7)
Japan and
China lead flight from the dollar |
LONDON DAILY TELEGRAPH [Barclay] - By Ambrose Evans-Pritchard
- October 17, 2007
Japan and China
led a record withdrawl of foreign funds from the United States in August,
heightening fears of a fresh slide in the dollar and a spike in US bond
yields.
Data from the US Treasury showed outflows of $163bn (£80bn) from all
forms of US investments. "These numbers are absolutely stunning," said Marc
Ostwald, an economist at Insinger de Beaufort.
Asian investors dumped $52bn worth of US Treasury bonds alone, led by Japan
($23bn), China ($14.2bn) and Taiwan ($5bn). It is the first time since 1998
that foreigners have, on balance, sold Treasuries.
Mr Ostwald warned that
US bond yields could start to rise again unless the outflows
reverse quickly. "Woe betide US Treasuries if inflation does not remain benign,"
he said.
The release comes a day after the IMF warned that the dollar was still overvalued
and likely to face "some depreciation in the medium term".
The dollar's short-lived rally over recent days stopped abruptly on the data,
increasing pressure on US Treasury Secretary Hank Paulson to shore up
Washington's
"strong dollar" rhetoric at the G7 summit this week.
The Greenback has already fallen below parity against the Canadian Loonie
for the first time since 1976 and has touched record lows against a global
basket. It closed at $2.032 against the pound. - - - -
8) Despite Oil, Shares Rise in Wild Ride
NEW YORK TIMES [NYTimes Group/Sulzberger] - By Michael M.
Grynbaum - October 27, 2007
The price of
crude oil hit another record high yesterday, capping a wild week on Wall
Street, punctuated by widespread rumors and violent market swings.
- - - Existing-home sales fell to their lowest annual pace in almost a decade.
Merrill Lynch announced the worst loss in the company's history. And on two
separate occasions, stocks briefly swung more than 100 points on rumors that
were later discredited.
Yet at the closing bell, stock markets were up more than 2 percent for the
week. The Dow Jones industrial average recovered most of its 366-point drop
of last Friday, closing yesterday at 13,806.70. And investors left for the
weekend confident that a rate cut by the Federal Reserve is just around the
corner. - - -
The rally capped an erratic week with several violent intraday swings. Analysts
described traders as jumpier than usual on fears of a renewed credit crisis,
leaving markets more vulnerable to hearsay.
"There seem to have been an abnormal number of rumors, just judging on the
e-mails that I see," said Brian Gendreau, a vice president at ING Investment
Management, referring to messages between his company's traders. - - -
"We're in an environment right now where no matter how ridiculous you think
the rumor is, or whether it's true, it's having an effect on stock prices
and overall market direction," said Steve Sachs, who directs trading at Rydex
Investments, a firm in Rockville, Md., that manages $16 billion in assets.
"No matter how ludicrous you think it is, you have to pay attention to it.
You have to protect yourself against those movements."
The summer's subprime shake-up has left traders facing a market in which
conventional wisdom no longer seems to apply, analysts said.
"If someone told me a couple years ago what would happen if oil got to $90
a barrel, I would say the world economy is turning down sharply," said Mr.
Chandler of Brown Brothers Harriman.
Indeed, analysts say the factors that drove up the cost of oil - including
a weakening dollar, concern over lowered supplies, and a flare-up of tensions
in the Middle East - suggest further economic troubles on the horizon.
But the market simply shrugged off the rising prices, even though by many
accounts, oil prices may now be headed even higher in real terms than their
levels in 1980. - - - -
9) Weak dollar prompts record foreign buyouts of U.S. companies
BOSTON GLOBE [NYTimes Group/Sulzberger] - By Robert Weisman
- October 2, 2007
BOSTON: European,
Asian and Canadian companies are taking advantage of the weaker dollar to
buy their U.S. counterparts at a record pace, increasing investment in the
United States but also raising fears about a potential loss of jobs and
autonomy.
"We could be looking at the world's largest tag sale if we continue to see
declines in the dollar," said Donald Klepper-Smith, chief economist at DataCore
Partners.
In the latest large deal aided by a weak dollar, Commerce Bancorp, which
is based in Cherry Hill, New Jersey, agreed Tuesday to be acquired by
Toronto-Dominion Bank of
Canada in a cash-and- shares deal valued at $8.5
billion.
Nationally, the value of purchases of companies by non-U.S. buyers so far
this year totaled $257.4 billion - more than in any full year since 2000,
the height of the technology boom, according to Thomson Financial, a research
firm in
New
York.
The buyouts are sparking anxiety in the
United
States, though their impact is complex.
