. 10 speech to update the public. ``The baseline outlook for real activity in 2008 has worsened and the downside risks to growth have become more pronounced,'' he said, breaking with the Fed's statement a month earlier which only expressed ``uncertainty'' about the outlook. He pledged ``substantive additional action as needed.''
The Federal Reserve lowered its benchmark interest rate by half a point to 3 percent, the second cut in nine days, and indicated its willingness to do so again to prevent a U.S. recession.
``Downside risks to growth remain,'' the Federal Open Market Committee said in a statement after meeting today in Washington. In a reference to the volatility of the past five months, the Fed added that ``financial markets remain under considerable stress and credit has tightened further for some businesses and households.''
The dollar tumbled and two-year Treasury notes rose after the decision as traders anticipated another reduction at the Fed's March meeting, if not before. The cumulative reduction in rates since Jan. 22 is the fastest easing of monetary policy since 1990. The Standard & Poor's 500 Index closed 0.5 percent lower and is down 7.7 percent this year.
``They're going full-bore trying to keep the economy from recession,'' said David Resler, chief economist at Nomura Securities International Inc. in New York. ``Conditions in the market place are the driving force right now.''
Hours before the decision was announced, the Commerce Department reported that gross domestic product grew at an annual pace of 0.6 percent in the fourth quarter.
``The Fed has gotten religion and is going do what they need to do,'' said Mark Vitner, senior economist at Wachovia Corp. in Charlotte, North Carolina.
Readiness to Respond
Fed officials said they will continue to assess financial markets and the economy ``and will act in a timely manner as needed.''
``Recent information indicates a deepening of the housing contraction as well as some softening in labor markets,'' the central bank's statement also noted.
Chairman Ben S. Bernanke and the Fed's Board of Governors also voted to cut the discount rate, the cost of direct loans from the central bank, to 3.5 percent from 4 percent.
Dallas Fed President Richard Fisher dissented from today's decision, preferring no change.
Policy makers presented revised three-year economic forecasts at this week's gathering. The Fed will release the projections along with minutes of the meeting on Feb. 20.
Today's Commerce Department figures showed the Fed's preferred inflation gauge rose at a 2.7 percent annualized rate last quarter. Fed officials in October forecast the personal consumption expenditures price index minus food and energy would rise 1.6 percent to 1.9 percent in 2010, offering a measure of their longer-term inflation objective.
Inflation
``The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully,'' the Fed said in today's statement.
Wall Street firms including Morgan Stanley, Merrill Lynch & Co., Goldman Sachs Group Inc. and Citigroup Inc. are forecasting the first recession since 2001 this year. Still, executives at firms such as Dow Chemical Co. said they don't detect a downturn yet, while risks remain.
This year ``will be slower than 2007,'' Andrew Liveris, the chairman and chief executive officer of Dow Chemical, said yesterday. ``It is an inconvenience, not a catastrophe.''
United Parcel Service Inc., Caterpillar Inc. and General Electric Co. are relying on gains overseas to counter slower growth at home.
Evolution Since August
Fed policy makers have struggled since August to contain the economic damage sparked by the worst housing recession in a quarter-century. The world's largest banks and securities firms have recorded more than $133 billion in asset writedowns and credit losses since the beginning of 2007, which analysts blamed on weak and fragmented supervision and poor credit analysis.
``The Fed's move lowers the cost of financing for Wall Street which is struggling to raise capital after being hit with writedowns not seen since the Great Depression,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.
Foreclosure rates rose 75 percent in 2007 as a record amount of adjustable-rate loans to borrowers with weak or limited credit histories reset to higher rates, RealtyTrac Inc. data show. Home prices in 20 U.S. metropolitan areas fell 7.7 percent in November from a year earlier, the 11th consecutive decline, the S&P/Case-Shiller home-price index showed yesterday.
``We are in a historic housing bust right now, comparable to that of the Great Depression,'' said Robert Shiller, chief economist of MacroMarkets LLC in Madison, New Jersey, who co- founded the house-price index. ``The unraveling of that has unpredictable consequences.''
