Financial Crisis Is Expected To Bring More Big Shocks The year-old financial crisis is not only far from over but could actually get much worse, bringing more big shocks to the US economy and stock market, a host of experts said Monday. Among the predictions: the failure of some of the country's biggest financial institutions, the collapse of 1,000 banks and a possible government bailout of mortgage giants Fannie Mae and Freddie Mac. "I think the financial problem is halfway through the cycle," David Kotok, chairman and chief investment officer from Cumberland Advisors, told CNBC. "There's another shoe to drop ahead of us and it could be more severe."
US banks scramble to refinance maturing debt Battered US financial groups will have to refinance billions of dollars in maturing debt over the coming months, a move likely to push banks’ funding costs higher and curb their profitability, say bankers and analysts. The banks’ need to raise capital to offset mounting credit-related losses is forcing them to pay higher interest rates to entice investors. The rising funding costs are set to put pressure on earnings because, in many of their businesses, banks rely on the difference between borrowing and lending rates to make money. “It is difficult to see how banks will continue to repeat the heady profit growth of the past few years if they borrow at these levels,” said a Wall Street banker. Banks could also be forced to raise lending rates, exacerbating the credit crunch felt by many businesses and individuals and further depressing economic activity. Mohamed El-Erian, co-chief executive of Pimco, the asset management group, said: “If banks keep borrowing at these levels, you will get a repricing of credit for the whole economy.”
Bracing for Inflation Growing evidence suggests American consumers, businesspeople, and political leaders should all be bracing for double-digit inflation, probably as early as 2009. The relative price stability of the past 15 years is giving way to worsening inflation, despite the recent softening of oil prices. The Consumer Price Index for all items shows the inflation rate averaged 2.6% a year from 1992 through 2007 but has doubled since January, reaching an annual rate of 5.6% in July (BusinessWeek.com, 8/14/08). By next year, the monthly figure could hit double digits, and the inflation rate for 2009 overall could triple 2007's 2.85%. I say this not only because I have looked at a broad range of statistics that point in this direction. I also run a private equity investment firm that owns companies in a number of industries -- including restaurants, the manufacture of gardening tools, oil and gas exploration services, and distribution of entertainment products such as books and videos -- that are already being forced to pass price increases on to the consumer.
Bernanke Tries to Define What Institutions Fed Could Let Fail Ben S. Bernanke is still trying to define which financial institutions it's safe to let fail. The longer it takes him to decide, the tougher the decision becomes. In the year since credit markets seized up, the 54-year- old Federal Reserve chairman has repeatedly expanded the central bank's protective role, turning its balance sheet into a parking lot for Wall Street's hard-to-finance bonds and offering loans through its discount window to investment banks and mortgage firms Fannie Mae and Freddie Mac. The lack of clearly defined limits may put the Fed's independence at risk as Congress discovers that its $900 billion portfolio can be used for emergency bailouts that might otherwise require politically sensitive appropriations and taxes.
Freddie Mac debt sale weak, bailout concerns rise Investors dumped the stocks of Fannie Mae and Freddie Mac on Monday after Barron's reported the increasing likelihood of a U.S. Treasury bailout that would approach nationalization of the two housing finance titans. The weekly financial newspaper said such a move could wipe out existing holders of the largest U.S. home funding companies' common stock. Preferred shareholders and even holders of the two government-sponsored entities' $19 billion of subordinated debt would also suffer losses. Shares of the two providers of home mortgage funding fell more than 16 percent and some of their bonds sharply underperformed Treasuries. A spokeswoman for the U.S. Treasury said the department has no plans to use its authority to backstop the two funding agencies. That authority was greatly increased by a rescue plan approved at the end of July. "The Barron's article overstated Freddie Mac's financial situation," Sharon McHale, a Freddie Mac spokeswoman, told Reuters. "We continue to be adequately capitalized."
