Money Market & Financial Updates Blog Wire

European stocks rise amid merger speculation

2010-01-19T02:11:00.001+05:00

LONDON: European stock markets rose Monday as speculation of a pickup in corporate dealmaking kept investors interested on a day Wall Street was closed for the Martin Luther King public holiday and Greece's budgetary woes continued to weigh on the euro.

The FTSE 100 index of leading British shares closed up 39.02 points, or 0.7 percent, at 5,494.39, while Germany's DAX rose 42.58 points, or 0.7 percent, at 5,918.55. The CAC-40 in France ended 23.08 points, or 0.6 percent, higher at 3,977.46.

A lot of the interest in Europe centered on Britain's International Power PLC and Gaz de France SA and whether weekend speculation that they were looking at some sort of tie-up would materialize.

However, International Power's statement that merger talks had ended saw a massive reverse in the company's fortunes and a share price that had been 8 percent higher in the day ended over 3 percent lower — making it the biggest faller on the FTSE 100.

British candy maker Cadbury PLC also remained in the spotlight amid speculation that its suitor Kraft Foods Inc. was preparing to sweeten its offer before a Tuesday deadline. Cadbury ended around 1.5 percent higher but investors remain skeptical that the current stand-off between the two companies can be ended.

"Some traders seem to feel that this has dragged on long enough, making any sort of deal unlikely," said David Jones, chief market strategist at IG Index.

Even though talks between International Power and Gaz de France failed to yield anything, analysts said there are mounting expectations that the amount of mergers and acquisitions taking place will increase over the coming months as the global economy recovers from recession. One corollary of increased confidence is an increase in mergers and acquisitions.

When Wall Street returns on Tuesday, the focus will turn towards the next batch of fourth quarter corporate earnings — so far, earnings have been fairly mixed, with upside surprises from the likes of Intel Corp. offset by disappointments elsewhere, most notably Alcoa Inc.

Banks will be in the spotlight especially after U.S. stocks fell 1 percent on Friday — the Dow Jones industrial average suffered its worst day of the year so far — as JP Morgan Chase & Co. offered a cautious earnings guidance even though it reported a fairly strong set of results.

"We get Citigroup tomorrow which has less of the good bits of banking and more of the bad bits," said Kit Juckes, chief economist at ECU Group.

A meeting of the 16 finance ministers of the countries that use the euro in Brussels later will be closely monitored in the currency markets as the main topic of debate will be the shaky state of Greece's public finances.

Concern about Greece's debts has been one of the reasons why the euro has floundered over the last month or so from 16-month highs above $1.50. Earlier it hit a ten-day low of $1.4336 before recovering slightly to $1.4380.

Greece's problems have fueled concerns that the country may eventually have to be bailed out by its partners in the eurozone. Some observers are even speculating about a possible Greek exit from the single currency zone.

"With rising concerns about the workability of the Greek government's stability and growth plan, the firm rejection from within the eurozone of the idea of a bailout, the rapidly rising cost of default insurance on Greek sovereign debt and concerns over deficits elsewhere in the region, the problems for the single currency are mounting rapidly," said Neil Mellor, a currency strategist at Bank of New York Mellon.

"Given that these come at a time when the euro is trading significantly above its long term averages against a wide range of currencies — 23 percent against the dollar — after years of being used as the prime vehicle for reserve diversification, there is plenty of space for it to fall," he added.

Earlier in Asia, Japan's Nikkei 225 stock average ended 127.02 points, or 1.2 percent, lower at 10,855.08 while Hong Kong's Hang Seng fell 194.15 points, or 0.9 percent, to 21,460.01. Markets in Singapore and Taiwan also lost ground.

Other markets fared better, with South Korea's Kospi gaining 0.6 percent to 1,711.78 and Australia's stock measure adding 0.2 percent and Shanghai's index rising 0.4 percent.

Oil prices rose modestly, with benchmark crude for February delivery up 40 cents at $78.40. On Friday, the contract slid $1.39 to settle at $78. The price was down $4.75 for the week after declining for five straight days.

Euro slightly higher against dollar

2010-01-19T02:09:00.001+05:00

FRANKFURT: The euro was slightly higher against the dollar Monday, recovering some ground from last week, when it was hit by concerns about the debt problems at some of its weaker members.

The 16-nation euro bought $1.4375 compared with $1.4358 late Friday in New York.

The British pound traded at $1.6335 from $1.6258, while the dollar bought 90.99 Japanese yen from 90.90 yen late Friday in New York.

The economic and financial crisis has increased the budget deficits in some eurozone countries, particularly Greece and Ireland, and led to speculation that they will face tough fiscal measures, such as spending cutbacks and higher taxes, which would limit growth in coming years.

Happy Christmas. & Happy new year

2009-12-21T15:06:00.002+05:00

Wishes for a bright and cheerful Christmas.

Roller-coaster year for financial markets in 2009

2009-12-13T22:02:00.001+05:00

LONDON : The world's equity, commodity and exchange markets bounced back in 2009 after a vertiginous plunge, but analysts warn 2010 may be full of danger, with doubts over the rhythm and vigor of the recovery.

"For the financial markets, the past year can be compared to a roller-coaster ride," Rabobank analysts said.

The crisis peaked in March but the ongoing difficulties in the world financial sector and the deeper-than-expected impact of the crisis on the real economy sent equities and exchange markets into a torpor that only recovery plans and major cuts in interest rates could turn around.

Wall Street's key indicator, the Dow Jones, for example, fell for the first time in over twelve years to below 7,000 points at the start of March, while the Federal Reserve System launched a 200-billion-dollar consumer aid plan.

Central banks and governments therefore had to try to curb the decline themselves, launching major programmes to buy back banks' unsaleable assets and lowering and sustaining interest rates at historically low levels.

"So far the stimulus medicine appears to be working, because most foreign economies are starting to grow again," analysts from Wells Fargo Securities noted.

The main world economies, such as the United States and the eurozone, came out of the recession at the end of the summer.

However, even for economies that are growing again, "recoveries are not yet truly self-sustaining," Wells Fargo analysts warned.

"Unfortunately labour markets generally remain very weak, restraining growth in consumer spending."

"In absolute terms, what we are really seeing is a meagre recovery. As yet, it is a recovery that does not have a sustainable growth engine and the economic growth in many countries should stay below what we could reach in a period emerging from a recession," according to Rabobank analysts. David Woo, an economist with Barclays Capital said "the big question in the mind of investors is to know if the bull tendencies of these past nine months will carry on into next year."

At Wells Fargo analysts said that in 2010 "we project that the major economies of the world will remain in expansion mode, but we believe that the pace of recovery will remain frustratingly slow."

Attention is now shifting to developing countries, as "most Asian economies should achieve solid growth rates next year as momentum from the self-sustaining recoveries that have already taken hold in the region should carry over into next year," according to Wells Fargo.

Foreign exchange dealers anticipate that the Chinese yuan, currently indexed on the dollar, could be revalued to take account of the good recovery of the Chinese economy and the continuing weakness of the dollar.

As exchange markets were strongly correlated with stock exchanges, the dollar has also experienced a jagged year.

It served as a refuge value during periods of concern over the recovery and was attacked each time confidence on the world economic revival increased.

Foreign exchange dealers thus preferred investments that were considered riskier but also more profitable.

The continuing weakness of the dollar has also buoyed petrol prices, which have more than doubled to above 80 dollars. Some analysts predict the cost of a barrel could even go over 100 dollars in late 2010, with continued weakness of the dollar and increased demand.

Another beneficiary of the weakness of the dollar and vague attempts by emerging economies to diversify their dollar reserves has been the price of gold, which has broken record after record in 2009, reaching a historic high of 1,226.56 dollars an ounce at the start of December.

Christopher Barret from Calyon commented that in 2010 "fundamentals [of supply and demand] remain weak, and uncertainty regarding the strength of the commodity markets remains high."

If world markets have bounced back globally in 2009, the principal fear of markets and commentators for 2010 lies in the worry of a "W" type recovery, a revival that leads to a second dip before a sustained rebound.

This gloomy scenario has been reinforced at the end of the year by the worries that the failures of states such as Dubai, Greece, Portugal and Spain may have a knock-on effect.

According to an analyst from JP Morgan, "the market could come under significant pressure in the second half from interest rate volatility and negative base effects from stimulus withdrawal."

Caution and low interest rates should remain until the end of 2010 according to optimists. Markets may remain in limbo for another year before the economy gets back on its feet.

Dubai tops global list for house price declines

2009-12-13T21:52:00.002+05:00

DUBAI: Dubai property prices declined nearly 50 percent in the last year, according to a new report, making it the worst performing real estate market in the world.

The latest Knight Frank Global House Price Index for Q3 2009 surveyed house prices in 42 countries and Dubai was the worst performer on the list, with prices falling 47 percent year-on-year.

The index showed lower prices in 57 percent of the world's residential property markets, with Dubai prices falling the most, and Israel performing best, recording a 13.7 percent increase.

The Statistical Economic Recovery and Double Dip Recession

2009-12-13T21:45:00.002+05:00

Thoughts on the Statistical Recovery
Lies, Damn Lies, and Government Statistics
The Problem of Seasonal Adjustments
The Job Creation Engine
A Double-Dip Recession?
Dad Gets a Lively Lesson

We are clearly starting to get some better data points here and there. But as I pointed out this summer, it is going to be a recovery in the statistics and not in the things that count, such as income and employment. This week we look at the nascent recovery (which could be at 3% this quarter) and try to peer out into the future to see what it means. We look at how recoveries come about, and why I am concerned that we will see a double-dip recession. Plus, I learned some new tricks courtesy of my new granddaughter, to whom Tiffani gave birth this week1 There is a lot to cover, but it should be interesting.

But first, a quick commercial nod to my subscription service, “Conversations with John.” It was one year ago this week we launched the service, and we are pleased that so many of you have subscribed. As a bonus for renewing or subscribing, I am going to be doing a special predictions issue, where I will interview at least six analysts who have been right the past few years and ask for their specific predictions for the coming year.

For new readers, this is where I sit down with some of my friends and hold an in-depth conversation, generally 45 minutes to an hour, and post it on our web site, along with a transcript. We have had some fairly well-known names over the past year, and the reviews from subscribers have been excellent.

