Monday, March 06, 2006

3/6: Fair, honest, responsible news Real estate slowdown, emerging markets risks

"FHRN" is a regular feature which gives links and excerpts from selected recent key stories, followed by my bold italicized comments. Also see 3/11 "Digests of my previous posts for busy people," link, which gives blog's core ideas. Thanks.

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3/6 AP "Housing Slowdown Ripples Through Economy" link "David Seiders, chief economist for the National Association of Home Builders..."The biggest fear I have is investor-owned units coming back on the market in large numbers," he said."
3/3 MSNBC "How a housing downturn could roil economy" link "Other economists are not so optimistic. Mark Zandi, chief economist of, predicts that prices will be flat nationally over the next two to three years and said values could fall by 10 percent or more in perhaps a dozen major markets, including Miami, San Diego and Phoenix."

FHRN: Two good round-ups of recent developments in a key sector that show that market has been slowing and the boom is over, but not that the sky is falling, yet. To me, it still seems too early to guess the ultimate end-game of the ongoing slowdown.

3/6 Bloomberg "Emerging Markets Sold Record $231 Bln of Debt in 2005, BIS Says" link "the most [debt sold in 2005] in at least 10 years, as borrowing costs fell. The amount issued jumped 52 percent from 2004. Bonds rallied across emerging markets each of the past three years as a growing global economy, a surge in commodity prices and debt buybacks strengthened their credit quality."

FHRN: Current record low yield spread on emerging market debt raises questions. Are emerging markets another huge bubble in the midst of a blow-off top (e.g. Russia's Economy Minister recently said link "We are very afraid that a so-called bubble is being created," with the Russian stock market up 83% in 2005, 30.5% in the first two months of 2006.). And how might emerging markets react if the U.S. economy and stock market were to slow in the second half--very poorly as in the past, or will they be less negatively affected due to structural changes in the global economy, includng China's rise?

3/7 Reuters "Stronger data may mean more rate hikes: Fed's Poole" link "The U.S. economy has a "great deal of momentum" and the Federal Reserve may have to raise interest rates further, especially if growth exceeds expectations, one of its top policymakers said on Monday."

FHRN: This article and the next are on the ongoing, well-telegraphed baby steps of the nearly two-year global central bank tightening cycle. A recent study link showed that financial markets paid much attention in 2005 whenever St. Louis Fed Pres Poole spoke, so his comments here should be noted.

3/6 Bloomberg "BOJ May Shift Policy This Week on Signs That Deflation is Over" link "Japan's central bank may change policy for the first time in five years this week by reducing the cash it makes available to the banking system, a precursor to raising interest rates from near zero."

FHRN: Speculators watching Bank of Japan closely for end of "quantitative easing," i.e. their unlimited "free money" source for their global "carry trades." (See good 2/22 Bloomberg article link.)

3/7 MarketWatch "Huge mergers among phone giants may be near end of line" link "After a decade of deal-making, the phone industry is running out of buyers and sellers....Beyond those companies, the pickings are slim. Most major phone companies already have been snapped up, the most recent being the old AT&T, MCI and Nextel Communications. Some of the potential targets, however, could present regulatory, technological or financial hurdles and may not come to fruition."

FHRN: M & A and private equity deals have been very strong the past two years, with record cash flows burning a hole in corporate America pockets as spending on "organic" growth lags during this business cycle. At some point, a limit is going to be reached on trying to buy growth through deals. Then what, more spending on R&D, capex and employment, at the expense of record profit margins? For now, Wall Street enjoys huge M&A, LBO fees. Split up the old phone company monopoly, then put the pieces back together.

3/4 USA Today "Vintage Buffett" link "Too often, executive compensation in the U.S. is ridiculously out of line with performance. That won't change, moreover, because the deck is stacked against investors when it comes to the CEO's pay."
3/4 CNNMoney "Buffett: caution ahead" link "CEOs today can receive a bigger payout for being fired than "an American worker earns in a lifetime of cleaning toilets.""

FHRN: I haven't always agreed with everything the world's second wealthiest man has said, not that he's noticed. :-) But I've always liked Buffett's honest comments through the years on derivative risks (see important 2/28 warning by NY Fed Pres Geithner link) and unwarranted executive compensation, not that Wall Street has ever listened to history's most successful investor on either issue. Here's the link to the pdf full "Berkshire Hathaway Inc. 2005 Annual Report," including Buffett's always informative and entertaining "Chairman's Letter." For those interested in a "respectable," if long overdue, academic debunking of CEO excesses, see "Pay without Performance: The Unfulfilled Promise of Executive Compensation," at link (the reader reviews might be sufficient for most).

3/6 Morgan Stanley "Globalization's New Underclass" link "Billed as the great equalizer between the rich and the poor, globalization has been anything but. An increasingly integrated global economy is facing the strains of widening income disparities -- within countries and across countries. This has given rise to a new and rapidly expanding underclass that is redefining the political landscape....As different as the problems are in the US and China, there is no economic issue in either country that hits the political hot button like income disparities. And with both countries suffering from relatively high degrees of inequality, neither can be expected to backtrack insofar as the political response is concerned."

FHRN: Next to last but not least, thanks to the indomitable Roach for not forgetting that there is a real world of 6.5 billion real people, one of the few on Wall Street who still gets that, imho. Perhaps Buffett's comments about executive compensation provide Roach a little badly needed covering fire. Link for article on recent World Bank report on how malnutrition is both stunting childhood growth and global economic development, "Malnutrition the worst scourge for developing countries: World Bank."

3/6/06 Independent Institute "Nuclear Assistance to India: Building a Future Menace?" link "the misguided goal of building up a democratic India as an Asian counterweight to a rising autocratic China. Underlying the Bush administration’s strategic embrace of India is the “democratic peace theory”—the premise that democracies don’t go to war with each other. This theory is widely held in the popular imagination and among the U.S. foreign policy elite, including that of the Clinton and George W. Bush administrations, but is of questionable validity."

FHRN: Article's author has good credentials link and a libertarian view. India nuclear deal seems like part of Bush effort to "contain" China's "peaceful rise." I'm experimenting with articles on geopolitical subjects, strongly avoided on most economic, financial sites. Imho, a too narrow focus that excludes geopolitics isn't always most realistic when it comes to subjects as U.S.-China economic relations and energy prices.