Delay in 2007
Fed officials waited until September to cut the benchmark lending rate, even though premiums on corporate bonds and lower- rated securities began to climb in late June.
By December, Fed policy makers had cut the benchmark lending rate 1 percentage point, yet still described the policy rate as ``somewhat restrictive'' as they deliberated whether to cut again that month, minutes show.
The government's December payroll report, which showed a loss of 13,000 private sector jobs, the first decline since July 2003, began to reshape Fed officials' views about risks.
Bernanke used a Jan. 10 speech to update the public. ``The baseline outlook for real activity in 2008 has worsened and the downside risks to growth have become more pronounced,'' he said, breaking with the Fed's statement a month earlier which only expressed ``uncertainty'' about the outlook. He pledged ``substantive additional action as needed.''
Thursday, January 24, 2008
Societe Generale to Seek EU5.5 Billion After Fraud, Writedowns
By Gregory Viscusi
Jan. 24 (Bloomberg) -- Societe Generale SA said it will seek 5.5 billion euros ($8.1 billion) in new capital after discovering a case of trading fraud and taking further writedowns linked to the U.S. subprime mortgage market crash.
The bank discovered last weekend that a trader in Paris had secretly set up positions that will cost the company 4.9 billion euros before tax, Societe Generale said in an e-mailed statement today. The trader, who wasn't identified, went beyond permitted limits on futures linked to European stock indexes.
Societe Generale will also take 2.05 billion euros in writedowns related to credit market turbulence. The bank said it will still make a profit of between 600 million euros and 800 million euros for 2007. An offer by Chairman Daniel Bouton to resign was rejected by the board, the bank said.
Societe Generale yesterday fell 4.1 percent to 79.08 euros, its lowest since May 2005, valuing the bank at 36 billion euros. The shares have fallen 20 percent since the start of the year, hurt by expectations of further writedowns.
The company said it plans to raise the capital by selling shares in a rights offer underwritten by JPMorgan Chase & Co. and Morgan Stanley.
Jan. 24 (Bloomberg) -- Societe Generale SA said it will seek 5.5 billion euros ($8.1 billion) in new capital after discovering a case of trading fraud and taking further writedowns linked to the U.S. subprime mortgage market crash.
The bank discovered last weekend that a trader in Paris had secretly set up positions that will cost the company 4.9 billion euros before tax, Societe Generale said in an e-mailed statement today. The trader, who wasn't identified, went beyond permitted limits on futures linked to European stock indexes.
Societe Generale will also take 2.05 billion euros in writedowns related to credit market turbulence. The bank said it will still make a profit of between 600 million euros and 800 million euros for 2007. An offer by Chairman Daniel Bouton to resign was rejected by the board, the bank said.
Societe Generale yesterday fell 4.1 percent to 79.08 euros, its lowest since May 2005, valuing the bank at 36 billion euros. The shares have fallen 20 percent since the start of the year, hurt by expectations of further writedowns.
The company said it plans to raise the capital by selling shares in a rights offer underwritten by JPMorgan Chase & Co. and Morgan Stanley.
Monday, January 21, 2008
FI/EQ- China Discovers $119 Billion Banking `Irregularities'
Check out below 2 stories.. 860 billion yuan of " irregularities " in chinese banks. This 3x the combined profits of the major banks. ( makes the US problem pale in comparision). Combined with news this am of BOC (3988) potential substantial write down on US subprime. Question is whether " China Financial System " is as robust as the current market pricing suggest.
(Adds chairman's comment in second paragraph.)
By Josephine Lau
Jan. 18 (Bloomberg) -- China discovered 860 billion yuan
($119 billion) in banking ``irregularities'' last year, almost
triple the profits by Industrial & Commercial Bank of China Ltd.
and other ``major'' Chinese commercial banks, the regulator said.