Dollar surge will not stop America feeling the effects of a global crunch Two alerts landed on my desk this weekend from the elite markets team at Goldman Sachs. One was entitled "The Dollar Has Bottomed!". Those betting on an imminent disintegration of American economic and political power may have to wait another cycle. Rival hegemons are falling like ninepins. The US dollar index hit an all-time low in March. It crept slowly upwards in the early summer before smashing through layers of resistance over the past month. The surge against sterling, the euro, the Swiss franc and the Australian dollar is one of the most spectacular currency shifts in half a century. "Something fundamental has changed," said the bank. Indeed. . . . . . . . . So no, this painful ordeal is far from over. We are not witnessing a dollar rally so much as a collapse in European and commodity currencies. The race to the bottom has begun in earnest.
Dollar Falls Against Yen, Euro Before Housing, Inflation Data The dollar fell from a seven-month high versus the yen before U.S. government housing and inflation reports this week that may add to speculation the Federal Reserve will delay raising interest rates. The currency also retreated against the euro, snapping a three-day advance, after crude oil advanced. The British pound slid against the euro as an industry report showed U.K. home prices dropped the most since at least 2002. "The U.S. housing slump will take two or three years to bottom out," said Kazuo Mizuno, chief economist in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan's biggest financial group by market value. "Hefty oil prices will keep buffeting the U.S., the world's largest energy consumer."
A Fabrication Bottleneck or Something More The Internet is abuzz with reports that precious metal dealers have stopped selling coins and small bars because they have run out of inventory. For example, Franklin Sanders reports on goldprice.org that his inability to purchase product from his suppliers is something that he has never seen before in his "twenty-eight years of brokering silver and gold." On Friday afternoon, Kitco posted the following notice: "Due to market volatility and higher demand in the entire industry, we are anticipating delays in supply of all bullion products." The rush out of fiat currency and into precious metals on this latest drop in prices is not just a North American phenomenon. The Times of India reports: "There is a shortage of the yellow metal in the bullion banks and traders." The bottom line is that it is difficult, if not impossible, to buy coins and small bars. Mints and refiners are back-ordered. Dealer shelves are bare. But the question is, why? Is it just a fabrication bottleneck, or is something else happening?
Morgan Stanley, Goldman Change Lending Systems Morgan Stanley and Goldman Sachs are responding to the credit crisis with a system that uses the market's view of their own creditworthiness as a basis for lending decisions, the Financial Times reported. Wall Street's second-largest investment bank Morgan Stanley is essentially tying its promise to provide financing to hedge fund clients to the price of credit insurance on its own debt, it said. If the cost of the protection rises to a certain level, that would trigger a reduction in Morgan Stanley's commitments to hedge funds, the quoted people familiar with the situation as saying.
Subprime rescue hit by second mortgages Efforts to avert foreclosures are being complicated by the large number of subprime borrowers who took out second mortgages so they could afford the downpayments on their homes, industry executives say. George W. Bush, the US president, signed a bill last month providing $300bn to help distressed homeowners refinance into cheaper mortgages backed by the Federal Housing Administration. In exchange for agreeing to a loss on the initial loan, primary lenders are guaranteed a minimum pay-out while the second mortgage would be wiped out. Second-mortgage providers are generally in a weaker position than primary lenders in a renegotiation because they hold what is known as a second lien – meaning they stand behind the primary lender in terms of their rights to seize the home.
An economic Cassandra whose predictions are coming true On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he said, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac. As Roubini stepped down from the lectern after his talk, the moderator of the event said, "I think perhaps we will need a stiff drink after that." People laughed - and not without reason. At the time, unemployment and inflation remained low, and the economy, while weak, was still growing, despite rising oil prices and a softening housing market. But Roubini was soon vindicated.
Breaking up big banks questioned as losses mount America's biggest banks have suffered unprecedented losses from the ongoing credit crisis, and that's made some investors question whether the big financial conglomerates should be broken up in order to survive. Break-up advocates, who for months have been clamoring for Citigroup Inc. to be dismantled, got some validation of their viewpoint this past week. Europe's UBS AG - created through the combination of Swiss Bank Corp. and Union Bank of Switzerland in 1997 - on Wednesday laid the groundwork to tear up its business model after another quarter of steep losses. Though the UBS announcement was expected, it was nonetheless a departure from what executives promised during a wave of big bank deals that began in the late 1990s. The creators of global banks like Citigroup, JPMorgan Chase & Co., and HSBC Holdings PLC had promised customers and shareholders that a diverse set of businesses would shield them from economic volatility.
