Archive for November, 2009

30
Nov

Asian shares rebound but eyes on Dubai

HONG KONG (Reuters) – Asian stocks recovered after last week's steep sell-off over the Dubai debt crisis on growing speculation the fallout from a potential default will be limited, while assurances from various authorities also helped calm nerves.

European stock index futures pointed to a higher open, futures for the Eurostoxx 50, German DAX and French CAC gaining 0.3-0.4 percent.

Banking shares, which bore the brunt of the selling on Friday on worries about banks' exposure to Dubai World and property group Nakheel, were at the forefront of Monday's rebound in Asia.

"I think it's going to be okay. At the end of the day Dubai and Abu Dhabi need each other. And there will be a lot of pressure on Abu Dhabi to step in, from the neighboring countries," Templeton Asset Management fund manager Mark Mobius told Reuters.

Hong Kong shares, which posted their biggest single day loss in eight months on Friday, and stocks in Japan, which ended last week at a four-month low, were among the strongest performers in the region on Monday.

In South Korea, the government pledged it will stay vigilant while a top Indonesian central banker said there would be no fallout from Dubai's debt problems on Southeast Asia's biggest economy.

South Korean markets have been especially sensitive to international financial instability mainly because the highly leveraged local banking system is heavily exposed to the global credit market situation.

The MSCI index of Asia Pacific stocks traded outside Japan (.MIAPJ0000PUS) rose 2.8 percent while the Thomson Reuters index of regional shares (.TRXFLDAXPU) was 2.6 percent higher.

Reflecting some of the calm, U.S. stock futures are up 0.4 percent pointing to a firm start at Wall Street, which had already started showing some signs of a recovery on Friday having erased some of the losses toward close.

However, stocks in the United Arab Emirates, trading for the first time since the call for a delay in repaying billions of dollars in debt, dived with Dubai's index (.DFMGI) down 6.9 percent and Abu Dhabi's share benchmark (.ADI) 8.1 percent lower.

The dollar surrendered some of last week's gains against other major currencies and the yen retreated from a 14-year high hit last week. The two units rose sharply last week as fears of a possible Dubai debt default led to unwinding of carry trades.

AUTHORITIES SOOTHE NERVES

Investors were also placated by authorities' moves to prevent any major fallout from a looming debt default by two of Dubai's flagship firms.

Financial markets shuddered last week after Dubai said it would ask creditors of state-owned Dubai World and Nakheel, the builder of its palm-shaped islands, for a standstill agreement as a first step toward restructuring billions of dollars of debt used auto loans.

On Sunday, the United Arab Emirates offered banks emergency support to ease fears in financial markets although analysts say the move to inject liquidity into Dubai's banks by the central bank, together with promises by neighboring city-state Abu Dhabi to provide selective support, was the bare minimum they could do.

In Seoul, Vice Finance Minister Hur Kyung-wook said the government would maintain a daily monitoring system until the Dubai incident was resolved.

Indonesia's central bank deputy governor said the country is not expected to feel any fall-out from Dubai's debt problems while the Philippine central bank governor said the crisis was not seen having a major impact on remittances from the Filipino diaspora.

About a tenth of the Philippines' 91 million people live and work abroad and their remittances are vital to domestic spending.

Investors also took heart from Wall Street's truncated losses, raising hopes the flight to less risky assets seemed to be subsiding. U.S. stocks recovered slightly toward close after a slide of more than 2 percent at the open.

"The fall in U.S. stocks wasn't as bad as expected and that has lifted one of the biggest Dubai-related concerns, given that worries about that don't seem to be as bad as they once were," said Masayoshi Okamoto, head of dealing at Jujiya Securities.

BANKS LEAD REBOUND

Leading the recovery were bank and construction shares, which were the big losers last week as investors cut exposure to sectors most vulnerable to economic uncertainty.

HSBC Holdings (0005.HK), which fell 7.59 percent to close at a three-week low on Friday, climbed over 4 percent. Standard Chartered (2888.HK), which fell as much as 8.9 percent to a seven-week low last Friday, was also more than 4 percent higher.

Britain's HSBC (HSBA.L), Europe's biggest bank, has the biggest exposure to the UAE, according to end-2008 estimates by the Emirates Banks Association.

The MSCI index of banking shares in Asia Pacific outside Japan (.MIAPJFN00PUS) was up 3.7 percent while the materials index (.MIAPJMT00PUS) was 3 percent higher.

But stocks with exposure to Dubai continued to suffer.

These included Singapore's DBS Group (DBSM.SI) and City Developments (CTDM.SI), Indonesian property firm PT Bakrieland Development (ELTY.JK) and Malaysia's LCL Corp (LCLC.KL).

Japan's Nikkei average (.N225), which hit a four-month closing low last Friday, gained 2.9 percent as the yen's fall from a 14-year high against the dollar also lifted exporters.

