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ECB Lowers rates again

noreply@blogger.com (Unknown) — Fri, 07 Nov 2008 05:56:00 +0000

ECB lowers rates again

By Andrew Gardner
06.11.2008 / 16:45 CET

Cut is the second in a month and takes rates to their lowest level in two years.

The European Central Bank (ECB) has cut interest rates by 50 basis points today, taking the headline rate of borrowing across the 15-member eurozone down to 3.25%.

The cut was the second in the space of a month and takes the cost of borrowing to its lowest level in two years, a reflection of the urgency that the bank feels about the state of the eurozone and global economies.

The bank's first rate cut – made on 8 October – was co-ordinated with six other central banks around the world, including the US Federal Reserve and the Bank of England. On this occasion, the ECB's move came a week after interest rates were chopped in the US by 50 basis points, to 1.0%, and at the same time as the Bank of England lopped 150 basis points off its interest rates, reducing them to 3.0%.

The ECB's and Bank of England's moves were foreshadowed three days ago when the European Commission released figures showing that the eurozone and other key European economies – chiefly the UK's – are in or are moving into recession. Projections for the next couple of years are also poor. The EU's gross domestic product (GDP) is expected to stop growing almost entirely (0.1%) next year, for example.

The rate cuts were expected and the size of the ECB's was predicted. However, the Bank of England's move was unexpectedly abrupt.

The recent, concerted move to loosen monetary conditions marks a change in priorities for the ECB, which has focused on inflation in recent years. It hoisted rates as recently as July. However, the global slowdown has eased the pressure on some key commodities, including oil, enabling the ECB to ease the terms of borrowing with greater confidence.

Inflation in the eurozone has fallen from a high of 4.0% this summer to 3.2%. That is nonetheless far higher than the 2% targeted by the ECB.

Switzerland's central bank also lowered its rates today. Australia did so earlier in the week.

Let’s Get Fiscal - Paul Krugman

noreply@blogger.com (Unknown) — Wed, 22 Oct 2008 22:53:00 +0000

October 17, 2008 – The New York Times

Let’s Get Fiscal

By PAUL KRUGMAN

The Dow is surging! No, it’s plunging! No, it’s surging! No, it’s ...

Nevermind. While the manic-depressive stock market is dominating the headlines, the more important story is the grim news coming in about the real economy. It’s now clear that rescuing the banks is just the beginning: the nonfinancial economy is also in desperate need of help.

And to provide that help, we’re going to have to put some prejudices aside. It’s politically fashionable to rant against government spending and demand fiscal responsibility. But right now, increased government spending is just what the doctor ordered, and concerns about the budget deficit should be put on hold.

Before I get there, let’s talk about the economic situation.

Just this week, we learned that retail sales have fallen off a cliff, and so has industrial production. Unemployment claims are at steep-recession levels, and the Philadelphia Fed’s manufacturing index is falling at the fastest pace in almost 20 years. All signs point to an economic slump that will be nasty, brutish — and long.

How nasty? The unemployment rate is already above 6 percent (and broader measures of underemployment are in double digits). It’s now virtually certain that the unemployment rate will go above 7 percent, and quite possibly above 8 percent, making this the worst recession in a quarter-century.

And how long? It could be very long indeed.

Think about what happened in the last recession, which followed the bursting of the late-1990s technology bubble. On the surface, the policy response to that recession looks like a success story. Although there were widespread fears that the United States would experience a Japanese-style “lost decade,” that didn’t happen: the Federal Reserve was able to engineer a recovery from that recession by cutting interest rates.

But the truth is that we were looking Japanese for quite a while: the Fed had a hard time getting traction. Despite repeated interest rate cuts, which eventually brought the federal funds rate down to just 1 percent, the unemployment rate just kept on rising; it was more than two years before the job picture started to improve. And when a convincing recovery finally did come, it was only because Alan Greenspan had managed to replace the technology bubble with a housing bubble.

Now the housing bubble has burst in turn, leaving the financial landscape strewn with wreckage. Even if the ongoing efforts to rescue the banking system and unfreeze the credit markets work — and while it’s early days yet, the initial results have been disappointing — it’s hard to see housing making a comeback any time soon. And if there’s another bubble waiting to happen, it’s not obvious. So the Fed will find it even harder to get traction this time.

