Fiscal Study

Financial panics are indeed dramatic and, for many private individuals and economic policymakers, traumatic. They are rarely of lasting significance to the fate of nations or their
currencies, however, as the prompt recovery of Korea, Mexico, and Russia from their travails a decade ago demonstrates—as indeed does the lack of any lasting impact from the United States’ closing of the “gold window” on the dollar’s standing or on U.S. economic performance, Adam S. Posen, the Deputy Director of the Peterson Institute for International Economics writes:

Though such calm is difficult to maintain while the United States experiences a panic in its many interlocking asset-backed securities markets, following years of large current
account deficits and a concurrent sell-off of the dollar against the euro, it would be a mistake to read too much into recent developments.

Read it all.

Posted by fiscalstudy at 10:59 AM | Permalink | Comments (0)

The dollar rose the most against the euro since March and reached a two-month high versus the yen as traders bet the Federal Reserve will stop cutting interest rates and the U.S. lost fewer jobs in April than economists forecast, Bloomberg reports:

The currency appreciated versus the Swiss franc, the Swedish krona and the South Korean won this week after the Fed cut the target lending rate by a quarter-percentage point on April 30 and said ``substantial'' easing since September would help foster economic growth. The euro weakened as confidence among European executives and consumers fell in April.

Read it all.

Posted by fiscalstudy at 3:05 AM | Permalink | Comments (0)

Cash may be easier to come by for banks, but lending will still be under tremendous pressure, hitting consumers, businesses and the economy as a whole, International Herald Tribune reports:

That tightness in credit could itself hit banks' assets with another round of losses, setting the stage for yet another liquidity crisis.
Investors have become more optimistic recently, and with some grounds.

Read it all.

Posted by fiscalstudy at 9:36 AM | Permalink | Comments (0)

A senior official of the Asian Development Bank said that high food prices will be a long-term trend.

"We all have to reconcile with the fact that the era of cheap food is over," ADB Managing Director General Rajat Nag was quoted by Kyodo as telling reporters in Singapore.

Read it all.

Posted by fiscalstudy at 9:58 AM | Permalink | Comments (0)

IT IS not hard to worry about the world economy. America is either in, or perilously close to, recession, and other rich economies are weakening as the credit crunch tightens. In its new forecast, the International Monetary Fund expects global growth to slow from 4.9% last year to 4.1%: rich countries will manage only 1.8%. But that could prove optimistic. Since this slowdown came from a financial bust, the outlook is particularly uncertain. Nobody knows what financial calamities lurk under the surface or by how much credit will shrink. But one thing is clear. By adopting very different stances to the threat, policymakers are not helping to assuage the uncertainty, The Economist reports:

Read it all.

Posted by fiscalstudy at 3:14 PM | Permalink | Comments (0)

IT IS not hard to worry about the world economy. America is either in, or perilously close to, recession, and other rich economies are weakening as the credit crunch tightens. In its new forecast, the International Monetary Fund expects global growth to slow from 4.9% last year to 4.1%: rich countries will manage only 1.8%. But that could prove optimistic. Since this slowdown came from a financial bust, the outlook is particularly uncertain. Nobody knows what financial calamities lurk under the surface or by how much credit will shrink. But one thing is clear. By adopting very different stances to the threat, policymakers are not helping to assuage the uncertainty, The Economist reports:

Posted by fiscalstudy at 3:14 PM | Permalink | Comments (0)

Rising incomes in Asia and ethanol subsidies in America have put an end to a long era of falling food prices:
ONE of the odder features of last weekend's vote in Venezuela was that staple foods were in short supply. Something similar happened in Russia before its parliamentary election. Governments in both oil-rich countries had imposed controls on food prices, with the usual consequences. Such controls have been surprisingly widespread—a knee-jerk response to one of the most remarkable changes that food markets, indeed any markets, have seen for years: the end of cheap food, The Economist reports:

In early September the world price of wheat rose to over $400 a tonne, the highest ever recorded. In May it had been around $200. Though in real terms its price is far below the heights it scaled in 1974, it is still twice the average of the past 25 years. Earlier this year the price of maize (corn) exceeded $175 a tonne, again a world record. It has fallen from its peak, as has that of wheat, but at $150 a tonne is still 50% above the average for 2006.

Read it all.

Posted by fiscalstudy at 9:06 AM | Permalink | Comments (0)

The International Energy Agency's World Energy Outlook 2007 paints an alarming picture of the future of global warming and energy security, reporting that the world's energy needs will increase by over 50% by 2030, The Forbes reports:

Energy demand, imports, coal use and greenhouse gas emissions have all increased since last year's accounting.

Read it all.

Posted by fiscalstudy at 10:31 AM | Permalink | Comments (0)

The elite banks financing the £11.1bn takeover of the retailer Alliance Boots may see their fees go up in smoke as an incipient credit crunch spreads though the capital markets, The Telegraph reports:

The cost of money for leveraged buy-outs has vaulted since the near-collapse of two Bear Stearns hedge funds exposed the deep rot in mortgage securities linked to the US property slump. Banks have been left holding a hot potato as they search for investors willing to stump up £9bn by the end of this week to cover the deal.

Read it all.