(Additional reporting by Parvathy Ullatil in HONG KONG and Elaine Lies in TOKYO; Editing by Kazunori Takada)

Asian shares rebound but eyes on Dubai

29
Nov

Jobs data eyed, but Dubai is the wild card

NEW YORK (Reuters) – Dubai, jobs data, Black Friday results and a chance for Congress to throw fireballs at Fed chief Ben Bernanke: The U.S. stock market's path to glory is fraught with peril next week.

If Dubai's debt woes intensify and prompt a retreat from riskier assets, Friday's painful drop will carry through into next week.

Investors also will contend with any surprises from a Senate Banking Committee hearing on Federal Reserve Chairman Ben Bernanke's renomination to a second term. The hearing could provide fodder for Wall Street at a time when the central bank is facing scrutiny in Congress for its bailout of large financial institutions during the crisis.

In a busy week for data, Friday's employment report for November will be the main event with job losses expected to decrease from October. Investors will also get an early view of how retailers fared during Black Friday — often the busiest shopping day of the year.

Both the job market and consumer spending remain among the weakest links in the economy and could potentially stymie the burgeoning recovery. Encouraging data on that front could fuel the rally that has pushed the Dow and S&P to 13-month highs.

But investors got a cold reminder this week that the recovery will be far from smooth when Dubai asked to delay payment on billions of dollars of debt issued by conglomerate Dubai World and its main property subsidiary Nakheel.

The shocking move shook investors with its echoes of the collapse of the U.S. subprime mortgage market that sent reverberations through global financial markets. It was uncertain how much exposure U.S. banks have in Dubai, though fears of a wide impact had ebbed by Friday's close.

"A big part of whether the market's positive trend continues for the next month will partly depend on whether this Dubai World problem does, in fact, mushroom into concerns about the soundness of financial markets," said Michael James, senior trader at Wedbush Morgan in Los Angeles.

"At least so far here in the U.S. market, that seems to be shrugged off, but we'll see if we get any more details … that might put a more cautionary spin to the early problems."

DECEMBER CHEER

After recovering more than 60 percent from March's 12-year low, the S&P 500 has churned sideways for most of November as investors look for fuel to keep the rally going.

December, traditionally one of the best months for stocks, has been good for an average gain of 1.7 percent in the S&P 500 since 1950, according to the Stock Trader's Almanac.

"If we're higher next week, it's very bullish for the remainder of the year," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati, Ohio direct lender payday loans.

"We don't think there will be any major sell-off before the end of the year. There's still institutions that are trailing the market and they're going to use all those dips as buying opportunities."

But the bears argue that this year's run-up leaves the market in an even more dangerous place than it was in March. Indeed, the fears of a possible debt default at Dubai World is the catalyst for an "overdue correction" in equities and risk assets, the chief executive of top bond fund manager Pimco told Reuters on Friday.

BARGAIN HUNTING

Shoppers turned out in strong numbers on Friday to scoop up bargains, though many said they were spending more selectively.

Investors will be looking for data on shopper traffic as well as anecdotal readings to assess retailers' Black Friday performance. Industry forecasts range from a rise of 2 percent to a decline of 3 percent for sales during the holiday period.

"There's still a lot of anxiety in the market about the consumer, and understandably so, because the unemployment rate is so high and there are obvious headwinds to consumer spending," said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey.

Friday's non-farm payrolls report is expected to show the U.S. economy shed 130,000 jobs in November, easing from the 190,000 that were lost in October, according to a Reuters poll of economists. The U.S. unemployment rate is expected to remain the same at 10.2 percent.

Also expected next week are separate reports from the Institute for Supply Management on the manufacturing and services sectors. The ISM manufacturing index is expected to dip to 55.0 in November from 55.7 in October, while the non-manufacturing, or services, index is expected to rise to 51.5 in November from 50.6 the month before.

Other data on tap includes pending home sales for October, car sales for November, weekly initial jobless claims and factory orders for October. See

Bernanke's renomination hearing on Thursday should be a lively one. Many lawmakers have directed their frustrations at the Fed, with senior senators of both political parties faulting the central bank's actions leading up to and during the crisis.

Even so, Senate Banking Committee Chairman Christopher Dodd said last month he sees no roadblocks to Bernanke's reconfirmation.

(Reporting by Leah Schnurr; Editing by Jan Paschal)

Jobs data eyed, but Dubai is the wild card

26
Nov

China Joins U.S. in Pledge of Hard Targets on Emissions

BEIJING — The Chinese government announced Thursday that it had set a target to reduce greenhouse gas emissions by 2020 relative to economic development. China is aiming to reduce what it calls carbon intensity by 40 to 45 percent compared with 2005 levels, according to Xinhua, the state news agency.

The announcement came the day after President Obama pledged a provisional target for reductions in greenhouse gas emissions in the United States, the first time in more than a decade that an American administration has offered even a tentative promise to reduce production of climate-altering gases. President Obama discussed climate change with the Chinese president, Hu Jintao, when the two met in Beijing on Nov. 16.