As a Holiday Special, we are offering a subscription at the special price of $129. Just click on the link and type in the code JM09 when asked to do so in the subscription process (at the conclusion of the process, not the beginning, but we’re working on that.) This is a big savings over the regular $199 price. Just click on the link to learn more and see what subscribers are saying. http://www.johnmauldin.com/newsletters2.html

Plus, when you subscribe you get access to the Conversation archives. That is worth the price of admission itself. And now, let’s jump into The Statistical Recovery.

Thoughts on the Statistical Recovery

In the ’50s through the early ’80s, recessions were typified by large layoffs at manufacturing businesses, as they had built up too much inventory. Businesses had increased capacity and often borrowed a little too much. Rising prices in the ’70s, along with extremely high interest-rate costs, led to the two severe recessions of the early ’80s, which Paul Volcker had to essentially force into existence, in order to begin the process of wringing inflation out of the economy.

But, and this is important, as the economy improved, inventories were eventually worked through and employees were brought back to work. Things returned to normal. The economy would once again grow at a robust rate. Then, in the last two recessions, in the early ’90s and early ’00s, it took longer for employment to rise. A great part of this was because the manufacturing sector of national employment was becoming an ever smaller part of the economic pie. We were, and still are, turning into an economy driven by services.

I should note that, on an absolute basis, manufacturing in the US has grown (going back to before this recession started.) We just produced more “stuff” with fewer employees. We became more productive. But this means that there are fewer jobs that will be brought “back” to make up for increasing sales than in past recessions. There are estimates out that as many as 2 million of the 8 million jobs lost are permanent job losses.

We know that businesses have made large cuts in numbers of employees in order to address lower sales and to increase their profits. Increasing profits by cutting costs even as the “top-line” sales number is shrinking is not a growth strategy that can be sustained. It also eats into research and development and postpones growth.

How likely are businesses to bring back employees if they have found they can produce more with less? This is a prescription for the mother of all jobless recoveries. A few weeks back, I went into some detail outlining why employment is likely to be uncomfortably high for a number of years, and that assumes we do not go back into recession. The graph below is the most likely scenario. You can see the entire piece, which goes into detail on this and other scenarios (developed with Mike Shedlock).

Quoting from that letter: “In August, I did an interview with CNBC from Leen’s Fishing Lodge in Maine (http://www.cnbc.com/id/15840232?video=1207956774&play=1). The unemployment numbers had just come out. I did a back-of-the-napkin estimate that we would need about 15 million new jobs over the next five years just to get back to where we were when the recession started.” It rather startled some of the hosts – “Where can we get that many jobs?”

Again, quoting from that letter: “That works out to a need for about 125,000 new jobs each month to handle new workers coming into the market (which comes to a total of 7.5 million over five years), plus the 8 million and rising jobs we’ve lost. That is a daunting number. It amounts to 250,000 new jobs a month every month for five years.”

As it turns out, Princeton Professor Paul Krugman agrees. He writes in today’s New York Times (http://krugman.blogs.nytimes.com/):

“I don’t think many people grasp just how much job creation we need to climb out of the hole we’re in. You can’t just look at the eight million jobs that America has lost since the recession began, because the nation needs to keep adding jobs – more than 100,000 a month – to keep up with a growing population. And that means that we need really big job gains, month after month, if we want to see America return to anything that feels like full employment. How big? My back of the envelope calculation says that we need to add around 18 million jobs over the next five years, or 300,000 a month. This puts last week’s employment report, which showed job losses of “only” 11,000 in November, in perspective. It was basically a terrible report, which was reported as good news only because we’ve been down so long that it looks like up to the financial press.”

That just goes to show you that I am an optimist. His back-of-the-napkin number is 20% larger. He is probably right, as he has a Nobel Prize and I don’t, and I didn’t actually use a napkin. I did the math in my head on camera while we were getting ready to go fishing.

Krugman uses this to suggest the Fed should double their balance sheet by another $2 trillion (seriously). That would not be very helpful to the dollar, I would think.

(Aside: we are in a balance-sheet recession. We overleveraged our banks and consumers. Now they are having to retrench. We are watching consumer and business loans fall. Putting $2 trillion more into the system is not going to make consumers want to borrow more. I can’t quite see where you deal with the problem of too much leverage by trying to create more leverage somewhere else. But that’s a topic for another day.)

And just to demonstrate that I am not being too pessimistic, you can go to a study the Bureau of Labor Statistics put out yesterday. They estimate that the economy will create 15.3 million more jobs in the next ten years, which is an average of about 1.5 million a year, or 125,000 a month. That is not a robust number, and suggests that the continued high unemployment projected in the graph above may not be far off target, as the employment assumptions are not that dissimilar. If you have no social life, you can read it yourself at http://www.bls.gov/news.release/ecopro.nr0.htm.

Lies, Damn Lies, and Government Statistics

We are going to look at the unemployment numbers of last week, along with the unemployment claims that came out yesterday. But first, I want to quote a section from Dennis Gartman’s letter this morning. It illustrates why we have to be very careful how we use government data. Too often, we think the data is straightforward math and simply draws on the underlying data sources. The reality is that it is anything but. To wit:

“A PROBLEM AT THE VERY HEART OF DATA GATHERING: Recently in Washington a rather large number of economists from academia and from government met to try to hash out a problem with data gathering that has become more and more serious here in the US and has more and more distorted how we value the American economy itself. At heart is how imports into the US are accounted for.

“For example, when a part for perhaps $100 is imported from China and is used in an American automobile … something that happens more and more and more often these days … the stats show that the finished car is American-made because it was assembled here in the US and in the process the US GDP is raised by that same $100 when in fact it should have been deflated by that figure instead. In the process, American workers who might in the past have made the part in question are no longer doing so and are obviously made redundant, hence a job or jobs is lost.

“The unemployment data then ‘finds’ that unemployed worker and accounts for him or her, but the car that is assembled does not, and when it is produced and sold and its value makes its way through the system, it appears that productivity has risen … and rather dramatically so, when in fact it has not. As one of the economists attending that meeting said,

” ‘We don’t have the data collection structure to capture what is happening in a real-time way, or what is being traded and how it is affecting workers. We have no idea how to measure the occupations being ‘offshored’ or what is being ‘inshore.’

“Or as the Assistant Commissioner for International Prices at the US Bureau of Labor Statistics (and how “politburo-like” is a title like that?!!) Mr. William Alterman, said regarding this problem

” ‘What we are measuring as productivity gains may in fact be nothing more than changes in trade instead.’

“This is not an insignificant problem, for as the US has become more and more international in its trading scope the data has become more and more important. Back in the 1975, imports into the US were only 5% of our total economic activity, but in recent years that has swelled to 12%, excluding imports of energy. Thus, many imports into the US are being, and have been, and will continue to be, valued as though they were manufactured here in the US, when indeed they were manufactured abroad and merely assembled here in the US.

“In autos, in computers, in appliances, this is a large and growing problem, but this is a problem too in the areas of services. For example, when an accounting firm out-sources some of its number-crunching to an accounting firm in India, for example, and then bills a client here in the US in US dollar terms, the work is done abroad but billed here and the work is recorded as having been done in the US, adding to US GDP when clearly that is not the case. It happens too, these days, more and more often in medicine, when patient files are sent to India or somewhere else abroad for diagnosis and the patient is billed here in the US as if the ‘work’ had been done here. GDP rises here in the US when it really should have been accounted for in India; productivity goes up; GDP goes up, when in reality neither has happened. ‘ Tis a conundrum.”

The Problem of Seasonal Adjustments

Yesterday we were told that initial unemployment claims were up slightly to 474,000 on a seasonally adjusted basis. That is down 78,000 from the same week last year. The four-week moving average is almost exactly the same. On a four-week-average basis, initial claims are down about 10% from last year.

Let’s look under the hood. The non-seasonally adjusted number (NSA) is 665,000, down almost 95,000 from last year, which is good, but still a very large number. The actual average had been over 550,000 for the last three weeks.

Everywhere the headlines said continuing claims are plunging. And they did. But what really happened is that the drop was not from people getting jobs but from people rolling over to the extended benefits programs. The states by and large pay for the first 26 weeks, and that is where we get the continuing-claim reported number from. (In some parts of the US hosever, you can get unemployment insurance for up to 99 months, paid for by the federal government.

There are 5.16 million on the continuing-claim rolls. But when you add in the extended benefits rolls, it increases to over 10 million. Average length of unemployment is now over 26 weeks, and the median length is over 33 weeks!

It was reported that the unemployment rate dropped to 10% from 10.2%. To get that number, they had to shrink the number of people looking for work by 98,000. Basically, if you have not looked for work in the last four weeks, you are said to be “discouraged” and are taken out of the unemployment statistics. If you add back in the discouraged workers, the rate goes up to 10.5%. And it is worse than that. If you have not looked for a job in 12 months, you are taken off the rolls altogether.

Here is one of the reasons that the unemployment number is going to remain stubbornly high through 2010. Let’s assume a modest recovery of 3%, which is maybe enough to get jobs back into the 150,000 range. As people go back to work, that 0.5% of discouraged workers starts to look for jobs and they are now counted as unemployed. That small number of 0.5% is 750,000 people that will be (should be) added back into the unemployment numbers!

Let’s use Krugman’s 100,000 jobs a month needed to keep up with population growth. (Studies are all over the place on this. 100,000 is the low estimate and 150,000 is the high.) That means we need 1.2 million new jobs next year just to keep the unemployment rate at 10%. And another 750,000 jobs to go to the discouraged workers who will want to start looking. Close to 2 million jobs will be needed to keep the unemployment rate from rising.

And the current business climate says that is not going to happen.

The Job Creation Engine

Small businesses employ 85% (or thereabouts) of American workers. That is always where the employment growth comes from. So when we see the ISM surveys, which are mainly of large businesses, that suggest they may start employing more people in the next few months, we need to see how their smaller brethren are doing. Fortunately, we have a very reliable survey by the National Federation of Independent Businesses, which does a lengthy monthly survey to give us the temperature in the small-business world. You can review it at http://www.nfib.com/Portals/0/PDF/sbet/SBET200912.pdf. (My friend and Maine fishing buddy Bill Dunkelberg puts out the report.)