In other words, there’s not much Ben Bernanke can do for the economy. He can and should cut interest rates even more — but nobody expects this to do more than provide a slight economic boost.

On the other hand, there’s a lot the federal government can do for the economy. It can provide extended benefits to the unemployed, which will both help distressed families cope and put money in the hands of people likely to spend it. It can provide emergency aid to state and local governments, so that they aren’t forced into steep spending cuts that both degrade public services and destroy jobs. It can buy up mortgages (but not at face value, as John McCain has proposed) and restructure the terms to help families stay in their homes.

And this is also a good time to engage in some serious infrastructure spending, which the country badly needs in any case. The usual argument against public works as economic stimulus is that they take too long: by the time you get around to repairing that bridge and upgrading that rail line, the slump is over and the stimulus isn’t needed. Well, that argument has no force now, since the chances that this slump will be over anytime soon are virtually nil. So let’s get those projects rolling.

Will the next administration do what’s needed to deal with the economic slump? Not if Mr. McCain pulls off an upset. What we need right now is more government spending — but when Mr. McCain was asked in one of the debates how he would deal with the economic crisis, he answered: “Well, the first thing we have to do is get spending under control.”

If Barack Obama becomes president, he won’t have the same knee-jerk opposition to spending. But he will face a chorus of inside-the-Beltway types telling him that he has to be responsible, that the big deficits the government will run next year if it does the right thing are unacceptable.

He should ignore that chorus. The responsible thing, right now, is to give the economy the help it needs. Now is not the time to worry about the deficit.

Buy American. I am - Warren Buffett

noreply@blogger.com (Unknown) — Wed, 22 Oct 2008 22:49:00 +0000

October 17, 2008 – The New York Times

Buy American. I Am.

By WARREN E. BUFFETT

Omaha

THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

China Mulling 200-400 bln stimulus plan

noreply@blogger.com (Unknown) — Wed, 20 Aug 2008 06:00:00 +0000

China mulling 200-400 bln stimulus plan – JPMorgan19 Aug 2008
bbj.hu

China’s leaders are carefully considering an economic stimulus package of at least 200-400 billion yuan ($29-58 billion) and may ease monetary policy by the end of the year, investment bank JPMorgan Chase said on Tuesday.

The possible stimulus package would be equivalent to 1.0 to 1.5% of GDP. “This will include tax cuts and measures to ‘stabilize domestic capital markets’ and support ‘healthy development of the housing market’,” Frank Gong, chief China economist for JPMorgan, said in a note to clients.

Gong said the package would be in addition to projected spending of 500-600 billion yuan to rebuild the parts of Sichuan devastated by May’s earthquake. Expectations of fiscal pump-priming have been growing since the Communist party last month switched its economic policy priority from avoiding overheating to supporting steady growth. Beijing is moving ahead with plans for energy price reform and most fuel and power prices will be liberalized after the Games, Gong added.

Hot money inflows into China are fading as the dollar strengthens, while inflation will continue to trend lower, he said. This would provide a favorable backdrop for the central bank to reduce banks’ reserve requirements, now at a record 17.5%, and ease monetary policy later in the year, he added. On the perpetual debate of how China should manage its $1.81 trillion of foreign-exchange reserves, Gong said Beijing may have intensified sales of some dollar assets.

But it aims to keep the bulk of its reserves in dollars -- even if they are not invested in the debt of US mortgage agencies Fannie Mae and Freddie Mac -- because it favors a strong US currency. Gong said it was unlikely that China would diversify into the euro, yen or commodity currencies in a big way as these currencies may already have peaked.

Instead, policy makers were studying a number of suggestions put forward by government researchers, including: -- repatriating the money and investing it in on physical and social infrastructure to boost consumption; -- using some of the money to set up a fund to stabilize the stock market, which is down 62% from October’s record high; -- diversifying into dollar-bloc currencies such as the Hong Kong dollar and other Asian markets. However, the biggest question for Asian and other emerging markets would be liquidity, Gong said. (Reuters)

Analysts Say More Banks Will Fail

noreply@blogger.com (Unknown) — Tue, 15 Jul 2008 17:35:00 +0000

NYTimes.com
Analysts Say More Banks Will Fail
Monday July 14, 11:35 pm ET By LOUISE STORY

As home prices continue to decline and loan defaults mount, federal regulators are bracing for dozens of American banks to fail over the next year.