China and the United States, the two largest emitters of greenhouse gases, have been in discussions on options that both nations can take to address the issue of climate change. Both countries are expected to be crucial players in talks next month at international climate meetings in Copenhagen at which nations will negotiate terms for a global post-2012 treaty on reducing emissions, although leaders have said they do not expect to come to an agreement there.

Chinese officials announced Thursday that Prime Minister Wen Jiabao would attend, after American officials said Wednesday that President Obama also planned to take part in the talks himself.

In Copenhagen, Mr. Obama will tell the delegates that the United States intends to reduce its greenhouse gas emissions “in the range of” 17 percent below 2005 levels by 2020 and 83 percent by 2050, American officials said Wednesday.

China’s announcement on Thursday of future reductions uses an altogether different benchmark. China will measure its reduction by carbon intensity, or amount of carbon dioxide emitted per unit of gross domestic product, meaning that emissions would still grow but the rate would slow. China has rejected demands to announce an absolute reduction in carbon emissions, arguing that environmental concerns must be balanced with economic growth and that developed countries must first demonstrate a significant commitment to reducing emissions.

Ahead of Copenhagen, China has been trying to deflect pressure by showing that it has made its own commitments to battling climate change. In September, President Hu Jintao announced at the United Nations that China would reduce its carbon intensity by 2020, but drew some criticism by not giving a number at the time. Earlier, China had set a goal of reducing by 2010 the energy consumption per unit of GDP by 20 percent compared with 2005 levels.

In Brussels, the European Commission on Thursday welcomed “the valuable steps China is taking to tackle climate change, and the leadership China is bringing to this negotiation.” But, the commission, the European Union’s executive body, said, “It will be disappointing to some that China does not go beyond business as usual.”

The commission was equally circumspect about President Obama’s comments on Wednesday. “On the United States offer, there are a number of positive elements,” the commission said. But his proposal was “lower than we would like,” the statement said, and “ will be disappointing to some.”.

The commission also pressed the Americans to come forward with an offer of money to help developing nations tackle climate change. Yvo de Boer, the United Nations climate chief, said earlier this week that developed parts of the world like the United States and the European Union should contribute around $10 billion annually from 2010 to 2012.

China stands at the heart of international concerns about global warming because it passed the United States two years ago as the world’s biggest emitter of greenhouse gases, and is still building coal-fired power plants at a brisk pace, although it is also expanding its investments in renewable energy us fast cash.

As part of national civil service reviews, provincial and even municipal officials are now assessed partly on how they have improved energy efficiency.

In Guangdong Province, for example, provincial officials have required the 200 largest city governments and the 200 largest companies to each sign contracts pledging to improve energy efficiency by 20 percent by 2010, as older factories are being scrapped or renovated.

China has also made significant investments in alternative energy over the past four years that will help it meet its target, with further installations already planned of wind turbines, solar panels and nuclear power plants.

It surpassed the United States as the world’s largest market for wind turbines this year, after doubling installations in each of the past four years, mainly because of heavy pressure by regulators on the state-owned power companies to build more wind turbines.

The government also requires the country’s two state-owned electricity grid companies to pay more for wind energy than they do for electricity generated from coal, which still accounts for four-fifths of China’s electricity.

The Chinese government has run into some problems along the way. Power generation companies have responded to the regulations by building wind turbines in remote locations that have lots of wind but are not close to large users of electricity, like big cities or heavy industry, such as smelters or steel mills. The grid companies have been slow to build costly high-power lines to these remote locations, with the result that energy economists estimate that up to a quarter of China’s wind turbines are not actually producing electricity that anyone can use.

A draft amendment this autumn to China’s renewable energy law would require the grid companies to build connections to all renewable energy projects, and allow power companies to sue the grid companies for losses if the connections are not built, said John Leary, the managing partner in the Shanghai office of the law firm White and Case. Under the draft, which is still being discussed in Beijing, the grid companies could seek compensation from a national energy fund for the extra cost of building the extra high-power lines.

The benchmark announced Thursday was a “voluntary action” taken by the Chinese government “based on our own national conditions,” the State Council, China’s cabinet, said in a written statement, according to Xinhua.

Some analysts say China may be unwilling to make larger commitments until the United States Congress passes legislation on emissions reduction targets. The figures released by the White House on Wednesday were based on targets specified by legislation that passed the House in June but is stalled in the Senate. Congress has never enacted legislation that includes firm emissions limits or ratified an international global warming agreement with binding targets.

Mr. Obama, who had not previously committed either to emissions targets or to going to Copenhagen, has been under considerable pressure from other world leaders and environmental advocates to reassert American leadership on climate change.

Edward Wong reported from Beijing, and Keith Bradsher from Hong Kong. James Kanter contributed reporting from Brussels, and Jonathan Ansfield from Mequon, Wis.

China Joins U.S. in Pledge of Hard Targets on Emissions

25
Nov

Wall St opens higher after jobless data

NEW YORK (Reuters) – Stocks rose at the open on Wednesday, buoyed by stronger-than-expected data on the labor market, but gains were capped by an unexpected fall in durable goods orders.