It is a mixed bag, as some of the scores of questions in the survey indicate that small businesses are feeling better than a year ago. On the whole, though, they are not very upbeat. 72% of small businesses say their earnings are down over the last three months, and that has been the case for over a year. The most important reason for lower earnings is listed as poor sales volume. Sales expectations, however, are much better than earlier this year, with almost half of those surveyed thinking things will get better.

While the number of businesses that are not planning to hire any more employees in the next three months is still slightly negative, it is improving. 54% have job openings. There is not much in the way of wage pressure, as wage levels are dropping; and actual prices of the goods and services they are selling and the materials and services they are buying are falling (on average). Inventory levels have dropped precipitously, and that bodes well for hiring, as inventories at some point are going to have to be built back up

However, as Bill points out, “In November small business owners reported a decline in average employment per firm of 0.58 workers reported during the prior three

months, a big improvement from May’s record loss of 1.26 workers per firm – but still a loss of jobs. Nine percent of the owners increased employment by an average of 2.3 workers per firm, but 21 percent reduced employment an average of 4.2 workers per firm (seasonally adjusted). The “job generating machine” is still in reverse. Sales are not picking up, so survival requires continuous attention to costs – and labor costs loom large. But, job reductions are fading and job creation could cross the “0″ line by the end of the year.

“Owner optimism remains stuck at recession levels. The proximate cause is very weak consumer spending, better than a year ago, but that was pretty bad. Fifteen (15) percent reported gains, while 43 percent reported weakness. With weak consumer spending, there is little need to invest in inventory (and borrow money to support inventory investment). Inventory investment plans are at historically very low levels. Similarly capital spending is on hold, with actual outlays and planned outlays at record low levels along with the demand for loans to finance the outlays. More firms still plan on reducing employment than plan on adding to their payrolls. Inventory reductions are still widespread, eight percent reported accumulation, 33 percent reported reductions. This sets the stage for new orders in future periods, but does not help much now.”

The survey kept highlighting the concerns and uncertainty about government plans for new taxes and regulations. It is hard to make plans to expand when you are not certain what your costs will be for health care, taxes, cap and trade, etc.

This is a survey we need to watch, because when it turns up we can start to feel confident about the recovery (which is still stimulus-driven). We will look back at it in a few months.

A Double-Dip Recession?

Finally, this highlights my concern about a double-dip recession. I think we could see one in 2011, as a result of the massive increases in taxes as the Bush tax cuts expire and the Pelosi-Reid-Obama crowd want to raise taxes on the “rich.” Their assumption is that if we could grow quite well in the Clinton years with higher taxes, then we can do it again.

First, if there are no changes to the proposed tax increases, this will be a massive middle-class tax hike. Make no mistake, the Bush tax cuts resulted in a huge cut in the taxes of the middle class. The data clearly shows the wealthiest 20% are paying significantly more of the total taxes paid.

If you combine a large middle-class tax increase with an even larger new wealth tax (75% of which will affect the very small businesses we just highlighted), it will be a one-two punch to the economic body, when unemployment is already at 10%. You can’t take out well over 2% (and maybe 3%) of GDP from the consumer without it having significant consequences.

Obama mentioned minor tax credits for small businesses in his plan, but then proposes to raise their taxes and health-care costs. It doesn’t work that way. But it is time to hit the send button, so I will close.

Dad Gets a Lively Lesson

A few friends noted that there was no Outside the Box this week. I plead a distraction. I got back from New York Sunday night and left my phone in my home office. I wandered in the next morning and got a call from Melissa (#2 daughter). “Dad, are you going to the hospital now?” Hospital, what hospital?

“Didn’t you get Ryan’s text? Tiffani has gone into labor.” Almost three weeks early. That was not on my radar screen. I shot a text off to Ryan and then we talked. Seems things were progressing slowly. I would have the morning before I needed to go to the hospital.

I settled down and then got a text that Tiffani was starting to push. Oops, that happened faster than we thought. I got to the hospital and went to the waiting room, where some of Tiffani and Ryan’s friends were also waiting.

Did I know what was going on? No, but they did. Seems Tiffani’s best friend is now in Belgium, where she was watching the whole process over the MacBook set up in the delivery room! She was posting (G-rated, I was assured) pictures to Tiffani’s Facebook page, where all their friends were keeping up. And of course, blow-by-blow accounts and pictures on Twitter. As we sat there, one of the young men told me my granddaughter, named Lively Bella-Grace Frederick had been born. Did I want to see a picture? And of course the in-laws, who are missionaries in Cyprus, saw the whole thing relayed by the girlfriend in Belgium.

Mom, Dad, and Lively were here this afternoon, and doing well. But I am seriously going to have to update my communication skills if I am going to keep up with my kids and grandkids. I feel so, well, out of it. Oh well. I am sure Lively will give Papa John a lesson or three over the years.

And finally, I am very excited about my special live webinar next week with Jon Sundt, President and CEO of Altegris Investments. Many of you have already registered, and I look forward to fielding your tough questions. There is still space available for this live event, so please join us! Click here to register

It’s happening next week on Thursday, December 17th, at 9:00 am PST / 12:00 noon EST. If that time doesn’t work in your calendar, simply register and you will be able to listen to the replay at your convenience.

We will be discussing some of the critical macroeconomic forces at work today and how these factors influence your investing decisions. Jon, an expert on alternative investing, will provide his assessment of alternative strategies during these challenging times. Our goal is to support you to better position your portfolio for the year ahead.

Click here for the first step in the registration process: my Accredited Investor website. From there, you’ll be automatically directed to the webinar signup page. Due to regulatory issues, this online event is limited to US investors who qualify as “accredited investors” (generally, net worth of $1.5 million or more). If you have already registered on my Accredited Investor site, please contact your Altegris account executive for a streamlined registration process. (In this regard I am president and a registered representative of Millennium Wave Securities, LLC, member FINRA.)

Have a great week. I know I am going to!

Your going to get this brave new world figured out analyst,

By John Mauldin

Global economy still scarred by crisis

2009-12-13T21:41:00.002+05:00

WASHINGTON - The global economy that was headed for an abyss at the start of 2009 now appears to be in recovery, but remains fragile and scarred by the worst crisis in decades.

The year began with major economies on the brink of disaster in what turned into the steepest global slump since the Great Depression, before a modest second-half comeback in most of the world.

US gross domestic product (GDP) sank at a horrific 6.4 annual percent pace in the first quarter, dragged down by a housing market collapse that hammered the financial sector and the rest of the economy. Jobs were being lost at pace of 700,000 per month.

The eurozone saw a 2.5 percent GDP slide — a potential 10 percent annualized drop — in the first quarter that was the worst on record and offered the prospect of economic meltdown. Japan’s economy was falling at an a 14.2 percent rate.

“The world economy is facing a deep recession,” the International Monetary Fund warned in January.

A study by economists at the University of California and Trinity College of Dublin found that world trade fell faster and stock markets plunged further in the first year of this crisis than in 1929-30, and that the decline in manufacturing was as severe as the start of the Great Depression.

“At the same time, the response of monetary and fiscal policies, not just in the United States but globally, was quicker and stronger this time,” the economists wrote.

Governments launched stimulus programs of hundreds of billions of dollars, and central banks cuts rates to record lows — near zero in the United States and Japan — while pumping trillions into the banking system to help restore credit flows.

Slowly, the efforts seem to have borne fruit. The main economies are growing, even if the pace is less than spectacular.

“To date, the results are mixed,” C. Fred Bergsten, director of the Washington-based Peterson Institute for International Economics, said in a recent speech.

Bergsten said the interventions “appear to have arrested the precipitous downward slide and, in most cases, restored at least some positive momentum.”

Nariman Behravesh, chief economist at research firm IHS Global Insight, says central banks led by the Federal Reserve deserve credit for “unorthodox monetary policy” including so-called quantitative easing, or pumping more money into the financial system, averting a global depression.

“The difference between now and the Great Depression was that in the 1930s, the Fed allowed the money supply to shrink and wasn’t aggressive enough,” Behravesh said.

The US economy expanded at a 2.8 percent pace in the third quarter after four quarters of contraction. Japan grew at a more moderate 1.3 percent pace in July-September, based on the latest revision.

The 16-nation eurozone saw 0.4 percent growth over the quarter, a sluggish annual pace, after five quarters of contraction.

China, which saw a slowdown but avoided recession, had third-quarter growth accelerating to 8.9 percent in an expansion built on stimulus cash and bank lending.

Globally, the IMF projected in October that growth would be 3.1 percent in 2010, after an estimated 1.1 percent global contraction in 2009, the worst since World War II.

Morgan Stanley economist Joachim Fels and associates project 4.0 percent global growth for 2010, but just 2.0 percent in the advanced economies of the Group of 10.

Fels said the economies will see “creditless recoveries” where banks are reluctant to lend and predicted “a jobless G10 recovery” with unemployment still high in the United States, Europe and Japan.

Behravesh said economies are still seeing a “hangover” from a series of bubbles.

“It wasn’t just housing.” he said. “It was an equity bubble in China and commodity bubbles. Many bubbles were inflated, and when they burst, it left a hangover. The Dubai (debt) problem is a hangover from an oil bubble.”

Others argue that the global economic problems, instead of being solved, have been shifted by the government rescues, with the exit strategy unclear.

“Toxic assets have basically been swept under the rug,” says David Rosenberg, chief economist at Gluskin Sheff & Associates in Toronto.

“Whatever bad assets have been resolved have almost entirely been placed on the books of governments and central banks, which now have their own particular set of risks, as we have witnessed very recently in places like Mexico, Spain, Greece, UK, the Baltic states, not to mention at the state and local government level in the United States.”

Central Asia welcomes China with new gas pipeline

2009-12-13T21:39:00.004+05:00

ASHGABAT - Central Asia welcomed China’s foray into their energy-rich region on Sunday as Chinese leader Hu Jintao prepared to open a new pipeline connecting a Turkmen gas field with China’s restive Xinjiang region.

Leaders of Kazakhstan, Uzbekistan and Turkmenistan assembled in the Turkmen capital Ashgabat on Sunday to greet Hu on the eve of a ceremony to commission the 1,833-kilometre (1,139-mile) pipeline that snakes across Central Asia via their countries.

