Tata Power Co., the generating unit of India’s biggest industrial group, is in talks to buy a 50 percent stake in power utility InterGen NV, three people familiar with the discussions said.
The company, based in Mumbai, is negotiating to acquire the stake from GMR Infrastructure Ltd., the people said, declining to be identified because the discussions are confidential. At least four companies are competing for the stake with China Huaneng Group the front-runner, one of the people said. The sale may be announced in the next two months, the person said.
Tata Group Chairman Ratan Tata has made 66 acquisitions in two decades to build a group with sales of more than $70 billion. GMR Infrastructure paid $1.1 billion in 2008 for the stake in InterGen, which operates 12 power plants in the U.K., Netherlands, Mexico, Australia and the Philippines.
“The Tatas don’t have a problem with money and they are known to bid aggressively and can see a deal through,” said Jaisheel Garg, a Mumbai-based analyst with SMC Global Securities Ltd., who recommends investors buy Tata Power’s stock.
Indian companies have announced $46.5 billion of cross- border acquisitions this year, accounting for 87 percent of all deals, the highest percentage, according to Bloomberg data. That’s higher than 2007 when overseas mergers and acquisitions constituted 85 percent, or $59 billion, of the record $69.2 billion of deals, the data show.
Tata Power was little changed at 1,268.55 rupees as of 9.12 a.m. local time in Mumbai. GMR Infrastructure rose 0.5 percent to 60.2 rupees.
AIG Sale
GMR Infrastructure, based in Bangalore, bought the InterGen stake from a fund owned by American International Group Inc. The rest of InterGen is owned by Ontario Teachers’ Pension Plan.
Arun Bhagat, spokesman, GMR Group, said the company doesn’t comment on “speculative news.” Tata Power said in a statement it hasn’t bid for a stake in InterGen.
China Huaneng, the nation’s biggest electricity producer, is in advanced talks to acquire the stake for about $1.2 billion, two people with knowledge of the matter said Aug. 17.
Tata Power has 7.5 billion rupees ($160 million) of cash and 15.6 billion rupees in short term investments, according to company filings.
Saturday, August 28, 2010
In Hard Times, One New Bank (Double-Wide)
LAKE CHARLES, La. — The only new start-up bank to open in the United States this year operates out of a secondhand double-wide trailer, on a bare lot in front of the cavernous Trinity Baptist Church. A blue awning covers the makeshift drive-through window.
Called Lakeside Bank, it is run by a burly and balding former tackle for Louisiana State’s football team named Hartie Spence, who doles out countrified humor along with deposit slips and the occasional loan.
“This is the one place where the cause of death is mildew,” he quipped, standing outside the trailer in withering heat.
Asked how his bank in this steaming town of oil refineries and oversize casinos managed to win over federal regulators, Mr. Spence, 70, said, “I’m still thinking it’s my looks that did it.”
The dearth of new banks follows a particularly wrenching period for the industry. As the financial crisis deepened, hundreds of banks and thrifts closed and thousands more were saddled with bad loans and credit card defaults, costing the industry billions of dollars.
As a result, the number of investor groups applying to start a new bank from scratch has dropped precipitously. And for the intrepid few who have tried, regulators — sharply criticized for lax oversight in recent years — are being particularly stingy in granting approval.
So far this year, Mr. Spence holds the privilege of opening the only truly new federally insured bank. (In seven other instances, investors received regulatory approval to buy an existing bank, usually one that had failed, and reopen it).
Of course, many of the nation’s biggest banks were bailed out by the government, and have since rebounded. But since January 2008, more than 280 smaller banks and thrifts have been closed, and many community banks are struggling to recover from the real estate collapse.
Those bank failures have cost the Federal Deposit Insurance Corporation’s fund roughly $70 billion, and not surprisingly, the agency’s regulators are now giving greater scrutiny to new bank applications, according to bankers and industry officials.
Technically, banks obtain charters from their primary regulatory agency, either state banking regulators or, for national banks, the Office of the Comptroller of the Currency. But the charters are contingent on the applicants’ obtaining deposit insurance from the F.D.I.C.
The F.D.I.C. said the reduction in charters simply reflects the effects of the recession on new businesses. “There was considerable interest in forming banks before the economy deteriorated,” said an agency spokesman, David Barr. “In today’s climate we are seeing very little interest.”
However, last year the agency toughened its oversight of new banks, saying banks that had been open for fewer than seven years were “over represented” among failed banks in 2008 and 2009.
The reason, the agency said in a public release, is that many new banks strayed from their approved business plans and ran into problems because of “weak risk management practices,” among other problems.
Ralph F. “Chip” MacDonald III, a lawyer in Atlanta who advises banks on regulatory matters, said he believed the F.D.I.C. had imposed an “unofficial moratorium” on new bank charters, a charge that the agency denies.
Adam Taylor, president of the Bank Capital Group, an Atlanta company that helps investors set up new banks, said he had several recent clients, whom he declined to name, withdraw applications for new banks after it became clear that the F.D.I.C. would not approve them. He said the agency rarely denies charters — a fact confirmed by agency records — but that it places the applications in “purgatory” until the applicants give up.
The number of banks and thrifts — also known as savings and loans — in the United States has been declining steadily for 25 years, because of consolidation in the industry and deregulation in the 1990s that reduced barriers to interstate banking. There were 6,840 banks and 1,173 thrifts last year, down from 14,507 banks and 3,566 thrifts in 1984.
The number of charters has generally declined too, though there have been periodic swings. The lowest number of bank charters granted in any one year was 15, in 1942.
How, then, did Lakeside Bank win this year’s regulatory lottery?
Called Lakeside Bank, it is run by a burly and balding former tackle for Louisiana State’s football team named Hartie Spence, who doles out countrified humor along with deposit slips and the occasional loan.
“This is the one place where the cause of death is mildew,” he quipped, standing outside the trailer in withering heat.
Asked how his bank in this steaming town of oil refineries and oversize casinos managed to win over federal regulators, Mr. Spence, 70, said, “I’m still thinking it’s my looks that did it.”
The dearth of new banks follows a particularly wrenching period for the industry. As the financial crisis deepened, hundreds of banks and thrifts closed and thousands more were saddled with bad loans and credit card defaults, costing the industry billions of dollars.
As a result, the number of investor groups applying to start a new bank from scratch has dropped precipitously. And for the intrepid few who have tried, regulators — sharply criticized for lax oversight in recent years — are being particularly stingy in granting approval.
So far this year, Mr. Spence holds the privilege of opening the only truly new federally insured bank. (In seven other instances, investors received regulatory approval to buy an existing bank, usually one that had failed, and reopen it).
Of course, many of the nation’s biggest banks were bailed out by the government, and have since rebounded. But since January 2008, more than 280 smaller banks and thrifts have been closed, and many community banks are struggling to recover from the real estate collapse.
Those bank failures have cost the Federal Deposit Insurance Corporation’s fund roughly $70 billion, and not surprisingly, the agency’s regulators are now giving greater scrutiny to new bank applications, according to bankers and industry officials.
Technically, banks obtain charters from their primary regulatory agency, either state banking regulators or, for national banks, the Office of the Comptroller of the Currency. But the charters are contingent on the applicants’ obtaining deposit insurance from the F.D.I.C.
The F.D.I.C. said the reduction in charters simply reflects the effects of the recession on new businesses. “There was considerable interest in forming banks before the economy deteriorated,” said an agency spokesman, David Barr. “In today’s climate we are seeing very little interest.”
However, last year the agency toughened its oversight of new banks, saying banks that had been open for fewer than seven years were “over represented” among failed banks in 2008 and 2009.
The reason, the agency said in a public release, is that many new banks strayed from their approved business plans and ran into problems because of “weak risk management practices,” among other problems.
Ralph F. “Chip” MacDonald III, a lawyer in Atlanta who advises banks on regulatory matters, said he believed the F.D.I.C. had imposed an “unofficial moratorium” on new bank charters, a charge that the agency denies.
Adam Taylor, president of the Bank Capital Group, an Atlanta company that helps investors set up new banks, said he had several recent clients, whom he declined to name, withdraw applications for new banks after it became clear that the F.D.I.C. would not approve them. He said the agency rarely denies charters — a fact confirmed by agency records — but that it places the applications in “purgatory” until the applicants give up.
The number of banks and thrifts — also known as savings and loans — in the United States has been declining steadily for 25 years, because of consolidation in the industry and deregulation in the 1990s that reduced barriers to interstate banking. There were 6,840 banks and 1,173 thrifts last year, down from 14,507 banks and 3,566 thrifts in 1984.
The number of charters has generally declined too, though there have been periodic swings. The lowest number of bank charters granted in any one year was 15, in 1942.
How, then, did Lakeside Bank win this year’s regulatory lottery?
India's Gold Imports Will Top 2009 as Buyers Accept Paying Record Prices
Gold imports by India this year may exceed 2009’s level as near-record prices fail to deter buyers and festivals drive demand in the world’s biggest consumer of bullion, according to the National Spot Exchange Ltd.
Purchases may total 600 tons to 625 metric tons, compared with an estimated 480 tons to 485 tons bought last year, Anjani Sinha, chief executive officer of the nation’s biggest bourse for trading physical gold, said in an interview today in Goa, where he is scheduled to speak at an industry conference.
India’s bullion demand almost doubled in the first half of the year even as prices reached a record in June as investors sought a haven and higher salaries spurred jewelry sales, the World Gold Council said this week. Demand in the second half is likely to be at least 25 percent higher from a year earlier, as the country enters the festival season, Sinha said.
“This level of prices is already accepted, so during this period compared with last year, the demand will be higher,” he said. “Last year was the first year when prices went up to this level. This year, prices have been around this level so people feel it might break the all-time high. Indians are not selling gold, they are buying.”
Gold in New York has advanced 13 percent this year, heading for its 10th annual gain, as investors sought to protect their wealth against financial turmoil in Europe and the prospect of currency debasement. New York futures reached a record $1,266.50 an ounce on June 21 and the immediate-delivery price touched an all-time high of $1,265.30 the same day in London.
Futures for December delivery rose 20 cents to settle at $1,237.90 yesterday on the Comex in New York. The metal added 0.7 percent this week, capping the fourth straight weekly gain.
Price Surge
The metal may reach at least $1,300 this year, fueled by investment demand, said Paul Walker, chief executive officer of London-based researcher GFMS Ltd., in an interview Aug. 27. He spoke at the Goa conference yesterday.
Goldman Sachs Group Inc. forecast earlier this month that prices may reach $1,300 in six months and Deutsche Bank AG said June 3 that the metal may surge to $1,700 as currencies slump. The euro fell to a four-year low versus the dollar in June.
Indian imports this year should reach the 2009 level as soon as this month, the World Gold Council said this week. Purchases in the first half were 348 tons, compared with 559 tons in all of last year, according to the council’s data.
The nation’s total gold demand was 365 tons in the first six months, up from 188.4 tons a year ago, while jewelry demand surged 67 percent to 272.5 tons, according to the council.
India’s festival season starts next month and bullion sales usually reach a peak during the Hindu festival of Diwali, which falls on Nov. 5 this year. The wedding season runs from November to December and from late March through early May.
Purchases may total 600 tons to 625 metric tons, compared with an estimated 480 tons to 485 tons bought last year, Anjani Sinha, chief executive officer of the nation’s biggest bourse for trading physical gold, said in an interview today in Goa, where he is scheduled to speak at an industry conference.
India’s bullion demand almost doubled in the first half of the year even as prices reached a record in June as investors sought a haven and higher salaries spurred jewelry sales, the World Gold Council said this week. Demand in the second half is likely to be at least 25 percent higher from a year earlier, as the country enters the festival season, Sinha said.
“This level of prices is already accepted, so during this period compared with last year, the demand will be higher,” he said. “Last year was the first year when prices went up to this level. This year, prices have been around this level so people feel it might break the all-time high. Indians are not selling gold, they are buying.”
Gold in New York has advanced 13 percent this year, heading for its 10th annual gain, as investors sought to protect their wealth against financial turmoil in Europe and the prospect of currency debasement. New York futures reached a record $1,266.50 an ounce on June 21 and the immediate-delivery price touched an all-time high of $1,265.30 the same day in London.
Futures for December delivery rose 20 cents to settle at $1,237.90 yesterday on the Comex in New York. The metal added 0.7 percent this week, capping the fourth straight weekly gain.
Price Surge
The metal may reach at least $1,300 this year, fueled by investment demand, said Paul Walker, chief executive officer of London-based researcher GFMS Ltd., in an interview Aug. 27. He spoke at the Goa conference yesterday.
Goldman Sachs Group Inc. forecast earlier this month that prices may reach $1,300 in six months and Deutsche Bank AG said June 3 that the metal may surge to $1,700 as currencies slump. The euro fell to a four-year low versus the dollar in June.
Indian imports this year should reach the 2009 level as soon as this month, the World Gold Council said this week. Purchases in the first half were 348 tons, compared with 559 tons in all of last year, according to the council’s data.
The nation’s total gold demand was 365 tons in the first six months, up from 188.4 tons a year ago, while jewelry demand surged 67 percent to 272.5 tons, according to the council.
India’s festival season starts next month and bullion sales usually reach a peak during the Hindu festival of Diwali, which falls on Nov. 5 this year. The wedding season runs from November to December and from late March through early May.
Friday, August 27, 2010
Vacation Travelers Focus on Frugality
Vacations have become a luxury for many Americans trying to make ends meet in this economic downturn, but there are signs that people are slowly, even timidly, on the move again.
Families who postponed trips last year are making modest vacation plans, travel agents say. And business owners or executives who felt it was insensitive to travel as they cut costs and laid off workers are again making plans to get away, leisure industry experts added.
Stacy H. Small, president of Elite Travel International, said at least half of her clients who were business owners cut back last year. “I had a lot of clients say ‘I just don’t feel right,’ ” she said. This year, nearly all have returned.
The pent-up demand is starting to filter through, though it is more a trickle than a flood. With it, analysts said, comes a new level of austerity as vacationers search for frugal ways to get away by juggling their finances, taking shorter trips and even staying with relatives.
The auto group AAA says it expects 34.4 million people to travel at least 50 miles from home this Labor Day weekend, up nearly 10 percent from 2009, a forecast based on an improved economy and lower gasoline prices.
People are traveling with “one hand firmly clasped to their wallets,” said Henry Harteveldt, a market researcher for Forrester Research. “The comments I get are that generally business is better, but no one is popping Champagne corks,” he said.
In response, hotels, cruise lines and other travel-related businesses are discounting rooms, advertising reward programs and adding incentives, like the Cape Cod innkeepers who threw in a whale-watching excursion with a four-night stay, or the Las Vegas hotel that included a spa treatment with a room reservation.
Lawrence J. Kordasiewicz, a 59-year-old retired teacher, and his wife found ways to cut costs on their trip to Cap Cod. They shared the driving with another couple and stayed fewer nights at the Honeysuckle Hill Bed and Breakfast, where he said a generous breakfast meant they did not have to eat again until dinner.
The cost of vacation travel can vary greatly — a vacation can be anything from a car trip to a campground to a condo rental to a lengthy stay in a luxury hotel.
One industry organization, the U.S. Travel Association, forecasts that spending on leisure travel will increase to $519.6 billion this year in the United States, from around $489 billion in 2009.
With couples like the Kordasiewiczs taking advantage of incentives like free breakfast, restaurants and shopkeepers selling items like T-shirts, taffy and jewelry say travelers seem to be thinking twice before opening their wallets, if they do at all.
“They are coming in the door more,” said Belinda Schmitt, the manager of Guertin Brothers Jewelers on Main Street in Hyannis on Cape Cod. “But I am finding that tourists are not interested in buying jewelry as much. We have started carrying jewelry that can maybe more meet the needs of people on a tighter budget.”
For some, worries about tighter finances can lead to last-minute changes in travel plans.
Jacqueline Kimbrell, a former bank employee in Phoenix who has been unemployed since 2009, had planned a family vacation to Sea World in San Diego and even picked out an airline and a hotel.
“I thought O.K., what if one of the kids gets sick and we get a doctor bill?” said Mrs. Kimbrell, who has a daughter with a nut allergy.
So instead of spending $1,000 on a short trip to San Diego, she, her husband, Keith, who is a landscaper, and their children bought supplies, packed up a tent and went camping. The cost: about $300. “You find a spot, you put up your gear, and you go,” Mrs. Kimbrell said.
The National Park Service expects about 285 million visitors this year, and visitor numbers at parks like Yellowstone, Yosemite and Death Valley are running above levels a year ago.
“We usually see an uptick in visitation when times are tough,” a spokesman for the park service, Jeffrey Olson, said.
Analysts said hotel revenue and occupancy were rising, albeit slowly. Smith Travel Research said hotel revenue this year through July was $58 billion, up from $55 billion in the same period of 2009. About 592 million rooms were booked through July, compared with 552 million a year ago, the research firm said.
Hotels are luring travelers with free offers — like an extra night, a meal or a gift — instead of cutting prices. The additional night’s stay can help increase ancillary spending.
Families who postponed trips last year are making modest vacation plans, travel agents say. And business owners or executives who felt it was insensitive to travel as they cut costs and laid off workers are again making plans to get away, leisure industry experts added.
Stacy H. Small, president of Elite Travel International, said at least half of her clients who were business owners cut back last year. “I had a lot of clients say ‘I just don’t feel right,’ ” she said. This year, nearly all have returned.
The pent-up demand is starting to filter through, though it is more a trickle than a flood. With it, analysts said, comes a new level of austerity as vacationers search for frugal ways to get away by juggling their finances, taking shorter trips and even staying with relatives.
The auto group AAA says it expects 34.4 million people to travel at least 50 miles from home this Labor Day weekend, up nearly 10 percent from 2009, a forecast based on an improved economy and lower gasoline prices.
People are traveling with “one hand firmly clasped to their wallets,” said Henry Harteveldt, a market researcher for Forrester Research. “The comments I get are that generally business is better, but no one is popping Champagne corks,” he said.