Foreign Investors Selling Freddie, Fannie Debt While even moral hazard hawks generally agree that some sort of government intervention would be needed in the event of financial trouble at Fannie and Freddie, the most compelling reason was that the US, chronically dependent on foreign funding, would be ill advised to treat its money sources badly. Of the GSEs' $5.2 trillion in debt (their own corporate bonds plus MBS), $1.3 trillion is in the hands of foreign investors and central banks. The speed with which the powers that be cobbled together a support program was seen in some circles as an admission of the importance of reassuring our friendly overseas credit suppliers.
CFOs and CPAs Say U.S. Is in Recession, Predict Rough Year Ahead When asked about specific policies that could help to stabilize the economy, a majority of finance executives say Congress and the Federal Reserve should refrain from pumping more cash into the economy. A majority of CFOs and senior executive accountants believe the U.S. economy is already in recession and will continue its slowdown for a third consecutive quarter, according to a survey conducted by the American Institute of Certified Public Accountants. To make matter worse, the executives doubt the economy will improve in the next 12 months. "Our members are still seeing increased pressure on profits from rising costs without the ability to raise prices," Chris McKittrick, the AICPA’s director of members, said in a statement released Thursday, August 14. "Expectations for revenue and hiring are trending downward." Mark Lang, a professor of accounting at the University of North Carolina's Kenan-Flagler Business School, which helped conduct the survey, added, "The fact that firms continue to reduce planned growth in capital investment, staff development and employment is particularly troubling since it suggests that the slowdown could have long-term implications."
Gold falls to below $800 an ounce Gold fell to below $800 an ounce for the first time since December 2007 while aluminium prices hit their lowest in some six months. Copper also fell. The price of commodities has fallen on speculation that demand will slow amid a global slowdown. Another factor has been the stronger dollar, which has reached a half-year high against the euro. As economists see improved prospects for the US economy, the dollar becomes more attractive as an investment. And as the dollar becomes more attractive, particularly in times of crisis, gold has lost its lustre, as have other precious metals.
Commodity prices likely to rebound Crashing commodity prices have once again given ammunition to skeptics who believe the boom of recent years was a blip, but that view underestimates the demand and economic growth in the emerging world. Corrections are inevitable in any uptrend and the natural resources sector is no exception, say investment managers who oversee funds in all asset markets, and who have no specific interest in talking up commodity prices in particular. The caveat is a global recession, but that is unlikely given forecasts of 8 percent to 10 percent growth this year in China, the world's fourth largest economy, despite the halt in much industrial activity during the Olympic Games.
A long year of lessons for the Federal Reserve When U.S. Federal Reserve officials gathered for their annual conference in Jackson Hole, Wyoming, in August of last year, Bear Stearns shares were trading at well over $100. The Fed's benchmark interest rate was 5.25 percent, more than double where it stands now, and oil cost about $70 a barrel. Twelve months later, Bear Stearns is gone, as is about $400 billion from the balance sheets of banks worldwide. The legendary oilman T. Boone Pickens thinks the days of oil under $100 a barrel may be gone, too. Looking back at the 2007 conference in Jackson Hole provides some cringe-inducing moments. In his speech at the mountain resort, Ben Bernanke, the Federal Reserve chairman, declared that the central bank was ready to act to shield the economy from the credit crisis but would not save investors who had made bad choices. "It is not the responsibility of the Federal Reserve - nor would it be appropriate - to protect lenders and investors from the consequences of their financial decisions," he said, words that now seem to ring hollow in light of the Fed's role in rescuing Bear Stearns from bankruptcy in March. Now, Bernanke is hoping the Fed will not have to act again.