The Dow Jones industrial average (.DJI) was up 3.18 points, or 0.03 percent, at 10,436.89. The Standard & Poor's 500 Index (.SPX) rose 0 immediate payday loans online.51 points, or 0.05 percent, at 1,106.16. The Nasdaq Composite Index (.IXIC) added 4.26 points, or 0.20 percent, at 2,173.44.

(Reporting by Angela Moon; editing by Jeffrey Benkoe)

Wall St opens higher after jobless data

24
Nov

Inside Asia: Asia Could Benefit From Cooperating on Infrastructure

Perhaps by living on another planet, you might have missed the popular conclusion that Asia must increase consumption and let its exchange rates climb to help put the world economy on a more even keel.

But, until recently, another part of the policy prescription for stronger Asian demand to reduce global imbalances has received far less attention: the region’s woefully weak public sector investment, especially in networks such as transport, energy and communications that form the sinews of any economy.

When Asia-Pacific finance ministers met this month in Singapore, Korn Chatikavanij of Thailand was asked during an online discussion with traders about pressure for a rise in the yuan, widely seen as a precondition for other governments in the region to let their own currencies appreciate.

“It’s the elephant in the room, for sure, but not the only issue,” Mr. Korn said. “We were more concerned with how to finance needed infrastructure building.”

No wonder. Investment in many Asian countries collapsed after the region’s financial crisis in 1997-98 and has never fully recovered. In the case of Thailand, gross domestic capital formation was 41.8 percent of gross domestic product in 1996. It halved to 20.4 percent in 1998 and last year was at 28.8 percent.

In Malaysia, investment totaled 43.0 percent of G.D.P. in 1997 but just 19.1 percent in 2008; in the Philippines, it dropped over the same period from 24.8 percent to 15.2 percent, according to the Asian Development Bank.

The capital spending of the go-go years of the mid-1990s was unsustainably high. Now, in many countries, it is unsustainably low, policy makers argue. And with insufficient investment across Asia to absorb domestic savings, the result is current account surpluses that exacerbate global economic imbalances.

If demand for Asian goods from rich countries remains stagnant, regional production will be depressed, the institution acknowledged. “However, the lesson of the financial crisis of 1997-1998 is clear: Cuts in infrastructure investment that jeopardize future recovery should be avoided,” the Manila-based bank said in a recent report called “Infrastructure for a Seamless Asia.”

Indeed, because of the need for regional demand to make up for the shortfall in exports, upgrading infrastructure assumes greater importance now, the bank argued. It estimated that Asian governments needed to spend $8 trillion at the national level between 2010 and 2020 as well as $290 billion on cross-border projects to knit the economies of the region together.

With studies from around the world showing returns from spending on telecommunications, energy and transportation far exceeding those from other forms of investment, the Asian Development Bank said the outlays it recommended could generate $13 trillion in real income gains for developing Asian countries. “The inadequacies of Asia’s infrastructure networks are a bottleneck to growth, a threat to competitiveness and an obstacle to poverty reduction,” the report said.

The need to address Asia’s development requirements through public works also has the backing of the International Monetary Fund, which was commendably quick to cast off its fiscal hair shirt when the global financial crisis struck paydayloans.

“With some notable exceptions, including China and India, investment in Asia has shown broad-based weakness during the last 10 years,” Dominique Strauss-Kahn, head of the I.M.F., said in Singapore. “Investing in infrastructure holds tremendous promise.”

Such investment would not only raise productive potential but also improve the poor’s access to basic services like electricity and clean water. If governments have room in their budgets, they should also spend more on education and “green growth” initiatives to combat climate change, he said.

Where is all the money going to come from? After all, financing infrastructure, especially regional projects, entails major risks that the private sector is unwilling to bear. Witness the financial travails of the Eurotunnel rail link connecting England and France.

Mr. Strauss-Kahn called for a regulatory environment that provides the right incentives for private investment, including those related to public-private partnerships. The Asian Development Bank advocates an Asian Infrastructure Fund, capitalized by governments, sovereign wealth funds, multilateral development banks and bilateral agencies that would mobilize the region’s vast domestic savings.

“Lessons from other regions show that developing and financing regional projects is a slow and complicated process, even in the European Union,” the bank cautions. “Political leadership from the highest level is necessary but not sufficient, as the Latin American experience demonstrates.”

Now, Asia’s record to date on regional cooperation on trying to invest its savings at home rather than shipping them to Wall Street has been modest to say the least. But Rajiv Kumar, director of the Indian Council for Research on International Economic Relations in New Delhi, said a regional infrastructure fund would have broad appeal as Asians believe more in the “real economy” than in pure finance.

As such, an Asian Investment Bank would not only help reduce global macroeconomic imbalances but could also forge the sort of cross-border collaboration that Asian governments have found it tough to foster in, say, the area of exchange rates.