In response, hotels, cruise lines and other travel-related businesses are discounting rooms, advertising reward programs and adding incentives, like the Cape Cod innkeepers who threw in a whale-watching excursion with a four-night stay, or the Las Vegas hotel that included a spa treatment with a room reservation.
Lawrence J. Kordasiewicz, a 59-year-old retired teacher, and his wife found ways to cut costs on their trip to Cap Cod. They shared the driving with another couple and stayed fewer nights at the Honeysuckle Hill Bed and Breakfast, where he said a generous breakfast meant they did not have to eat again until dinner.
The cost of vacation travel can vary greatly — a vacation can be anything from a car trip to a campground to a condo rental to a lengthy stay in a luxury hotel.
One industry organization, the U.S. Travel Association, forecasts that spending on leisure travel will increase to $519.6 billion this year in the United States, from around $489 billion in 2009.
With couples like the Kordasiewiczs taking advantage of incentives like free breakfast, restaurants and shopkeepers selling items like T-shirts, taffy and jewelry say travelers seem to be thinking twice before opening their wallets, if they do at all.
“They are coming in the door more,” said Belinda Schmitt, the manager of Guertin Brothers Jewelers on Main Street in Hyannis on Cape Cod. “But I am finding that tourists are not interested in buying jewelry as much. We have started carrying jewelry that can maybe more meet the needs of people on a tighter budget.”
For some, worries about tighter finances can lead to last-minute changes in travel plans.
Jacqueline Kimbrell, a former bank employee in Phoenix who has been unemployed since 2009, had planned a family vacation to Sea World in San Diego and even picked out an airline and a hotel.
“I thought O.K., what if one of the kids gets sick and we get a doctor bill?” said Mrs. Kimbrell, who has a daughter with a nut allergy.
So instead of spending $1,000 on a short trip to San Diego, she, her husband, Keith, who is a landscaper, and their children bought supplies, packed up a tent and went camping. The cost: about $300. “You find a spot, you put up your gear, and you go,” Mrs. Kimbrell said.
The National Park Service expects about 285 million visitors this year, and visitor numbers at parks like Yellowstone, Yosemite and Death Valley are running above levels a year ago.
“We usually see an uptick in visitation when times are tough,” a spokesman for the park service, Jeffrey Olson, said.
Analysts said hotel revenue and occupancy were rising, albeit slowly. Smith Travel Research said hotel revenue this year through July was $58 billion, up from $55 billion in the same period of 2009. About 592 million rooms were booked through July, compared with 552 million a year ago, the research firm said.
Hotels are luring travelers with free offers — like an extra night, a meal or a gift — instead of cutting prices. The additional night’s stay can help increase ancillary spending.
Bernanke Says Fed Ready to Provide Stimulus If Needed
Aug. 27 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the U.S. central bank “will do all that it can” to ensure a continuation of the economic recovery and that more securities purchases may be warranted if growth slows.
The Federal Open Market Committee “is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly,” the Fed chairman said today at the Kansas City Fed’s annual monetary symposium held in Jackson Hole, Wyoming.
Bernanke’s speech follows a drumbeat of negative economic reports, including a reduced estimate of second-quarter growth released today, that have prompted economists including Harvard University’s Martin Feldstein to warn that the risks of a renewed recession are rising. Still, the Fed chairman stopped short of signaling that further easing would come as soon as Sept. 21, when Fed officials next meet.
“He is trying to buy time,” said Ethan Harris, head of Developed Markets Economics at Bank of America-Merrill Lynch Global Research in New York. “He is acknowledging that the economy is weaker and is saying they have policy options going forward.”
Handoff Under Way
The Fed chairman gave a detailed analysis of the economy and said growth during the past year has been “too slow” and unemployment too high. Even so, he said a handoff from fiscal stimulus and inventory re-stocking to consumer spending and business investment “appears to be under way.” He also said that the “preconditions” for a pickup in growth in 2011 “appear to remain in place.”
Stocks rallied on the prospect of additional Fed support, and Treasuries declined. The Standard & Poor’s 500 Index rose 1.3 percent to 1,061.13 at 2:19 p.m. in New York. The yield on the 10-year Treasury note climbed to 2.63 percent from 2.48 percent late yesterday.
The Commerce Department today cut its estimate for U.S. gross domestic product in the second quarter to an annual pace of 1.6 percent from an initially reported 2.4 percent. The revised figure exceeded the median forecast for a 1.4 percent expansion in a Bloomberg News survey of economists.
“There’s still a significant risk, maybe one chance in three, that there will be a double dip, real GDP falling, before we’re in the clear,” Feldstein, a member of the committee at the National Bureau of Economic Research that dates the beginning and end of recessions, said in an interview. “We see a fragile economy that is growing at a slower pace.”
‘Undesirable Rise’
Bernanke said the risk of an “undesirable rise in inflation or of significant further disinflation seems low.” He said the Fed has several tools if prices decelerate or job growth stagnates, including shifting the composition of its bond reinvestment strategy.
“The Fed is ready to take action if needed,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “They are aware the economy is not doing as well as expected.”
The Federal Open Market Committee on Aug. 10 put its exit strategy on hold and decided to purchase Treasury securities to keep the central bank’s portfolio from shrinking as its mortgage bonds mature. The committee set a floor of $2.05 trillion for their holdings of securities.
Additional Purchases
“The FOMC’s recent decision to stabilize the Federal Reserve’s securities holdings should promote financial conditions supportive of recovery,” Bernanke said today. “Additional purchases of longer-term securities, should the FOMC choose to undertake them, would be effective in further easing financial conditions.”
Bernanke provided his most detailed analysis yet of three policy options open to the Fed: further purchases of securities, a change in its policy statement and a reduction of the interest rate the Fed pays on banks’ excess reserves. He dismissed a fourth option proposed by some economists to raise the Fed’s inflation target.
“At this juncture, the committee has not agreed on specific criteria or triggers for further action,” he said. Still, he said the Fed will “strongly resist” any further decline in inflation, and “the FOMC will do all that it can to ensure continuation of the economic recovery.”
Dean Croushore, a former Philadelphia Fed economist, said disagreements among policy makers may delay further policy moves.
‘Big Split’
“There’s a big split” among FOMC members “between people concerned about inflation rising in the future and those concerned about deflation,” said Croushore, who is now chairman of the economics department at the University of Richmond in Virginia. “The Fed is unlikely to make any major changes soon.”
Bernanke, explaining the Fed’s Aug. 10 decision, said that lower long-term interest rates increased mortgage refinancing, causing a more rapid prepayment of the Fed’s $1.1 trillion in mortgage-backed securities holdings.
“Any further weakening of the economy that resulted in lower longer-term interest rates and a still-faster pace of mortgage refinancing would likely lead in turn to an even more- rapid runoff of MBS from the Fed’s balance sheet,” Bernanke said. “Thus, a weakening of the economy might act indirectly to increase the pace of passive policy tightening -- a perverse outcome.”
Unemployment Forecasts
Economists estimate that the unemployment rate will rise to 9.6 percent in August from 9.5 percent in June and July, according to the median forecast in a Bloomberg News survey. The Fed’s preferred inflation indicator, the personal consumption expenditures price index, minus food and energy, rose at a 1.1 percent annual rate in the second quarter.
Fed officials said in June their longer-run preference range for inflation is 1.7 percent to 2 percent.
Consumer confidence has been sapped by unemployment close to a 26-year high. Confidence rose less than forecast in August from an eight-month low, a Thomson Reuters/University of Michigan index of showed today.
“Incoming data suggest that the recovery of output and employment in the United States has slowed in recent months, to a pace somewhat lower than most FOMC participants projected earlier this year,” Bernanke said. “Consumer spending may continue to grow relatively slowly in the near term.”
Intel Forecast
Intel Corp., the world’s biggest chipmaker, today cut its forecasts for third-quarter revenue and gross profit margin, citing weaker demand for personal computers in mature markets. The announcement follows reports that capital spending, one of the few bright spots in the recovery, is weakening.
“Investment in equipment and software will almost certainly increase more slowly over the remainder of this year, though it should continue to advance at a solid pace,” Bernanke said.
The Kansas City Fed is hosting central bankers from more than 40 countries including Brazil, Malawi and New Zealand this year as well as economists from firms such as Bank of America Corp., Morgan Stanley and International Strategy & Investment Group Inc.
Bernanke explained how the Fed’s purchases of bonds are helping the economy by lowering borrowing costs.
“The Fed’s strategy relies on the presumption that different financial assets are not perfect substitutes in investors’ portfolios,” he said. Its purchases of Treasuries should push investors into other types of bonds with similar types of risks, lowering their yields as well, he said.
‘Public Confidence’
Risks to the approach include a lack of “very precise knowledge” of the effects of the purchases and the chance that expanding the Fed’s balance sheet further “could reduce public confidence in the Fed’s ability to execute a smooth exit from its accommodative policies at the appropriate time,” Bernanke said.
A second option, Bernanke said, would be to communicate that the Fed will keep its benchmark rate low for a “longer period than is currently priced in markets.” While the Bank of Canada’s 2009 adoption of the strategy “seemed to work well” there, a risk is that investors “may not fully appreciate that any such commitment must ultimately be conditional on how the economy evolves,” Bernanke said.
Deposit Rate
Lowering the interest rate on banks’ deposits at the Fed to 0.10 percentage point or zero from 0.25 percentage point is a third choice, Bernanke said. The effect of such a move on financial conditions “in isolation would likely be relatively small,” and it risks making the market for overnight loans, or federal funds, “much less liquid,” he said.
Back-to-back quarters of growth below 2 percent are likely to push unemployment higher and put more downward pressure on inflation, which is already lower than the Fed’s longer-term desired range, economists say.
The Fed has already experienced about $140 billion of repayment of mortgage and agency debt, he said.
“Although mortgage prepayment rates are difficult to predict, under the assumption that mortgage rates remain near current levels, we estimated that an additional $400 billion or so of MBS and agency debt currently in the Fed’s portfolio could be repaid by the end of 2011,” the Fed chairman said.
Policy makers in August decided that allowing the Fed’s balance sheet to shrink when the economic outlook “had weakened somewhat was inconsistent with the committee’s intention to provide the monetary accommodation necessary to support the recovery,” Bernanke said in a reference to the FOMC.
The Federal Open Market Committee “is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly,” the Fed chairman said today at the Kansas City Fed’s annual monetary symposium held in Jackson Hole, Wyoming.
Bernanke’s speech follows a drumbeat of negative economic reports, including a reduced estimate of second-quarter growth released today, that have prompted economists including Harvard University’s Martin Feldstein to warn that the risks of a renewed recession are rising. Still, the Fed chairman stopped short of signaling that further easing would come as soon as Sept. 21, when Fed officials next meet.
“He is trying to buy time,” said Ethan Harris, head of Developed Markets Economics at Bank of America-Merrill Lynch Global Research in New York. “He is acknowledging that the economy is weaker and is saying they have policy options going forward.”
Handoff Under Way
The Fed chairman gave a detailed analysis of the economy and said growth during the past year has been “too slow” and unemployment too high. Even so, he said a handoff from fiscal stimulus and inventory re-stocking to consumer spending and business investment “appears to be under way.” He also said that the “preconditions” for a pickup in growth in 2011 “appear to remain in place.”
Stocks rallied on the prospect of additional Fed support, and Treasuries declined. The Standard & Poor’s 500 Index rose 1.3 percent to 1,061.13 at 2:19 p.m. in New York. The yield on the 10-year Treasury note climbed to 2.63 percent from 2.48 percent late yesterday.
The Commerce Department today cut its estimate for U.S. gross domestic product in the second quarter to an annual pace of 1.6 percent from an initially reported 2.4 percent. The revised figure exceeded the median forecast for a 1.4 percent expansion in a Bloomberg News survey of economists.
“There’s still a significant risk, maybe one chance in three, that there will be a double dip, real GDP falling, before we’re in the clear,” Feldstein, a member of the committee at the National Bureau of Economic Research that dates the beginning and end of recessions, said in an interview. “We see a fragile economy that is growing at a slower pace.”
‘Undesirable Rise’
Bernanke said the risk of an “undesirable rise in inflation or of significant further disinflation seems low.” He said the Fed has several tools if prices decelerate or job growth stagnates, including shifting the composition of its bond reinvestment strategy.
“The Fed is ready to take action if needed,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “They are aware the economy is not doing as well as expected.”
The Federal Open Market Committee on Aug. 10 put its exit strategy on hold and decided to purchase Treasury securities to keep the central bank’s portfolio from shrinking as its mortgage bonds mature. The committee set a floor of $2.05 trillion for their holdings of securities.
Additional Purchases
“The FOMC’s recent decision to stabilize the Federal Reserve’s securities holdings should promote financial conditions supportive of recovery,” Bernanke said today. “Additional purchases of longer-term securities, should the FOMC choose to undertake them, would be effective in further easing financial conditions.”
Bernanke provided his most detailed analysis yet of three policy options open to the Fed: further purchases of securities, a change in its policy statement and a reduction of the interest rate the Fed pays on banks’ excess reserves. He dismissed a fourth option proposed by some economists to raise the Fed’s inflation target.
“At this juncture, the committee has not agreed on specific criteria or triggers for further action,” he said. Still, he said the Fed will “strongly resist” any further decline in inflation, and “the FOMC will do all that it can to ensure continuation of the economic recovery.”
Dean Croushore, a former Philadelphia Fed economist, said disagreements among policy makers may delay further policy moves.
‘Big Split’
“There’s a big split” among FOMC members “between people concerned about inflation rising in the future and those concerned about deflation,” said Croushore, who is now chairman of the economics department at the University of Richmond in Virginia. “The Fed is unlikely to make any major changes soon.”
Bernanke, explaining the Fed’s Aug. 10 decision, said that lower long-term interest rates increased mortgage refinancing, causing a more rapid prepayment of the Fed’s $1.1 trillion in mortgage-backed securities holdings.
“Any further weakening of the economy that resulted in lower longer-term interest rates and a still-faster pace of mortgage refinancing would likely lead in turn to an even more- rapid runoff of MBS from the Fed’s balance sheet,” Bernanke said. “Thus, a weakening of the economy might act indirectly to increase the pace of passive policy tightening -- a perverse outcome.”
Unemployment Forecasts
Economists estimate that the unemployment rate will rise to 9.6 percent in August from 9.5 percent in June and July, according to the median forecast in a Bloomberg News survey. The Fed’s preferred inflation indicator, the personal consumption expenditures price index, minus food and energy, rose at a 1.1 percent annual rate in the second quarter.
Fed officials said in June their longer-run preference range for inflation is 1.7 percent to 2 percent.
Consumer confidence has been sapped by unemployment close to a 26-year high. Confidence rose less than forecast in August from an eight-month low, a Thomson Reuters/University of Michigan index of showed today.
“Incoming data suggest that the recovery of output and employment in the United States has slowed in recent months, to a pace somewhat lower than most FOMC participants projected earlier this year,” Bernanke said. “Consumer spending may continue to grow relatively slowly in the near term.”
Intel Forecast
Intel Corp., the world’s biggest chipmaker, today cut its forecasts for third-quarter revenue and gross profit margin, citing weaker demand for personal computers in mature markets. The announcement follows reports that capital spending, one of the few bright spots in the recovery, is weakening.
“Investment in equipment and software will almost certainly increase more slowly over the remainder of this year, though it should continue to advance at a solid pace,” Bernanke said.
The Kansas City Fed is hosting central bankers from more than 40 countries including Brazil, Malawi and New Zealand this year as well as economists from firms such as Bank of America Corp., Morgan Stanley and International Strategy & Investment Group Inc.
Bernanke explained how the Fed’s purchases of bonds are helping the economy by lowering borrowing costs.
“The Fed’s strategy relies on the presumption that different financial assets are not perfect substitutes in investors’ portfolios,” he said. Its purchases of Treasuries should push investors into other types of bonds with similar types of risks, lowering their yields as well, he said.
‘Public Confidence’
Risks to the approach include a lack of “very precise knowledge” of the effects of the purchases and the chance that expanding the Fed’s balance sheet further “could reduce public confidence in the Fed’s ability to execute a smooth exit from its accommodative policies at the appropriate time,” Bernanke said.
A second option, Bernanke said, would be to communicate that the Fed will keep its benchmark rate low for a “longer period than is currently priced in markets.” While the Bank of Canada’s 2009 adoption of the strategy “seemed to work well” there, a risk is that investors “may not fully appreciate that any such commitment must ultimately be conditional on how the economy evolves,” Bernanke said.
Deposit Rate
Lowering the interest rate on banks’ deposits at the Fed to 0.10 percentage point or zero from 0.25 percentage point is a third choice, Bernanke said. The effect of such a move on financial conditions “in isolation would likely be relatively small,” and it risks making the market for overnight loans, or federal funds, “much less liquid,” he said.
Back-to-back quarters of growth below 2 percent are likely to push unemployment higher and put more downward pressure on inflation, which is already lower than the Fed’s longer-term desired range, economists say.
The Fed has already experienced about $140 billion of repayment of mortgage and agency debt, he said.
“Although mortgage prepayment rates are difficult to predict, under the assumption that mortgage rates remain near current levels, we estimated that an additional $400 billion or so of MBS and agency debt currently in the Fed’s portfolio could be repaid by the end of 2011,” the Fed chairman said.
Policy makers in August decided that allowing the Fed’s balance sheet to shrink when the economic outlook “had weakened somewhat was inconsistent with the committee’s intention to provide the monetary accommodation necessary to support the recovery,” Bernanke said in a reference to the FOMC.
RIM refuses to back down in India
Research in Motion and the Indian government were on Friday set for an impasse over New Delhi’s demand for access to BlackBerry e-mails and messaging services after the Canadian company said this was technically impossible.
With a deadline to meet the demand or face a ban only days away, RIM refused to back down, releasing a detailed statement saying its BlackBerry corporate e-mail and messaging services were encrypted by its customers and it did not have the keys to break these codes.
“RIM would simply be unable to accommodate any request for a copy of a customer’s encryption key since at no time does RIM ever possess a copy of the key,” the company said ahead of last-minute talks between the company and Indian telecom and security agency officials on Friday.