The pipeline marks a new stage in China’s involvement in the former Soviet region and represents a snub to Russia which still sees the Muslim region as part of its sphere of influence.

Central Asia’s overtures towards China also represent a worry for the European Union which sees gas-rich Turkmenistan as a potential new supplier of gas for the Nabucco project designed to connect Europe with Caspian gas field while bypassing Russia.

Speaking in Ashgabat, a city of marble palaces tucked away in a desert near the Iranian border, Hu described Turkmen President Kurbanguly Berdymukhamedov as an ‘old friend’.

‘Your sense of importance towards China and your efficiency have really impressed me,’ said Hu. ‘You and I will will soon open the Central Asia-China pipeline...It’s a momentous event.’

Speaking later, Berdymukhamedov, a former dentist who came to power in 2007 after the death of his secretive and autocratic predecessor, praised China’s commitment to Central Asia.

‘This project has not only commercial or economic value. It is also political... China, through its wise and long-sighted policy has become one of the key guarantors of global security.’

The China pipeline, starting near a Turkmen gas field developed by CNPC, is Central Asia’s biggest export route to markets outside Russia, and fully bypasses it territory.

With capacity of 40 billion cubic metres a year, it will ease Turkmenistan’s reliance on Russia, which purchased about 50 bcm a year before the two fell out over supply terms this year.

The pipeline is expected to reach full capacity in 2012-13.

Hu’s visit serves as a rare unifying force for regional leaders who, ridden by rivalries and rows over cross border water and electricity use, rarely meet to discuss matters.

Their willingness to put side their differences and fly to Turkmenistan’s remote capital to meet Hu shows their resolve to forge closer ties with their giant eastern neighbour.

Speaking ahead of Hu’s arrival, Uzbek President Islam Karimov — who rarely goes abroad or speaks in public — said the pipeline was a key step towards diversifying energy exports.

‘The geopolitical map is changing... and Turkmenistan’s role will only grow,’ said Karimov, who has ruled Uzbekistan since 1989.

PIPELINE DIPLOMACY

Central Asia, home to some of the world’s biggest oil, gas and metals reserves, is at the centre of a geopolitical tug-of-war between Russia, China and the West, all seeking to grab a share of its untapped riches.

Years of quiet diplomatic manoeuvering have helped China step up its presence in the region by handing out billions of dollars in loans, snapping up energy assets and building an oil pipeline from Kazakhstan.

‘We are ready for cooperation in exploration, gas processing and maintenance of deposits,’ Hu said in Ashgabat. ‘We have proposals on reconstruction of refineries... in the transport, telecoms and construction sectors.’

In Kazakhstan on Saturday, Hu and his delegation signed a range of investment deals, most detailing earlier agreements between Astana and Beijing, in sectors such as steel, chemicals, renewable energy and reconstruction of a Kazakh oil refinery.

Russia’s Gazprom stopped buying Turkmen gas in April after a pipeline explosion sparked a broader diplomatic row over gas. The move has cost Turkmenistan about $1 billion a month and prompted it to forge closer ties with other nations.

As diplomacy heats up, Russian President Dmitry Medvedev is due to travel to Turkmenistan later this month for energy talks.

Dubai woes loom as Gulf leaders prepare to meet

2009-12-13T21:34:00.001+05:00

DUBAI, United Arab Emirates: Ongoing concerns about Dubai's financial woes could overshadow efforts to more closely align Gulf Arab nations' economies when the region's leaders meet Monday in Kuwait.

The annual gathering of top officials from the six-member Gulf Cooperation Council economic bloc begins on the same day a closely watched $3.52 billion pile of Dubai debt comes due.

Investors are eagerly awaiting details on how, or indeed whether, Dubai will cover the payment, which is seen as a key test of the indebted city-state's broader creditworthiness.

Dubai's unfolding credit problems have raised new concerns about a lack of transparency throughout the oil-rich Gulf's financial system.

Top Ten Countries With External Debt

2009-12-12T01:16:00.002+05:00

Dubai isn't the only part of the world that is managing debt payments, despite the recent coverage about debt restructuring at Dubai World. Here's the top 10 countries by external debt - the total public and private debt owed to non-residents, repayable in foreign currency, goods, or services. These figures are calculated on an exchange rate basis. All information is from the CIA World Factbook and is current up to December 31, 2008. The list might just surprise you.

10. Luxembourg External debt: $2,020,000,000, 000 ($2 trillion)
9. Japan External debt: $2,231,000,000, 000 ($2.2 trillion)
8. Spain External debt: $2,317,000,000, 000 ($2.3 trillion)
7. Italy External debt: $2,328,000,000, 000 ($2.3 trillion)
6. Ireland External debt: $ 2,356,000,000, 000 ($2.4 trillion)
5. Netherlands External debt: $2,461,000,000, 000 ($2.5 trillion)
4. France External debt: $4,935,000,000, 000 ($4.94 trillion)
3. Germany External debt: $5,158,000,000, 000 ($5.2 trillion)
2. United Kingdom External debt: $ 9,041,000,000, 000 ($9 trillion)

And at #1?

The United States, with an external debt of $13,750,000, 000,000 ($13.75 trillion)

So where does the UAE come on the list? 33rd, with an external debt of $134,700,000, 000 (134.7 billion) - or in short, the UAE's external debt as a whole (which includes that of Dubai World) would need to be 15 times larger to make it into the top 10.

US Economy…...Brilliant !

2009-12-12T01:13:00.001+05:00

Dr. Marc Faber tells it how it is

"The federal government is sending each of us a $600 rebate. If we spend that money at Wal-Mart, the money goes to China . If we spend it on gasoline it goes to the Arabs. If we buy a computer, it will go to India . If we purchase fruits and vegetables it will go to Mexico , Honduras and Guatemala . If we purchase a good car, it will go to Germany and Japan . If we purchase useless crap, it will go to Taiwan . In short, none of it will help the American economy.

The only way to keep that money here at home is to spend it on beer, since these are the only product still produced in the US .. I've been doing my part....

All Eyes Down for a UK Credit Debt Default

2009-12-12T00:34:00.002+05:00

Another small social pleasure done to death by the socialists...

WHAT BETTER WAY to mark New Labour's last budget in power than by granting a tax cut on bingo...?

Muddled and messy beyond all hope of purpose, Alistair Darling cut the duty on bingo from 22% to 20% on Wednesday. But that undid less than a third of his own bingo-tax hike from just two years before. And of course, Britain's own "Crisis Chancellor" (as Institutional Investor's front-page calls him this week, not spotting the joke) did nothing to rescind New Labour's smoking ban.

(The Fabians thought working-types only smoked when they drank, not when they gambled. Who'd have guessed it...?)

No.1 operator Rank now says UK bingo-hall revenues are shrinking by one-fifth per year. So along with having a pint in your local, whatever small pleasure bingo afforded the plebs is just another social vice regulated by socialists into history's fortnightly bin collection.

Noblesse oblige this week; presumption of innocence two weeks from now. Please dump running your neighbours' children to school on the first Friday of each month; dispose of saving for the future the third.

"It is the Tontine Act [of 1693] which should be taken to mark the origin of the national debt," reports a late historian.

Deriving its name from the Italian inventor, who first took it to France, "The tontine is an interesting mixture of group annuity, group life insurance, and lottery," says a paper at the NBER.

Scourge of Lehman Brothers, 2009 gold bug and now Tokyo bond bear David Einhorn recently said Japan might consider reviving the system. But whoever squeaks home in next year's UK election, the tontine route to raising funds will appeal most to London's government. Because gambling and cheap finance are just what we need. Preferably at home, so we can keep smoking too.

A way of raising money without having to pay it all back, the tontine as applied by the English state in the late 17th century offered lottery prizes of between £10 and £1,000 per year to the lucky holders of 2,500 tickets out of 100,000 sold. These annuities ended with the life of the holder, which back then made a fair bet for the state.

Gilt holders beware. Already paying less than inflation, today's tontine successors might soon become an out-and-out lottery. The Bank of England has monetized the entire fiscal deficit for 2009 to date. That sound you can hear, with money creation (like the deficit) running at 14% of GDP, is foreign creditors and the City grumbling about the UK state's credit rating.

Eyes down for an empty bingo hall – and vanished tax duty!

By Adrian Ash

Sterling’s Politics v the U.S. Dollar and the Euro

2009-12-12T00:26:00.002+05:00

The Macro Trader’s view:

This week’s pre-budget report was, broadly speaking, a disappointment. It has been judged broadly fiscal neutral, with all the tough spending decisions deferred until after the General election due by May/June of next year, despite assurances to the contrary by Chancellor Darling.

The headline measure, a punitive tax on Banker’s bonuses, is little more than a populist measure designed to please the Labour party faithful and assuage perceived public outrage over bonuses paid to a group of workers whose firms are only still in business because of a tax payer funded bailout.

Why then, is the Pound not under greater selling pressure? The ratings agencies, Moody’s in particular, have questioned the sustainability of the UK’s AAA sovereign credit rating. The implication is that without a credible deficit reduction plan, the rating could be lost, which would increase the cost of funding the public deficit and make reducing it even harder.

And although Darling claimed in the pre-budget report that the deficit will be halved over the next four years, the statement looks long on aspiration and short on explanation of how it is to be achieved.

In reality, the Chancellor is first and foremost a politician and retaining power is his priority. The ruling Labour party are seriously behind the opposition Conservative party in the opinion polls and look like leaving office after next year’s election. The pre-budget report was never going to announce any measure that risked upsetting the already slim chance of re-election.

The markets seem to understand this and have decided that the Pound should be given the benefit of the doubt with only 5 or 6 months to go until a new government is elected. If Labour were unexpectedly to win they would raise tax as a means of cutting borrowing with spending cuts taking less of the strain. If the Conservatives win, they have declared that spending cuts will be their main route to cutting the deficit back sharply. The reason for the Pound’s resilience arises from the polls prediction that they will have a decent working majority.

Yet the Pound’s performances against the Euro and the Dollar are slightly different:

Against the Euro it has remained within a broad trading range that has dominated since October, and although the Euro zone has already emerged from recession, there are negatives about Euro zone public finances too.
Against the Dollar the Pound has weakened recently, and looks vulnerable to further selling.