“Increasing trade and investment flows, and putting in place all the institutional arrangements, would be a much better way to have sustainable economic cooperation that would lead logically to financial and foreign exchange cooperation,” Mr. Kumar said at a conference in Beijing last week.

Talking the other way around about financial cooperation first left the vast majority of Asians quite cold, Mr. Kumar argued. “To some extent, it’s putting the cart before the horse.”

Alan Wheatley is a Reuters columnist.

Inside Asia: Asia Could Benefit From Cooperating on Infrastructure

23
Nov

Ciena to pay $769 million for some Nortel assets: source

NEW YORK (Reuters) – Ciena Corp (CIEN.O) will buy Nortel Networks Corp's optical networking and carrier ethernet business for $769 million after trumping Nokia Siemens Networks in a three-day auction, sources told Reuters on Sunday.

Last month, the U.S. network equipment maker announced it had made a stalking-horse offer for these assets of Nortel, the Canada-based telecommunications company that filed for bankruptcy in January and has been auctioning off assets.

The stalking-horse bid set a floor price, but Nortel was free to seek higher offers.

Ciena's winning offer consists of $530 million in cash and $239 million in convertible notes, one of the sources said, speaking on condition of anonymity since details of the auction have not been made public.

Ciena initially offered $390 million in cash and 10 million shares of Ciena stock, for a total deal value of $522 million, based on the Friday closing price of Ciena stock.

On November 18, another source familiar with the sale told Reuters that Nokia Siemens Networks (NSN.UL) and private equity firm One Equity Partners had also jointly bid for the assets.

Representatives for Ciena and Nortel did not return calls seeking comment. Nokia Siemens declined to comment.

CIENA LIKES THE DEAL

For Ciena, the purchase of these core assets in Nortel's metro ethernet networks business is an opportunity to increase sales.

The equipment manufactured by these companies is used to build the Internet infrastructure that supports corporate and residential networks faxless payday loan.

But analysts and investors have been concerned that the deal will weigh down Ciena's operations, hurting the U.S. company's shares in recent weeks.

To integrate the potential acquisition, Ciena would have to swallow a unit that earned $1.36 billion in 2008 revenue — higher than the $902 million it earned in the same period.

Ciena has total cash and securities of just over $1 billion and $798 million of debt on its balance sheet, according to regulatory filings.

Its latest offer includes the issue of $239 million in debt in the form of convertible notes. The interest rate for the senior notes, due June 15, 2017, is 6 percent, one of the sources said. Under the terms, the interest rate would increase gradually to 8 percent if Ciena's share price falls, this person said.

The final bid by Nokia Siemens Networks and One Equity, which manages $8 billion in investments for JPMorgan (JPM.N), came "very close" to Ciena's offer, the source said.

Winning the auction for these Nortel assets would have helped Nokia Siemens, a 50-50 joint venture of Nokia (NOK1V.HE) and Siemens AG (SIEGn.DE), expand its U.S. presence. The company has said North America along with India, Japan and China, are its four top growth targets.

(Editing by Gary Crosse and Lincoln Feast)

Ciena to pay $769 million for some Nortel assets: source

Hot News: Europe’s Bank Tightens Loan Rules

22
Nov

Off the Charts: An 11-Year Journey From Leader to Laggard

THE American stock market has soared 64 percent since it hit bottom eight months ago.

And that leaves it just where it was more than 11 years ago.

The United States stock market was the world leader in the great bull market of the late 1990s, but more recently it has been a laggard, in large part because of the weakness of the dollar. As the accompanying charts show, a stock investor looking for a part of the world to invest in back in 1998 — and to hold onto until now — could not have done worse than to choose the United States.

The charts show the movement of the Standard &Poor’s 500 and the S.& P. International 700 in the period since the American index first reached 1,100 on March 24, 1998. The International 700, which encompasses the non-American stocks in the S.& P. Global 1,200, rose much faster in the middle of this decade, then fell faster in the global recession. But since prices bottomed, it has leaped more than 80 percent.

For the entire period, an investor was better off in emerging markets than in the developed world. The segments of the global index representing Latin America, Australia and emerging Asian countries have soared. The Canadian index also more than doubled, thanks largely to natural resources stocks.

But prices, as measured in local currencies, are lower now than in 1998 for both the S.& P. Europe 350 and the S.& P./Topix 150, covering Japan. Measured in American dollars, as shown in the charts, those markets posted gains of 20 percent and 7 percent, respectively, because of currency movements payday loans.

On a sector basis, the best place to be over that period, both in the United States and globally, was in energy stocks. Oil prices fell to just above $10 a barrel in late 1998, and few investors saw value in the area. More recently, oil company profits set records as crude soared well above $100 a barrel, and even after the global downturn the price is more than $70.

Financial stocks have suffered more in the United States than in the rest of the world, but the credit crisis brought down many banks in other regions as well.

