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.
Subscribe to:
Posts (Atom)
Posts