The government has set a deadline of Tuesday for Indian mobile operators to shut down the heavily encrypted BlackBerry Enterprise Server corporate e-mail and messaging services on BlackBerrys in the country if RIM does not enable interception of the data by security agencies.
Shaken by the 2008 terrorist attacks on Mumbai and keen to avoid any incidents during the Commonwealth Games in Delhi in October, India is stepping up its intelligence gathering.
A ban would affect 1m BlackBerry users in India, the world’s fastest growing mobile phone market with more than 600m users, including the leading conglomerates, multinationals and some government departments, agencies and police forces.
The issue has raised wider questions of data security, with RIM on Friday warning that its service was only one of a multitude of encrypted communications systems used by modern companies and governments to protect information. In an apparent attempt to turn its standoff with the government into a wider debate on data security, RIM proposed the establishment of an “industry forum” to debate the issue of preventing the misuse of encrypted data traffic while ensuring privacy.
“The industry forum would work closely with the Indian government and focus on developing recommendations for policies and processes aimed at preventing the misuse of strong encryption technologies while preserving its many societal benefits in India,” RIM said.
However, a senior official at the Department of Telecommunications in New Delhi derided the proposal.
“They are missing the point,” said the official. “Creating a forum to discuss security issues isn’t going to address the government’s security concerns.”
He warned that if RIM did not comply with the deadline, the government would take measures against it.
The government has told operators they might be required only to shut down the BlackBerry corporate functions, not the consumer services, which are less encrypted.
But operators say they will be unable to distinguish between the services and will have to shut down all BlackBerry handsets.
With a deadline to meet the demand or face a ban only days away, RIM refused to back down, releasing a detailed statement saying its BlackBerry corporate e-mail and messaging services were encrypted by its customers and it did not have the keys to break these codes.
“RIM would simply be unable to accommodate any request for a copy of a customer’s encryption key since at no time does RIM ever possess a copy of the key,” the company said ahead of last-minute talks between the company and Indian telecom and security agency officials on Friday.
The government has set a deadline of Tuesday for Indian mobile operators to shut down the heavily encrypted BlackBerry Enterprise Server corporate e-mail and messaging services on BlackBerrys in the country if RIM does not enable interception of the data by security agencies.
Shaken by the 2008 terrorist attacks on Mumbai and keen to avoid any incidents during the Commonwealth Games in Delhi in October, India is stepping up its intelligence gathering.
A ban would affect 1m BlackBerry users in India, the world’s fastest growing mobile phone market with more than 600m users, including the leading conglomerates, multinationals and some government departments, agencies and police forces.
The issue has raised wider questions of data security, with RIM on Friday warning that its service was only one of a multitude of encrypted communications systems used by modern companies and governments to protect information. In an apparent attempt to turn its standoff with the government into a wider debate on data security, RIM proposed the establishment of an “industry forum” to debate the issue of preventing the misuse of encrypted data traffic while ensuring privacy.
“The industry forum would work closely with the Indian government and focus on developing recommendations for policies and processes aimed at preventing the misuse of strong encryption technologies while preserving its many societal benefits in India,” RIM said.
However, a senior official at the Department of Telecommunications in New Delhi derided the proposal.
“They are missing the point,” said the official. “Creating a forum to discuss security issues isn’t going to address the government’s security concerns.”
He warned that if RIM did not comply with the deadline, the government would take measures against it.
The government has told operators they might be required only to shut down the BlackBerry corporate functions, not the consumer services, which are less encrypted.
But operators say they will be unable to distinguish between the services and will have to shut down all BlackBerry handsets.
China rejects visit by Kashmir general
Simmering tensions between China and India flared on Friday after Beijing rejected an official visit by the army general responsible for overseeing India’s troubled Muslim-majority province of Jammu and Kashmir.
The spat centres on Beijing’s refusal of a visa for General B.S. Jaswal, chief of the Indian army’s northern command including the restive Kashmir region, which is being rocked by angry anti-India protests .
Gen Jaswal’s trip to China was part of a routine exchange of high-level army officers intended to build confidence and maintain communication lines between the giant neighbours. The two countries went to war in 1962 and still have uneasy relations.
Incensed by Beijing’s rejection, New Delhi summoned the Chinese ambassador on Friday for an explanation. “While we value our exchanges with China, there must be sensitivity to others’ concerns,” the Indian foreign ministry said. “Our dialogue with China on these issues is ongoing.”
However, A.K. Antony, the defence minister, ruled out cutting defence ties, saying that, “occasionally there are some problems, but that will not affect our broader approach”.
The flare-up came just a day after Kashmiri politician Farooq Abdullah – a cabinet minister in Delhi and father of Kashmir’s chief minister, Omar Abdullah – warned of Beijing’s designs on Kashmir, where 64 civilians have been killed by security forces since mid-June.
“China is waiting to gobble it up,” Mr Abdullah told parliament on Thursday in an impassioned plea for Indian elites to take steps to win “the hearts and minds of Kashmiris” and grant the state political autonomy.
Beijing is unhappy with New Delhi giving refuge to the Dalai Lama, Tibet’s exiled spiritual leader, and has been needling India over Kashmir for more than a year, by refusing to give Indian passport holders from the region the same stamped visas it gives other Indian citizens.
Instead, China’s embassies in India give Kashmiris stapled paper visas, which New Delhi interprets as a challenge to its sovereignty. Kashmiri students, researchers and business people have been caught in the middle, as New Delhi has refused to allow them to travel to China.
“Whether it’s Tibet or Kashmir, you can see the deep anxiety of the post-colonial state and the way in which it interprets any contestation of its sovereignty,” said C. Uday Bhaskar, former director of New Delhi’s Institute for Defence Studies and Analyses.
India also deeply resents China’s support for its neighbour Pakistan, with which it has has fought three wars over Kashmir. The region is now divided between the two neighbours and claimed by both. Last year, New Delhi demanded that Beijing stop supporting projects in Pakistan-controlled Kashmir, such as Islamabad’s planned 969MW Neelam-Jhelum hydropower project, which is being built with Chinese help.
Verbal sniping between India and China had been easing after last year’s frenzied levels. But Mr Bhaskar said China might have been emboldened by its new status as the world’s second largest economy, reflected in its recent assertiveness over the South China Sea. “They feel they can exert their muscles,” he said.
The spat centres on Beijing’s refusal of a visa for General B.S. Jaswal, chief of the Indian army’s northern command including the restive Kashmir region, which is being rocked by angry anti-India protests .
Gen Jaswal’s trip to China was part of a routine exchange of high-level army officers intended to build confidence and maintain communication lines between the giant neighbours. The two countries went to war in 1962 and still have uneasy relations.
Incensed by Beijing’s rejection, New Delhi summoned the Chinese ambassador on Friday for an explanation. “While we value our exchanges with China, there must be sensitivity to others’ concerns,” the Indian foreign ministry said. “Our dialogue with China on these issues is ongoing.”
However, A.K. Antony, the defence minister, ruled out cutting defence ties, saying that, “occasionally there are some problems, but that will not affect our broader approach”.
The flare-up came just a day after Kashmiri politician Farooq Abdullah – a cabinet minister in Delhi and father of Kashmir’s chief minister, Omar Abdullah – warned of Beijing’s designs on Kashmir, where 64 civilians have been killed by security forces since mid-June.
“China is waiting to gobble it up,” Mr Abdullah told parliament on Thursday in an impassioned plea for Indian elites to take steps to win “the hearts and minds of Kashmiris” and grant the state political autonomy.
Beijing is unhappy with New Delhi giving refuge to the Dalai Lama, Tibet’s exiled spiritual leader, and has been needling India over Kashmir for more than a year, by refusing to give Indian passport holders from the region the same stamped visas it gives other Indian citizens.
Instead, China’s embassies in India give Kashmiris stapled paper visas, which New Delhi interprets as a challenge to its sovereignty. Kashmiri students, researchers and business people have been caught in the middle, as New Delhi has refused to allow them to travel to China.
“Whether it’s Tibet or Kashmir, you can see the deep anxiety of the post-colonial state and the way in which it interprets any contestation of its sovereignty,” said C. Uday Bhaskar, former director of New Delhi’s Institute for Defence Studies and Analyses.
India also deeply resents China’s support for its neighbour Pakistan, with which it has has fought three wars over Kashmir. The region is now divided between the two neighbours and claimed by both. Last year, New Delhi demanded that Beijing stop supporting projects in Pakistan-controlled Kashmir, such as Islamabad’s planned 969MW Neelam-Jhelum hydropower project, which is being built with Chinese help.
Verbal sniping between India and China had been easing after last year’s frenzied levels. But Mr Bhaskar said China might have been emboldened by its new status as the world’s second largest economy, reflected in its recent assertiveness over the South China Sea. “They feel they can exert their muscles,” he said.
Thursday, August 26, 2010
Asian Stocks Decline on U.S. Growth Concern, Advancing Yen
Aug. 27 (Bloomberg) -- Asian stocks fell, set for their third weekly decline, as materials and technology stocks retreated ahead of revisions to U.S. economic growth figures, and as the yen continued to rise against all major counterparts.
BHP Billiton Ltd., the world largest mining company, fell 0.9 percent on concern weaker growth in the world’s largest economy will crimp demand for materials. Canon Inc., which makes 78 percent of its sales outside Japan, retreated 1.7 percent. Toyota Motor Corp., the world’s No. 1 automaker, declined 0.9 percent after saying it will recall 1.13 million Corolla and Matrix cars.
The MSCI Asia Pacific Index fell 0.2 percent to 116.30 at 10:14 a.m. in Tokyo. The gauge has retreated 5 percent since a three-month high reached on August 6. About three stocks fell for every two that rose, with declines driven also by renewed concern over Spain’s finances.
“The outflow of funds from Japanese stocks will unlikely stop as worries that the yen’s appreciation against the dollar accelerate amid concerns the global economy will slow down faster than expected,” said Juichi Wako, a senior strategist at Tokyo-based Nomura Holdings Inc.
Japan’s Nikkei 225 Stock Average sank 0.6 percent as the yen rose versus all 16 of its major counterparts. Australia’s S&P/ASX 200 Index retreated 0.1 percent, while New Zealand’s NZX 50 Index was little changed in Wellington.
Economy Concerns
Futures on the Standard & Poor’s 500 Index gained 0.1 percent today. In New York, the index dropped 0.8 percent to 1,047.22 yesterday, the lowest close since July 6, as a court ruled Spain’s method of auditing sales tax was illegal and the Federal Reserve Bank of Kansas City said manufacturing growth stalled in the region. Stocks earlier gained after a drop in jobless claims.
Revisions of second-quarter growth in the U.S. will be announced today and may lower last quarter’s 2.4 percent annual growth rate by 1 percentage point or more, according to Morgan Stanley’s David Greenlaw and Nomura Securities International Inc.’s David Resler.
BHP Billiton Ltd., the world largest mining company, fell 0.9 percent on concern weaker growth in the world’s largest economy will crimp demand for materials. Canon Inc., which makes 78 percent of its sales outside Japan, retreated 1.7 percent. Toyota Motor Corp., the world’s No. 1 automaker, declined 0.9 percent after saying it will recall 1.13 million Corolla and Matrix cars.
The MSCI Asia Pacific Index fell 0.2 percent to 116.30 at 10:14 a.m. in Tokyo. The gauge has retreated 5 percent since a three-month high reached on August 6. About three stocks fell for every two that rose, with declines driven also by renewed concern over Spain’s finances.
“The outflow of funds from Japanese stocks will unlikely stop as worries that the yen’s appreciation against the dollar accelerate amid concerns the global economy will slow down faster than expected,” said Juichi Wako, a senior strategist at Tokyo-based Nomura Holdings Inc.
Japan’s Nikkei 225 Stock Average sank 0.6 percent as the yen rose versus all 16 of its major counterparts. Australia’s S&P/ASX 200 Index retreated 0.1 percent, while New Zealand’s NZX 50 Index was little changed in Wellington.
Economy Concerns
Futures on the Standard & Poor’s 500 Index gained 0.1 percent today. In New York, the index dropped 0.8 percent to 1,047.22 yesterday, the lowest close since July 6, as a court ruled Spain’s method of auditing sales tax was illegal and the Federal Reserve Bank of Kansas City said manufacturing growth stalled in the region. Stocks earlier gained after a drop in jobless claims.
Revisions of second-quarter growth in the U.S. will be announced today and may lower last quarter’s 2.4 percent annual growth rate by 1 percentage point or more, according to Morgan Stanley’s David Greenlaw and Nomura Securities International Inc.’s David Resler.
Ford targets India for assembly growth
Ford Motor plans to use expanded capacity in India to launch eight new models over the next five years and export its locally assembled small Figo car to about 50 countries.
The Detroit carmaker’s strategy for its Indian operations were detailed in remarks prepared for delivery at a conference in New Delhi on Thursday by Joe Hinrichs, head of Ford’s Asia-Pacific and Africa operations.
EDITOR’S CHOICE
Editorial: Go east, young car salesman - Aug-13
Lex: US car sales - Aug-11
beyondbrics: Mahindra says it can revive Ssangyong - Aug-03
In depth: Car industry: after the crisis - Aug-12
Mr Hinrichs said the new models would be built with chassis used for similar models – under the company’s “One Ford” strategy, which has become an increasingly important part of its drive to integrate worldwide operations.
The Figo is one of several small models – also including Volkswagen’s Polo and the Nissan Micra – that have sharply boosted car sales in India this year. Domestic sales reached a new record in July, up 38 per cent from a year earlier.
Some carmakers see India as a more promising market than China in the next few years, with an estimated 10m-11m Indians expect to shift from two-wheeled forms of transport to small cars. By contrast, sales in China rose at their slowest pace in 15 months in July.
Ford unveiled a $500m plan last September to double capacity of its assembly plant in Chennai and to build a new engine plant. It has also set up new dealerships to make up ground lost earlier to its domestic and foreign rivals.
Toyota, Honda and Volkswagen are among other carmakers that are increasingly focusing on India as a small-car manufacturing hub. The new investments have coincided with a recovery in India’s economy and a revival of credit, with banks and finance companies now more willing to provide auto loans.
Ford India began exporting the Figo to South Africa in May. Mr Hinrichs said future markets will include Mexico, North African countries and the United Arab Emirates.
He estimated that Ford’s sales in the Asia-Pacific region and Africa would make up two-thirds of its worldwide growth over the next decade.
General Motors, Ford’s bigger Detroit rival, already sells more vehicles in China than in the US. It said that it plans to concentrate on China and Brazil.
Japanese carmakers are expanding production in India and other overseas markets partly to reduce their dependence on exports from Japan, whose profitability has been dented by the surging yen. Toyota announced a five-year plan last month to build factories in China, India, Brazil and the US.
The Detroit carmaker’s strategy for its Indian operations were detailed in remarks prepared for delivery at a conference in New Delhi on Thursday by Joe Hinrichs, head of Ford’s Asia-Pacific and Africa operations.
EDITOR’S CHOICE
Editorial: Go east, young car salesman - Aug-13
Lex: US car sales - Aug-11
beyondbrics: Mahindra says it can revive Ssangyong - Aug-03
In depth: Car industry: after the crisis - Aug-12
Mr Hinrichs said the new models would be built with chassis used for similar models – under the company’s “One Ford” strategy, which has become an increasingly important part of its drive to integrate worldwide operations.
The Figo is one of several small models – also including Volkswagen’s Polo and the Nissan Micra – that have sharply boosted car sales in India this year. Domestic sales reached a new record in July, up 38 per cent from a year earlier.
Some carmakers see India as a more promising market than China in the next few years, with an estimated 10m-11m Indians expect to shift from two-wheeled forms of transport to small cars. By contrast, sales in China rose at their slowest pace in 15 months in July.
Ford unveiled a $500m plan last September to double capacity of its assembly plant in Chennai and to build a new engine plant. It has also set up new dealerships to make up ground lost earlier to its domestic and foreign rivals.
Toyota, Honda and Volkswagen are among other carmakers that are increasingly focusing on India as a small-car manufacturing hub. The new investments have coincided with a recovery in India’s economy and a revival of credit, with banks and finance companies now more willing to provide auto loans.
Ford India began exporting the Figo to South Africa in May. Mr Hinrichs said future markets will include Mexico, North African countries and the United Arab Emirates.
He estimated that Ford’s sales in the Asia-Pacific region and Africa would make up two-thirds of its worldwide growth over the next decade.
General Motors, Ford’s bigger Detroit rival, already sells more vehicles in China than in the US. It said that it plans to concentrate on China and Brazil.
Japanese carmakers are expanding production in India and other overseas markets partly to reduce their dependence on exports from Japan, whose profitability has been dented by the surging yen. Toyota announced a five-year plan last month to build factories in China, India, Brazil and the US.
A Big Surprise: Troubled Assets Garner Rewards
American taxpayers are already poised to make unexpected billions from rescuing the nation’s banks. Now, they could reap another sizable profit from a government program devised to purge troubled real estate assets from the financial system.
The Obama administration made the so-called Public-Private Investment Program a centerpiece of its plan to help unlock the frozen credit markets in the spring of 2009, when a lack of buyers for complex mortgage securities threatened the health of the nation’s banks and put a drag on lending.
Under the program, the government provided matching funds and ultracheap loans to investment firms like AllianceBernstein and Oaktree Capital that agreed to buy mortgage securities from banks, insurers and other financial institutions.
Taxpayers stood to share in any of the profits, though the prospects of such a windfall were seen as secondary to the goal of unclogging the markets.
Nine months into the program, the eight investment funds chosen by the Treasury Department have generated an estimated return of about 15.5 percent for taxpayers, according to an analysis of their results through the end of June by Linus Wilson, an assistant professor of finance at the University of Louisiana, Lafayette.
Two of the investment funds — one operated by an Angelo Gordon-GE Capital consortium and another by BlackRock — have gotten off to even stronger starts, posting returns of more than 20 percent.
That translates into a paper profit of roughly $657 million for taxpayers. Some Wall Street analysts project that taxpayers could earn as much as $6.2 billion on these investments over the next nine years, from an investment of about $22 billion.