The charts also show 15 well-known companies from around the globe whose share prices are at least 300 percent higher than they were in 1998, and 15 such companies whose prices are less than half what they were then.

Those lists show that performances can vary wildly within an industry. While British Airways and All Nippon Airways make the losers list, Ryanair of Ireland was a big winner. Fiat and Ford were losers, while Hyundai shares leaped. Makers of communication equipment include Research in Motion, the producer of BlackBerry phones, which is up more than 8,000 percent, and Alcatel-Lucent, which is down almost 90 percent.

Floyd Norris comments on finance and economics in his blog at norris.blogs.nytimes.com.

Off the Charts: An 11-Year Journey From Leader to Laggard

20
Nov

Fears of ‘Lost Decade’ Grow for British Economy

LONDON — Britain may be emerging from recession, but that is little solace for those who suggest that the economy here might follow in the steps of Japan’s lost decade in the 1990s unless the twin threats of burgeoning national debt and ruined banks are adequately addressed.

The parallels are easy to see: Like Japan, Britain enjoyed a decade of booming growth, fueled by aggressive bank lending and real estate investments. Haunted by the comparison, policy makers have been extra aggressive in using fiscal and monetary levers to prevent the type of sustained period of stagnation and banking stasis that plagued Japan for so long.

Some economic indicators this past week have been positive: an uptick in retail sales, fewer jobs being lost and an export revival. Yet analysts say they may well turn out to be tease, cloaking deeper, more structural flaws in the economy. On top of rising debt, the tax base is collapsing and the crippled banking sector has yet to show it can generate profits by lending to corporations.

“We expect 1 percent growth next year and 0.7 percent in 2011,” said Douglas McWilliams of the Center for Economic and Business Research in London. “Technically it’s a recovery — but it’s a very weak economy indeed.”

Comparisons with Japan have been made in the United States as well, but some believe that the more appropriate analogy is Britain, given the more pronounced contribution that the banking sector has on the economy here.

The prospect of a period of Japan-like outcome in Britain was publicly aired last month by a senior member of the Bank of England’s monetary policy committee, Adam S. Posen, who was just appointed in June.

An American and a senior fellow at the Peterson Institute for International Economics in Washington, Mr. Posen was speaking as an outside expert on Japan’s lost decade. He noted his views were his alone and not those of the bank.

But they also carry the weight of one of the decision makers on the bank’s strategy of buying of government bonds, known as gilts, as a means to inject liquidity into the economy, a policy called quantitative easing.

“The United Kingdom has an uncomfortable parallel with the Japanese financial system when the Japanese economy began to recover in the mid-1990s and was unable to sustain it,” he said in his speech. “The closer one looks, the more worrisome this specific parallel becomes, given the concentration of the UK banking system in few major, mostly still troubled banks, and the relative underdevelopment of alternative non-bank channels for getting capital to non-financial businesses in the U.K.”

While defending the quantitative easing as necessary and non-inflationary, Mr. Posen also pointed out that the Bank of England’s massive purchase of gilts — the bank now owns 30 percent of those outstanding — is in itself a consequence of the British financial system inadequacy in providing credit to businesses through the issuing of corporate bonds.

Like Japan, the capitalization of Britain’s private sector bond market as a proportion of gross domestic product is very low — 0.16 percent, the smallest among G7 economies and significantly behind the U.S. figure of 1.2 percent.

For a financial system heralded to be one of the world’s most sophisticated, this is an eye-opening statistic and it raises the possibility that credit starved corporations, dependent as they are on Britain’s still-wobbly banks, may not get the capital they need, all of which might bring about a double-dip recession or even a Japan-like slump payday loans.

Mr. McWilliams of the Center for Economic and Business Research forecast that bank lending to corporations will decrease over the next two years.

Mr. Posen would argue that the Bank of England’s buying of gilts is unavoidable, especially in light of the fact that sufficient liquidity does not exist in the private bond market.

But a growing number of bearish analysts see the bank’s buying spree as dangerously distortive, in that interest rates have been kept at a low level that does not reflect the dire state of Britain’s public finances.

The severity of the problem was underlined this week, when the government released an £11 billion borrowing figure for the month of October, which brought the half-year tally to £86.9 billion, the highest since public records began in 1946. That makes it almost certain that the government’s forecast of £175 billion of borrowing for next year would be exceeded. And it would produce a budget deficit of about 13 percent of G.D.P., or nearly twice the average in the euro zone.

Simon White, a partner at Variant Perception, a London-based research house that caters to hedge funds and wealthy individuals takes an especially dire view.

There is a caveat: Variant Perception, which is run by former traders, is noted for its contrarian perspectives on certain markets. A few months ago it put out a controversial note on Spain’s real estate troubles titled “The Hole in Europe’s Balance Sheet.”

Still, its negative view on British gilts and sterling is one that is becoming more and more mainstream.

In a note sent out to clients this week, Variant broaches the prospect of a debt and/or currency crisis as Britain’s collapsing tax base — too dependent on real estate, financial firms and the already highly taxed rich — results in declining revenues.