Why the relative weakness against the Dollar (albeit slight) which has been weak itself for so long? The Dollar is currently enjoying a correction that is fuelled by lingering concerns over the Dubai debt rescheduling drama and a stronger-than-expected US non-farm payroll report released last Friday which aroused fears of an early turn in the US monetary policy cycle.

While that has been denied by Fed Chairman Bernanke, the markets are suspicious.

In any case, the US is out of recession whereas the UK is not.

The Technical Trader’s view:

Sterling v Dollar and Euro long-term

WEEKLY DOLLAR / STERLING CHART
In the long-term Cable chart the pressure on Sterling arises from repeated failure at a clear band of resistance
1.6802- 1.7020 throughout 2009.

But there is no completed Top yet in place (that requires a breakdown through 1.5709).

So the market is not immediately in the grip of a medium-term force.

(The modest support from the rising diagonal is being tested right now and may provide further clues.)

Possible H&S Continuation Pattern

WEEKLY EURO/STERLING CHART

In the Euro/Sterling, the long-term chart shows the weakness of Sterling from mid 2009 to have arisen from the formation of a continuation pattern a bull falling wedge which completed in September this year.

(Of course, wedges are not the strongest of indicators.)

It would be much clearer for the Sterling bears if the possible Neckline above the market at 0.9380 were to be breached….completing a bull H&S pattern

Sterling v Dollar and Euro long-term

DAILY DOLLAR/STERLING CHART

Short-term, in Cable a small Head and Shoulders Reversal looks to have completed – though we need a confirming close beneath the neckline at 1.6294 today.

The minimum target of that pattern is more or less the critical Pivot at the Prior Low at 1.5709….

DAILY EURO/STERLING CHART

Short-term, against the Euro, the picture is strangely congruent with the long-term chart.

The market is again in the grip of a bull wedge (created, note well, by the solid support from the Prior High at 0.8838).

The Fibonacci 50% resistance may be proving troublesome, in any event, there is no very short-term pattern driving the market

Mark Sturdy

John Lewis

Thanks to the Fed We Live in a Crystal Meth Economy

2009-12-12T00:23:00.002+05:00

As I see it, booms and busts are a natural part of human social behavior. Cycles appear throughout history and are part of the dynamism of humanity of which Butler Shaffer so eloquently writes. If this is so, then what role do central banks play in the modern world?

The magic of central and fractional reserve banking, fiat money and deposit insurance artificially enables improvident rationalizations about credit and debt, and generates false price signals throughout an economy.

By definition, in a fractional reserve system a small amount of debt is pyramided into vast purchasing power, driving up prices for goods and services and/or assets. When it flows into assets it is not generally recognized as inflation and is initially applauded as people feel wealthier, until optimism peaks, only after which is the bubble recognized.

Some have likened the Fed to supplying the punchbowl at the party, but this is the wrong analogy. The party and hangover would occur with or without the Fed; the Fed’s role is to supply methamphetamines whenever the revelers appear to be running out of energy, staving off the hangover and near-term sobriety. This prevents periodic economic readjustments and creates the illusion of "full employment" and "economic stability" over longer periods of time.

Is it not obvious where this leads?

Without the pyramiding of nominal values, waves of "irrational exuberance" would be limited in scope. Asset values would reach apogee earlier and the establishment of entire industries to serve irrational consumption would be limited. Economic activity would grow organically, visibly connected to prior production, and economic activity would hew closer to a balance between serving immediate consumption and the maintenance and growth of capital for future production.

Instead, after a century of central bank dominance and 70-plus years without a deflationary bleeding of the excess gas in the bubble, we have had more than enough time for entire industries to flourish under false assumptions. Huge industries employing tens of millions now cater to the welfare/warfare state on the "guns" side, and to consumers’ vice of living beyond their means on the "butter" side. Optimism was given free rein to establish an entire hallucination economy, one based on ever-rising asset values pushed higher by ever-rising credit availability, itself a product of pyramiding values on spiraling government debt, laundered through a public treasury that strip-mined the savings of three generations.

If the USA was a single small town and the local bank had pyramided the extension of credit on previous borrowing in collusion with the town’s selectmen, how might things appear after a few decades?

The town would be drowning in municipal debt, with ornate street lamps lining picturesque boulevards in every selectman’s district; masses of municipal police, firefighters, road crews and administrative officials would clog street intersections, and a host of businesses would arise to cater to the one buyer larger than all others combined: the town’s political establishment.

The bank would sit on a big chunk of this municipal debt, exhorting everyone to borrow and spend because 70% of the town’s businesses (and jobs) now depend on consumption.

Retailers would hawk luxuries on every street corner, and each business would offer its own special credit card in partnership with the bank. Every third business would serve the swimming pool industry and every family be encouraged to buy a newly-constructed home and every home, new and old, be offered a new swimming pool, no money down, no interest for two years, no payments for six months. Once everyone had a house, they would be encouraged to buy another!

Think about it. How many jobs in this little town would exist only because of the willingness of most people to indenture themselves to the bank while the few thrifty citizens loaned ever more money to the selectmen? Once the optimism finally peaked and receded, could the bank induce more borrowing to sustain things?

No.

Once the contraction begins in earnest, a fact revealed by asset devaluation, the social psychology that sustained the entire mania is over. Instead of a small, painful economic readjustment from a short-lived boom, the little town’s industries are slaughtered as waves of default, unemployment, and credit contraction drown each neighborhood and industrial park. Half the townspeople are expert at tasks for which there is almost zero demand, with enough extra swimming pools and luxury goods to last years, even decades.

This is exactly where the USA (and much of the world) stands today. Half the white collar middle class is highly skilled in occupations for which there’s about to be almost no demand, because the credit pushers running the U.S. government and the central bank gave the public what it wanted…crystal meth credit. Now the economy it created teeters on the brink of exhaustion and their single ability is to cook up more drugs, lowering the price to zero. It won’t work, though; the addicts know they can’t take another hit.

Withdrawal is going to be ugly. Getting clean will take a generation (or much more, if our society has periodic relapses into credit intoxication as we might expect).

For now, residual optimism still generates flashback hallucinations of hope that we can return to the bubble years. Belief in the twin central planners of government and banking has yet to erode significantly, but cracks are appearing in the faith. The first indication that faith is collapsing will be a resumption of significant declines in the major U.S. stock indexes.

When that time comes, look out. Bank runs can’t be far behind.

The debt pyramid will crumble, as will faith, one brick at a time. Ironically, the last stone to fall is likely to be treasury debt, for its collapse will signal an end to the worship of the myth of American Exceptionalism, at least for a time. Since this is the one religion nearly all Americans share, it will be the last vestige of national identity to succumb.

In the meantime, try listing all of the crystal meth–addicted occupations that depend on central bank–induced "private" credit availability and on government debt–supported spending. Start with jobs in the military-industrial-complex, jobs in "public works," jobs in the sciences supported by research grants, jobs in education supported by government grants, and jobs providing medical services and in industries supported by Medicare and Medicaid spending. Don’t forget jobs sustained by credit-based over-consumption like those in the restaurant and leisure industries, and jobs providing myriad middle-class status symbols such as fancy cars, tony fashions and McMansions.

It’s a long list. I recognized years ago that my job was on it.

Is yours?

Now or never for Big Oil in Iraq

2009-12-12T00:19:00.002+05:00

Iraq is offering some of the world’s largest remaining untapped oilfields in an auction that will spark fierce competition as the world’s largest energy companies fight for rare access to cheap Middle East reserves.

Iraq holds the world’s third-largest oil reserves. The quality of the reserves—sitting in huge fields that are cheap to pump—offers an unparalleled opportunity for oil giants.

It is one of the largest auctions ever held, with around the same reserves on offer as all the oil in OPEC-member Libya.

Iraq’s second bidding round since the U.S.-led invasion of 2003 offers the last of Iraq’s supergiant oilfields, so Big Oil’s most powerful deal makers are under pressure to walk away with a contract. This may be their last chance to secure access to billions of barrels of easy oil.

“For the companies involved, this is it,” said Alex Munton, analyst at consultancy Wood Mackenzie. “Rounds 1 and 2 to a large extent covers all of Iraq’s biggest fields. There is no round three.”

Firms that failed to win contracts in the first round were likely to push hardest. Among the empty-handed so far are U.S. major Chevron and France’s Total. The two have paired up and Total has said it would bid for Majnoon, one of the supergiant fields on offer.

Russia’s LUKOIL and U.S. ConocoPhillips were expected to bid for another of the giants, West Qurna Phase Two. The two lost out to Exxon Mobil and Royal Dutch Shell in the first round competition for West Qurna Phase One.

Both Total and Lukoil negotiated for the rights to develop the fields under Saddam Hussein. That may give them an advantage in reservoir knowledge, but their consortia will face tough competition from the other 40 companies in the race.

RACE TO THE LINE

The mood among oil companies heading into the second bid round is markedly different to round one in June, when only one contract was awarded to BP and China’s CNPC.

Then, contract terms were unclear, oil firms had no idea of the fee Baghdad would pay and legal, security and political risks were perceived as so high that even some of the biggest firms stayed out of the bidding.

But as BP and CNPC thrashed out their final terms the contract model became more attractive to other firms, who have come back to the table to revive deals previously rejected.

“There is a sense that this will be very competitive,” said Raad Alkadiri, head of global risk at Washington-based consultancy PFC Energy.

“Foreign companies are more familiar with the Iraqi government and vice versa. The bottom line is that massive reserves are in play and oil companies will want a piece of the action. This will be a keenly fought round.”

Changes in the bidding parameters were likely to make competition even tougher. Greater weight would be placed on the fee per barrel in bids than the target production rate. Baghdad changed the formula due to concern bidders inflated output targets in the first round.

“This is a very big change,” said a senior executive at a western oil company. “It means it will be a straight race based on the fee. I think this will be a photo finish. It will be very close and the competition will be very tough indeed.”

With such stiff competition, the terms were likely to be as tough as they were in the first round. Baghdad may agree slightly higher fees than the $2 per barrel then because the fields are mostly untapped, so more work must be done to exploit them. But oil firms will not be expecting much better margins.

“I doubt it would be much more than $2-$4 per barrel,” said an Iraq oil industry observer.

