ENCOURAGING INFLATION
: HERESY OR THE WAY OUT OF A RUT
(G&M, Boyd Erman)
∙ Many investors
deem the currently negative CPI a blip, expecting the money printed
to prop up economies & lubricate financial markets to spark inflation.
But some influential economic thinkers, incl. Ken Rogoff, a former IMF
Director of Research & now a Harvard prof., Paul McCulley of PIMCO,
which manages the world’s largest bond fund, & John Makin of the
conservative American Enterprise Institute want central banks to
stop fighting inflation for a while on the grounds that deflation is
greater risk than inflation. For rising prices, they say, will encourage
people to spend more & inflation would help those in financial trouble
by devaluing past debts. Makin says “If it (i.e. deflation)
really gets rolling, you have a really hard time turning things around”,
Rogoff suggests a 6% inflation target for the central banks, 3x their
current ceiling, & McCulley says cash hoarding is holding back the
recovery & a higher inflation target will send a powerful message
: ‘spend your money now; it will be worth less tomorrow’
But once inflationary
expectations gain a foothold, they too are difficult to bring to heel.
CENTRAL BANKS UNITED
ON RECOVERY, DIVIDED ON INFLATION (CBSNews)
∙ Central bankers
believe the worst recession in 75 years is running out of steam. But
some worry about inflation returning. Thus the Governor of the Bank
of Korea says “The bank will also pay close attention to the possibility
... that the rapidly swelling short-term liquidity may cause instability
in asset prices” And while in Latin America interest rates were traditionally
kept high to dampen inflationary pressures, the Chilean central bank,
as GDP growth tumbled from a + 4.6% in 3Q/08 to a
- 2.1% annual rate in 2Q/09, cut its key interest rate from 7.25%
last January to 0.50% today. In both regions central bankers may be
quick to push interest rates up, however, rather than risk the appearance
of inflation.
Adversity breeds a
unity of purpose that dies once the immediate threat appears
ended.
CONFIDENCE AND
HOPE ARE RETURNING’ (G&M, Barrie McKenna)
∙ Thus spaketh White
House Economic Adviser Larry Summers. But he warned, at the Washington-based
Peterson Institute for International Economics, that the economy
emerging from the crisis must be less consumer-driven & said the
biggest job boost won’t come until late next year. Meanwhile, the
national unemployment rate is now 9½% & in 16 states it is in double
digit territory, with Michigan’s 15.2% topping the charts. NYU’s
Nouriel Roubini expects the rate to peak near 11% next year, saying
this will delay the housing rebound, push up bank loan losses, swell
the deficit & slow the pace of recovery.
The stimulus would
have had a quicker impact if it had focused on speeding up projects
already underway rather than “shovel-ready” ones. As to more
stimulus, Japan in the 90's launched ten stimulus programs,
none of which did much good. It’s like
fighting infection in the human body:
doubling the antibiotics dosage doesn’t speed up recovery
ECONOMIC FORECAST
RISES MORE THAN EXPECTED (AP)
∙ The Conference
Board’s Index of Leading Indicators rose 0.7% in June, the third monthly
increase in a row, while Wall Street had expected only 0.4%.
The Board’s spokesman
said that if this continues “expect a slow recovery this autumn.”
U.S. COMPANY FORECASTERS
LESS PESSIMISTIC (AP)
∙ The quarterly
survey by the National Association for Business Economics (NABE) of
102 corporate forecasters found fewer companies intending to cut jobs;
39% had intended doing so in January & 33% in April, the latest
number was 28% (& 18% were even contemplating new hirings, the most
in a year).
“New evidence the
U.S. recession is abating, but few signs of an immediate recovery.”
U.S. HOUSING STARTS
REBOUND (EJ, Business Browser)
∙ June’s annualized
rate was 582,000, the highest in seven months, up 3.6% from May’s
562,000. And building permit issuance rose the most in a year
While interpreted
as a signal the market is stabilizing (albeit at a low level), don’t
expect “strength to return to the housing market anytime soon”;
for with housing starts still 70% higher than new home sales, the overhang
of unsold new homes ain’t going away.