To be sure, the funds’ standout performance can be attributed to a rally in the mortgage bond market that began late last year and may be hard to repeat.
Still, it is a remarkable turnabout. When the administration announced the Public-Private Investment Program, critics lambasted it as yet another giveaway to private equity firms and other Wall Street money managers — a program so ill-conceived that one prominent economist, the Nobel laureate Joseph Stiglitz, characterized it at the time as a “robbery of the American people.”
But the strong start of the funds has pushed aside many of those concerns.
“We feel very good about the performance to date,” said David N. Miller, the Treasury Department’s chief investment officer who oversees its bailout-related holdings.
The administration has not yet provided its own profit projections, and all proceeds will be used to pay down the nation’s ballooning debt. But any windfall, Mr. Miller suggested, would be icing on the cake for taxpayers.
The program’s main benefit, he said, has been to help revive the market for complex mortgage bonds, whose trading ground to a halt a year and a half ago. That helped break the downward spiral of asset prices and paved the way for a wave of new bond deals, which lenders rely on to finance new mortgages.
“We view that as accomplishing the mission,” Mr. Miller said.
The scope of the government’s action was scaled back before it got started. In fact, the original purpose of the $700 billion federal bailout program, authorized by Congress during the tenure of Treasury Secretary Henry M. Paulson Jr., was to buy mortgage assets much more aggressively. Instead, that money was used to make direct investments in troubled banks.
So, to restart the trading of mortgage assets, the incoming Treasury secretary, Timothy F. Geithner, announced the creation of a smaller Public-Private Investment Program. The administration hoped to establish market prices for the assets so that banks would not have to sell them at fire-sale prices, which would have threatened their solvency.
As a side effect, though, the extraordinary government interventions in the banking system made necessary by the financial crisis have turned the United States government into one of the world’s biggest vulture investors.
In addition to the $22 billion the Treasury Department has invested in the public-private program, the Federal Reserve has amassed about $69 billion of distressed loans and bonds from the 11th-hour rescues of Bear Stearns and the American International Group. That program appears poised to turn its own multibillion-dollar profit for taxpayers.
Together the Treasury and Fed have allocated more than twice as much taxpayer money toward distressed real estate assets as the combined total the 10 largest private real estate investment funds have raised for such assets over the last decade, according to Prequin, a financial information provider.
In normal market conditions, these funds are the lifeblood of real estate financing.
All that money invested by the government is still tiny compared with the estimated $1.8 trillion worth of distressed residential and commercial mortgage-related securities that were eligible for sale when the investment funds drafted by the Public-Private Investment Program began their purchases last fall, according to a Barclays Capital research report. Those assets remain on the books of many Wall Street investment houses, insurers and banks.
What the program has provided, though, is a big dose of confidence in the markets, assuring investors that there would be a steady stream of buyers for distressed securities.
More than 100 investment firms applied to participate in the program and raised money from private investors. Even though only eight funds were chosen to receive government money, many of the others have nonetheless been dabbling in the market, helping to bid up prices.
“That literally changed supply and demand,” said Wilbur L. Ross Jr., the veteran vulture investor who helps manage Invesco’s public-private fund.
The Public-Private Investment Program has run into its share of problems. For example, a second component of the program — to be run by the Federal Deposit Insurance Corporation and intended to encourage the purchase of real estate loans rather than bonds — never got off the ground.
Also, some of the early promises that ordinary investors would be able to “profit from the bailout” by owning stakes in public-private investment funds have failed to materialize. BlackRock, for example, failed to win regulatory approval to create a mutual fund for ordinary investors that would have largely invested in the firm’s public-private fund.
Legg Mason and Nuveen Investments have offered consumers the chance to own smaller slivers of the program’s investments through the Mortgage Opportunity mutual funds they sell — although they have only modestly outperformed their peers.
Government watchdogs have also raised concerns about the program. Neil M. Barofsky, the special inspector general assigned to monitor the use of bailout funds, faulted the Treasury Department by saying it had failed to establish “appropriate metrics and internal controls.”
Fund managers brief federal officials at least monthly on their performance, but Mr. Barofsky concluded that expecting private firms to develop detailed policies and procedures “is not appropriate in light of the risk of conflicts of interest inherent” in the public-private investment program. His follow-up audit of the public-private fund managers is expected to be completed in September.
Meanwhile skeptics like Professor Wilson question whether the government’s favorable financing terms were actually encouraging the fund managers in the program to make risky wagers without giving taxpayers a big enough piece of the upside.
“The U.S. Treasury has given the asset managers incentives to swing for the fences,” Professor Wilson said. “The asset managers have hit some early home runs, yet we are still in the first inning of these investments.”
Although the program’s eight investment funds have posted solid results so far, they have invested only about $16.2 billion, or just over 55 percent of the $29.2 billion of the total money they have raised, according to government data through June.
The Treasury Department has put up roughly three-quarters of that total, matching dollar-for-dollar money put up by private investors while also providing an even bigger helping of debt financing at about 1.3 percent, well below normal interest rates.
The Obama administration made the so-called Public-Private Investment Program a centerpiece of its plan to help unlock the frozen credit markets in the spring of 2009, when a lack of buyers for complex mortgage securities threatened the health of the nation’s banks and put a drag on lending.
Under the program, the government provided matching funds and ultracheap loans to investment firms like AllianceBernstein and Oaktree Capital that agreed to buy mortgage securities from banks, insurers and other financial institutions.
Taxpayers stood to share in any of the profits, though the prospects of such a windfall were seen as secondary to the goal of unclogging the markets.
Nine months into the program, the eight investment funds chosen by the Treasury Department have generated an estimated return of about 15.5 percent for taxpayers, according to an analysis of their results through the end of June by Linus Wilson, an assistant professor of finance at the University of Louisiana, Lafayette.
Two of the investment funds — one operated by an Angelo Gordon-GE Capital consortium and another by BlackRock — have gotten off to even stronger starts, posting returns of more than 20 percent.
That translates into a paper profit of roughly $657 million for taxpayers. Some Wall Street analysts project that taxpayers could earn as much as $6.2 billion on these investments over the next nine years, from an investment of about $22 billion.
To be sure, the funds’ standout performance can be attributed to a rally in the mortgage bond market that began late last year and may be hard to repeat.
Still, it is a remarkable turnabout. When the administration announced the Public-Private Investment Program, critics lambasted it as yet another giveaway to private equity firms and other Wall Street money managers — a program so ill-conceived that one prominent economist, the Nobel laureate Joseph Stiglitz, characterized it at the time as a “robbery of the American people.”
But the strong start of the funds has pushed aside many of those concerns.
“We feel very good about the performance to date,” said David N. Miller, the Treasury Department’s chief investment officer who oversees its bailout-related holdings.
The administration has not yet provided its own profit projections, and all proceeds will be used to pay down the nation’s ballooning debt. But any windfall, Mr. Miller suggested, would be icing on the cake for taxpayers.
The program’s main benefit, he said, has been to help revive the market for complex mortgage bonds, whose trading ground to a halt a year and a half ago. That helped break the downward spiral of asset prices and paved the way for a wave of new bond deals, which lenders rely on to finance new mortgages.
“We view that as accomplishing the mission,” Mr. Miller said.
The scope of the government’s action was scaled back before it got started. In fact, the original purpose of the $700 billion federal bailout program, authorized by Congress during the tenure of Treasury Secretary Henry M. Paulson Jr., was to buy mortgage assets much more aggressively. Instead, that money was used to make direct investments in troubled banks.
So, to restart the trading of mortgage assets, the incoming Treasury secretary, Timothy F. Geithner, announced the creation of a smaller Public-Private Investment Program. The administration hoped to establish market prices for the assets so that banks would not have to sell them at fire-sale prices, which would have threatened their solvency.
As a side effect, though, the extraordinary government interventions in the banking system made necessary by the financial crisis have turned the United States government into one of the world’s biggest vulture investors.
In addition to the $22 billion the Treasury Department has invested in the public-private program, the Federal Reserve has amassed about $69 billion of distressed loans and bonds from the 11th-hour rescues of Bear Stearns and the American International Group. That program appears poised to turn its own multibillion-dollar profit for taxpayers.
Together the Treasury and Fed have allocated more than twice as much taxpayer money toward distressed real estate assets as the combined total the 10 largest private real estate investment funds have raised for such assets over the last decade, according to Prequin, a financial information provider.
In normal market conditions, these funds are the lifeblood of real estate financing.
All that money invested by the government is still tiny compared with the estimated $1.8 trillion worth of distressed residential and commercial mortgage-related securities that were eligible for sale when the investment funds drafted by the Public-Private Investment Program began their purchases last fall, according to a Barclays Capital research report. Those assets remain on the books of many Wall Street investment houses, insurers and banks.
What the program has provided, though, is a big dose of confidence in the markets, assuring investors that there would be a steady stream of buyers for distressed securities.
More than 100 investment firms applied to participate in the program and raised money from private investors. Even though only eight funds were chosen to receive government money, many of the others have nonetheless been dabbling in the market, helping to bid up prices.
“That literally changed supply and demand,” said Wilbur L. Ross Jr., the veteran vulture investor who helps manage Invesco’s public-private fund.
The Public-Private Investment Program has run into its share of problems. For example, a second component of the program — to be run by the Federal Deposit Insurance Corporation and intended to encourage the purchase of real estate loans rather than bonds — never got off the ground.
Also, some of the early promises that ordinary investors would be able to “profit from the bailout” by owning stakes in public-private investment funds have failed to materialize. BlackRock, for example, failed to win regulatory approval to create a mutual fund for ordinary investors that would have largely invested in the firm’s public-private fund.
Legg Mason and Nuveen Investments have offered consumers the chance to own smaller slivers of the program’s investments through the Mortgage Opportunity mutual funds they sell — although they have only modestly outperformed their peers.
Government watchdogs have also raised concerns about the program. Neil M. Barofsky, the special inspector general assigned to monitor the use of bailout funds, faulted the Treasury Department by saying it had failed to establish “appropriate metrics and internal controls.”
Fund managers brief federal officials at least monthly on their performance, but Mr. Barofsky concluded that expecting private firms to develop detailed policies and procedures “is not appropriate in light of the risk of conflicts of interest inherent” in the public-private investment program. His follow-up audit of the public-private fund managers is expected to be completed in September.
Meanwhile skeptics like Professor Wilson question whether the government’s favorable financing terms were actually encouraging the fund managers in the program to make risky wagers without giving taxpayers a big enough piece of the upside.
“The U.S. Treasury has given the asset managers incentives to swing for the fences,” Professor Wilson said. “The asset managers have hit some early home runs, yet we are still in the first inning of these investments.”
Although the program’s eight investment funds have posted solid results so far, they have invested only about $16.2 billion, or just over 55 percent of the $29.2 billion of the total money they have raised, according to government data through June.
The Treasury Department has put up roughly three-quarters of that total, matching dollar-for-dollar money put up by private investors while also providing an even bigger helping of debt financing at about 1.3 percent, well below normal interest rates.
India business wary over nuclear law
India’s lower house of parliament on Wednesday approved a draft nuclear liability law that the national nuclear power company and Indian business groups fear will jeopardise the benefits of New Delhi’s nuclear deal with the US.
The state-owned Nuclear Power Corp of India and leading industry bodies warned the draft law would throttle the country’s fledgling nuclear power industry, by deterring private companies from providing nuclear equipment or raw materials to India.
Global nuclear companies such as GE, Westinghouse, Bechtel and Areva are keen to enter the Indian market because of New Delhi’s ambitious plans to expand its nuclear energy capacity from 4,000 megawatts of installed capacity to 30,000MW by 2020. These companies have been waiting for India to lay out its legal framework for liability – the final step of India’s 2008 civil nuclear deal with the US.
The draft law is intended to ensure quick compensation for victims of nuclear accidents without the need to prove fault.
However, Indian industry groups say a provision allowing nuclear power plant operators to seek recourse from equipment or raw material suppliers for 80 years after a plant’s construction would deter international nuclear energy companies and some local companies from doing nuclear commerce with India.
In a letter to Manmohan Singh, prime minister, the Federation of Indian Chambers of Commerce and Industry warned the legislation “threatens to completely undo the government’s efforts to accelerate nuclear power generation in our country”.
The Confederation of Indian Industry said separately that the provision would be “a major deterrent” to India’s nuclear power operators accessing foreign technology.
“No manufacturer, Indian or foreign, would be able to serve the nuclear power industry,” Sudhinder Thakur, executive director of the national nuclear power group, said this week.
“The government has the powers to make laws, but in making laws, we should not defeat the purpose for which the laws are made.”
Mr Singh defended the bill – which must still be approved by the upper house – saying it was the final step to end India’s decades-long status as a nuclear pariah, following its 1974 and 1998 nuclear weapons tests.
“This bill completes our journey to end the nuclear apartheid that the world imposed on us,” Mr Singh told parliament ahead of the vote.
Most countries with a large nuclear energy sector fix absolute and exclusive liability on nuclear power plant operators, which are normally able to access insurance to cover their risk. With up to 300 companies supplying components, materials, and services to build a nuclear power plant, industry groups say pinpointing liability in case of an accident is considered nearly impossible – and many suppliers, especially of small parts, could not afford to insure against a long accident risk.
However, the debate on the nuclear liability bill was affected by the recent resurgence of public anger over the 1984 Bhopal gas disaster.
The state-owned Nuclear Power Corp of India and leading industry bodies warned the draft law would throttle the country’s fledgling nuclear power industry, by deterring private companies from providing nuclear equipment or raw materials to India.
Global nuclear companies such as GE, Westinghouse, Bechtel and Areva are keen to enter the Indian market because of New Delhi’s ambitious plans to expand its nuclear energy capacity from 4,000 megawatts of installed capacity to 30,000MW by 2020. These companies have been waiting for India to lay out its legal framework for liability – the final step of India’s 2008 civil nuclear deal with the US.
The draft law is intended to ensure quick compensation for victims of nuclear accidents without the need to prove fault.
However, Indian industry groups say a provision allowing nuclear power plant operators to seek recourse from equipment or raw material suppliers for 80 years after a plant’s construction would deter international nuclear energy companies and some local companies from doing nuclear commerce with India.
In a letter to Manmohan Singh, prime minister, the Federation of Indian Chambers of Commerce and Industry warned the legislation “threatens to completely undo the government’s efforts to accelerate nuclear power generation in our country”.
The Confederation of Indian Industry said separately that the provision would be “a major deterrent” to India’s nuclear power operators accessing foreign technology.
“No manufacturer, Indian or foreign, would be able to serve the nuclear power industry,” Sudhinder Thakur, executive director of the national nuclear power group, said this week.
“The government has the powers to make laws, but in making laws, we should not defeat the purpose for which the laws are made.”
Mr Singh defended the bill – which must still be approved by the upper house – saying it was the final step to end India’s decades-long status as a nuclear pariah, following its 1974 and 1998 nuclear weapons tests.
“This bill completes our journey to end the nuclear apartheid that the world imposed on us,” Mr Singh told parliament ahead of the vote.
Most countries with a large nuclear energy sector fix absolute and exclusive liability on nuclear power plant operators, which are normally able to access insurance to cover their risk. With up to 300 companies supplying components, materials, and services to build a nuclear power plant, industry groups say pinpointing liability in case of an accident is considered nearly impossible – and many suppliers, especially of small parts, could not afford to insure against a long accident risk.
However, the debate on the nuclear liability bill was affected by the recent resurgence of public anger over the 1984 Bhopal gas disaster.
Wednesday, August 25, 2010
Wal-Mart Asks Supreme Court to Hear Bias Suitc
Wal-Mart Stores asked the Supreme Court on Wednesday to review the largest employment discrimination lawsuit in American history, involving more than a million female workers, current and former, at Wal-Mart and Sam’s Club stores.
Nine years after the suit was filed, the central issue before the Supreme Court will not be whether any discrimination occurred, but whether more than a million people can even make this joint claim through a class-action lawsuit, as opposed to filing claims individually or in smaller groups.
In April, the United States Court of Appeals for the Ninth Circuit in San Francisco ruled 6-5 that the lawsuit could proceed as a jumbo class action — the fourth judicial decision upholding a class action.
The stakes are huge. If the Supreme Court allows the suit to proceed as a class action, that could easily cost Wal-Mart $1 billion or more in damages, legal experts say.
More significant, the court’s ruling could set guidelines for other types of class-action suits. “This is the big one that will set the standards for all other class actions,” said Robin S. Conrad, executive vice president of the National Chamber Litigation Center, an arm of the United States Chamber of Commerce, which has filed several amicus briefs backing Wal-Mart.
Meanwhile, the women at the core of the original lawsuit, known as Dukes v. Wal-Mart, have tried to move on with their lives. Some still work at Wal-Mart and have been promoted or received raises. One still works as a greeter there. Others have left Wal-Mart.
The case began nearly a decade ago with one woman, Stephanie Odle, who was upset to discover that the top manager at the Sam’s Club where she worked as an assistant store manager had been administering a promotion test to the three male assistant store managers but not to her.
That came after Ms. Odle discovered that a male assistant manager at a previous Sam’s Club where she worked had been earning $23,000 more a year than she was. When she complained, she said, the district manager responded, “Stephanie, that assistant manager has a family and two children to support.”
“I told him, ‘I’m a single mother, and I have a 6-month-old child to support,’ ” she recalled in an interview.
Lawyers representing the plaintiffs recruited Ms. Odle after obtaining a data showing that just a third of Wal-Mart’s managers were women even though two-thirds of its employees were. The lawyers wanted to enlist a Wal-Mart employee whose complaints about pay and promotions would be a base from which to build a broader sex discrimination case.
Ms. Odle’s story, along with those of six other women, became the seed of the 2001 lawsuit that accused Wal-Mart of systematic discrimination against women in pay and promotions. No one expected it to become such a drawn-out battle.
In its appeal, Wal-Mart said the Ninth Circuit’s decision had contradicted earlier decisions of the Supreme Court and other appeals courts and had wrongly relieved the plaintiffs of the burden of proving individual injury.