Taken together with the already high levels of spending, the result is a deficit that grows even beyond 13 percent of GDP, further harming the country’s fragile creditworthiness. (Both Fitch and Standard & Poor’s view Britain’s economy as the most vulnerable to a downgrade of the 20 or so countries that carry a AAA rating.)

Once the Bank of England, which has already spent about £200 billion buying British bonds (or about 14 percent of annual G.D.P.) stops, rates are expected to immediately push up. That could prompt already skittish foreign investors, who hold more than 30 percent of government paper, to become sellers.

To be sure, such a scenario presumes that British politicians will be like their counterparts in Japan in the 1990s and not have the political will to tackle these economic problems — a bold assumption given that the Conservative Party, which is far ahead in polling for a spring election, has staked its legitimacy on bringing down the country’s debt.

Still, until more such conviction is shown, worries about a period of stagnation, or a more devastating shock, are expected to continue.

“The likelihood of a debt and sterling crisis is just not factored in,” Mr. White said, noting that, on average, these types of crises have occurred every 15 years since 1947, with the last occurring in 1992. “If this gets out of control it will flip very quickly.”

Fears of ‘Lost Decade’ Grow for British Economy

20
Nov

Wall St slips on weak corporate results

NEW YORK (Reuters) – Weaker-than-expected results from computer maker Dell and homebuilder D.R. Horton helped push stocks lower on Friday as Wall Street headed for its third straight day of losses.

After the benchmark S&P 500 index has jumped 20 percent so far this year, investors were reassessing the global economic outlook and saw few reasons to make big bets.

Dell Inc (DELL.O), the No. 3 personal computer maker, slid 9.8 percent to $14.32 a day after it reported a 54 percent drop in third-quarter profit and sales that missed estimates.

Investors have been watching the technology sector closely after a big run-up, with the S&P information technology sector (.GSPT) soaring more than 70 percent from its March lows.

The technology sector has been expected to share better than others as the recovery takes hold. But on Thursday, tech shares were pummeled after an analyst made bearish comments on semiconductors.

"When you see (technology shares) rolling over, you know there's a problem. That's not a sign of a healthy market," said Quincy Krosby, market strategist at Prudential Financial in Shelton, Connecticut. She said tech and bank shares must be a part of a strong market rally.

"We're not writing the obituary for this market, but it is consolidating, getting far more careful. It is prudent to take some money and some risk off the table."

The Dow Jones industrial average (.DJI) lost 47.83 points, or 0.46 percent, to 10,284 fast cash loans.61. The Standard & Poor's 500 Index (.SPX) fell 6.89 points, or 0.63 percent, to 1,088.01. The Nasdaq Composite Index (.IXIC) dropped 18.21 points, or 0.84 percent, to 2,138.61.

D.R. Horton Inc (DHI.N) tumbled 13.6 percent to $10.58 after the homebuilder reported a fourth-quarter loss that was wider than expected and said market conditions were "still challenging.

The Dow Jones home construction index (.DJUSHB) declined 4.6 percent, the largest daily decline this month.

Dow component General Electric Co (GE.N) and Vivendi SA (VIV.PA) were at least $1 billion apart in their valuation of Vivendi's stake in NBC Universal, the Financial Times reported, dampening hopes of a swift sale.

GE shares shed 1.8 percent to $15.48.

Goldman Sachs Group Inc (GS.N) declined 1.4 percent to $170.46 after the Wall Street Journal reported large shareholders have asked the investment bank — on track to award employees the biggest bonuses in its history — to pass more profits to investors. A Goldman spokesman said major shareholders had not contacted the company about lowering its bonus pool.

Hess Corp (HES.N) shares rose 2.2 percent to $58.87 after Morgan Stanley upgraded the stock. Hess was one of the few rising shares in the energy sector (.GSPE), which slipped 1.2 percent.

(Editing by Kenneth Barry)

Wall St slips on weak corporate results

19
Nov

Foreclosures hitting more people with prime loans

WASHINGTON – A rising proportion of fixed-rate home loans made to people with good credit are sinking into foreclosure, adding to concerns about the strength of the economic recovery.

Driven by rising unemployment, such loans accounted for nearly 33 percent of new foreclosures last quarter. That compares with just 21 percent a year ago, when high-risk subprime loans made during the housing boom were the main reason for default.

At the same time, the proportion of homeowners with a mortgage who were either behind on their payments or in foreclosure hit a record-high for the ninth straight quarter.

The Mortgage Bankers Association’s report Thursday suggests the housing market and broader recovery could be thwarted by the continuing surge in home loan defaults, especially as the unemployment rate keeps rising. Lost jobs, rather than the shady loans made during the housing boom, are now the main reason homeowners fall behind on their mortgages.

After three years of plunging prices, the housing market started to rebound this summer. While optimists hope the worst is over, pessimists say there are simply too many foreclosed properties that have yet to be dumped on the market and expect further price declines.