RISKS, NOC COMPETITION

Big risks remain for firms taking on Iraqi contracts. Plans to enact a new oil law have been delayed for years due to political disputes, leaving the possibility that contracts could be ripped up by future governments.

Still, firms are unlikely to get deals finalized before elections in March, so they would have no obligation to make investment before the poll and have little to lose through bidding. Even if terms are later revised, firms would be in a more powerful position if they had a preliminary deal.

“The legal risk is tremendous,” said Samuel Ciszuk, Middle East energy analyst at IHS Global Insight. “There is no proper law, so you are basically relying on government understanding. But the companies will take a gamble and bid anyway. It won’t cost anything so it is best to move now.”

Majnoon, West Qurna, East Baghdad and Halfaya are the biggest fields on offer and likely to attract the most competition and bids from big oil.

The other six fields on offer were much smaller and more likely to attract bids from national oil companies and the smaller companies qualified.

U.S. retail sales strong, consumers more confident

2009-12-12T00:09:00.002+05:00

WASHINGTON - U.S. consumers stepped up their spending in November and grew more optimistic this month, data showed on Friday, raising hopes a self-sustaining economic recovery was starting to unfold.

The Commerce Department said total retail sales increased 1.3 percent last month, the largest advance since August, after rising 1.1 percent in October. It was the second straight monthly gain and beat market expectations for a 0.7 percent gain.

A separate report showed consumer sentiment improved in early December on signs of stabilization in the labor market.

The data were the latest in a series showing the economy may expand at a brisker pace in the fourth quarter than the 2.8 percent annual rate in the July-September period.

“The improvement in confidence is a complement to the good retail sales. It suggests that the consumer is slowly turning upward,” said Alan Gayle, senior investment strategist, Ridgeworth Investments in Richmond, Virginia

The data lifted U.S stock indexes and the U.S. dollar rose sharply against the yen and euro. The Reuters/University of Michigan Surveys of Consumers said its preliminary index of sentiment for December rose to 73.4, just a touch below the year’s high set in September. This was above the 67.4 for November and exceeded economists’ expectations of a reading of 68.5.

The data eased concerns that the economy’s recovery could falter because of lackluster consumer spending. The economy resumed growing in the third quarter, fueled mostly by government stimulus. With the labor market starting to stabilize and household wealth rising, there is growing optimism that consumer spending will soon pick up. CONSUMERS RAMPING UP SPENDING Overall sales in November were boosted by strong receipts from gasoline stations, increased purchases of motor vehicles and parts, building materials and electronic goods among others.

“The numbers were a pleasant surprise. Consumers are starting to spend a little more freely than they have been and that is going to be an important source of sustainable growth,” said David Resler, chief economist at Nomura Securities International in New York.

Despite slightly lower gasoline prices at the end of November from the end of October, sales at service stations surged 6 percent, the largest increase since June.

Compared to November last year, overall retail sales were up 1.9 percent, the first year-on-year gain since August 2008, a Commerce official said. Some analysts said the unexpectedly strong data could cause problems for the U.S. Federal Reserve. The U.S. central bank, which meets next week, has committed to keep interest rates near zero for an “extended period”, while watching to see if the recovery will pick up steam.

“The big picture ... is that the recovery looks to be more on track. That combination of improvements in the labor market and improvements in consumer spending is a strong signal that we’re not at this point entering into a double-dip scenario,” said Torsten Slok, senior economist at Deutsche Bank in New York.

“There is definitely a significant upside risk here that we will have a stronger recovery than what the Fed and what the consensus was expecting. That’s probably causing headaches ... the thing that’s at the center of their radar screen is when should we remove the ‘extended period’ language.”

Excluding motor vehicles and parts, retail sales increased 1.2 percent in November, the largest increase since January, after being flat in October. Economists had expected a 0.4 percent increase.

Core retail sales excluding autos, gasoline and building materials rose 0.6 percent, advancing for a fifth straight month.

“Spending is increasing, which is good, but we’ll see how sustainable it is,” said Kurt Brunner, portfolio manager at Swarthmore Group in Philadelphia, Pennsylvania.

Sales of building materials climbed 1.5 percent last month, the biggest gain since April 2008, after falling 1.8 percent in October. Purchases of electronics and appliances jumped 2.8 percent, the largest increase since January.

Another government showed report U.S. business inventories unexpectedly rose in October for the first time in more than a year.

India industrial output up by 10.3 pct

2009-12-12T00:07:00.001+05:00

MUMBAI: India's factory output rose 10.3 percent in October from a year earlier as stimulus measures and domestic demand pushed Asia's third-largest economy into its 10th straight month of industrial expansion.

Manufacturing output grew 11.1 percent, rebounding from a 0.6 percent contraction last October, according to government figures released Friday. Consumer durables production shot up 21 percent and capital goods production rose 12.2 percent.

The government also revised its number for September industrial output growth to 9.6 percent from 9.1 percent.

Low output this time last year, as India struggled with the fallout of the global financial crisis, helped boost performance. In October 2008, industrial output was just 0.1 percent higher than the prior October.

Economists said October output was 2.3 percent lower than September's, on a seasonally adjusted basis, partly because of the festive season, which cut into working days.

EU to call for global financial levy

2009-12-12T00:04:00.001+05:00

BRUSSELS: European Union leaders called for a global financial transaction levy in the hopes it could help buffer against future market crises, according to a joint statement published Friday.

British Prime Minister Gordon Brown said there was "growing support" across the world for such a levy as well as Britain's plans for a one-off tax of 50 percent for all bonuses of more than more than 25,000 pounds ($40,800.)

France says it will follow suit — and called on others to join them. French President Nicolas Sarkozy said, "We want and expect others to do the same because we are in a globalized world."

"It would be very difficult for Gordon Brown to say he was the only one to do it. It would have been impossible to say I was the only one to do it, so we do it together," Sarkozy told reporters.

Sarkozy's warm words of support for Brown are a striking contrast to recent comments where he claimed victory for France over Anglo-Saxon economics in nabbing a key EU financial services post for a Frenchman, Michel Barnier.

In a statement, the EU's 27 leaders backed limits on bankers' pay, saying that the financial sector should "immediately implement sound compensation practices" and that governments should consider "short-term options" — such as a bonus tax.

They also said a global tax on financial transactions should be one of several options that the International Monetary Fund should investigate when it puts forward plans on how the world should respond to the financial crisis.

It is important, they said, for financial institutions to make a contribution to "the society they serve" and to make sure the public "benefits in good times and is protected from risk."

Brown said banks have had government backing in hard times "and people rightly ask ... 'have they not a responsibility to ensure that they don't get into that position again.'"

EU leaders are also suggesting that the IMF should look into insurance fees, resolution funds and contingent capital requirements.

Brown last month called on the Group of 20 rich and emerging nations to consider a tax on financial transactions that would pay for a global fund to rescue banks in future. France has talked about using such a tax to help poor countries fight climate change.

U.S. Treasury Secretary Tim Geithner was quick to shoot the idea down, saying the United States was not keen to support such a levy even as it sought ways to shield taxpayers from bailing out the financial system again.

Supporters of measures such as a so-called Tobin tax — a flat tax on currency transactions named after Nobel Prize laureate James Tobin — say the money would protect countries from spillovers of financial crises. Critics argue the tax would simply dry up world financial flows.

EU officials such as European Central Bank President Jean-Claude Trichet and the EU's economy commissioner Joaquin Almunia are skeptical about how such a tax would work — because businesses could flee Europe if it were only charged here.

But Sarkozy and German Chancellor Angela Merkel say they support the concept.

Obama announces new jobs push

2009-12-09T19:21:00.001+05:00

WASHINGTON: President Barack Obama will Tuesday lay out three new approaches to battling the US jobs crisis, in a major speech intended to ensure employment returns along with slowly building economic growth.

But Obama, saddled with huge government deficits which rule out lavish spending to get millions of people back to work, will warn that there is "no silver bullet" available to trim 10 percent unemployment, an official said.

In his speech at the Brookings Institution think-tank in Washington, Obama will announce a set of steps to help small businesses grow and hire new staff, and lay out rebates for homeowners who make their dwellings energy efficient.

He will also announce a boost for spending on infrastructure to modernize highways, railways, bridges and airports which will require the creation of new jobs, the official said on condition of anonymity.

Obama is also expected to say he is looking at the possibility of using at least some of the unspent or repaid funds from a financial industry bailout to make it easier for small businesses to create jobs.

But critics say that unused Troubled Asset Relief Program (TARP) funds should be funneled toward a deficit of well over a trillion dollars, and rules governing the bailout could restrict its use in a different guise.

"We don?t think there is one silver bullet, one plan, one speech or a singular piece of legislation that alone will solve double digit unemployment," an administration official said on condition of anonymity.

"The president?s speech does not represent the totality of our plans for continued economic recovery."

Christina Romer, who chairs Obama's Council of Economic advisors, ruled out the use of TARP money to directly fund infrastructure spending, and told ABC that any investment would be as part of a "fiscally responsible program."

After a brutal year, the White House is allowing itself tempered optimism on the economy, encouraged by data showing slow growth returning, and the rise in job losses slowing to a crawl.

"Our biggest challenge now is making sure that job growth matches up with economic growth," Obama said on Monday.

"We have had a very tough year, and we've lost millions of jobs," Obama said, noting that his first job on taking office in the teeth of the crippling financial crisis had been to stave off a Great Depression-style slump.

"At least now, we are moving in the right direction."

But saddled with a huge budget deficit, Obama is also warning that those hoping for a second stimulus-style plan, or costly government spending to create jobs, will be disappointed.

Obama made clear at a White House jobs summit last week that the private sector would have to be the engine for job creation, though he promised a set of limited government measures to promote job growth.

Using TARP funds could be an elegant way of defusing some of the popular outrage over finance firms bailed out by the government which now appear set to award top executives huge bonuses, while ordinary Americans suffer.

White House spokesman Robert Gibbs said Monday that Obama wanted to send a clear sign that he cared about high unemployment and wanted to reduce joblessness.

"What message does that send to Main Street? Help is on the way -- it sends the message that your economic vitality is just as important as anybody that lives or works or breathes on Wall Street," Gibbs said.