Foreign owners typically use acquisitions as an entry into the
U.S.
market and thus may be more willing than American buyers to invest in their
new holdings, some economists say. But the risk is that they might also be
quicker to cut back or consolidate
U.S. operations when times get tough. - - -
-
10) The Saudi - Dollar Connection
Fears of dollar collapse as Saudis take fright
LONDON DAILY TELEGRAPH [Barclay] - By Ambrose Evans-Pritchard, International
Business Editor - September 20, 2007
Saudi Arabia has refused to cut interest rates in lockstep with the US Federal
Reserve for the first time, signalling that the oil-rich Gulf kingdom is
preparing to break the dollar currency peg in a move that risks setting off
a stampede out of the dollar across the Middle East.
"This is a very dangerous situation for the dollar," said Hans Redeker, currency
chief at BNP Paribas.
"Saudi Arabia has $800bn (£400bn) in their future generation fund, and
the entire region has $3,500bn under management. They face an inflationary
threat and do not want to import an interest rate policy set for the recessionary
conditions in the United States," he said.
The Saudi central bank said today that it would take "appropriate measures"
to halt huge capital inflows into the country, but analysts say this policy
is unsustainable and will inevitably lead to the collapse of the dollar
peg.
As a close ally of the
US,
Riyadh has so far tried to stick to the peg, but the link is now
destabilising its own economy.
The Fed's dramatic half point cut to 4.75pc yesterday has already caused
a plunge in the world dollar index to a fifteen year low, touching with weakest
level ever against the mighty euro at just under $1.40.
There is now a growing danger that global investors will start to shun the
US bond
markets. The latest US government data on foreign holdings released this
week show a collapse in purchases of US bonds from $97bn to just $19bn in
July, with outright net sales of US Treasuries. - - - -
Read
Full Report
Saudi Plans to Keep Riyal Pegged to the Dollar, Adviser Says
BLOOMBERG - By Arif Sharif and Zainab Fattah - September 20, 2007
Saudi Arabia is likely to keep the riyal's peg to the dollar and a cut in
interest rates will ``not help the Saudi economy,'' an adviser to King Abdullah
said.
``It's not necessary that there will be a de-pegging of the riyal from the
U.S. dollar, not in the near future,'' Ihsan Bu- Hulaiga, who heads a government-
appointed finance committee that advises King Abdullah, said in an interview.
``The issue is that we have an abundance of liquidity in the economy.''
Saudi Arabia's annual inflation accelerated to 3.8 percent in July, its fastest
since records began in 2000, and there is increasing pressure on the kingdom
to take action to tame price rises, much of which is due to the weakness
in the dollar.
The Saudi central bank decided against following the U.S. Federal Reserve's
half-point reduction in the key interest rate to 4.75 percent on Sept. 18,
helping undermine the dollar, which tumbled against 15 of the 16 most active
currencies today.
The United Arab
Emirates cut its benchmark interest rates by 0.15 percentage point
yesterday and
Kuwait dropped its repo rate half a point in reaction to the
U.S.
rate cut.
With domestic prices rising,
Saudi
Arabia is more likely to face pressure to abandon
its currency peg to the dollar, according to analysts at Barclays Capital,
Royal Bank of
Canada and Resolution Investment Management.
De-Peg Inevitable
Dropping the peg ``appears inevitable as surging oil prices cause booming
growth and inflation,'' Stuart Thomson, who helps oversee about $46 billion
in bonds at Resolution in Glasgow, Scotland, wrote in a report. ``The link
to the weak dollar is providing further pressure on inflation and must be
broken.'' - - - -
Read
Full Report
11) Credit Crisis Spreading New Jitters in Europe
NEW YORK TIMES [NYTimes Group/Sulzberger] - By Mark Landler
- October 26, 2007
FRANKFURT, Oct.
25 - Europe, which once hoped to avoid major fallout from the summer's credit
crisis, is now feeling an autumn chill of slackening economies and warnings
of further market upheaval.
The ill tidings came in several European capitals Thursday, including a reduced
growth forecast in
Germany and a Bank of England report that said financial markets
were still vulnerable to shocks from the crisis that originated in the American
home mortgage market.
"The financial turmoil of the last months is not yet behind us," the European
commissioner of economic and monetary affairs, Joaquín Almunia, said
at a conference of bond dealers in
Brussels. "Downside risks to the growth outlook
have now obviously increased due to the events in the financial markets,"
he added. "It is apparent that economic outlook will be somewhat less favorable
than we expected."
The German government cut its forecast for growth next year to 2 percent,
from 2.4 percent, citing a more sluggish global economy, as well as high
oil prices and the relentlessly rising euro.
A survey of German business confidence by the Ifo Institute in
Munich
registered a decline for the sixth consecutive month, though the institute
said the results did not suggest
Germany would fall into recession.