Mrs. Fields Will Seek Bankruptcy Protection $$ Mrs. Fields Famous Brands LLC, which serves up fresh-baked cookies and TCBY frozen yogurt at more than 1,200 franchises across the country, is planning to file for Chapter 11 bankruptcy protection, according to a regulatory filing. The company was trying to negotiate a restructuring agreement with its senior noteholders, but warned in June that it might have to seek protection from creditors if it couldn't complete the deal out of court. In the Securities and Exchange Commission filing, Mrs. Fields indicated it would file a prepackaged bankruptcy reorganization plan with the U.S. Bankruptcy Court in Wilmington, Del. Michael R. Ward, Mrs. Fields's interim co-chief executive, confirmed the company's plans Friday.
Wachovia to Buy Back Auction-Rate Securities Wachovia Corp. is buying back as much as $8.8 billion in illiquid auction-rate securities, but the decision should have minimal impact on the Charlotte, N.C., bank as it works its way through more-serious headaches relating to the U.S. mortgage rout, analysts said Friday. Under an agreement between the nation's fourth-largest bank by assets, the Securities and Exchange Commission, New York Attorney General Andrew Cuomo and the Missouri secretary of state, Wachovia Securities LLC and Wachovia Capital Markets LLC will buy back $5.7 billion in auction-rate securities by Nov. 28, according to the SEC. The two units will buy an additional $3.1 billion of the securities by next June, the SEC said. A person close to the New York attorney general said the buyback numbers are estimates and that Mr. Cuomo's office expects the bank to purchase $6.4 billion in November and a further $2.1 billion in June. Wachovia, which neither admitted nor denied wrongdoing, also will pay $50 million in civil penalties.
Fed's Evans Said U.S. Economy Faces Three-Front Battle The downside risks to growth have recently risen and the economy is expected to be "extremely sluggish" in 2008, according to one Fed official on Friday. Chicago Fed President Charles Evans (non-voter) said the U.S. economy faces a triple-front threat as growth risks are on the rise, inflation is "unsettlingly high" and financial markets remain in turmoil amidst depressed housing and auto markets. "Although real activity is weak, we also are simultaneously experiencing bad news on the inflation front in the form of higher energy and commodity prices. This creates the challenge of facilitating the economy's return toward more favorable growth rates without igniting greater inflationary pressures," he said in Bloomington, Illinois. "The financial turmoil and subsequent tightening of credit conditions add another dimension of difficulty to the problem," he added. Evans said the confluence of these threats have "added layers of complexity to the management of monetary policy," making the decision-making process more complicated than usual.
Top Federal Reserve Officials Predict Weak Second Half; Warn Growth May Not Return Until 2010 Two top U.S. Federal Reserve officials on Friday predicted a weak second half for the U.S. economy, warning that strong U.S. growth may not return until 2010. Atlanta Federal Reserve Bank President Dennis P. Lockhart and Chicago Fed Bank President Charles L. Evans both said the U.S. central bank is in no hurry to start raising rates while the American economy is sputtering badly because of an ongoing global financial crisis, a sagging housing market and inflationary pressures caused by a yearlong run-up in food-and-energy prices. Indeed, Lockhart even said he wouldn’t rule out actually cutting interest rates if economic circumstances warranted – a remarkable admission at a time when the economic crisis is juxtaposed over rising inflationary pressures, and when most Fed-watchers expect the central bank’s next move to be an increase in interest rates, Reuters reported. A reduction in interest rates would jump-start U.S. growth.
Jobless rate at 13-year high Florida's jobless rate spiked to a 13-year high in July, and unemployment in Palm Beach, Martin and St. Lucie counties rose sharply. Florida's seasonally adjusted unemployment rate was 6.1 percent last month, the Florida Agency for Workforce Innovation said Friday. That's the highest since January 1995, when unemployment stood at 6.5 percent. The number of jobless in Florida has nearly doubled in the past two years. In July 2006, 330,000 people were out of work, a number that rose to 604,000 last month. The pain was especially severe in St. Lucie County, which had the third-highest unemployment rate among the state's 67 counties. "It's tough," said Richard Stetson, vice president of the Workforce Development Board of the Treasure Coast. "St. Lucie County has not diversified as well as it wants to, so a lot of the community is still based on residential. With the slowdown in construction, that trickles down."