The White House argues that a 787 billion dollar economic stimulus plan passed early this year has likely saved or created a million jobs, and prevented an even worse unemployment crisis.

It has also been buoyed by the economy's return to growth of a revised 2.8 percent in the third quarter.

Obama also got a political boost from news last week that unemployment had dipped slightly in November, to 10 percent, and the number of new jobs lost fell to 11,000.

With an eye on the 2010 Congressional mid-term elections in November, Obama will try to set his own narrative on job creation and the economy, before opposition Republicans do it for him.

"The 'jobs speech' President Obama really needs to give is the one he won't," said John Boehner, the top Republican in the House of Representatives on Monday, branding Democratic plans on health care and cutting greenhouse gas emissions as "job killing."

Treasury sources said that the government now expects to get back all but 42 billion dollars of the 370 billion dollars that it lent to troubled US firms since the financial crisis began last year.

Anti-corruption Day: What does it stand for?

2009-12-09T18:55:00.003+05:00

9 December is international Anti-Corruption Day. In Bangladesh people are getting together to shout Jago Manush Durnity Protirodhe Jago (Rise up people, rise up against corruption) during the multitude of activities organised nation-wide. In Indonesia thousands are on the street.

Around the world, Transparency International is taking Anti-Corruption Day as an opportunity to commemorate and raise awareness to the importance of fighting corruption. Chapters in every region have organised events to bring people together, from lectures, conferences and national integrity awards celebrations, to rallies, theatre shows, festivals and concerts. In Beirut, people even ran 42.195 km for transparency and against corruption.

That’s a lot of kilometres. But fighting corruption needs perseverance.

What makes this year different? What does the Anti-Corruption Day stand for?

Let me give you a couple of my thoughts. It has been a challenging year for the fight against corruption.

Increasingly, anti-corruption activists have been in the line of attack. Journalists writing on corruption in politics and society such as Sri Lanka’s Lasantha Wickramatunga earlier this year have given their lives. Activists from Bosnia and Herzegovina, Burundi, Guatemala or Zimbabwe have faced threats or were being silenced.

Anti-Corruption Day stands for a day to remember, recognise and honour these brave and fearless people, who went to prison or lost their lives believing that through fighting corruption they will make the world a better place.

To punish those who undertake corrupt actions and reduce risks and opportunities for corruption, implementing an national integrity system through appropriate laws and institutions is fundamental. The only tool providing a global anti-corruption framework, the UN Convention against Corruption has received a set-back in agreeing on a flawed review mechanism earlier this year that is not transparent and inclusive to civil society.

Anti-Corruption Day is a day to call on the governments that civil society needs to be taken seriously as a partner in fighting corruption. Transparency matters and the UN Convention needs to have teeth to be effective.

This year’s Corruption Perceptions Index received a huge amount of attention showing us that corruption is still high on the agenda. But the CPI is only one of many tools that help us understand how deeply corruption affects society. To complement the picture we have to look at what people say, as well as on what we call the supply-side of corruption. TI’s 2009 Global Corruption Barometer has surveyed over 70,000 people on their views and experience with corruption, and the Bribe Payers Index looks at the tendency of firms based in international and regional exporting countries to bribe when doing business abroad.

Anti-Corruption Day is a good moment to highlight that still more research is needed to understand how corruption affects people. And how it affects issues such as climate change.

And most importantly: The “success” of initiatives such as Transparency International’s Advocacy and Legal Advice Centre’s shows, with now over 40 centres worldwide providing legal advice to victims of corruption, there is a dire need to help and support citizens in voicing their concerns. And to give them channels to complain about the injustice they are facing. As this year has shown, social media can be a powerful way to empower citizens to demand accountability, share observations and engagement in addressing and reporting corrupt activities themselves.

Anti-Corruption Day needs to highlight that corruption has victims. It hurts the people in their basic needs whether it be access to water, education or health, and it hurts the poor the most.

Sometimes, it seems easy to blame only one actor, mostly either the government or the private sector. But fighting corruption is everyone’s responsibility. Corruption can not be fought alone. It needs everyone to be involved.

So finally, Anti-corruption Day should also be a call for all groups of society to unite, build coalitions and speak up against corruption together.

As our chapter in Bangladesh says: Jago Manush Durnity Protirodhe Jago (Rise up people, rise up against corruption).

What are you doing for Anti-corruption Day?

The Coming Cyclical Collapse of the U.S. Dollar

2009-12-09T18:44:00.001+05:00

Ask not for whom the bell tolls

We are having our first winter blizzard, the windows were rattling all night. There are knee deep snow drifts in places. When I went out to feed the horse this morning, I found a coyote asleep in the hay. I guess he is a little bit deaf because he didn't jump up until I was on top of him. I don't know who was more scared. It was a most pitiful thing to see. Skin and bones. Mottled patchy fur with a hairless tail, except for a little tuft on the end.

When he tried to run, it ended up being more of a hobble. His joints must have been hurting from the way he limped and pulled up one back leg. In a quiet voice I said, "It's alright, you're safe here." He stop, turned and stood looking at me, then he lower his head. He just stood there. Old, sick, starving, cold, too weak to go on. Alone with nowhere else to go.

Snow blurred my vision and the cold bit at my face and hands but neither of us moved. My mind seemed unable to understand what was before me. Surely it was a spectre, some kind of ghostly thing, it was too sad to except. Images and feelings jump at me from dark places. I remember saying "Don't worry,you'll be ok". Then tears filled my eyes.

The US$ has been under attack from all sides lately. It is on the ropes taking hit after hit but it won't go down. You know what? I don't want it to fall. I don't want to see America fail. When we bet against the dollar, we bet against ourselves and our children. We bet against what is good. A way of life. We bet against hopes and dreams.

Is there cyclical hope for the green back. Let's take a look.

I have two charts to show today of the US$ against the Euro. (note I have inverted a eur/usd chart so the numbers may be a bit confusing). The first shows a fairly reliable 3 year cycle (green lines). Starting in 1990 we see a rising series of 3 year lows until late 2000. Since then it has been lights out, with one lower low after another. Notice a few things. How the top in late 2000 was late (this is called late translation). Then in 2001 when the next low was due, it was not a clear low, it was questionable. I call these compression turns, they are valid but confusing. After that confusing low, we topped less than a year later. That is called early translation and is never a good sign. Notice that the next 3 year low came in a few months late, shifting the cycle slightly. Not bad so far but then look what happened in 2008. The low came in even later and shifted again. Still this is not unusual when the market is trending hard in one direction. Notice also how every one of the fore mentioned lows was open to interpretation. Defining cycle turn points is an art not a science. This is what makes trading solely using cycles so treacherous.

The up part of the cycle out of that 2008 low was bigger than normal. This will come under scrutiny later. Since then we seem to have made a early translation top and have been steadily sagging back toward the lows. The brown dots are 1 1/2 year lows that may be half cycles to the 3 year cycle.

So What now?

Looking at the above chart my theory of relativity (which basically says that smaller cycles are subservient to and revolve around large cycles) is telling us that the sum of all cycles larger than 3 years duration are going down. Before 2001 they were going up.

There is a 1 1/2 year cycle that could be bottoming now (brown Dot). If it is then we may bounce, possibly as high as 1.41 before resuming the down trend. We should make the next 3 year cycle low in early to mid 2011. Simple enough. It looks like lights out.

But wait.

What about the bigger cycle, what is it doing? What is that big bounce in 2008 telling us?

Looking at the monthly chart below going back to 1980 things get a little less certain. In it I have tried to identify the the next larger cycle. I came up with three possibilities. The first is the obvious one. I have used blue to indicate its phasing. It is the next clear low after 1980 and 13 years in duration. It was working perfectly until we got the big bounce in 2008 and it still may be working now. If it is, that would mean very bad things for America. Remember it is a 13 year cycle. We are only four years along on it. We have already topped with early translation. That means nine more years down.

Maybe the big bounce is just an anomaly but any good analysis should look at all possibilities so we don't get blindsided.

I tried to find a cycle that would fit between the 1992 low and the 2008 low and I found one. Notice the span between the highs is 16 years. The span between the 1992 low and the 2008 low is the same duration. I have drawn it in as an orange horizontal bar. It is cyclically possible that the big rally in 2008 is the start of the next 16 year cycle. That it came in early in 1992 instead of 1995 and we are already on our way back up.

I also began the 16 year cycle in 1980 using orange lines. When I did that, it didn't fit with the 1992 low (see red Triangle) but it did with the 1995 low, which could be interpreted as a compression low. If we consider that to be the case then things are still dire but not quite so. The next low would be due in 2011 at the same time as the next 3 year low is due.

To sum up: At this point we do not know if we are dealing with a 13 year or a 16 year cycle.

2008 may have seen a major low of 16 years duration. The 3 year cycle could still be in its ascendancy and we are about to bottom a 1 1/2 year cycle and bolt higher. The large 2008 rally gives this some validity, as does the fact that the low was an ABC measured move. Plus we have a huge imbalance of bears over bulls. It is a possibility we have to consider. However it does not fit with what gold's cycles are telling us. (see gold, a cyclical recipe for disaster )

Looking at the other 16 year possibility, with a shift at the red triangle. It says when this 1 1/2 year cycle finishes its rally. Then all cycles will be hard down until 2011. This fits with better with what the gold cycles are telling us.

The third option (blue lines) is similar to the second. A rally now. Followed by a nasty clunk into 2011. Then a bounce as the 3 year cycle bottoms. Followed by more collapse. This fits with gold as well.

All the choices seem to point to at least a small rally over the next while. Its size and strength will be telling. Once we establish it as the 1 1/2 year cycle low then its breaking will confirm more down to come.

Is the coyote an metaphor for the U.S.A.? It must have been quite the animal to reach such an old age in the wild. Smart, brave and strong. A beautiful wild thing with a lustrous thick coat, a mantle of prosperity that let it live free, helped it provide for and protect its young. It must have had many adventures, had families, friends.

Now weakness and disease are its companions. The coat and prosperity are gone. Making a living comes hard, it can't even provide for itself. Parasites prey on it now. Old friends can't be trusted, it is isolated. The best days are gone. Now to survive it must turn to the one it trusts the least and fears the most.

As long as it chooses to shelter here is ok with me. I have put out food. There is no way I can let that creature starve in my hay shed.