``We must strengthen our regulatory capacity and nip these
risks in the bud,'' said Liu Mingkang, chairman of the China
Banking Regulatory Commission, at the watchdog's annual planning
meeting, according to a statement posted on its Web site today.
China's ``major'' commercial banks posted combined profits of
299 billion yuan in 2007, the statement said, without providing a
year-earlier figure. A July 5 report said the banks earned an
aggregate pretax profit of 240.9 billion yuan in 2006.
ICBC, the world's biggest bank by market value, Bank of China,
China Construction Bank Corp. and Bank of Communications Co. had
average returns of 1.1 percent on their assets last year, while
their mean non-performing loan ratio stood at 2.87 percent,
according to the statement.
China's banking watchdog uncovered ``irregularities'' in its
investigation of 79,200 domestic banks, the statement said,
without defining the term.
Domestic banks had a total of $267.4 billion in overseas
assets as at the end of last year, which included their
investments and branches abroad, the Chinese regulator said.
China will draft regulations on project finance and loans for
acquisitions, fixed assets, working capital and personal use in
2008, said the watchdog.
The Bank of China (SEHK: 3988) is expected to announce a significant write-down of its failed investments in US subprime mortgage securities in the fourth quarter when it reveals its full-year results in April, mainland banking sources say.
The bank may post drastically lower profits, or even a loss, if it writes down the US$7.95 billion it holds in securities backed by loans to less-credit-worthy borrowers. In August, BOC surprised the markets by announcing it held US$9.65 billion in subprime-related securities, the most of any Asian company. In September, it revealed it had trimmed its subprime portfolio to US$7.95 billion in the third quarter and set aside US$322 million to account for potential losses.
The bank reported a net profit of 45.47 billion yuan in the first three quarters, up 40 per cent year on year.
However, the market value for subprime securities took another severe dive in the fourth quarter, forcing leading US banks, including Citigroup and Merrill Lynch, to post record losses for the period.
Banking analysts and sources said it was inevitable that BOC would greatly increase provisions for its subprime portfolio in the fourth quarter.
BNP Paribas analyst Dorris Chen said judging from the market slump in the quarter, the bank needed to set aside at least US$300 million against possible losses in the period.
But sources said senior banking regulators had already warned the mainland leadership that BOC and two other state banks - the Industrial and Commercial Bank of China (SEHK: 0349) and China Construction Bank (SEHK: 0939, announcements, news) - would have to make provisions for all of their exposed subprime-related assets.
ICBC announced in August it had subprime exposure of US$1.23 billion, for which it made a provision of 1.624 billion yuan before the end of September, while CCB had US$1.06 billion, for which a provision of 336 million yuan was made.
Although ICBC and CCB are believed to have increased write-downs for their subprime exposure in the fourth quarter, the impact on their bottom lines should be small.
Caijing Magazine reported yesterday that ICBC was expected to increase provisions to account for 30 per cent of its subprime portfolio, while CCB would increase its write-downs to 40 per cent of the portfolio in the fourth quarter.
Last week, both ICBC and CCB announced profit forecasts for the full year, expecting their profits to rise by at least 60 and 48 per cent respectively. However, the same cannot be said about BOC, which was aggressive in investing in US subprime-related securities.
Fox-Pitt Kelton analyst Warren Blight said that given losses from the US subprime market were starting to spill over to other assets, BOC would be hardest hit as it had a high concentration in foreign exchange business.
Sources said although the central government had maintained a calm stance towards the state banks' holdings of US subprime paper, the top leaders had privately expressed serious concern about the size of the holdings and had urged the banks to strengthen controls over investment in overseas financial derivatives.
Caijing yesterday quoted an unnamed banking regulator as saying one big state bank did not list overseas investments under its riskcontrol mechanism and that its chief risk officer was not aware of, and had no power over, the investments.
(Adds chairman's comment in second paragraph.)
By Josephine Lau
Jan. 18 (Bloomberg) -- China discovered 860 billion yuan
($119 billion) in banking ``irregularities'' last year, almost
triple the profits by Industrial & Commercial Bank of China Ltd.
and other ``major'' Chinese commercial banks, the regulator said.