U.S. Mass Layoffs Rise to Highest Levels Since 2003 U.S. mass layoffs actions, involving 50 or more employees from a single firm, came in at a seasonally adjusted 1,534 reading in the second quarter of 2008, a 113 increase from the previous year-over-year result, the U.S. Bureau of Labor Statistics reported Friday. According to the preliminary statistics, the Bureau of Labor reports that 299,866 workers lost their jobs in the last 31 days. Both layoff events and separations reached their highest levels in the second quarter since 2003.
Ford to Take a Step To Shore Up Finances $$ Ford Motor Co. will sell as much as $500 million of its shares to buy back debt from its credit arm, a move designed to help shore up its finances after a $2.1 billion write-down attributed to declining resale values of trucks and sport-utility vehicles. The debt-for-equity exchange revealed one step, albeit small, that Ford is taking to improve its overall balance sheet after making a loss of $8.7 billion in its second quarter -- a high for the auto maker. Essentially, the company will sell the stock to buy down debt due before the year 2012 taken on by Ford Motor Credit Co., a wholly owned subsidiary. Ford Credit had a pretax loss of $334 million in the second quarter, compared with a profit of $105 million a year ago. Analysts generally viewed the development as a positive but incremental measure, saying that the stock sale wouldn't have a substantial effect on the company's liquidity position. By buying back its debt at a discount, the auto maker could, however, make a small profit.
Mitsubishi Is Said to Be Close to Deal for California Bank Mitsubishi UFJ Financial Group, one of Japan’s largest banks, is near a deal to buy the remaining part of UnionBanCal Corporation that it does not already own for about $3.5 billion, people involved in the deal said. The transaction values UnionBanCal, which owns Union Bank of California, one of the 25 largest banks in the United States, at about $10.5 billion. Mitsubishi is trying to expand beyond its relatively stagnant home market as Japanese companies seek to broaden their presence abroad and take advantage of a weaker dollar.
Dreading winter's bitter bill Heating costs are expected to climb this winter putting additional pressure on Americans already hurt by high gasoline and food prices. Home heating bills are expected to soar this winter and Americans, already struggling with high gas and food prices, are bracing for more financial hardship. On average, consumers are expected to pay $1,182 to heat their homes this year, up 20% from last year, according to recent estimates from the Energy Information Administration (EIA). But the outlook for the Northeast, where 8 million households depend on heating oil, is even more worrisome. Homeowners in the region are expected to spend an average of $2,725 on heating oil this winter. The looming spike in heating costs could pose an even more serious threat to household budgets than the high price of gas, according to Tancred Lidderdale, a senior EIA economist. "When gas prices go up consumers have options," he said. They can drive less or use public transportation. But when it comes to home heating, "households have fewer options."
Credit crunch 'still worsening' The global credit crunch shows no signs of abating, according to the International Monetary Fund (IMF). In its latest global financial stability report, the IMF says that falling house prices and slowing economic growth are hitting credit. It warns that banks are under renewed stress, and further cutbacks in bank lending could deepen the slowdown. The IMF also says that emerging markets like China may also suffer more pain in the future from the credit crunch.
Inflation Gets Right Down to the Real Nitty-Gritty Even dirt isn't dirt-cheap anymore. At your local garden center, the cheapest dirt, which often goes by the name of "premium topsoil," may cost $4.99 for a 40-pound bag, about a buck more than a year or two ago. Then there's the gourmet dirt -- the scientifically exquisite potting mixtures, soil enhancers and soil amendments, crafted from special ingredients such as peat moss, bark fines (partially composted pine bark), perlite, coconut husks, and/or "spent mushroom substrate." You can buy a bag of "Bumper Crop," for example, for $14.99 at Johnson's Florist and Garden Center in the District, up two bucks from 18 months ago. Dirt and its upmarket cousins offer a glimpse of how rising energy prices have caused inflation in the grittier corners of the consumer culture. Products that are cheap, heavy and bulky, such as bags of soil, are particularly vulnerable to rising freight costs.