JOBLESS CLAIMS
UP MORE THAN EXPECTED (AP)
∙ They rose 30,000
to 554,000, 4,000 over the forecast. But the 6.2MM jobless total was
the lowest in three months (although inclusive of those on ‘extended
benefits’ it was 9.1MM).
Not long ago
they were over 650,000 new jobless claims a week
(but economists still think it will take
300,000-350,000 to herald the return
of a healthy economy.
COMMERCIAL LAND
DOWN 35% (EJ, Business Browser)
∙ On July 20th
Moody’s reported US commercial property prices in May were down 7.6%
MoM & 28.5% YoY, bringing the total decline off the peak to 35%;
for the recession is forcing landlords to accept lower rents & funding
is scarce.
More warnings
are being heard that commercial real estate will be the next shoe to
drop.
A STRONG HEALTH
CARE REFORM BILL (NYT, Editorial)
∙ While the Senate
is still trying to find its way [in part due to the powerful Chairman
of the Senate Finance Committee, Sen. Max Baucus (D.-Mont.) insistence
on a bipartisan solution] the House has moved towards solving the
healthcare issue. The bill before it would require all Americans to
have health insurance & all businesses but the very small to provide
health insurance for their workers or pay big fees. It would expand
Medicaid to cover more poor people & subsidize (private)
health insurance for middle class Americans. The CBO estimates that
by 2015 97% of all residents other than illegal immigrants would
be covered at a cost not much over US$1TR over 10 years, half of it
paid for by savings on Medicare & the rest by an income surtax on
American families with incomes of > US$350,000 & individuals
making > US$280,000. While some say it’s unfair to have so few
people bear the brunt of its cost, the wealthy have benefitted disproportionately
from the Bush tax cuts & their incomes have risen disproportionately
in recent years. This bill also makes a mockery of Republican (&
industry) claims the Democrats are pushing a costly government takeover
of medicine.
It would
likely boost the demand for private sector coverage than erode it.
If its cost were indeed US$100+BN/year, that would be
‘chump change’ relative to the
size of the Federal Budget & the
nation’s US$2+BN annual outlay on healthcare. And
its opponents are just as duplicitous
as those in Canada warning of the evils of
a “two-tier system” while their, & their family’s,
health care needs have been well-secured.
DEMOCRATS BEGINNING
TO BALK AT OBAMA (AP)
∙ While his general
approval rating has dropped to 57% &, among Democrats by 10 points
to 82%, he remains relatively popular. But even his staunchest supporters
would like to see his agenda to start bearing more fruit more visibly
although some say people shouldn’t expect the economy to turn on a
dime & that he to is keen to see results. According to one Democrat
strategist hardcore Democrats are as enthusiastic as ever but there
is disappointment among independents & less committed Democrats;
for “People are scared ... (and) the fear is turning to disappointment
that the president hasn’t fixed everything yet.”
Obama
in the past couple of years has displayed
considerable ability to develop apprpriate
long-term strategies & stay ‘on message’. With his eyes on the
2012 Presidential election, he may have written off the 2010 mid-term
elections in a way Democrat incumbents cannot. Hence his push to get
key legislation through forthwith.
INDUSTRY CASH FLOWED
TO HEALTH-REFORM SENATORS (WP, Dan Eggen)
∙ Sixth term Sen.
Max Baucus (D.-Mont.), Chairman of the Senate Finance Committee (&
a key figure in the healthcare reform debate), has been the leading
recipient of contributions from medical interest groups hoping to influence
the legislation - nearly US$1.5MM in 2007 & 2008 [although to avoid
any appearance of favoritism, he has begun to refuse contributions from
healthcare PACs (political action committees) but continues to accept
contributions from lobbyists & corporate executives]. According
to the Center for Responsive Politics the sector donated nearly US$170MM
to federal lawmakers in 2007 & 2008, with 54% going to Democrats
(& in the first three months of this year Democrats collected 60%
of the US$5.4MM donated by healthcare companies & their employees).
And Baucus isn’t alone : the Committee’s ranking Republican, Sen.