Posted by fiscalstudy at 5:19 AM | Permalink | Comments (0)

Oil handed back some of its early gains after surging more than $4 following an explosion at a major pipeline that interrupted crude oil imports to top consumer the United States, Reuter reports:

Prices fell from highs of more than $95 a barrel after the fire was put out, two of the pipelines affected restarted and the U.S. Energy Department offered to provide supplies from the country's Strategic Petroleum Reserve.
U.S. crude was up $2.21 at $92.83 a barrel by 1603 GMT, off a session high of $95.17. Brent crude was up $1.55 at $91.36 a barrel.

Read it all.

Posted by fiscalstudy at 12:07 PM | Permalink | Comments (0)

OPEC's finance ministers will discuss the effect of the weak U.S. dollar on oil revenues before the next meeting of the Organization of Petroleum Exporting Countries' energy ministers in December, The Market Watch reports:

The falling U.S. dollar came up as a topic at OPEC's summit meeting in Riyadh this weekend, when a proposal by Iran and Venezuela to price oil against a basket of currencies, rather than the dollar, failed, according to media reports.

Read it all.

Posted by fiscalstudy at 7:24 AM | Permalink | Comments (0)

THE rich world generously subsidises its farmers. Between 2004 and 2006, OECD countries spent an average of $280 billion annually propping up agriculture—29% of the value of farm receipts, The Economist reports:

Farmers in Norway and Iceland receive the highest subsidies at 66% of receipts; New Zealanders receive a tiny 1%. However support for farmers is on the wane. Only Turkey hands out more than it did in the late 1980s.

Posted by fiscalstudy at 4:33 AM | Permalink | Comments (0)

Can a group of banks succeed where the monetary authorities have failed? Despite the best efforts of central banks to deal with the credit crunch that took hold over the summer, some debt markets remain dysfunctional, The Economist reports:

Buyers are still on strike in an important part of the market for commercial paper (short-term corporate debt): the bit in which so-called structured investment vehicles (SIVs), which have mushroomed in recent years, borrow in order to invest in higher yielding assets. Now many of those vehicles are finding it difficult to roll over their debts and the banks that stand to lose most from their demise are scurrying for solutions.

Read it all.

Posted by fiscalstudy at 7:52 AM | Permalink | Comments (0)

Thanks to last week's events in the financial markets, we now know the price at which the world's three largest central banks, the Bank of Japan, the European Central Bank and the Federal Reserve Bank of the United States, will drop their posturings about the importance of setting good examples regarding promoting sound banking, lending and credit usage policies and put their principles up for sale, Asia Times reports:

Read it all.

Posted by fiscalstudy at 7:40 AM | Permalink | Comments (0)

Reflecting record-high oil prices, the energy sector has been the U.S. stock market's best performer over the past three and five years, and among the best so far in 2007. For subscribers wondering whether it is time to lock up profits and move out of the oil patch, our answer can be found on our buy list, Forbes reports:

The energy sector makes up 18% of our equal-weighted buy list, versus 6% for the S&P SmallCap 600 Index and 11% for the broader S&P 1500 Index.

Read it all.

Posted by fiscalstudy at 6:10 AM | Permalink | Comments (0)

It is a truism in US foreign-policy circles that China would never risk its profitable economic ties with the United States by working more closely with Russia to frustrate US initiatives around the world. But the recovery of the Russian economy has led to reinvigorated commercial ties between Moscow and Beijing. In 2006, China became Russia's fourth-largest trading partner, while Russia moved up to become China's eighth-largest partner, Asia Times reports:

Chinese Vice Premier Wu Yi and Russian Deputy Prime Minister Alexander Zhukov have called for bilateral trade between the two states to reach US$60 billion by 2010. Yes, this will still only amount to one-fifth of the value of Sino-US trade at current levels. But China is clearly going to diversify its trading options so as to reduce its dependency on US markets.

Read it all.

Posted by fiscalstudy at 11:19 AM | Permalink | Comments (0)

The United States on Wednesday moved to block a World Trade Organization investigation that stems from a Canadian complaint that the U.S. government exceeds its limits on allowable farm subsidies, CBC News reports:

Under the WTO's rules, the formation of a panel can be blocked once.
Canada took its complaint to the Geneva-based WTO earlier in June. Ottawa said that the U.S. government can provide up to $19.1 billion US in annual subsidies to its farmers, but is arguing that U.S. subsidies exceeded WTO limits from 1999 to 2002 and from 2004 to 2005.

Read it all.

Posted by fiscalstudy at 3:17 PM | Permalink | Comments (0)

IF YOUR biggest shareholder is Berkshire Hathaway, the chances are you are a firm with a future. Moody's, a rating agency in which Warren Buffett's investment company owns a 17% stake, is certainly in fine fettle. Its operating margin last year was 54%; revenue is growing at close to 20% a year, The Economist reports:

This is thanks largely to the explosion in issuance of “structured finance” products: bonds backed by mortgages, car loans and the like, as well as the derivatives linked to them. Rating these products now accounts for almost half of the firm's business. The other giant of the industry, Standard & Poor's (S&P), is also in rude health. It has helped to drive its parent company's shares up by more than 30% in the past year.

Read it all.

Posted by fiscalstudy at 5:55 AM | Permalink | Comments (0)