As I said, I don't want to see America fall. Is it a metaphor? I guess maybe it is.

Bob Clark is a professional trader with over twenty years experience, he also provides real time online trading instruction, publishes a daily email trading advisory and maintains a web blog at www.winningtradingtactics.blogspot.com his email is linesbot@gmail.com.

Investment choices seen tougher in 2010: Analysts

2009-12-09T18:39:00.002+05:00

Investment choices will become tougher in 2010, after the easy money reaped across most asset classes this year, as weak credit availability and a high jobless rate temper U.S. economic growth, said money managers at the Reuters Investment Summit in New York.

Without a meaningful pick-up in bank lending, businesses will be hard-pressed to grow at rates typical of a post-recession environment, analysts said.

“The concern we have is whether or not people have money to spend, or money to borrow,” said Max Darnell, chief investment officer of investment firm First Quadrant.

Without improved access to credit, a double-dip recession is possible, said Darnell, whose fund manages nearly $18 billion.

Growth in real gross domestic product in 2010 will likely be 3 percent or slightly higher, because the “velocity” of money, or bank lending, remains low, Bob Doll, vice chairman and chief investment officer of global equities at BlackRock Inc, the world’s largest investment firm, said.

Growth of 5 percent or slightly higher is more typical coming off a recession low.

Also clouding the investment climate, lingering high unemployment and sluggish wage growth are likely to keep a chill on consumer spending, which traditionally is the engine for U.S. growth.

As the U.S. equity market enters a phase driven by fundamental earnings growth, Doll said potential deflation trumps other worries.

“We’re past the point where the market goes up faster than earnings. ... The earnings phase is bumpier, and growth isn’t quite as good,” he said.

Doll said the broad-based S&P 500 index could reach 1,200 to 1,300 points in 2010, against Tuesday’s close of 1,091 points, helped by companies’ continued efforts to contain costs.

The S&P 500 index is up about 64 percent from lows hit in March during the height of the recession and financial panic, as risk aversion has receded.

“We do see a significant amount of upside, but that’s without a whole lot of top-line growth. Corporate America has shown through productivity and cost-cutting an amazing operating-leverage capability,” Doll said.

The U.S. economy expanded at a 2.8 percent annual rate in the third quarter, snapping four straight quarters of decline.

But even after the unemployment rate declined unexpectedly in November and job losses were much smaller than expected, there are concerns that the economy faces a bumpy road.

Shawn Kravetz, president of Boston hedge fund Esplanade Capital LLC, said the economy is not on a glide path higher given continued constraints on consumer spending.

“The consumer has had a stay of execution but there’s still a lot of hard labor yet to come,” he said.

Fed on hold for now

Most strategists agreed that with unemployment high and inflation low, the Federal Reserve would not raise interest rates from current rock-bottom levels, at least for the first half of 2010.

Financial markets brought forward the likely timing of a first Fed move after Friday’s dramatic November payrolls report, to the third quarter of 2010.

But Kenneth Volpert, head of the taxable bond group at giant fund manager Vanguard Group, said the Fed could be on hold for all of 2010.

“We see fairly weak real final demand, which we think is going to lead to a jobless recovery for a prolonged period,” he said, adding that real jobs growth could be five years in the making.

Doll said that although the U.S. was the best pick for investors among the developed world, the higher savings rate and the absence of the “debt noose” made emerging markets a more favorable investment story for now.

“Thank goodness we’ve got the developing world. Because otherwise, Planet Earth wouldn’t be growing much at all,” he said.

UK Budget: None of the People, None of the Time

2009-12-08T22:09:00.002+05:00

The U.K.'s finance minister, Chancellor of the Exchequer Alistair Darling, will be giving us his Pre-Budget Report on Wednesday. In it, he'll outline the spending plans of a government that must face the electors by the middle of 2010 and the forecasts that underlie them.

Now, like all politicians seeking a job, he'd love to throw the pork around in the next budget. But in reality, few have ever had such an empty barrel to scrape.

And, should the soft-spoken Edinburgh lawyer be under any illusions as to the knife edge on which national financial credibility teeters, a couple of bodies have chosen this crucial time to issue reminders.

First comes Moody's, the credit-rating agency; its latest commentary reminds us that, thanks to the financial crisis' uneven impact on national economies, the highest possible rating level now contains clear divisions. The U.S. and U.K. are classified as "resilient" economies.

This doesn't sound so bad until you realize that the top rank is now, apparently, "resistant." And that applies to Germany, Canada and France, leaving the two Anglo-Saxon spendthrifts effectively in a lower category.

Like the other agencies, Moody's will need to see clear evidence that London is committed to reducing its budget deficit if the U.K. is to continue enjoying the favorable borrowing terms that come with those golden top ratings.

But it's not just Moody's sounding the alarm bells. The Center for Economics and Business Research has warned that even the U.K.'s place in the top 10 national economies is at risk.

From being the world's fourth largest in 2005, the U.K. has been overtaken by China in 2006, France in 2008 and Italy in 2009.

Now the financial crisis, and the exchange rate ructions that have buffeted sterling since, probably account for much of France's and Italy's move into the fast lane. The U.K. has been hit much harder than either of them.

But the CEBR's latest report said that the U.K. could drop to 11th place by 2015, if current economic and population growth and exchange rate trends continue.

Brazil and Russia could overtake the U.K. as soon as 2012, and India by 2015, the CEBR said. Canada's economy could also be bigger than Britain's that year, if demand for natural resources continues to increase, and Australia may surpass the old country by 2020. Clearly, having what China needs is now the key to the kingdom, and the poor old U.K. is wanting here.

Mr. Darling and his government are caught between a hopeful electorate and pressing fiscal rebalancing. Rarely has the doleful idea of pleasing none of the people none of the time been so well illustrated.

Bernanke comments subdue tone in world markets

2009-12-08T20:56:00.002+05:00

LONDON — European stocks rose cautiously Tuesday after Asia closed lower as market sentiment was subdued by the Federal Reserve’s warning that the U.S. economy will continue to struggle.

In Europe, the FTSE 100 index of leading British shares was up 7.01 points, or 0.1 percent, at 5,317.67 while Germany’s DAX rose 18.23 points, or 0.3 percent, at 5,802.98. The CAC-40 in France was 10.87 points, or 0.3 percent, higher at 3,850.92.

The meek start to Tuesday’s trading followed a lackluster performance on Wall Street after Fed chairman Ben Bernanke said the world’s largest economy was facing “formidable headwinds” — including a weak job market, cautious consumers and tight credit — that would limit the pace of recovery.

Bernanke also reaffirmed his pledge to keep interest rates at record lows for an “extended period,” dampening mounting expectations the Fed might hike rates sooner than thought after last week’s jobs report showed the unemployment rate unexpectedly dropped to 10 percent in November.

David Buik, markets analyst at BGC Partners, said Bernanke’s comments provided markets with a “reality check” and as a result there was “little momentum for equities to crack on.”

Despite the warning, a number of analysts think Bernanke has sown the seeds for further stock markets gains in the months ahead.

“The bias to central bank policymaking is clear — if things get worse, they will pump more money in,” said Kit Juckes, chief economist at ECU Group. “If things get better, they will do nothing — reflation continues in other words.”

Trading at the moment is also getting increasingly complicated by the upcoming year-end — many investors are looking to book profits made over the nine-month bull run as they settle down for the Christmas break.

There’s a further dearth of economic data on Tuesday for traders to get their teeth in. As a result, Wall Street is expected to show little momentum on the open — Dow futures were up 23 points, or 0.2 percent, at 10,414 while the broader Standard & Poor’s 500 futures rose 2.7 points, or 0.2 percent, to 1,106.40.

The main piece of economic data this week will be Friday’s U.S. retail sales figures for November, which will give an early indication into how the Christmas trading period has begun. The state of household spending in the U.S. is key for the global economic recovery — U.S. consumer spending accounts for around 70 per cent of the nation’s economy.

Earlier in Asia, Nikkei 225 stock average lost 27.13 points, or 0.3 percent, to 10,140.47 while Hong Kong’s Hang Seng dropped 264.44 points, or 1.2 percent, to 22,060.52.

The news that Japan was moving ahead with $81 billion in new stimulus spending did little to enthuse investors. The world’s No. 2 economy grew for the second straight quarter in the July-September period, but falling prices have raised concerns about a cycle of deflation that could hinder the country’s rebound.

Elsewhere, Shanghai’s market lost 1.1 percent to 3,296.66 while markets in Australia and Taiwan fell about 0.1 percent.

Bucking the downward move, South Korea’s key stock measure rose 0.8 percent to 1,627.78.

Oil prices rose modestly, with benchmark crude for January delivery up 25 cents to $74.18 in Asia. The contract fell $1.54 to settle at $73.93 on Monday.

Gold prices were down $1.50, or 0.1 percent, at $1,162.50 an ounce — way down on last week’s record high above $1,225.

The dollar, meanwhile, gave up some of its recent gains, falling 0.9 percent at 88.69 yen while the euro rose 0.2 percent to $1.4847.

3rd highest spending power

2009-12-08T20:50:00.002+05:00

Globally, managers in singapore rank 27th in terms of disposable income.

MANAGERS in Singapore have the third-highest spending power in Asia, behind those in Hong Kong and Thailand, according to a new survey released on Tuesday.

Globally, they rank 27th in terms of disposable income, which is the money they have left to spend after taxes.

The study, done by global management consultancy Hay Group, also found that the income gap between managers and clerical staff has widened only slightly over the last three years.

In 2006, Singapore managers earned 4.9 times what their lower-paid clerical staff made. This gap dropped in 2007 to 4.7 times, but grew again this year to five times. Still, the pay gap is much smaller and more stable in Singapore than in most other countries in Asia, said Mr Victor Chan, Hay Group Singapore's country manager for reward information services.

China has the largest income gap in this respect, with managers earning 12.6 times the pay of their clerical staff, according to the report. The gap has also grown significantly over the years: in 2006, it was 10.5 times.

On the other end of the spectrum are Japan and Korea, which have smaller pay gaps than Singapore. Japanese managers earn just 3.4 times what their clerical staff do, while the pay of Korean managers is 4.1 times the pay of their clerical employees.