“This conflict and confusion in class-action law is harmful for everyone — employers, employees, businesses of all types and sizes, and the civil justice system,” said Theodore Boutrous, a lawyer for Wal-Mart.
In its filing, Wal-Mart argued that while a class action might be appropriate for plaintiffs seeking changes to the retailer’s behavior, the status was improper for seeking monetary damages.
The company said the complaints of the seven women were not typical of the more than one million women who have worked at Wal-Mart in the last decade. In a statement Wednesday, Wal-Mart said that it “has been recognized as a leader in fostering the advancement and success of women in the workplace.”
Brad Seligman, a lawyer for the women, disputed Wal-Mart’s legal analysis. “The ruling upholding the class in this case is well within the mainstream that courts at all levels have recognized for decades,” he said in an e-mail Wednesday. “Only the size of the case is unusual, and that is a product of Wal-Mart’s size and the breadth of the discrimination we documented. There is no ‘too big to be liable’ exception in civil rights laws.”
The slow grind of the legal process has taken its toll on the plaintiffs.
Nine years after the suit was filed, the central issue before the Supreme Court will not be whether any discrimination occurred, but whether more than a million people can even make this joint claim through a class-action lawsuit, as opposed to filing claims individually or in smaller groups.
In April, the United States Court of Appeals for the Ninth Circuit in San Francisco ruled 6-5 that the lawsuit could proceed as a jumbo class action — the fourth judicial decision upholding a class action.
The stakes are huge. If the Supreme Court allows the suit to proceed as a class action, that could easily cost Wal-Mart $1 billion or more in damages, legal experts say.
More significant, the court’s ruling could set guidelines for other types of class-action suits. “This is the big one that will set the standards for all other class actions,” said Robin S. Conrad, executive vice president of the National Chamber Litigation Center, an arm of the United States Chamber of Commerce, which has filed several amicus briefs backing Wal-Mart.
Meanwhile, the women at the core of the original lawsuit, known as Dukes v. Wal-Mart, have tried to move on with their lives. Some still work at Wal-Mart and have been promoted or received raises. One still works as a greeter there. Others have left Wal-Mart.
The case began nearly a decade ago with one woman, Stephanie Odle, who was upset to discover that the top manager at the Sam’s Club where she worked as an assistant store manager had been administering a promotion test to the three male assistant store managers but not to her.
That came after Ms. Odle discovered that a male assistant manager at a previous Sam’s Club where she worked had been earning $23,000 more a year than she was. When she complained, she said, the district manager responded, “Stephanie, that assistant manager has a family and two children to support.”
“I told him, ‘I’m a single mother, and I have a 6-month-old child to support,’ ” she recalled in an interview.
Lawyers representing the plaintiffs recruited Ms. Odle after obtaining a data showing that just a third of Wal-Mart’s managers were women even though two-thirds of its employees were. The lawyers wanted to enlist a Wal-Mart employee whose complaints about pay and promotions would be a base from which to build a broader sex discrimination case.
Ms. Odle’s story, along with those of six other women, became the seed of the 2001 lawsuit that accused Wal-Mart of systematic discrimination against women in pay and promotions. No one expected it to become such a drawn-out battle.
In its appeal, Wal-Mart said the Ninth Circuit’s decision had contradicted earlier decisions of the Supreme Court and other appeals courts and had wrongly relieved the plaintiffs of the burden of proving individual injury.
“This conflict and confusion in class-action law is harmful for everyone — employers, employees, businesses of all types and sizes, and the civil justice system,” said Theodore Boutrous, a lawyer for Wal-Mart.
In its filing, Wal-Mart argued that while a class action might be appropriate for plaintiffs seeking changes to the retailer’s behavior, the status was improper for seeking monetary damages.
The company said the complaints of the seven women were not typical of the more than one million women who have worked at Wal-Mart in the last decade. In a statement Wednesday, Wal-Mart said that it “has been recognized as a leader in fostering the advancement and success of women in the workplace.”
Brad Seligman, a lawyer for the women, disputed Wal-Mart’s legal analysis. “The ruling upholding the class in this case is well within the mainstream that courts at all levels have recognized for decades,” he said in an e-mail Wednesday. “Only the size of the case is unusual, and that is a product of Wal-Mart’s size and the breadth of the discrimination we documented. There is no ‘too big to be liable’ exception in civil rights laws.”
The slow grind of the legal process has taken its toll on the plaintiffs.
China Inflation Data Second-Guessed as Housing Prices Rise
Aug. 26 (Bloomberg) -- Lydia Wang, a 28-year-old marketing manager in Shanghai, gripes that the shoes and clothing she normally buys are at least 50 percent pricier than in 2009. Wu Sengyun, a 54-year-old retiree in the coastal city of Ningbo, Zhejiang, says prices of fruit and fish are up more than 20 percent in the past year.
Willy Lin has cut back on free drumsticks in the canteen of his Jiangxi clothing factory as meat and vegetables grow dear. “The workers suffer,” he says. “Everybody is crying.”
Officially, China’s consumer price inflation topped out at 3.3 percent in July compared to a year before, a 21-month high. Officials say the spike is a one-off caused by crop damage from recent flooding. Other costs, they say, such as cars, mobile phone bills, and clothing, are falling, and pressure on prices should ease as the economy cools. At an Aug. 12 press conference, Pan Jiancheng, a deputy director in the statistics bureau, said the inflationary threat was “overhyped.”
Consumers, investors, analysts and academics interviewed by Bloomberg BusinessWeek in its Aug. 30 issue beg to differ.
“There has been a jump in prices that isn’t reflected in the numbers,” said Chinese Academy of Social Sciences economist Yu Yongding, a former adviser to China’s central bank.
Michael Pettis, a finance professor at Peking University, said he wonders how a country that grew 10.3 percent last quarter and is seeing upward pressure on wages could register a price rise of a few percentage points. Multinationals in China expect to raise wages an average of 8.4 percent this year, according to Hewitt Associates Inc., a human resources consultant.
Ordinary Chinese
Ordinary Chinese have yet to see increases in their housing, education, and medical expenses reflected in the official numbers, these analysts said.
“Inflation could well be 6 percent now for most people in China,” Peking University’s Pettis said.
If the doubters are right, then the government has an inflation problem that it either hasn’t figured out how to measure, or has chosen to ignore. Other vital Chinese statistics, like retail sales and unemployment, have also been murky. In the case of inflation, misjudging could prevent the kind of swift action needed to tame prices now, and force the government to apply harsher measures later, such as an increase in interest rates or an appreciation of the currency to curb growth. There are political risks too: Social unrest in China has been triggered when ordinary workers can’t keep up with the cost of living.
Data ‘Oddity’
Unlike most countries, China refuses to release in detail how much weighting it gives different product categories when calculating inflation, a situation that World Bank senior economist Louis Kuijs called an “oddity.” An official with the statistics bureau said there has been no major change in the basket that makes up the price index since 2005. Plans call to adjust the weighting next year to reflect housing costs more and food prices less, said the official, who declined to be identified because of agency rules.
Chinese consumers, when asked, will detail how household expenses have changed in the past decade. Medical costs are the No. 1 concern for 84 percent of China’s rural residents, according to a recent survey by the Economist Intelligence Unit. Officially, medical prices are only up 2.8 percent so far this year. That number does not include the cost of gifts to hospital doctors and administrators to ensure adequate care.
Housing and rising rental costs also eat up more of Chinese budgets. For 26-year-old Beijing resident Wang Yulu, the monthly rent of her 35-square-meter one-bedroom apartment just increased more than 20 percent, to $338.
Too Expensive
“It’s too expensive,” said Wang, who works in the Beijing office of a Hong Kong advertising company. “I’m thinking of moving.”
Getting a handle on rising prices is a particular challenge in China. Hundreds of millions of rural Chinese keep moving to cities, pushing up rents and food prices in urban coastal areas. The prices charged by millions of restaurants, coffee shops, and fitness centers go largely unrecorded as entrepreneurs evade taxes. A standard foot massage, popular in Chinese cities, has risen from around $10 in 2008 to about twice that today, said Zoe Wang, a 29-year-old strategy consultant from Shanghai.
“Unfortunately, my salary didn’t double,” she said. Official figures only record a 0.4 percent rise in recreation and education costs this year. China doesn’t separate these two categories in its figures.
Residents in far-western China face higher prices in part because of the long distances products must travel to reach them. A fast-growing population of pensioners feels price increases much more acutely than others.
Pensions Spent
Said retiree Wei Mingxiang, 54, as she shopped carefully in Beijing’s Rundeli vegetable market: “Prices have gone up too far. My entire monthly pension of $147 is spent on food.” One staple, cowpeas, recently doubled in price in two weeks to 40 cents a pound.
By periodically releasing wheat, rice, and corn from its reserves, the government has avoided the 100 percent price surge that hit global grain markets in 2007 and 2008. Beijing continues to cap prices on everything from phone bills to water, electricity, and fuel prices, and when it wants to cool growth the government orders banks to stop lending.
“The government has tended to use less mainstream instruments that economists don’t like so much,” said Kuijs of the World Bank. “And they tend to use interest rates less.”
Deposit Rates
One-year deposit rates at 2.25 percent have not been changed since November 2008, which means Chinese savers are actually losing money now that inflation has passed 3 percent. Officials fear higher rates could draw speculative investors into China.
Some analysts said that Beijing is doing a decent job of calculating prices. Arthur Kroeber, the Beijing-based managing director of economic consultancy Dragonomics, estimated that actual inflation may exceed the official figure but by not much more than one percentage point. Kroeber added that a tightening labor market and rising wages will push China into higher inflation in the coming years.
Others wondered whether the historic aversion of China’s rulers to the political risks of inflation creates pressures to keep official figures low.
Factory Jobs
Similar pressures help explain how official unemployment targets of just over 4 percent were met in 2008 and 2009, when China’s factories laid off tens of millions of workers, some economists said.
“The government has made it quite clear” what its inflation target is for 2010, Tsinghua University management professor Patrick Chovanec blogged on Aug. 12. “A whole parade of official sources have issued statements over the past few weeks predicting, with the unruffled, enigmatic certainty one normally associates with a blackjack dealer dealing a fixed deck, that inflation will come in right at 3 percent this year.”
Willy Lin has cut back on free drumsticks in the canteen of his Jiangxi clothing factory as meat and vegetables grow dear. “The workers suffer,” he says. “Everybody is crying.”
Officially, China’s consumer price inflation topped out at 3.3 percent in July compared to a year before, a 21-month high. Officials say the spike is a one-off caused by crop damage from recent flooding. Other costs, they say, such as cars, mobile phone bills, and clothing, are falling, and pressure on prices should ease as the economy cools. At an Aug. 12 press conference, Pan Jiancheng, a deputy director in the statistics bureau, said the inflationary threat was “overhyped.”
Consumers, investors, analysts and academics interviewed by Bloomberg BusinessWeek in its Aug. 30 issue beg to differ.
“There has been a jump in prices that isn’t reflected in the numbers,” said Chinese Academy of Social Sciences economist Yu Yongding, a former adviser to China’s central bank.
Michael Pettis, a finance professor at Peking University, said he wonders how a country that grew 10.3 percent last quarter and is seeing upward pressure on wages could register a price rise of a few percentage points. Multinationals in China expect to raise wages an average of 8.4 percent this year, according to Hewitt Associates Inc., a human resources consultant.
Ordinary Chinese
Ordinary Chinese have yet to see increases in their housing, education, and medical expenses reflected in the official numbers, these analysts said.
“Inflation could well be 6 percent now for most people in China,” Peking University’s Pettis said.
If the doubters are right, then the government has an inflation problem that it either hasn’t figured out how to measure, or has chosen to ignore. Other vital Chinese statistics, like retail sales and unemployment, have also been murky. In the case of inflation, misjudging could prevent the kind of swift action needed to tame prices now, and force the government to apply harsher measures later, such as an increase in interest rates or an appreciation of the currency to curb growth. There are political risks too: Social unrest in China has been triggered when ordinary workers can’t keep up with the cost of living.
Data ‘Oddity’
Unlike most countries, China refuses to release in detail how much weighting it gives different product categories when calculating inflation, a situation that World Bank senior economist Louis Kuijs called an “oddity.” An official with the statistics bureau said there has been no major change in the basket that makes up the price index since 2005. Plans call to adjust the weighting next year to reflect housing costs more and food prices less, said the official, who declined to be identified because of agency rules.
Chinese consumers, when asked, will detail how household expenses have changed in the past decade. Medical costs are the No. 1 concern for 84 percent of China’s rural residents, according to a recent survey by the Economist Intelligence Unit. Officially, medical prices are only up 2.8 percent so far this year. That number does not include the cost of gifts to hospital doctors and administrators to ensure adequate care.
Housing and rising rental costs also eat up more of Chinese budgets. For 26-year-old Beijing resident Wang Yulu, the monthly rent of her 35-square-meter one-bedroom apartment just increased more than 20 percent, to $338.
Too Expensive
“It’s too expensive,” said Wang, who works in the Beijing office of a Hong Kong advertising company. “I’m thinking of moving.”
Getting a handle on rising prices is a particular challenge in China. Hundreds of millions of rural Chinese keep moving to cities, pushing up rents and food prices in urban coastal areas. The prices charged by millions of restaurants, coffee shops, and fitness centers go largely unrecorded as entrepreneurs evade taxes. A standard foot massage, popular in Chinese cities, has risen from around $10 in 2008 to about twice that today, said Zoe Wang, a 29-year-old strategy consultant from Shanghai.
“Unfortunately, my salary didn’t double,” she said. Official figures only record a 0.4 percent rise in recreation and education costs this year. China doesn’t separate these two categories in its figures.
Residents in far-western China face higher prices in part because of the long distances products must travel to reach them. A fast-growing population of pensioners feels price increases much more acutely than others.
Pensions Spent
Said retiree Wei Mingxiang, 54, as she shopped carefully in Beijing’s Rundeli vegetable market: “Prices have gone up too far. My entire monthly pension of $147 is spent on food.” One staple, cowpeas, recently doubled in price in two weeks to 40 cents a pound.
By periodically releasing wheat, rice, and corn from its reserves, the government has avoided the 100 percent price surge that hit global grain markets in 2007 and 2008. Beijing continues to cap prices on everything from phone bills to water, electricity, and fuel prices, and when it wants to cool growth the government orders banks to stop lending.
“The government has tended to use less mainstream instruments that economists don’t like so much,” said Kuijs of the World Bank. “And they tend to use interest rates less.”
Deposit Rates
One-year deposit rates at 2.25 percent have not been changed since November 2008, which means Chinese savers are actually losing money now that inflation has passed 3 percent. Officials fear higher rates could draw speculative investors into China.
Some analysts said that Beijing is doing a decent job of calculating prices. Arthur Kroeber, the Beijing-based managing director of economic consultancy Dragonomics, estimated that actual inflation may exceed the official figure but by not much more than one percentage point. Kroeber added that a tightening labor market and rising wages will push China into higher inflation in the coming years.
Others wondered whether the historic aversion of China’s rulers to the political risks of inflation creates pressures to keep official figures low.
Factory Jobs
Similar pressures help explain how official unemployment targets of just over 4 percent were met in 2008 and 2009, when China’s factories laid off tens of millions of workers, some economists said.
“The government has made it quite clear” what its inflation target is for 2010, Tsinghua University management professor Patrick Chovanec blogged on Aug. 12. “A whole parade of official sources have issued statements over the past few weeks predicting, with the unruffled, enigmatic certainty one normally associates with a blackjack dealer dealing a fixed deck, that inflation will come in right at 3 percent this year.”
India Risks Nuclear Isolation With Break From Chernobyl Accord
Aug. 26 (Bloomberg) -- India’s push to end a three-decade ban on buying nuclear equipment from abroad may founder on laws passed by its own parliament.
Lawmakers in New Delhi approved a bill last night that makes suppliers and builders of atomic reactors potentially liable in the event of an accident. That’s broader than a 1997 accord signed by more than 80 nations in the wake of the Chernobyl disaster that limits compensation claims to operators.
The bill, intended to open the world’s second-fastest growing atomic energy market by setting a legal framework, may deter companies from bidding for $175 billion of contracts. India needs suppliers including GE Hitachi Nuclear Energy and Westinghouse Electric Co. to meet its target of boosting nuclear power generation 13-fold by 2030 to drive economic growth.
“India needs to realize if they don’t satisfy international liability standards, equipment vendors won’t supply,” said Mark Hibbs, a Berlin-based nuclear policy analyst at the Carnegie Endowment for International Peace. “There are many other opportunities” in Western Europe, the U.S., Canada, Japan and South Korea that are all expanding capacity, he said.
Prime Minister Manmohan Singh’s ruling Congress Party had to rewrite the Civil Liability for Nuclear Damage Bill to ensure it passed before U.S. President Barack Obama visits India this year. The government, which lacks a majority in parliament, had to insert a clause to allow compensation claims against suppliers to gain enough votes to pass the bill.
‘Not Practical’
“This clause doesn’t appear in any domestic legislation in any other country,” and runs counter to international convention, said Sudhinder Thakur, executive director at Nuclear Power Corp. of India, the nation’s monopoly operator. “If you supply $2 million of equipment, how can you be held liable for up to $300 million over 80-odd years? It’s not practical.”
The bill sets a 15 billion rupee ($322 million) cap on payouts by Nuclear Power Corp. with the government responsible for damages beyond that. After paying compensation, Nuclear Power Corp. can seek money from suppliers for defective equipment or materials, according to the bill.
The opposition have fought any attempt to shield foreign suppliers from liability, bolstered by public outrage over the December 1984 leak of poisonous gas at a Union Carbide Corp. factory in Bhopal city, which killed 3,800 people. Midland, Michigan-based Dow Chemical Co., which acquired Union Carbide in 1999, says all liabilities were settled in a $470 million settlement in 1989.
‘Not Possible’
“If it leads to contracts where, as a supplier, you face undefined liabilities connected to the main nuclear liability of the plant, it will really not be possible for major suppliers to participate,” said M.V. Kotwal, senior executive vice president of Larsen & Toubro Ltd.’s heavy industries division. “The liability has to be limited to a certain amount and a certain time.”