US inflation fastest since 1991 US prices rose by 5.6% in the year to July, the fastest inflation rate for more than 17 years, figures show. The rate of inflation was much greater than economists had predicted, driven higher by the 30% increase in energy prices during the period. Food costs were 6% higher than a year earlier, the figures showed. The price rises are squeezing consumers further. Inflation-adjusted average weekly earnings fell by 3.1% in July compared with a year earlier.
Hershey to raise prices 11 percent The Hershey Co. said Friday it is raising prices on its products by an average of 11 percent as the nation's largest candymaker tries to stem the impact of soaring commodities costs, and trimmed its projections for 2008 and 2009. The price increase was the second already this year for the candy company known for its Hershey's chocolate bars, bite-sized Kisses and Reese's peanut butter cups. The immediate increase was necessary to offset "significant increases" in the cost of raw materials such as sugar, cocoa and peanuts - up as much as 45 percent since the start of the year - as well as the growing cost of fuel, utilities and transportation, Hershey said. "Commodity costs have been volatile over the last several years and continue to remain at levels that are well above historical averages," Hershey's President and Chief Executive David J. West said in a statement.
Weak rules cripple appraiser oversight As soaring home prices set the stage for America's great housing meltdown, a critical step in making sure those home sales were a fair deal - the real estate appraisal - was undermined from within. After the nation's last major banking disaster, Congress set up a system to catch rogue appraisers. Their game: inflating the value of homes at the direction of equally unscrupulous real estate agents and mortgage brokers, whose commissions are determined by the size of the deals. But a six-month Associated Press investigation found that the system is crippled by both the bumbling of its policemen and their inability to effectively punish those caught committing fraud. And despite ample evidence appraisers are pressured into inflating home values - sometimes to prices in support of loans that are more than buyers can afford - the federal regulators charged with protecting consumers have thus far made a conscious choice not to act. "The system is completely broken," Marc Weinberg, the former acting director at the federal agency charged with monitoring the appraisal industry, told the AP before he retired earlier this year. "It's amazing that the system ever worked at all."
The Quintessential Inflation - The Great Weimar Inflation - Germany the Early Twenties Much has been spoken about it, but few really appreciate key points, motives and reasoning. It seems that it was just excessive money, but in reality it was a constant shortage! The critical role of the velocity of money is also not understood in these situations, today. It was portrayed and possibly constructed as a financial accident, but linking the scene to that day's politics shows another picture! In understanding today's environment and the prospects for "Stagflation" and the battle to export "Deflation", understanding the Weimar Republic's hyperinflation is one of the critical lessons for Investors today.
Qwest, unions keep talking; workers remain on job DENVER (AP) -- Qwest Communications International Inc. and members of its largest union were working on scheduling time Sunday to sit down for further negotiations after a labor contract expired. The talks come a little more than a week before the start of the Democratic National Convention in Denver, where Qwest is providing phone and Internet services. Qwest also is providing service to the Republican National Convention that begins Sept. 1 in St. Paul, Minn. Workers represented by the Communications Workers of America had voted to authorize a strike if needed, but CWA organizing coordinator Al Kogler said no strike had been called when the contract expired after 11:59 p.m. Saturday.
In Most Areas, Home Values Keep Sliding The latest housing numbers from Zillow, the real estate research firm, are littered with minus signs. The data show that it may be a while yet before the housing downturn changes direction. Zillow found that nearly 24 percent of homes sold during the past 12 months sold at a loss. (That includes foreclosures.) And of those who bought homes in the last five years, 29 percent now have negative equity. Here’s another big negative: the median home value in the United States fell nearly 10 percent in the second quarter, compared with the same period the previous year. That is the biggest percentage decline since Zillow began collecting data 12 years ago. Out of 165 metropolitan areas surveyed by Zillow, 85 percent are in a declining-value zone.