But after a large mortgage lender in California collapsed late Friday, Wall Street analysts began posing two crucial questions: Just how many banks might falter? And, more urgently, which one could be next?

The nation’s banks are in far less danger than they were in the late 1980s and early 1990s, when more than 1,000 federally insured institutions went under during the savings-and-loan crisis. The debacle, the greatest collapse of American financial institutions since the Depression, prompted a government bailout that cost taxpayers about $125 billion.

But the troubles are growing so rapidly at some small and midsize banks that as many as 150 out of the 7,500 banks nationwide could fail over the next 12 to 18 months, analysts say. Other lenders are likely to shut branches or seek mergers.

“Everybody is drawing up lists, trying to figure out who the next bank is, No. 1, and No. 2, how many of them are there,” said Richard X. Bove, the banking analyst with Ladenburg Thalmann, who released a list of troubled banks over the weekend. “And No. 3, from the standpoint of Washington, how badly is it going to affect the economy?”

Many investors are on edge after federal regulators seized the California lender, IndyMac Bank, one of the nation’s largest savings and loans, last week. With $32 billion in assets, IndyMac, a spinoff of the Countrywide Financial Corporation, was the biggest American lender to fail in more than two decades.

Now, as the Bush administration grapples with the crisis at the nation’s two largest mortgage finance companies, Fannie Mae and Freddie Mac, a rush of earnings reports in the coming days and weeks from some of the nation’s largest financial companies are likely to provide more gloomy reminders about the sorry state of the industry.

The future of Fannie Mae and Freddie Mac is vital to the banks, savings and loans and credit unions, which own $1.3 trillion of securities issued or guaranteed by the two mortgage companies. If the mortgage giants ever defaulted on those obligations, banks might be forced to raise billions of dollars in additional capital.

The large institutions set to report results this week, including Citigroup and Merrill Lynch, are in no danger of failing, but some are expected to report more multibillion-dollar write-offs.
But time may be running out for some small and midsize lenders. They vary in size and location, but their common woe is the collapsed real estate market and souring mortgage loans. Most of these banks are far smaller than the industry giants that have drawn so much scrutiny from regulators and investors.

Still, only six lenders have failed so far this year, including IndyMac. In 1994, the Federal Deposit Insurance Corporation listed 575 banks that it considered to be troubled. As of this spring, the agency was worried about just 90 banks. That number may go up in August, when the government releases an updated list.

“Failed banks are a lagging indicator, not a leading indicator,” said William Isaac, who was chairman of the F.D.I.C. in the early 1980s and is now the chairman of the Secura Group, a finance consulting firm in Virginia. “So you will see more troubled, more failed banks this year.”
And yet IndyMac, one of the nation’s largest mortgage lenders, was not on the government’s troubled bank list this spring — an indication that other troubled banks may be below the radar.
The F.D.I.C. has $53 billion set aside to reimburse consumers for deposits lost at failed banks. IndyMac will eat up $4 billion to $8 billion of that fund, the agency estimates, and that could force it to raise more money from the banks that it insures.

The agency does not disclose which banks it thinks are troubled. But analysts are circulating their own lists, and short sellers — investors who bet against stocks — are piling on. In recent weeks, the share prices of some regional banks, like the BankUnited Financial Corporation, in Florida, and the Downey Financial Corporation, in California, have stumbled hard amid concern about their financial health. A BankUnited spokeswoman said the lender had largely avoided risky subprime loans.

In his “Who Is Next?” report over the weekend, Mr. Bove listed the fraction of loans at banks that are nonperforming, meaning, for example, that the assets have been foreclosed on or that payments are 90 days past due. He came up with what he called a danger zone, which was a percentage above 5 percent. Seven banks fell in this category.

An important issue for the regional and community banks will be whether they have managed to sell their riskiest loans to Wall Street firms.

And the government may have fewer failures than in the past because private investment funds might buy some troubled lenders. Regulators are considering rule changes that would allow private equity firms to buy larger shares of banks, and several prominent investors, like Wilbur Ross, have raised funds to leap in.

http://biz.yahoo.com/nytimes/080714/1194794604123.html?.v=17