``We must strengthen our regulatory capacity and nip these
risks in the bud,'' said Liu Mingkang, chairman of the China
Banking Regulatory Commission, at the watchdog's annual planning
meeting, according to a statement posted on its Web site today.
China's ``major'' commercial banks posted combined profits of
299 billion yuan in 2007, the statement said, without providing a
year-earlier figure. A July 5 report said the banks earned an
aggregate pretax profit of 240.9 billion yuan in 2006.
ICBC, the world's biggest bank by market value, Bank of China,
China Construction Bank Corp. and Bank of Communications Co. had
average returns of 1.1 percent on their assets last year, while
their mean non-performing loan ratio stood at 2.87 percent,
according to the statement.
China's banking watchdog uncovered ``irregularities'' in its
investigation of 79,200 domestic banks, the statement said,
without defining the term.
Domestic banks had a total of $267.4 billion in overseas
assets as at the end of last year, which included their
investments and branches abroad, the Chinese regulator said.
China will draft regulations on project finance and loans for
acquisitions, fixed assets, working capital and personal use in
2008, said the watchdog.
The Bank of China (SEHK: 3988) is expected to announce a significant write-down of its failed investments in US subprime mortgage securities in the fourth quarter when it reveals its full-year results in April, mainland banking sources say.
The bank may post drastically lower profits, or even a loss, if it writes down the US$7.95 billion it holds in securities backed by loans to less-credit-worthy borrowers. In August, BOC surprised the markets by announcing it held US$9.65 billion in subprime-related securities, the most of any Asian company. In September, it revealed it had trimmed its subprime portfolio to US$7.95 billion in the third quarter and set aside US$322 million to account for potential losses.
The bank reported a net profit of 45.47 billion yuan in the first three quarters, up 40 per cent year on year.
However, the market value for subprime securities took another severe dive in the fourth quarter, forcing leading US banks, including Citigroup and Merrill Lynch, to post record losses for the period.
Banking analysts and sources said it was inevitable that BOC would greatly increase provisions for its subprime portfolio in the fourth quarter.
BNP Paribas analyst Dorris Chen said judging from the market slump in the quarter, the bank needed to set aside at least US$300 million against possible losses in the period.
But sources said senior banking regulators had already warned the mainland leadership that BOC and two other state banks - the Industrial and Commercial Bank of China (SEHK: 0349) and China Construction Bank (SEHK: 0939, announcements, news) - would have to make provisions for all of their exposed subprime-related assets.
ICBC announced in August it had subprime exposure of US$1.23 billion, for which it made a provision of 1.624 billion yuan before the end of September, while CCB had US$1.06 billion, for which a provision of 336 million yuan was made.
Although ICBC and CCB are believed to have increased write-downs for their subprime exposure in the fourth quarter, the impact on their bottom lines should be small.
Caijing Magazine reported yesterday that ICBC was expected to increase provisions to account for 30 per cent of its subprime portfolio, while CCB would increase its write-downs to 40 per cent of the portfolio in the fourth quarter.
Last week, both ICBC and CCB announced profit forecasts for the full year, expecting their profits to rise by at least 60 and 48 per cent respectively. However, the same cannot be said about BOC, which was aggressive in investing in US subprime-related securities.
Fox-Pitt Kelton analyst Warren Blight said that given losses from the US subprime market were starting to spill over to other assets, BOC would be hardest hit as it had a high concentration in foreign exchange business.
Sources said although the central government had maintained a calm stance towards the state banks' holdings of US subprime paper, the top leaders had privately expressed serious concern about the size of the holdings and had urged the banks to strengthen controls over investment in overseas financial derivatives.
Caijing yesterday quoted an unnamed banking regulator as saying one big state bank did not list overseas investments under its riskcontrol mechanism and that its chief risk officer was not aware of, and had no power over, the investments.
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