About 4 million homeowners were either in foreclosure or at least three months behind on their mortgage payments as of September, according to the mortgage bankers group payday loan lenders. Even if a quarter of those borrowers are able to stay in their homes, “there’s a lot of potential inventory coming into the market next year,” said Jay Brinkmann, chief economist with the Mortgage Bankers Association.

Those foreclosures will push home prices downward, especially in the hardest-hit California and Florida cities, places that are also coping with soaring unemployment, he said.

The record-high foreclosure numbers are being driven by borrowers with traditional fixed-rate mortgages, rather than the high-risk subprime loans with adjustable rates that triggered the mortgage crisis.

Subprime loans with adjustable rates have fallen to 16 percent of new foreclosures from 35 percent a year earlier.

Loans backed by the Federal Housing Administration also show increasing signs of trouble. More than 18 percent of FHA borrowers are at least one payment behind or in foreclosure.

Among states, the worst of the trouble is still concentrated in California, Nevada, Arizona and Florida, which accounted for 44 percent of new foreclosures in the country. Nearly 13 percent of all loans in Florida were in foreclosure, the highest in the U.S., followed by Nevada at more than 9 percent.

Foreclosures hitting more people with prime loans

17
Nov

Canon to buy Dutch Oce in $2.2 billion deal

TOKYO/AMSTERDAM (Reuters) – Japan's Canon (7751.T) said it would buy Dutch copier and printer maker Oce (OCEN.AS) in a deal worth $2.2 billion, as it tries to return to growth after the global downturn crippled demand for office equipment.

Copier and digital camera maker Canon and Oce said in a joint statement on Monday that Canon intends to offer 8.60 euros per share, or 730 million euros for Oce's total common shares outstanding.

"Through the merger of Canon and Oce, we believe that we will be able to realize clear benefits, not only in the area of R&D, but also in terms of product mix and marketing," Canon Chief Operations officer Tsuneji Uchida said in a statement.

Oce Chief Executive Rokus van Iperen said that including debt and other obligations, the deal values Oce — which competes with Xerox (XRX.N) and Konica Minolta (4902.T) — at about 1.5 billion euros ($2.2 billion).

Preference share holders Ducatus, ASR and ING — which together hold 19 percent of the Oce's share capital — agreed to sell their interests to Canon, while Oce shareholder Bestinver Gestion S.A. has agreed to tender its 9 guaranteed online payday loans.5 percent stake.

Analysts said the deal is positive for Canon, while potentially negative for rival Japanese copier and printer maker Konica Minolta Holdings (4902.T), which is in a business alliance with Oce.

"Konica Minolta procures high-end production printing machines from Oce, while Oce procures lower-end machines from Konica Minolta," Mizuho Securities analyst Ryosuke Katsura said.

"Chances are Canon machines will replace Konica Minolta gear in this relationship," he said.

Production printers, or digital commercial printers, are used to print such documents as product manuals and direct mail quickly and in large volume, and are a fast-growing segment of the global printer market.

Shares in Canon closed down 1.5 percent at 3,370 yen ahead of the announcement, underperforming the benchmark Nikkei average (.N225), which gained 0.2 percent.

(Reporting by Kiyoshi Takenaka and Gilbert Kreijger; Editing by Joseph Radford)

Canon to buy Dutch Oce in $2.2 billion deal

16
Nov

J.C. Penney, Disney, Genzyme are big movers

NEW YORK – The following stocks were among those that moved substantially or traded heavily Friday on the New York Stock Exchange:

NYSE:

J.C. Penney Co., up $1.82 at $31.21

The department store retailer posted a 78 percent drop in its third-quarter earnings because of a big expense for its pension plan.

Abercrombie & Fitch Co., up $3.92 at $40.68

The preppy clothing seller will add new items at lower prices and continue expanding internationally to combat declining U.S. profit.

Agilent Technologies Inc., up $1.18 at $28.61

The scientific instrument maker posted a sharply lower fourth-quarter profit, hurt by restructuring charges and a revenue decline.

Walt Disney Co., up $1.39 at $30.44

The company posted a surprise jump in profit and announced an executive job switch that might point to a successor to CEO Robert Iger payday loans for bad credit.

NASDAQ:

China Automotive Systems Inc., up 40 cents at $16.65

An analyst downgraded the company’s stock, noting that they climbed 40 percent since her Nov. 5 upgrade.

Myriad Pharmaceuticals Inc., up 53 cents at $5.81

The company reported a smaller fiscal first-quarter loss on lower research costs after it was spun off from Myriad Genetics Inc.

Genzyme Corp., down $3.89 at $49.28

Federal health regulators have found tiny particles of trash such as steel, rubber and fiber in drugs made by the biotechnology firm.

Petsmart Inc., up 97 cents at $25.67

Goldman Sachs upgraded the pet supplies retailer based on an expectation of higher sales and improved profitability.

J.C. Penney, Disney, Genzyme are big movers