"The shift in sentiment this summer was as sudden as anything I've seen in
my 15 years in the business," said Jörg Krämer, the chief economist
of Commerzbank. "It is clear that the boom is over."
What is not clear is whether Europe's financial system faces more jolts of
the kind set off in the
United
States this week by Merrill Lynch's disclosure
that it had written down nearly $8 billion in mortgage-related securities,
$3 billion more than it estimated just two weeks earlier.
While big European banks like UBS and Deutsche Bank have announced
multibillion-dollar write-downs of these securities, they insist that they
are on top of the situation and that the bad news has been acknowledged.
But analysts remain wary of further nasty surprises, particularly among less
well-known banks like IKB Deutsche Industriebank of
Germany,
which needed to be rescued after ruinous losses. Smaller banks were keen
buyers of these complex investments.
The depth of uneasiness among banks is evident in the three-month interest
rate that banks charge one another for loans: 4.6 percent, well above the
benchmark 4 percent rate set by the European Central Bank. The interbank
rate peaked at 4.79 percent during the crisis, analysts said, but the fact
that it remains stubbornly above the central bank's rate underscores how
rattled the money markets remain. - - - -
12) Subprime may be hitting credit cards, too
The credit crunch has begun to affect consumers' wallets
in areas other than housing
CNNMoney.com
- By Jeanne Sahadi - August 23 2007
NEW YORK --
Fallout from the mortgage mess and lower home prices may have started to
creep into the credit card arena, judging from July payments and some initial
moves by issuers to tighten the screws on cardholders.
After falling for three consecutive months, delinquent payments on credit
cards -- defined as more than 30 days late - increased slightly in July,
to 4.64 percent from 4.62 percent in June, according to CardWeb.com. A year
ago, the delinquency rate was 4.18 percent.
The amount of credit card debt consumers are paying off, meanwhile, has fallen.
The portion of outstanding balances paid in July slipped to 18.3 percent
from 18.4 percent a month earlier.
The repayment rate hit its peak (21 percent) in October 2006 after credit
card companies began complying with regulators' mandate to boost minimum
payments to cover interest, fees and some principal. For years, the default
minimum was just 2 percent of your outstanding balance. - - -
-
13) Reports Suggest Broader Losses From Mortgages
NEW YORK TIMES [NYTimes Group/Sulzberger] - By Vikas Bajaj
and Edmund L. Andrews - October 25, 2007
- - - In a new
report to be issued today, the Joint Economic Committee of Congress predicts
about two million foreclosures by the end of next year on homes purchased
with subprime mortgages. That estimate is far higher than the Bush
administration's prediction in September of 500,000 foreclosures, which in
itself would be a tidal wave compared with recent years. Congressional aides
provided details of the report yesterday to The New York Times.
The Joint Economic Committee estimates that the lost of real estate wealth
just from foreclosures on subprime loans will be about $71 billion. An additional
$32 billion would be lost because foreclosed homes tend to drive down the
prices of other houses in the neighborhood.
Those figures would cause a decline of $917 million in lost property tax
revenue to state and local governments, which will also have to spend more
on policing neighborhoods with vacant homes. The states most likely to be
hard hit fall into two categories: those where prices had been rising fastest,
like California and Florida, and Midwest states with weak economies, like
Michigan and Ohio, where people with low or moderate incomes made heavy use
of subprime loans to become homeowners and consolidate debts.
"State by state, the economic costs from the subprime debacle are shockingly
high," said Senator Charles E. Schumer, Democrat of New York and the chairman
of the Joint Economic Committee. "From New York to California, we are headed
for billions in lost wealth, property values and tax revenues."
Still, subprime mortgages make up a relatively small share of the total housing
market - about $1 trillion of the $10 trillion in outstanding mortgages.
The much bigger losses will be in declining real estate prices. Household
real estate currently totals about $21 trillion, according to the Federal
Reserve.
Global Insight, a research firm, predicts that the national average for housing
prices will drop 5 percent over the next year and 10 percent before mid-2009,
for a total of about $2 trillion. Economists at Goldman Sachs have predicted
prices will drop by 15 percent, meaning an overall decline of more than $3
trillion; other forecasters have said the decline could be 20 percent or
more. - - -
Economists continue to update their predictions on how the loss of housing
wealth might affect the overall economy. Nigel Gault, chief domestic economist
at Global Insight, said he assumes that consumers reduce their spending by
about 6 cents for every dollar of lost wealth.
If prices drop 5 percent next year, that would mean a decline of $60 billion
in spending, all else being equal. That would be a noticeable slowdown, but
not enough to cause a recession. - - -
-
14) New Mortgage Foreclosures Set Record
ASSOCIATED PRESS - By Martin Crutsinger - September 6,
2007
WASHINGTON --
The number of homeowners receiving foreclosure notices hit a record high
in the spring, driven up by problems with subprime mortgages.