Charles E. Grassley (R.-Iowa), received over US$2MM from the health-&
insurance sectors since 2003, House Ways and Means Committee Chairman
Charles B. Rangel (D.-NY) US$1.6MM in the past two years, and its ranking
Republican, Dave Camp (R.-Mich.) nearly US$1MM.
The industry deems
him “more of a centrist and moderate Democrat than others.”
ISRAEL REJECTS
U.S. CALL TO HALT JERUSALEM PROJECT (AP)
∙ Israel’s Ambassador
was summoned to the State Department on Saturday July 17th
& told the 20-building, 200 apartment complex in East Jerusalem
funded by Florida bingo millionaire Irving Moskowitz recently approved
by the Jerusalem municipality for the site of the Shepherd Hotel, shouldn’t
go ahead. But Prime Minister Netanyahu told his Cabinet two days later
there will be no limits on Jewish construction anywhere in “unified
Jerusalem”
Interesting that Obama
would go head-to-head with the once all-powerful Jewish lobby.
AMAR : US SETTLEMENT
POLICY CONTRAVENES TORAH (JP, Matthew Wagner)
∙ In a letter to
the American rabbinical organizations & the Conference of Presidents
of Major American Jewish Organizations Israel’s Chief Sephardic Rabbi
Shlomo Amar calls on American Jews to tell the Obama Administration
that “the Torah commands the Jewish people to live in Israel”. And
he says we hear the US is putting pressure on the Israeli government
to prevent Jews from living or building their homes in large parts of
the Land of Israel.”
Living in
‘gated communities’ as a privileged class may not
be what the Torah envisages
ISRAELI PRIME MINISTER
VOWS TO KEEP FENCE ON WEST BANK (China Daily)
∙ He said in a televised
parliamentary session on July 22nd, in response to rumours
that the Palestinians are exerting pressure on Washington to have it
removed, that it won’t be since it constitutes a “critical component”
of Israel’s security.
By all appearances
it has cut the number of suicide bombings. Still, the International
Court of Justice in 2004 ruled it “contrary to international law”,
not in general principle but because of its location on occupied-, rather
than Israeli-, territory.
IRAN’S ELITE
CORPS A POWER ONTO ITSELF (NYT, Michael Slackman)
∙ The Islamic Revolutionary
Guards Corps was founded 30 years ago as an ideologically-driven militia
serving Iran’s Islamic revolutionary leaders. Today it has 130,000
members, its own armed forces & intelligence branch independent
from the much bigger national military & its finances are ‘off-balance
sheet’, i.e. free from Parliamentary oversight. It is controls Iran’s
missile batteries & nuclear program and runs a multi-billion business
empire that runs the gamut from laser eye-surgery clinics through car
manufacture, road building and oil & gas field development to black
market smuggling. It has flourished under President Ahmadinejad &
its aggressive response to events since his June 12th re-election
led one expert on Iran to proclaim “It is not a theocracy any more
... It is a regular military security government with a facade of a
Shiite clerical system.” Its leaders are contemptuous of the reformers
& those wanting to engage with the West but, more significantly,
also of the now elderly clerical revolutionaries, like
former President Ayatollah Ali Akbar Rafsanjani, who worked with, &
beside, Ayatollah Ruhollah Khomeini.
It reminds one of
the role played by the SS in Hitler’s Third Reich.
AHMADINEJAD’S
VICE PRESIDENT CHOICE REJECTED (CD)
∙ Iran has 12 vice-presidents.
Among them the First Vice President is ‘primus inter pares’ since
he chairs Cabinet meetings in the President’s absence. Before the
June 12th election Resfandiar Rahim Mashai, Ahmadinejad’s
son’s father-in-law, was the vice president responsible for tourism
& culture. On July 17th Ahmadinejad named him First Vice
President, only to informed very publicly by the Supreme Leader on July
22nd to rescind that decision.
Mashai upset
many hardliners in 2008 by declaring
“Iranians are friends of all people - even Israelis.” Ahmadinejad
slow response in the first 48 hours suggests a possible tug of war behind
the scenes, & a shift in power, from the clerics to the Revolutionary
Guard (which would be in line with the Shiite tradition
of a separation between church & state).