Larsen & Toubro, based in Mumbai, signed a preliminary agreement with GE Hitachi, a venture between General Electric Co. and Hitachi Ltd., in May 2009 to build nuclear power plants.
None of India’s biggest prospective suppliers, including GE Hitachi Nuclear Energy or Westinghouse Electric, are likely to sign contracts if they can be held liable for third-party damages, said the Carnegie Endowment’s Hibbs. GE spokeswoman Deepali Girdhar and Westinghouse spokesman Scott Shaw declined to comment on the legislation.
“Liability agreements were revised after Chernobyl to make crystal clear that the operator is responsible for liability,” said Hibbs by telephone from Berlin. “Firms would not agree to any arrangements which would leave undecided or vague what the operators’ liability were in the case of an accident.”
Nuclear Accident
The meltdown at the Chernobyl plant in Ukraine, the worst nuclear accident in history, prompted an overhaul of nuclear liability conventions to help streamline compensation and litigation, and spread the financial burden.
The 1997 Vienna Convention on Civil Liability for Nuclear Damage channels liability for nuclear accidents to plant operators irrespective of fault. A supplementary convention allows operators to draw upon a central fund of at least 300 million International Monetary Fund special drawing rights ($455 million) to help pay for damages.
The system helps to simplify litigation and pool payouts in a sector where one reactor can have thousands of suppliers and claims.
‘Changed Fundamentally’
“The method for handling claims and damages is being changed fundamentally,” said Suhaan Mukerji, a New Delhi-based lawyer, who is advising the industry on the bill. “It raises the possibility of disputes between operators and suppliers.”
India won access to atomic fuels and technology in September 2008 when the 45-member Nuclear Suppliers Group lifted a three-decade ban on exports to the country on a U.S. proposal.
The government aims to expand its nuclear capacity to 60,000 megawatts by 2030 from 4,560 megawatts at the end of July. India’s total power generation capacity was 163,670 megawatts as of July 31, according to the Central Electricity Authority.
The legislation passed last night needs the approval of the upper house of parliament and the consent of President Pratibha Patil before it becomes law.
The bill “enables India to enter into nuclear commerce with other willing countries in order to widen its development options in meeting its energy requirements,” Singh told the lower house of parliament before the vote. “Our government has tried to complete the journey towards ending the regime of nuclear apartheid.”
Lawmakers in New Delhi approved a bill last night that makes suppliers and builders of atomic reactors potentially liable in the event of an accident. That’s broader than a 1997 accord signed by more than 80 nations in the wake of the Chernobyl disaster that limits compensation claims to operators.
The bill, intended to open the world’s second-fastest growing atomic energy market by setting a legal framework, may deter companies from bidding for $175 billion of contracts. India needs suppliers including GE Hitachi Nuclear Energy and Westinghouse Electric Co. to meet its target of boosting nuclear power generation 13-fold by 2030 to drive economic growth.
“India needs to realize if they don’t satisfy international liability standards, equipment vendors won’t supply,” said Mark Hibbs, a Berlin-based nuclear policy analyst at the Carnegie Endowment for International Peace. “There are many other opportunities” in Western Europe, the U.S., Canada, Japan and South Korea that are all expanding capacity, he said.
Prime Minister Manmohan Singh’s ruling Congress Party had to rewrite the Civil Liability for Nuclear Damage Bill to ensure it passed before U.S. President Barack Obama visits India this year. The government, which lacks a majority in parliament, had to insert a clause to allow compensation claims against suppliers to gain enough votes to pass the bill.
‘Not Practical’
“This clause doesn’t appear in any domestic legislation in any other country,” and runs counter to international convention, said Sudhinder Thakur, executive director at Nuclear Power Corp. of India, the nation’s monopoly operator. “If you supply $2 million of equipment, how can you be held liable for up to $300 million over 80-odd years? It’s not practical.”
The bill sets a 15 billion rupee ($322 million) cap on payouts by Nuclear Power Corp. with the government responsible for damages beyond that. After paying compensation, Nuclear Power Corp. can seek money from suppliers for defective equipment or materials, according to the bill.
The opposition have fought any attempt to shield foreign suppliers from liability, bolstered by public outrage over the December 1984 leak of poisonous gas at a Union Carbide Corp. factory in Bhopal city, which killed 3,800 people. Midland, Michigan-based Dow Chemical Co., which acquired Union Carbide in 1999, says all liabilities were settled in a $470 million settlement in 1989.
‘Not Possible’
“If it leads to contracts where, as a supplier, you face undefined liabilities connected to the main nuclear liability of the plant, it will really not be possible for major suppliers to participate,” said M.V. Kotwal, senior executive vice president of Larsen & Toubro Ltd.’s heavy industries division. “The liability has to be limited to a certain amount and a certain time.”
Larsen & Toubro, based in Mumbai, signed a preliminary agreement with GE Hitachi, a venture between General Electric Co. and Hitachi Ltd., in May 2009 to build nuclear power plants.
None of India’s biggest prospective suppliers, including GE Hitachi Nuclear Energy or Westinghouse Electric, are likely to sign contracts if they can be held liable for third-party damages, said the Carnegie Endowment’s Hibbs. GE spokeswoman Deepali Girdhar and Westinghouse spokesman Scott Shaw declined to comment on the legislation.
“Liability agreements were revised after Chernobyl to make crystal clear that the operator is responsible for liability,” said Hibbs by telephone from Berlin. “Firms would not agree to any arrangements which would leave undecided or vague what the operators’ liability were in the case of an accident.”
Nuclear Accident
The meltdown at the Chernobyl plant in Ukraine, the worst nuclear accident in history, prompted an overhaul of nuclear liability conventions to help streamline compensation and litigation, and spread the financial burden.
The 1997 Vienna Convention on Civil Liability for Nuclear Damage channels liability for nuclear accidents to plant operators irrespective of fault. A supplementary convention allows operators to draw upon a central fund of at least 300 million International Monetary Fund special drawing rights ($455 million) to help pay for damages.
The system helps to simplify litigation and pool payouts in a sector where one reactor can have thousands of suppliers and claims.
‘Changed Fundamentally’
“The method for handling claims and damages is being changed fundamentally,” said Suhaan Mukerji, a New Delhi-based lawyer, who is advising the industry on the bill. “It raises the possibility of disputes between operators and suppliers.”
India won access to atomic fuels and technology in September 2008 when the 45-member Nuclear Suppliers Group lifted a three-decade ban on exports to the country on a U.S. proposal.
The government aims to expand its nuclear capacity to 60,000 megawatts by 2030 from 4,560 megawatts at the end of July. India’s total power generation capacity was 163,670 megawatts as of July 31, according to the Central Electricity Authority.
The legislation passed last night needs the approval of the upper house of parliament and the consent of President Pratibha Patil before it becomes law.
The bill “enables India to enter into nuclear commerce with other willing countries in order to widen its development options in meeting its energy requirements,” Singh told the lower house of parliament before the vote. “Our government has tried to complete the journey towards ending the regime of nuclear apartheid.”
Tuesday, August 24, 2010
Ireland Credit Rating Cut One Step by S&P on Bank-Rescue Costs
Aug. 25 (Bloomberg) -- Ireland’s long-term sovereign credit rating was cut one step to AA- by Standard & Poor’s on concern about the rising cost of supporting the country’s struggling banks.
S&P raised its estimate for recapitalizing the banking system to as much as 50 billion euros ($63 billion) from a previous estimate of as much as 35 billion euros. The rating is the lowest since 1995, according to data compiled by Bloomberg.
“A further downgrade is possible if the fiscal cost of supporting the banking sector rises further, or if other adverse economic developments weaken the government’s ability to meet its medium-term fiscal objectives,” S&P said in a statement yesterday.
Ireland has suffered the worst recession on record as a decade-long housing boom ended and the financial system came close to collapse. Prime Minister Brian Cowen is now trying to convince investors the country can shoulder the cost of rescuing Anglo Irish Bank Corp., nationalized last year as bad debts surged.
“They’re going to pay very high yields for a prolonged period of time,” Jacob Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington, said in an interview. “The misfortune for Ireland is not only have they had an incredible housing bust, they have also had a very poorly regulated banks and that sets them quite apart” from a country such as Spain.
‘Flawed’
The downgrade comes as a slowing global economy prompts traders to dash for the safety of U.S. Treasuries and German bunds. The extra yield demanded by investors to hold 10-year Irish government bonds over German counterparts yesterday rose to a record of 318 basis points, 12 points higher than their level before a European Union-led rescue plan for the euro region was announced on May 1.
Ireland’s debt agency said in a statement that S&P’s analysis is “flawed” and that its decision was based on an “extreme” estimate of bank recapitalization needs. It also said that the country is fully funded into the second quarter of 2011. A spokesman for the finance ministry said Ireland still plans to cut its budget deficit to below the EU’s limit of 3 percent of gross domestic product by the end of 2014.
S&P said its new projections suggest that Ireland’s net general government debt will rise toward 113 percent of gross domestic product in 2012. That’s more than 1.5 times the median for the average of euro zone sovereign nations, and “well above” the debt burdens the New York-based firm said it projects for similarly rated countries in the region such as Belgium at 98 percent and Spain at 65 percent.
ECB Plan
The spreads on Spanish and Irish bonds have risen above the levels touched in May, when the Greek fiscal crisis prompted the European Central Bank to buy government bonds for the first time. ECB council member Axel Weber signaled in an interview on Aug. 19 that he’s relaxed with current yields, saying that the bond purchase program was designed to smooth tensions in bond markets rather than set a floor to prices.
Irish counterpart Patrick Honohan said a day later that the Anglo Irish issue must be resolved soon because of the impact it is having on investors. Supporting the bank may result in a net cost of about 22 billion euros to 25 billion euros to the Irish government, he said.
“This is a matter which will need to be finally put to rest very soon,” Honohan said in Tokyo. “The uncertainty around it is having a disproportionate impact on international investors.”
S&P raised its estimate for recapitalizing the banking system to as much as 50 billion euros ($63 billion) from a previous estimate of as much as 35 billion euros. The rating is the lowest since 1995, according to data compiled by Bloomberg.
“A further downgrade is possible if the fiscal cost of supporting the banking sector rises further, or if other adverse economic developments weaken the government’s ability to meet its medium-term fiscal objectives,” S&P said in a statement yesterday.
Ireland has suffered the worst recession on record as a decade-long housing boom ended and the financial system came close to collapse. Prime Minister Brian Cowen is now trying to convince investors the country can shoulder the cost of rescuing Anglo Irish Bank Corp., nationalized last year as bad debts surged.
“They’re going to pay very high yields for a prolonged period of time,” Jacob Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington, said in an interview. “The misfortune for Ireland is not only have they had an incredible housing bust, they have also had a very poorly regulated banks and that sets them quite apart” from a country such as Spain.
‘Flawed’
The downgrade comes as a slowing global economy prompts traders to dash for the safety of U.S. Treasuries and German bunds. The extra yield demanded by investors to hold 10-year Irish government bonds over German counterparts yesterday rose to a record of 318 basis points, 12 points higher than their level before a European Union-led rescue plan for the euro region was announced on May 1.
Ireland’s debt agency said in a statement that S&P’s analysis is “flawed” and that its decision was based on an “extreme” estimate of bank recapitalization needs. It also said that the country is fully funded into the second quarter of 2011. A spokesman for the finance ministry said Ireland still plans to cut its budget deficit to below the EU’s limit of 3 percent of gross domestic product by the end of 2014.
S&P said its new projections suggest that Ireland’s net general government debt will rise toward 113 percent of gross domestic product in 2012. That’s more than 1.5 times the median for the average of euro zone sovereign nations, and “well above” the debt burdens the New York-based firm said it projects for similarly rated countries in the region such as Belgium at 98 percent and Spain at 65 percent.
ECB Plan
The spreads on Spanish and Irish bonds have risen above the levels touched in May, when the Greek fiscal crisis prompted the European Central Bank to buy government bonds for the first time. ECB council member Axel Weber signaled in an interview on Aug. 19 that he’s relaxed with current yields, saying that the bond purchase program was designed to smooth tensions in bond markets rather than set a floor to prices.
Irish counterpart Patrick Honohan said a day later that the Anglo Irish issue must be resolved soon because of the impact it is having on investors. Supporting the bank may result in a net cost of about 22 billion euros to 25 billion euros to the Irish government, he said.
“This is a matter which will need to be finally put to rest very soon,” Honohan said in Tokyo. “The uncertainty around it is having a disproportionate impact on international investors.”
India rejects Vedanta bauxite plans for Orissa
India has rejected plans by Vedanta Resources to mine bauxite in a pristine mountain deemed sacred to an indigenous tribe, setting back the London-listed miner’s plans to produce 6m tons of aluminium in the eastern state of Orissa.
In a further blow to the Indian company, Jairam Ramesh, India’s environment minister, has threatened to cancel approval for Vedanta’s 1m ton Lanjigarh aluminium refinery – now operating at a fraction of capacity due to a bauxite shortage – citing “serious transgressions” at the site.
Mr Ramesh said that Vedanta, which invested $5.4bn (£2.9bn) in the aluminium complex as of the end of March, had started work to expand the refinery’s capacity to 6m tons a year without obtaining the required environmental clearance.
Separately, the minister said he was probing whether Vedanta had been sourcing bauxite from illegal mines in neighbouring states, while waiting for the go-ahead for the controversial mine in Orissa’s Niyamgiri Hills.
The rejection of the proposed Niyamgiri mine is the culmination of a protracted campaign to draw international attention to what activists claimed was Vedanta’s unethical conduct in Orissa’s remote Kalahandi region, home to a primitive 8,000 member Dongria Kondhi tribe.
India’s decision also comes a week after Vedanta revealed plans to convert itself into “India's natural resources champion” by paying up to $9.6bn for a majority stake in Cairn India, the British-owned oil exploration company that has emerged as one of the subcontinent’s largest private energy producers.
Mr Ramesh – who has made clear his intention to put teeth into India’s often- ignored environmental and social protection laws – said Vedanta’s violations of Indian law were “too egregious to be glossed over”.
A committee appointed by Mr Ramesh to review all the evidence against Vedanta and its defences, accused the company last week of “total contempt for the law”, of trampling the rights of illiterate tribal people – who form the cadre of India's Maoist insurgency – and of potentially serious consequences for national security if the project went ahead.
“There is no emotion, no politics in this decision,” Mr Ramesh said. “I have taken a decision in a purely legal approach.”
Vedanta on Tuesday denied any wrongdoing, saying “there has been no regulatory violations of any kind at the Lanjigarh refinery”.
Survival International, the UK-based group that led the global campaign against Vedanta, was jubilant at what it called a “stunning victory”.
“The era when mining companies could get away with destroying those in their path with impunity is thankfully drawing to a close”.
In a further blow to the Indian company, Jairam Ramesh, India’s environment minister, has threatened to cancel approval for Vedanta’s 1m ton Lanjigarh aluminium refinery – now operating at a fraction of capacity due to a bauxite shortage – citing “serious transgressions” at the site.
Mr Ramesh said that Vedanta, which invested $5.4bn (£2.9bn) in the aluminium complex as of the end of March, had started work to expand the refinery’s capacity to 6m tons a year without obtaining the required environmental clearance.
Separately, the minister said he was probing whether Vedanta had been sourcing bauxite from illegal mines in neighbouring states, while waiting for the go-ahead for the controversial mine in Orissa’s Niyamgiri Hills.
The rejection of the proposed Niyamgiri mine is the culmination of a protracted campaign to draw international attention to what activists claimed was Vedanta’s unethical conduct in Orissa’s remote Kalahandi region, home to a primitive 8,000 member Dongria Kondhi tribe.
India’s decision also comes a week after Vedanta revealed plans to convert itself into “India's natural resources champion” by paying up to $9.6bn for a majority stake in Cairn India, the British-owned oil exploration company that has emerged as one of the subcontinent’s largest private energy producers.
Mr Ramesh – who has made clear his intention to put teeth into India’s often- ignored environmental and social protection laws – said Vedanta’s violations of Indian law were “too egregious to be glossed over”.
A committee appointed by Mr Ramesh to review all the evidence against Vedanta and its defences, accused the company last week of “total contempt for the law”, of trampling the rights of illiterate tribal people – who form the cadre of India's Maoist insurgency – and of potentially serious consequences for national security if the project went ahead.
“There is no emotion, no politics in this decision,” Mr Ramesh said. “I have taken a decision in a purely legal approach.”
Vedanta on Tuesday denied any wrongdoing, saying “there has been no regulatory violations of any kind at the Lanjigarh refinery”.
Survival International, the UK-based group that led the global campaign against Vedanta, was jubilant at what it called a “stunning victory”.
“The era when mining companies could get away with destroying those in their path with impunity is thankfully drawing to a close”.
Carmakers Increase Voluntary Recalls
DETROIT — Most vehicle recalls used to happen only after long, drawn-out government inquiries had identified safety defects and required the car companies to fix them.
But in the wake of Toyota’s extensive recalls, automakers are initiating more themselves rather than waiting for government regulators to step in. The new mind-set has produced a flood of recalls, some occurring in reaction to just a few complaints from car owners, or maybe only one.
The numbers underscore the sudden shift. Two times as many cars and trucks have been recalled in the last 12 months than have been sold, although many of the recalled cars were from previous years. More than 22.4 million recall notices were sent to consumers in that period, including 10 million from Toyota and 428 from the luxury sports car-maker Lamborghini. By comparison, the industry has sold a little more than 11 million new cars and trucks in that time.
Industry analysts say that automakers in general are less insistent on disputing the need for a recall, and more aware of the harmful publicity that results from not addressing a safety problem quickly.
“Now they’re erring on the side of doing a recall, versus not doing a recall,” said Clarence Ditlow, the executive director of the Center for Auto Safety, a nonprofit consumer advocacy group. “All the manufacturers want to clean up their act and get defects and recalls behind them so the public doesn’t question the safety of their vehicles.”