The Mortgage Bankers Association reported Thursday that mortgage-holders
starting the foreclosure process in the April-June quarter reached 0.65 percent,
marking the third consecutive quarter that this figure has set an all-time
high.
The delinquency rate, which tracks the number of people who are behind in
their payments but have not yet entered the foreclosure process, was also
up sharply during the spring, rising to 5.12 percent of all loans, up nearly
three-fourths of a percentage point from the same period a year ago.
Doug Duncan, the MBA's chief economist, said the worsening performance was
driven by two factors -- heavy job losses in the Midwest states of Ohio,
Michigan and Indiana and the collapse of previously booming housing markets
in
California,
Florida,
Nevada and Airzona. - - -
Analysts said the problems in the formerly red-hot housing markets of California,
Florida, Nevada and Arizona reflected in part speculators walking away from
mortgages they can no longer afford.
During a five-year housing boom, the prices in these areas surged, creating
what many analysts have described as a speculative bubble as investors bid
up the price of homes hoping to quickly resell them for a profit.
Now with home sales falling, the inventory of unsold homes rising and prices
stagnant, some speculators are choosing to default on their mortgages.
Another big problem is that an estimated 2 million adjustable rate mortgages
are scheduled to reset this year at sharply higher interest rates, which
will cause monthly payments in some cases to double or even triple, a problem
that is especially severe in the market for subprime mortgages, loans offered
to borrowers with weak credit histories.
15) Mortgage crisis 'will drag the
US into
recession'
LONDON DAILY TELEGRAPH [Barclay] - By David Litterick and
Ambrose Evans-Pritchard - August 24, 2007
The chief executive
of Countrywide Financial, the mortgage lender handed a $2bn (£1bn) lifeline
by Bank of America, said the housing market showed no signs of improvement
and would push the US into a recession.
Calling the credit crunch "one of the greatest panics I've ever seen in 55
years of financial services", Angelo Mozilo added that, although world stock
markets appear to have stabilised, the commercial paper market was still
depressed.
His comments came as the Federal Reserve said the amount of commercial paper
outstanding - which companies use for short-term funding - fell $90bn last
week to $2,040bn.
Bill Gross of Pimco, one of the largest bond traders, said a certain portion
of the market may never return. Meanwhile, the Fed and European Central Bank
continued to inject money into the market in an attempt to ease liquidity
problems.
Nevertheless, signs that the market was stabilising - the FTSE 100 ended
flat on the day while the Dow Jones was trading just five points lower by
early afternoon - led many to suggest that an appetite for risk was returning.
- - - -
Also
Sub-prime
crisis takes its Toll on luxury
homes
LONDON DAILY TELEGRAPH [Barclay] - By Emma Thelwell - August 23, 2007
Profits at America's largest luxury-home builder, Toll Brothers, fell 85pc
last quarter as the turmoil in the US housing market prompted buyers to cancel
at the highest rate in 20 years.
While many of the casualties in the
US housing slowdown have so far been poorer
Americans with sub-prime credit histories, Toll Brothers builds upmarket
homes worth an average of $695,000 (£350,000).
But Robert I. Toll, the company's chairman and chief executive, warned yesterday
that its typical customers are "waiting on the sidelines" as conditions in
the
US housing market show little sign of improving.
Mr Toll added: "We continue to wrestle with the interrelated challenges of
softer demand and excess housing supply in the markets."
Some of
America's
biggest housebuilders have racked up losses of almost $2bn in the last quarter
as the country endures its worst housing slump since the early 1990s.
Mr Toll said it was imperative to reduce the supply of available homes if
the market was going to recover. - - - -
Read
Full Report
16) Dot-com fever stirs sense of déjà vu
INTERNATIONAL HERALD TRIBUNE [NYTimes Group/Sulzberger] -
By Brad Stone and Matt Richtel - October 16, 2007
Internet companies
with funny names, little revenue and few customers are commanding high prices.
And investors, having seemingly forgotten the pain of the first dot-com bust,
are displaying symptoms of the disorder known as irrational exuberance.
Consider Facebook, the popular but financially unproven social networking
site, which is reportedly being valued by investors at up to $15 billion.
That is nearly half the value of Yahoo, a company with 38 times as many employees
and, based on estimates of Facebook's income, 32 times more revenue. Google,
which recently surged past $600 a share, is now worth more than IBM, a company
with eight times more revenue.
More broadly, Internet start-ups are drawing investment based on their ability
to build an audience, not bring in revenue - the very alchemy that many say
led to the inflating and undoing of the dot-com bubble. - - -
-
 Politics/World |
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