Inflated appraisal nearly cost family its home After 25 years as a doorman on Manhattan's Upper East Side, Carl Petrone was ready to retire from the cold winters and his daily commute. Petrone and his wife, Marie, wanted a home someplace warm, and found it in North Carolina - a red-brick tri-level on a quiet, tree-lined street. It was bigger than their tiny place in New York and came with the right price. The home was appraised at $114,500. The real estate agents dropped the price by $6,000 to make the sale. "We thought it was a steal," Marie Petrone remembers. It was a steal - a steal from the Petrones. As the couple would discover, they were the unwitting victims of an unscrupulous appraiser and - as uncovered by a six-month Associated Press investigation - a poorly designed system unable to keep up with such dishonesty.
Illusions About Inflation THERE is widespread concern that high inflation — running at a 5.6 percent annual rate in the 12 months through July — could hurt the stock market. But this investor worry may be yet another example of money illusion: the confusion of nominal prices with their inflation-adjusted equivalent. The notion that inflation is bad for stocks appears to make a good deal of sense. What’s more, there is reason to believe that this perception — mistaken though it may be — has sometimes driven down stock prices. With inflation at 6 percent, for example, a dollar of profit that a company will earn a year from now is worth only 94 cents in today’s dollars. But if inflation were just 1 percent, as it was in early 2002, that dollar earned a year from now would be worth 99 cents today. Such differences add up, especially as investors consider a company’s earning power over many years.
China Blocks World Recession Global financial turmoil that has caused Japan and major economies in Europe to shrink will bring more pain but probably not a global recession because of the emerging star power of countries like China. Economists generally define global recession as growth in world gross domestic product that runs below a long-term trend as estimated by the International Monetary Fund. In other words, the global economy does not have to contract to be in a recession. Whether a global recession is in the offing is important because it highlights the difference between a slowdown within a broader growth cycle and something more protracted and serious. China will almost certainly get hit by cooling global demand, but after five years of double-digit growth the world's fastest growing major economy and other developing nations should contribute enough to global growth over the next few years to prevent a dip into recession territory, economists and money managers said.
U.S. pushes to expand Arctic icebreaker fleet A growing array of American military leaders, Arctic experts and lawmakers say the United States is losing its ability to patrol and safeguard Arctic waters even as climate change and high energy prices have triggered a burst of shipping and oil and gas exploration in the thawing region. In the meantime, a resurgent Russia has been busy expanding its fleet of large ocean-going icebreakers to about 14, launching a large conventional icebreaker in May and, last year, the world's largest icebreaker, named 50 Years of Victory, the newest of its seven nuclear-powered, pole-hardy ships. The U.S. National Academy of Sciences, the Coast Guard and others have warned over the last several years that the United States' two 30-year-old heavy icebreakers, the Polar Sea and Polar Star, and one smaller ice-breaking ship devoted mainly to science, the Healy, are grossly inadequate. Also, the Polar Star is out of service. And this spring, the leaders of the Pentagon's Pacific Command, Northern Command and Transportation Command strongly recommended in a letter that the Joint Chiefs of Staff endorse a fresh push by the Coast Guard to increase the United States' ability to gain access to and control its Arctic waters.
U.S. May Ease Police Spy Rules More Federal Intelligence Changes Planned The Justice Department has proposed a new domestic spying measure that would make it easier for state and local police to collect intelligence about Americans, share the sensitive data with federal agencies and retain it for at least 10 years. The proposed changes would revise the federal government's rules for police intelligence-gathering for the first time since 1993 and would apply to any of the nation's 18,000 state and local police agencies that receive roughly $1.6 billion each year in federal grants. Quietly unveiled late last month, the proposal is part of a flurry of domestic intelligence changes issued and planned by the Bush administration in its waning months. They include a recent executive order that guides the reorganization of federal spy agencies and a pending Justice Department overhaul of FBI procedures for gathering intelligence and investigating terrorism cases within U.S. borders. Taken together, critics in Congress and elsewhere say, the moves are intended to lock in policies for Bush's successor and to enshrine controversial post-Sept. 11 approaches that some say have fed the greatest expansion of executive authority since the Watergate era.