Federal regulators have also stepped up their oversight efforts since Toyota’s sudden-acceleration recalls. Over all, the auto industry is on pace to recall more vehicles in 2010 than in any year since 2004, when a record 30.8 million vehicles were found to have defects.
“A higher proportion of recent recalls have been initiated voluntarily by automakers,” Olivia Alair, a Transportation Department spokeswoman, said.
The 2010 numbers do not include most of the vehicles covered by Toyota’s two big recalls, because the first began in late 2009. In addition, Ford expanded the largest recall in its history late last year, adding 4.5 million vehicles to an already long list of older models with faulty cruise-control deactivation switches.
From November through January, Toyota recalled more than eight million vehicles worldwide — six million of which are in the United States and included in the government data — in connection with reports of sudden acceleration. In some cases, Toyota said floor mats could interfere with the accelerator pedal, while in others the pedal itself was found to be defective. Some vehicles are covered by both recalls, and as a result are counted twice.
In April, the National Highway Traffic Safety Administration fined Toyota an unprecedented $16.4 million, the maximum allowed by law, for waiting too long to initiate a recall for the flawed pedals.
Though recalls inevitably create negative attention, especially after Toyota’s problems put a brighter spotlight on far more minor recalls, many of the companies have decided it is better to take action than to wait. When recalls are handled promptly and properly, consumers are generally more willing to forgive and forget, said David Champion, the director of auto testing for Consumer Reports.
“Many of the manufacturers don’t want to be caught in the situation that Toyota was, where they look like they’re covering it up,” Mr. Champion said.
“At one time, manufacturers considered recalls as sort of the kiss of death, but now there’s many more,” he said. “The average consumer realizes that this is a safety item and they’re fixing it for free, so on the whole they’re not particularly bothered by it, as long as it’s not one now, one three months later, and then another one.”
Toyota rarely has gone more than a few weeks this year without announcing a new recall. Since Feb. 1, it has started 12 additional recall campaigns covering 1.4 million vehicles for problems other than sudden acceleration.
Two Toyota distributors recalled more than 300,000 vehicles that had been sold without load-capacity labels, and regulators are investigating whether 1.2 million Toyotas should be recalled in response to complaints about stalling.
But in the wake of Toyota’s extensive recalls, automakers are initiating more themselves rather than waiting for government regulators to step in. The new mind-set has produced a flood of recalls, some occurring in reaction to just a few complaints from car owners, or maybe only one.
The numbers underscore the sudden shift. Two times as many cars and trucks have been recalled in the last 12 months than have been sold, although many of the recalled cars were from previous years. More than 22.4 million recall notices were sent to consumers in that period, including 10 million from Toyota and 428 from the luxury sports car-maker Lamborghini. By comparison, the industry has sold a little more than 11 million new cars and trucks in that time.
Industry analysts say that automakers in general are less insistent on disputing the need for a recall, and more aware of the harmful publicity that results from not addressing a safety problem quickly.
“Now they’re erring on the side of doing a recall, versus not doing a recall,” said Clarence Ditlow, the executive director of the Center for Auto Safety, a nonprofit consumer advocacy group. “All the manufacturers want to clean up their act and get defects and recalls behind them so the public doesn’t question the safety of their vehicles.”
Federal regulators have also stepped up their oversight efforts since Toyota’s sudden-acceleration recalls. Over all, the auto industry is on pace to recall more vehicles in 2010 than in any year since 2004, when a record 30.8 million vehicles were found to have defects.
“A higher proportion of recent recalls have been initiated voluntarily by automakers,” Olivia Alair, a Transportation Department spokeswoman, said.
The 2010 numbers do not include most of the vehicles covered by Toyota’s two big recalls, because the first began in late 2009. In addition, Ford expanded the largest recall in its history late last year, adding 4.5 million vehicles to an already long list of older models with faulty cruise-control deactivation switches.
From November through January, Toyota recalled more than eight million vehicles worldwide — six million of which are in the United States and included in the government data — in connection with reports of sudden acceleration. In some cases, Toyota said floor mats could interfere with the accelerator pedal, while in others the pedal itself was found to be defective. Some vehicles are covered by both recalls, and as a result are counted twice.
In April, the National Highway Traffic Safety Administration fined Toyota an unprecedented $16.4 million, the maximum allowed by law, for waiting too long to initiate a recall for the flawed pedals.
Though recalls inevitably create negative attention, especially after Toyota’s problems put a brighter spotlight on far more minor recalls, many of the companies have decided it is better to take action than to wait. When recalls are handled promptly and properly, consumers are generally more willing to forgive and forget, said David Champion, the director of auto testing for Consumer Reports.
“Many of the manufacturers don’t want to be caught in the situation that Toyota was, where they look like they’re covering it up,” Mr. Champion said.
“At one time, manufacturers considered recalls as sort of the kiss of death, but now there’s many more,” he said. “The average consumer realizes that this is a safety item and they’re fixing it for free, so on the whole they’re not particularly bothered by it, as long as it’s not one now, one three months later, and then another one.”
Toyota rarely has gone more than a few weeks this year without announcing a new recall. Since Feb. 1, it has started 12 additional recall campaigns covering 1.4 million vehicles for problems other than sudden acceleration.
Two Toyota distributors recalled more than 300,000 vehicles that had been sold without load-capacity labels, and regulators are investigating whether 1.2 million Toyotas should be recalled in response to complaints about stalling.
India warns about balance of payments
The Reserve Bank of India warned on Tuesday that volatile capital flows threatened to increase pressure on the country’s balance of payments, which is recording the widest current account deficit among large emerging economies.
Analysts identify the current account deficit – which will put downward pressure on the Indian rupee – alongside double-digit inflation as the biggest challenges for the Indian economy.
India’s current account deficit has widened in the past year as fast-paced economic growth drives greater demand for imported goods, and is forecast to grow larger in the year ahead.
The Reserve Bank of India said on Tuesday that the country’s current account deficit had grown to 2.9 per cent in 2009-10 from 2.4 per cent in the previous year. One reason, the central bank said, for the deterioration in the balance of payments was a decline in an “invisibles surplus”, caused in part by falling revenues to India’s prized outsourcing sector.
Subir Gokarn, the deputy governor of the RBI, said he detected risks with global capital flow volatility. He said there had been “a sharp change in the global scenario with a flight to safety [resulting in capital] exiting from Indian and other emerging markets, which put some pressure on what looks like a comfortable balance of payments.”
Current account balance
India’s current account deficit, the largest among Bric countries, could hit 3 per cent in the coming months to extend the widest margin for three decades.
Although India is unlikely to face difficulties financing its current account deficit provided one of the fastest growing large economies attracts capital inflows, some senior policymakers have urged action to reduce the deficit.
They warn that although the Indian economy is forecast to grow at 8.5 per cent this year, it is imprudent to widen the deficit at a time of global economic uncertainty and financial volatility.
“A higher current account deficit led to a stronger absorption of foreign capital,” the RBI acknowledged in a statement at the release of its annual report for 2009-10.
India’s own foreign exchange reserves, a cushion against volatile capital flows, have fallen over recent months to $278bn from a high of $315bn in May 2008.
Shyamala Gopinath, another RBI deputy governor, told the Financial Times the central bank did not have a target “comfort range” for its foreign reserves but that an internationally recognised yardstick was one year’s cover for imports.
A current account deficit occurs when a country's imports of goods and services is greater than its exports of goods, services and transfers. A wide current account deficit is not necessarily a bad thing for a fast-growing developing country provided that it is attempting to boost local productivity and exports.
Brazil’s current account deficit has widened to $43.76bn, or about 2.24 per cent of GDP, on strong demand for imports. Data released this week showed that Brazil had also suffered a steep fall in foreign exchange inflows.
China and Russia, by comparison, both run current account surpluses.
The RBI on Tuesday issued a cautious assessment of the global economy, observing that uncertainty had deepened in the US and Europe in recent months and the economic recovery was in danger of faltering.
“Capital flows in the initial months of 2010-11 moderated somewhat, reflecting the drop in appetite of global investors in response to the sovereign risk concerns in the eurozone,” it said. “Given the stronger growth outlook of India and the probability of monetary exit being delayed by the advanced economies, capital flows could be expected to accelerate, which will have to managed.”
Earlier this week, Anand Sharma, the commerce minister, warned of the difficulties faced by India’s exporters, describing them as “not out of the woods” of the global financial crisis.
To boost export performance, Mr Sharma announced a raft of export incentives to help garment, leather and handicraft sectors, worth about $225m.
Analysts identify the current account deficit – which will put downward pressure on the Indian rupee – alongside double-digit inflation as the biggest challenges for the Indian economy.
India’s current account deficit has widened in the past year as fast-paced economic growth drives greater demand for imported goods, and is forecast to grow larger in the year ahead.
The Reserve Bank of India said on Tuesday that the country’s current account deficit had grown to 2.9 per cent in 2009-10 from 2.4 per cent in the previous year. One reason, the central bank said, for the deterioration in the balance of payments was a decline in an “invisibles surplus”, caused in part by falling revenues to India’s prized outsourcing sector.
Subir Gokarn, the deputy governor of the RBI, said he detected risks with global capital flow volatility. He said there had been “a sharp change in the global scenario with a flight to safety [resulting in capital] exiting from Indian and other emerging markets, which put some pressure on what looks like a comfortable balance of payments.”
Current account balance
India’s current account deficit, the largest among Bric countries, could hit 3 per cent in the coming months to extend the widest margin for three decades.
Although India is unlikely to face difficulties financing its current account deficit provided one of the fastest growing large economies attracts capital inflows, some senior policymakers have urged action to reduce the deficit.
They warn that although the Indian economy is forecast to grow at 8.5 per cent this year, it is imprudent to widen the deficit at a time of global economic uncertainty and financial volatility.
“A higher current account deficit led to a stronger absorption of foreign capital,” the RBI acknowledged in a statement at the release of its annual report for 2009-10.
India’s own foreign exchange reserves, a cushion against volatile capital flows, have fallen over recent months to $278bn from a high of $315bn in May 2008.
Shyamala Gopinath, another RBI deputy governor, told the Financial Times the central bank did not have a target “comfort range” for its foreign reserves but that an internationally recognised yardstick was one year’s cover for imports.
A current account deficit occurs when a country's imports of goods and services is greater than its exports of goods, services and transfers. A wide current account deficit is not necessarily a bad thing for a fast-growing developing country provided that it is attempting to boost local productivity and exports.
Brazil’s current account deficit has widened to $43.76bn, or about 2.24 per cent of GDP, on strong demand for imports. Data released this week showed that Brazil had also suffered a steep fall in foreign exchange inflows.
China and Russia, by comparison, both run current account surpluses.
The RBI on Tuesday issued a cautious assessment of the global economy, observing that uncertainty had deepened in the US and Europe in recent months and the economic recovery was in danger of faltering.
“Capital flows in the initial months of 2010-11 moderated somewhat, reflecting the drop in appetite of global investors in response to the sovereign risk concerns in the eurozone,” it said. “Given the stronger growth outlook of India and the probability of monetary exit being delayed by the advanced economies, capital flows could be expected to accelerate, which will have to managed.”
Earlier this week, Anand Sharma, the commerce minister, warned of the difficulties faced by India’s exporters, describing them as “not out of the woods” of the global financial crisis.
To boost export performance, Mr Sharma announced a raft of export incentives to help garment, leather and handicraft sectors, worth about $225m.
Sunday, August 22, 2010
Most Asian Stocks Fall on Economy Concerns; Mining Shares Gain
Aug. 23 (Bloomberg) -- Most Asian stocks fell amid mounting concerns over the global economy after calls by a European Central Bank official to maintain stimulus measures.
Canon Inc., which receives 32 percent of its revenue from Europe, sank 2.1 percent in Tokyo. Honda Motor Co., which gets 84 percent of its sales outside Japan, lost 2.1 percent before a report today that may show U.S. home sales declined in July. Rio Tinto Group, the world’s third-largest mining company, rose 1.1 percent in Sydney on speculation a proposed mining tax may be scrapped in Australia as investors awaited the results of a national election.
Two stocks dropped for each that rose in the MSCI Asia Pacific Index, which was little changed at 118.25 as of 10:41 a.m. in Tokyo. Stocks in the region extended the MSCI World Index’s 1.2 percent slump on Aug. 20 after ECB council member Axel Weber said the bank should help lenders through end-of-year liquidity tensions before determining in the first quarter when to withdraw emergency lending measures.
“The ECB official’s comments are making the market focus on Europe’s economic problems again,” said Yoshinori Nagano, a senior strategist in Tokyo at Daiwa Asset Management Co., which oversees $104 billion. “Uncertainty about the economic recovery is making the market wary of taking risks.”
Japan’s Nikkei 225 Stock Average fell 0.8 percent, while South Korea’s Kospi index was little changed. New Zealand’s NZX 50 Index slipped 0.5 percent. Australia’s S&P/ASX 200 Index fell 0.1 percent after the nation’s federal election failed to deliver a majority government for the first time in 70 years.
Futures on the Standard & Poor’s 500 Index added 0.2 percent. The gauge declined 0.4 percent on Aug. 20 as a drop in commodities pulled oil and metals producers down amid concern the economic rebound may be flagging.
Canon Inc., which receives 32 percent of its revenue from Europe, sank 2.1 percent in Tokyo. Honda Motor Co., which gets 84 percent of its sales outside Japan, lost 2.1 percent before a report today that may show U.S. home sales declined in July. Rio Tinto Group, the world’s third-largest mining company, rose 1.1 percent in Sydney on speculation a proposed mining tax may be scrapped in Australia as investors awaited the results of a national election.
Two stocks dropped for each that rose in the MSCI Asia Pacific Index, which was little changed at 118.25 as of 10:41 a.m. in Tokyo. Stocks in the region extended the MSCI World Index’s 1.2 percent slump on Aug. 20 after ECB council member Axel Weber said the bank should help lenders through end-of-year liquidity tensions before determining in the first quarter when to withdraw emergency lending measures.
“The ECB official’s comments are making the market focus on Europe’s economic problems again,” said Yoshinori Nagano, a senior strategist in Tokyo at Daiwa Asset Management Co., which oversees $104 billion. “Uncertainty about the economic recovery is making the market wary of taking risks.”
Japan’s Nikkei 225 Stock Average fell 0.8 percent, while South Korea’s Kospi index was little changed. New Zealand’s NZX 50 Index slipped 0.5 percent. Australia’s S&P/ASX 200 Index fell 0.1 percent after the nation’s federal election failed to deliver a majority government for the first time in 70 years.
Futures on the Standard & Poor’s 500 Index added 0.2 percent. The gauge declined 0.4 percent on Aug. 20 as a drop in commodities pulled oil and metals producers down amid concern the economic rebound may be flagging.
Stock Swing Still Baffles, Ominously
It sounds like “Wall Street” meets “The X-Files.”
The stock market mysteriously plunges 600 points — and then, more mysteriously, recovers within minutes. Over the next few weeks, analysts at Nanex, an obscure data company in the suburbs of Chicago, examine trading charts from the day and are stunned to find some oddly compelling shapes and patterns in the data.
To the Nanex analysts, these are crop circles of the financial kind, containing clues to the mystery of what happened in the markets on May 6 and what might have caused the still-unexplained flash crash.
The charts — which are visual representations of bid prices, ask prices, order sizes and other trading activity — are inspiring many theories on Wall Street, some of them based on hard-nosed financial analysis and others of the black-helicopter variety.
To some people, like Eric Scott Hunsader, the founder of Nanex, they suggest that the specialized computers responsible for so much of today’s stock trading simply overloaded the exchanges.
He and others are tempted to go further, hypothesizing that the bizarre patterns might have been the result of a Wall Street version of cyberwarfare. They say high-speed traders could have been trying to outwit one another’s computers with blizzards of buy and sell orders that were never meant to be filled. These superfast traders might even have been trying to clog exchanges to outflank other investors.
Jeffrey Donovan, a Nanex developer, first noticed the apparent anomalies. “Something is not right,” he said as he reviewed the charts.
Mr. Donovan, a man with a runaway chuckle who works alone out of the company’s office in Santa Barbara, Calif., poses a theory that a small group of high-frequency traders was trying to introduce delays into the nation’s fractured stock-market trading system to profit at the expense of others. Clogging exchanges or otherwise disrupting markets to gain an advantage may be illegal.
Mr. Donovan indulges Wall Street’s increasing fascination with the charts by christening more of them each day, with names like Continental Crust, Broken Highway and Twilight.
There is also the Bandsaw, a zigzag pattern of prices that appear and then abruptly vanish. There is the Knife, a sharp, narrowing price sequence. There is the Crystal Triangle, the Bar Code, the Mountain Range, each one stranger than the last.
The truth of what happened on May 6 could be hiding somewhere in those mysterious configurations. Or it may lie somewhere else entirely. But 15 weeks later, the authorities are still looking for it. The Securities and Exchange Commission and the Commodity Futures Trading Commission plan to issue a final report on their findings in September.
A preliminary report in May blamed a confluence of factors, including worries over rising sovereign debt and a lack of marketwide circuit breakers, but the new report is expected to go further.
For now, this much is known: The markets were already down and on edge that morning as Europe’s debt crisis seemed to be spiraling out of control.
As markets fell, a mutual fund manager in Kansas made a big sale of stock futures. The rout, some say, was worsened by a lack of coordination among the dozens of exchanges that make up the modern-day stock market. As the New York Stock Exchange slowed trading, rival exchanges that were more automated allowed the selling to continue.
“It’s just madness to say we don’t know what caused it. We do,” said Steve Wunsch, a market structure consultant. “The crash was an inevitable consequence of creating multiple market centers.”
That is one explanation. Others have pointed to the high-frequency traders, who use powerful computers to transmit millions of orders at lightning speed. Some of these traders, who now dominate the stock market, appear to have fled the market as prices went haywire.
Then their computer programs might have dragged down exchange-traded funds, popular investment vehicles that fell sharply during the crash, said Thomas Peterffy, chief executive of Interactive Brokers.
“Computerized arbitrage kicked in,” he said.