CHINA’S STOCK
MARKET ON COURSE TO ECLIPSE U.S.’s (Reuters)
∙ The capitalization
of its stock market is US$3.2TR, vs. America’s US$10.8TR. But Mark
Gobius, who at Templeton Assets Management Ltd. oversees the management
of US$25BN in emerging markets’ assets, expects it to surpass the
US market in three years as state-owned entities plan huge IPOs &
1.4BN Chinese put more money in equities.
Recently it edged
past Japan as the world’s second largest equity market after the Shanghai
Index YTD rose 75% vsthe Nikkei’s 7%. And the Chinese authorities
recently announced plans for a second, NASDAQ-style board in Shenzshen
for ‘imaginative and smaller companies’. But since China’s
recovery has been fueled by Beijing pushing the banks to lend even more
recklessly than usual, some people fear that
a possible day of reckoning could throw a spanner into Gobius’
model.
CHINA STATE CONSTRUCTION
TO RAISE CNY 50.16 BILLION FROM IPO (WSJ)
This will in one fell
swoop boost the size of the Chinese equity market by almost 2½%.
Its size is the equivalent of a US$25BN IPO in the US, about 40 % greater
than the largest-ever US IPO (by Visa in March 2008). And this is only
the fourth largest IPO in China in the past three years!
SUPPORTERS RALLY
IN TURKEY AS GENERALS GO ON TRIAL
(Reuters, Thomas Grove)
∙ Two retired four-star
generals, one a former army commander, went on trial on July 20th
on charges of planning an coup (which would have made it the fifth since
1960). The ruling AK party in 2002 ended the secularists’ decades-long
grip on power & now has a huge majority in Parliament. Its supporters
see this as part of a move to assert political control over the military
(in line with EU-demanded political reforms before Turkey could be considered
for membership) while the country’s educated
secularist elite claims the party only pays lip service to the secularist
principles on which Ataturk founded the modern Turkish state following
WW I, & sees this as an move to replace them with Islamic ones.
The army has long
considered itself the guardian of the Kemal Pasha Ataturk heritage,
a successful army commander prior to, during & after WW I.
STRAWS IN THE WIND
∙ Honda Motor Co.
Ltd is bringing back overtime in its Japanese operations & scheduling
Saturday shifts in order to meet the demand for its small cars.
Its big bet on
‘green vehicles’ seems to be paying off.
-o-o-o-o-o-o-o-o-o-o-o-
H1N1 PREYS ON YOUTH,
FIGURES SHOW (G&M, Caroline Alphonso)
∙ The latest figures
show the median age of Canadians infected is 18 (& among the Inuit
only 9) & of those hospitalized 21. The outturn of the pandemic
has thrown much of the experts’ emergency planning into a cocked hat.
They had planned for a variety of the H2N2 bird flu, or maybe even a
new strain, say H7 or H8, not a variant of the H1N1 flu that killed
50MM people in 1918. They had expected it to be hardest on old
people but have been astounded by the ferocity with which it has attacked
the young & healthy, the pregnant & the aboriginal population
(among whom by some accounts the infection rate is as much as 10x
that in the general population). While they had assumed it would
first turn up in a small village in, say, Indonesia, it first reared
its ugly head in a small town in Mexico. They had thought it would first
hit BC & then spread slowly Eastward, giving Central Canada &
the Maritime provinces precious time to take countermeasures (although
it is hard to understand how any common sense person would do so given
the current state of rapid transnational & intercontinental mass
travel). They planned for it to be over & done with in three
months (although not ruling out its return the following flu season)
while it has lingered on, & even seems to be accelerating, in the
Northern Hemisphere well past the traditional end of its flu season
.
The experts still
maintain their planning served a purpose, if only to sensitize health
professionals to the guiding principle of always expecting the unexpected
& the need to be on the lookout for anomalies like antiviral resistance,
changes in the virus or more need for hospitalization
(since then, on July 21st, a 60-year old man
in Québec became the fourth case worldwide
of Tamiflu-resistant swine flu (the others occurred in Danmark, Australia
& Hongkong), but was successfully treated with another anti-viral
drug (his resistance is suspected to have been due to
him being given Tamiflu as “a precautionary measure”
after his son contracted the disease.