Iran launches satellite carrier Iran says it has successfully launched a rocket capable of carrying its first domestically built satellite. Officials said only the rocket had been fired, correcting state media reports that the communications satellite itself had been sent into orbit. Tehran has pursued a space programme for years, despite international concern over its nuclear plans. In February it sent a probe into space as part of preparations for the launch of the satellite. Long-held ambition Footage aired on Irinn (Islamic Republic of Iran News Network) showed the launch of the Safir rocket in darkness. The presenter said that the satellite launch was a trial which was successful. State and military officials confirmed the launch had taken place. President Mahmoud Ahmadinejad was at the event, said one report.
Washington and Poland just moved the World closer to War The signing on August 14 of an agreement between the governments of the United States and Poland to deploy on Polish soil US ‘interceptor missiles’ is the most dangerous move towards nuclear war the world has seen since the 1962 Cuba Missile crisis. Far from a defensive move to protect European NATO states from a Russian nuclear attack, as military strategists have pointed out, the US missiles in Poland pose a total existential threat to the future existence of the Russian nation. The Russian Government has repeatedly warned of this since US plans were first unveiled in early 2007. Now, despite repeated diplomatic attempts by Russia to come to an agreement with Washington, the Bush Administration, in the wake of a humiliating US defeat in Georgia, has pressured the Government of Poland to finally sign the pact. The consequences could be unthinkable for Europe and the planet. The preliminary deal to place elements of the US global missile defense shield was signed by Polish Deputy Foreign Minister Andrzej Kremer and US chief negotiator John Rood on August 14. Under the terms, Washington plans to place 10 interceptor missiles in Poland coupled with a radar system in the Czech Republic, which it ludicrously claims are intended to counter possible attacks from what it calls "rogue states," including Iran.
A Two-Sided Descent Into Full-Scale War Nine days ago, late in the afternoon of Aug. 7, Georgian tanks, artillery and infantry began moving out of bases in Georgia and toward South Ossetia, a zone long held by separatists who are backed by Moscow. About 800 troops from Georgia's 4th Battalion left a base in Tbilisi, the Georgian capital, that Thursday afternoon, according to Georgian Defense Minister Davit Kezerashvili. Later that day, units armed with the BM-21 Grad, a multiple rocket system whose World War II version was known as Stalin's Rain, moved out of their base in Gori, about 40 miles away. As the Georgian units approached the contested zone from the south, Russian army forces were massed just to its north, separated from it only by the 4,000-yard-long Roki Tunnel through the Caucasus Mountains. The Russian units were receiving intelligence reports about the Georgian movement. About 8 p.m., Russian military aircraft took off and skirted Georgian airspace, staying just outside it, according to Kezerashvili. For days, separatists and Georgian troops had skirmished along the border, but this movement of armor was a major new development. Georgia and Russia were on a collision course. In three hours, full-scale war would begin.
Russia, Pledging to Leave Georgia, Tightens Its Grip Even as Russia pledged to begin withdrawing its forces from neighboring Georgia on Monday, American officials said the Russian military had been moving launchers for short-range ballistic missiles into South Ossetia, a step that appeared intended to tighten its hold on the breakaway territory. The Russian military deployed several SS-21 missile launchers and supply vehicles to South Ossetia on Friday, according to American officials familiar with intelligence reports. From the new launching positions north of Tskhinvali, the South Ossetian capital, the missiles can reach much of Georgia, including Tbilisi, the capital. The Kremlin announced Sunday that Russia’s president, Dmitri A. Medvedev, had promised to begin the troop withdrawal in a conversation with President Nicolas Sarkozy of France, who negotiated a six-point cease-fire agreement. Mr. Medvedev did not specify the pace or scope of the withdrawal, saying only that troops would withdraw to South Ossetia and a so-called security zone on its periphery.
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