But if Nanex’s theory is to be believed, computer algorithms might have been at work as well, knowingly or unknowingly wreaking havoc and creating data crop circles.
“There is a credible allegation that there is seriously abusive practices going on,” said James J. Angel, a financial market analyst specialist at Georgetown University, “to the extent that somebody is firing in a very high frequency of orders for no good economic reason, basically because they are trying to slow everybody else down.”
At a Washington hearing on the flash crash last week, Kevin Cronin, director of global equity trading at Invesco, a big fund manager, warned about “improper or manipulative activity” in the stock market.
Traders at BMO Capital Markets in Toronto said they had also identified a “data deluge” a few minutes before the crash. They said people in the markets were poring over Nanex’s colorful charts.
“Whether they are intentional or not, the regulators should be looking into it closely,” said Doug Clark, managing director of BMO Capital Markets.
In an Aug. 5 letter to the Securities and Exchange Commission, Senator Edward E. Kaufman, Democrat of Delaware, warned about a “micro-arms race that is being waged in our public marketplace by high-frequency traders and others.” He said that the traders were moving so fast that regulators could not keep up.
The idea that shadowy computer masterminds were trying to disrupt the nation’s stock trading struck many people as ridiculous. Wall Street experts generally characterize it as a conspiracy theory with little basis in fact.
But some of the patterns suggested that traders might have been testing their high-speed computers, perhaps to see how rivals would react.
Or it may just be that the computers produced so much data so quickly that exchanges simply could not cope with the onslaught.
“We live in a day when things are measured in milliseconds,” said Sang Lee of the Aite Group, a financial services consulting company. “It is meant to be a level playing field, but if you have better technology you will have the edge.”
Back in Chicago, Mr. Hunsader of Nanex is still not sure what his crop circles mean. But that does not stop him from admiring them.
“The patterns are quite beautiful,” he said. “We can’t see any economic reasons for what they are doing.”
The stock market mysteriously plunges 600 points — and then, more mysteriously, recovers within minutes. Over the next few weeks, analysts at Nanex, an obscure data company in the suburbs of Chicago, examine trading charts from the day and are stunned to find some oddly compelling shapes and patterns in the data.
To the Nanex analysts, these are crop circles of the financial kind, containing clues to the mystery of what happened in the markets on May 6 and what might have caused the still-unexplained flash crash.
The charts — which are visual representations of bid prices, ask prices, order sizes and other trading activity — are inspiring many theories on Wall Street, some of them based on hard-nosed financial analysis and others of the black-helicopter variety.
To some people, like Eric Scott Hunsader, the founder of Nanex, they suggest that the specialized computers responsible for so much of today’s stock trading simply overloaded the exchanges.
He and others are tempted to go further, hypothesizing that the bizarre patterns might have been the result of a Wall Street version of cyberwarfare. They say high-speed traders could have been trying to outwit one another’s computers with blizzards of buy and sell orders that were never meant to be filled. These superfast traders might even have been trying to clog exchanges to outflank other investors.
Jeffrey Donovan, a Nanex developer, first noticed the apparent anomalies. “Something is not right,” he said as he reviewed the charts.
Mr. Donovan, a man with a runaway chuckle who works alone out of the company’s office in Santa Barbara, Calif., poses a theory that a small group of high-frequency traders was trying to introduce delays into the nation’s fractured stock-market trading system to profit at the expense of others. Clogging exchanges or otherwise disrupting markets to gain an advantage may be illegal.
Mr. Donovan indulges Wall Street’s increasing fascination with the charts by christening more of them each day, with names like Continental Crust, Broken Highway and Twilight.
There is also the Bandsaw, a zigzag pattern of prices that appear and then abruptly vanish. There is the Knife, a sharp, narrowing price sequence. There is the Crystal Triangle, the Bar Code, the Mountain Range, each one stranger than the last.
The truth of what happened on May 6 could be hiding somewhere in those mysterious configurations. Or it may lie somewhere else entirely. But 15 weeks later, the authorities are still looking for it. The Securities and Exchange Commission and the Commodity Futures Trading Commission plan to issue a final report on their findings in September.
A preliminary report in May blamed a confluence of factors, including worries over rising sovereign debt and a lack of marketwide circuit breakers, but the new report is expected to go further.
For now, this much is known: The markets were already down and on edge that morning as Europe’s debt crisis seemed to be spiraling out of control.
As markets fell, a mutual fund manager in Kansas made a big sale of stock futures. The rout, some say, was worsened by a lack of coordination among the dozens of exchanges that make up the modern-day stock market. As the New York Stock Exchange slowed trading, rival exchanges that were more automated allowed the selling to continue.
“It’s just madness to say we don’t know what caused it. We do,” said Steve Wunsch, a market structure consultant. “The crash was an inevitable consequence of creating multiple market centers.”
That is one explanation. Others have pointed to the high-frequency traders, who use powerful computers to transmit millions of orders at lightning speed. Some of these traders, who now dominate the stock market, appear to have fled the market as prices went haywire.
Then their computer programs might have dragged down exchange-traded funds, popular investment vehicles that fell sharply during the crash, said Thomas Peterffy, chief executive of Interactive Brokers.
“Computerized arbitrage kicked in,” he said.
But if Nanex’s theory is to be believed, computer algorithms might have been at work as well, knowingly or unknowingly wreaking havoc and creating data crop circles.
“There is a credible allegation that there is seriously abusive practices going on,” said James J. Angel, a financial market analyst specialist at Georgetown University, “to the extent that somebody is firing in a very high frequency of orders for no good economic reason, basically because they are trying to slow everybody else down.”
At a Washington hearing on the flash crash last week, Kevin Cronin, director of global equity trading at Invesco, a big fund manager, warned about “improper or manipulative activity” in the stock market.
Traders at BMO Capital Markets in Toronto said they had also identified a “data deluge” a few minutes before the crash. They said people in the markets were poring over Nanex’s colorful charts.
“Whether they are intentional or not, the regulators should be looking into it closely,” said Doug Clark, managing director of BMO Capital Markets.
In an Aug. 5 letter to the Securities and Exchange Commission, Senator Edward E. Kaufman, Democrat of Delaware, warned about a “micro-arms race that is being waged in our public marketplace by high-frequency traders and others.” He said that the traders were moving so fast that regulators could not keep up.
The idea that shadowy computer masterminds were trying to disrupt the nation’s stock trading struck many people as ridiculous. Wall Street experts generally characterize it as a conspiracy theory with little basis in fact.
But some of the patterns suggested that traders might have been testing their high-speed computers, perhaps to see how rivals would react.
Or it may just be that the computers produced so much data so quickly that exchanges simply could not cope with the onslaught.
“We live in a day when things are measured in milliseconds,” said Sang Lee of the Aite Group, a financial services consulting company. “It is meant to be a level playing field, but if you have better technology you will have the edge.”
Back in Chicago, Mr. Hunsader of Nanex is still not sure what his crop circles mean. But that does not stop him from admiring them.
“The patterns are quite beautiful,” he said. “We can’t see any economic reasons for what they are doing.”
Australia Dollar Falls on Hung Parliament; Resource Stocks Gain
Aug. 23 (Bloomberg) -- Australia’s dollar fell after the nation’s federal election failed to deliver a majority government for the first time in 70 years.
Neither Australian Prime Minister Julia Gillard nor opposition leader Tony Abbott gained an outright majority in the Aug. 21 vote, meaning one side must win negotiations with independent lawmakers to form a government. Stocks of mining companies including Melbourne-based BHP Billiton Ltd. and London-based Rio Tinto Group rose on optimism the election results will result in a proposed mining tax will be either scrapped or diluted.
“The Australian dollar is going to stay heavy,” said Phil Burke, chief dealer for global foreign exchange and rates at JPMorgan Chase & Co. in Sydney. “Markets don’t like uncertainty, and there’s also a risk that the offshore markets haven’t focused too much on this election -- so it could be the case of a late awareness to potential problems.”
The nation’s currency slid 0.6 percent to 88.87 U.S. cents as of 11:12 a.m. in Sydney and has declined 1.7 percent this month as opinion polls foreshadowed an increased chance of a minority government.
Australian bond futures fell, with the 10-year contract for September delivery at 95.065 on the Sydney Futures Exchange from 95.095 on Aug. 20. The implied yield on the futures rose three basis points to 4.935 percent.
Australia’s benchmark S&P/ASX 200 index was little changed at 4,429.90 from 4,430.90 late last week. The materials index, which includes resources stocks, climbed 0.8 percent. BHP advanced 0.7 percent, rising for the first time in four days, while Rio climbed 1 percent.
‘Political Uncertainty’
Australia’s dollar “will bear the brunt of the uncertainty,” said Su-Lin Ong, senior economist at RBC Capital Markets Ltd. in Sydney. “Political uncertainty, a more unstable government, an obstructionist Senate, and the risk of medium term fiscal slippage as the minor parties exert their influence in a new government are clearly negative for the markets.”
Gillard’s Labor Party has 71 seats out of 150, and Abbott’s Liberal-National coalition has 72, as of 10:34 a.m. according to the Australian Electoral Commission’s website in Canberra, after officials counted 74.93 percent of the vote on a two-party preferred basis.
Four seats are undecided while two independents and one Greens party member were elected. Seventy-six seats in the lower house are needed to form a government.
Mining Tax
Talks with independent law makers, which may last for days as election officials count postal votes, have stoked uncertainty about issues including the proposed mining tax, infrastructure investment and carbon trading. Abbott has vowed to scrap Labor’s proposed 30 percent levy on iron ore and coal producers.
“A hung parliament and negotiations with the independents should not necessarily be a negative for the resources sector,” said Stephen Roberts, a senior economist at Nomura Australia Ltd. in Sydney. “If anything it should be a small positive,” as the Labor party may be forced to moderate the tax to win support from the independents.
The final result of the election, called by Gillard five weeks ago within a month of her ousting former Prime Minister Kevin Rudd, may not be known for days, analysts said.
‘Very Stable’
“We don’t know for sure what the outcome is going to be, but there is no reason why we couldn’t have a successful period ahead with a minority government,” Graham Bradley, president of the Business Council of Australia, said in an interview on the Australian Broadcasting Corp.’s Inside Business program yesterday. “I don’t think business wants any further hesitation when it comes to the reform priorities” such as securing Australia’s electricity and gas supplies, Bradley said.
A key issue during the election campaign was management of Australia’s economy, one of the few to skirt last year’s global recession, after the Labor government spent A$42 billion ($38 billion) distributing cash to households and on schools, railways and hospitals.
Helped by a rebound in demand from China for raw materials such as coal and iron ore, investment in Australia’s mining industry has intensified, driving down the jobless rate to 5.3 percent, almost half the level of the U.S. rate.
The rebound in employment was among reasons policy makers led by Reserve Bank of Australia Governor Glenn Stevens raised the benchmark lending rate six times between October and May to 4.5 percent, the most aggressive monetary policy tightening by a Group of 20 member.
Acting as caretaker Prime Minister, Gillard told reporters yesterday in Melbourne that Australia has a “very stable” democracy with “clear conventions” on the continued operation of government.
Neither Australian Prime Minister Julia Gillard nor opposition leader Tony Abbott gained an outright majority in the Aug. 21 vote, meaning one side must win negotiations with independent lawmakers to form a government. Stocks of mining companies including Melbourne-based BHP Billiton Ltd. and London-based Rio Tinto Group rose on optimism the election results will result in a proposed mining tax will be either scrapped or diluted.
“The Australian dollar is going to stay heavy,” said Phil Burke, chief dealer for global foreign exchange and rates at JPMorgan Chase & Co. in Sydney. “Markets don’t like uncertainty, and there’s also a risk that the offshore markets haven’t focused too much on this election -- so it could be the case of a late awareness to potential problems.”
The nation’s currency slid 0.6 percent to 88.87 U.S. cents as of 11:12 a.m. in Sydney and has declined 1.7 percent this month as opinion polls foreshadowed an increased chance of a minority government.
Australian bond futures fell, with the 10-year contract for September delivery at 95.065 on the Sydney Futures Exchange from 95.095 on Aug. 20. The implied yield on the futures rose three basis points to 4.935 percent.
Australia’s benchmark S&P/ASX 200 index was little changed at 4,429.90 from 4,430.90 late last week. The materials index, which includes resources stocks, climbed 0.8 percent. BHP advanced 0.7 percent, rising for the first time in four days, while Rio climbed 1 percent.
‘Political Uncertainty’
Australia’s dollar “will bear the brunt of the uncertainty,” said Su-Lin Ong, senior economist at RBC Capital Markets Ltd. in Sydney. “Political uncertainty, a more unstable government, an obstructionist Senate, and the risk of medium term fiscal slippage as the minor parties exert their influence in a new government are clearly negative for the markets.”
Gillard’s Labor Party has 71 seats out of 150, and Abbott’s Liberal-National coalition has 72, as of 10:34 a.m. according to the Australian Electoral Commission’s website in Canberra, after officials counted 74.93 percent of the vote on a two-party preferred basis.
Four seats are undecided while two independents and one Greens party member were elected. Seventy-six seats in the lower house are needed to form a government.
Mining Tax
Talks with independent law makers, which may last for days as election officials count postal votes, have stoked uncertainty about issues including the proposed mining tax, infrastructure investment and carbon trading. Abbott has vowed to scrap Labor’s proposed 30 percent levy on iron ore and coal producers.
“A hung parliament and negotiations with the independents should not necessarily be a negative for the resources sector,” said Stephen Roberts, a senior economist at Nomura Australia Ltd. in Sydney. “If anything it should be a small positive,” as the Labor party may be forced to moderate the tax to win support from the independents.
The final result of the election, called by Gillard five weeks ago within a month of her ousting former Prime Minister Kevin Rudd, may not be known for days, analysts said.
‘Very Stable’
“We don’t know for sure what the outcome is going to be, but there is no reason why we couldn’t have a successful period ahead with a minority government,” Graham Bradley, president of the Business Council of Australia, said in an interview on the Australian Broadcasting Corp.’s Inside Business program yesterday. “I don’t think business wants any further hesitation when it comes to the reform priorities” such as securing Australia’s electricity and gas supplies, Bradley said.
A key issue during the election campaign was management of Australia’s economy, one of the few to skirt last year’s global recession, after the Labor government spent A$42 billion ($38 billion) distributing cash to households and on schools, railways and hospitals.
Helped by a rebound in demand from China for raw materials such as coal and iron ore, investment in Australia’s mining industry has intensified, driving down the jobless rate to 5.3 percent, almost half the level of the U.S. rate.
The rebound in employment was among reasons policy makers led by Reserve Bank of Australia Governor Glenn Stevens raised the benchmark lending rate six times between October and May to 4.5 percent, the most aggressive monetary policy tightening by a Group of 20 member.
Acting as caretaker Prime Minister, Gillard told reporters yesterday in Melbourne that Australia has a “very stable” democracy with “clear conventions” on the continued operation of government.
Chinese pharma finds partner in India
With a fast-growing and lucrative domestic market, most Chinese pharmaceutical companies have spurned the costs and complexities required to sell their drugs abroad, but Desano has more global ambitions with the help of an unusual foreign backer.
Founded in 1996, the Shanghai-based company expanded rapidly in the production of active pharmaceutical ingredients, the raw materials of drugs, with much of its sales going to Cipla of India for the manufacture of anti-retroviral medicines for HIV and anti-malarials.
That helped establish Desano as a producer of the finished drugs for the domestic market, while the know-how provided by Cipla has helped it win supply contracts with other companies and certification of its plants by the US Food & Drug Administration.
Now, with Cipla funding and support, it is building factories to produce far more complex biological drugs, with the aim of selling cut-price versions of such cancer treatments such as Avastin and Herceptin in developing countries.
The Indian connection is unusual. “You very seldom have partnerships, but mainly trading relationships,” says Zhengping Wang, chief executive of the pharmaceutical arm of the group, who worked in the US and joined after a stint in the Beijing office of a German company. “I received a lower salary but felt I had more challenges.”
More generally, Indian companies have struggled to gain a foothold in China. Ranbaxy, one of India’s largest generic companies that was bought in 2008 by Daiichi Sankyo of Japan, sold out of its Chinese joint venture at the end of last year.
“There’s a cultural tension between the Chinese and the Indians,” says one western pharmaceutical executive based in Shanghai. “Their prices are very low and they don’t have the contacts.”
Until recently, India’s drug companies have been more integrated into the global economy, expanding their sales of low-cost generic medicines around the world. But the shift to China of the lower margin chemical drug ingredients business is now kindling interest in the growth in higher value activities, from biological production and even gradually towards more basic research that could threaten over time to usurp India.
Founded in 1996, the Shanghai-based company expanded rapidly in the production of active pharmaceutical ingredients, the raw materials of drugs, with much of its sales going to Cipla of India for the manufacture of anti-retroviral medicines for HIV and anti-malarials.
That helped establish Desano as a producer of the finished drugs for the domestic market, while the know-how provided by Cipla has helped it win supply contracts with other companies and certification of its plants by the US Food & Drug Administration.
Now, with Cipla funding and support, it is building factories to produce far more complex biological drugs, with the aim of selling cut-price versions of such cancer treatments such as Avastin and Herceptin in developing countries.
The Indian connection is unusual. “You very seldom have partnerships, but mainly trading relationships,” says Zhengping Wang, chief executive of the pharmaceutical arm of the group, who worked in the US and joined after a stint in the Beijing office of a German company. “I received a lower salary but felt I had more challenges.”
More generally, Indian companies have struggled to gain a foothold in China. Ranbaxy, one of India’s largest generic companies that was bought in 2008 by Daiichi Sankyo of Japan, sold out of its Chinese joint venture at the end of last year.
“There’s a cultural tension between the Chinese and the Indians,” says one western pharmaceutical executive based in Shanghai. “Their prices are very low and they don’t have the contacts.”
Until recently, India’s drug companies have been more integrated into the global economy, expanding their sales of low-cost generic medicines around the world. But the shift to China of the lower margin chemical drug ingredients business is now kindling interest in the growth in higher value activities, from biological production and even gradually towards more basic research that could threaten over time to usurp India.
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