Joined Feb 3, 2009
1,759 Blog Posts
Initial Claims: Prior 570k / Mkt Expects 565k / Actual 570k … ISM Services: Prior 46.4 / Mkt Expects 48 / Actual 48.4
By Shobhana Chandra
Sept. 3 (Bloomberg) — U.S. service industries shrank at a slower pace in August, adding to evidence the economy is starting to pull out of the worst recession since the Great Depression.
The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, rose to 48.4, exceeding forecasts and the highest level in 11 months, from 46.4 in July, according to the Tempe, Arizona-based group. Readings below 50 signal contraction.
Federal Reserve efforts to unlock credit and government measures such as the “cash-for-clunkers” incentive program are reviving demand and may help the economy grow this quarter. Nonetheless, rising unemployment and the hangover from a record drop in wealth will limit the consumer spending needed to fuel a lasting rebound.
“The economy has entered a period of recovery, but this isn’t going to be a consumer-led recovery,” Joseph Brusuelas, a director at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. “Consumer spending will not look better until the unemployment rate stabilizes and hiring picks up.”
Economists forecast the index would rise to 48, according to the median of 71 projections in a Bloomberg News survey. Estimates ranged from 45 to 51.
Jobless Claims
A report earlier today showed more Americans than anticipated filed jobless-benefit claims last week, indicating companies remain focused on cutting expenses even as the recession eases. Applications fell by 4,000 to 570,000 in the week ended Aug. 29, exceeding the 564,000 median forecast in a Bloomberg survey, figures from the Labor Department showed. The total number of people collecting unemployment insurance rose.
The ISM’s non-manufacturing employment gauge rose to 43.5 from 41.5 the prior month, and the index of new orders rose to 49.9 from 48.1. Both measures were the highest since last September. A measure of new export orders rose to 54 from 47.5, while the index of prices paid rose to 63.1, the highest in 11 months, from 41.3.
Categories in the survey include utilities, healthcare, housing, transportation and finance and insurance.
An ISM report two days ago showed manufacturing expanded in August for the first time in 19 months, helping lead the economy out of the downturn. The group’s factory index rose to 52.9, posting its biggest two-month gain since 1983.
Cash-for-Clunkers
Ford Motor Co.,Toyota Motor Corp. and Honda Motor Co. led U.S. auto sales to the first year-over-year gain in August since 2007 as the cash-for-clunkers rebates lured shoppers to showrooms.
Ford, Toyota and Honda all reported more August deliveries than a year earlier, while General Motors Co.,Chrysler Group LLC and Nissan Motor Co. fell. The industry total rose 1 percent from August 2008 to 1.26 million, according to data compiled by Bloomberg.
Insurers may benefit from the trade-in program, which could yield as much as $375 million in premiums as drivers pay more to protect new cars, said Robert Hartwig, president of the New York-based Insurance Information Institute.
Housing is getting support from tax credits for first-time buyers, low interest rates and drops in prices due to a glut of foreclosed properties on the market. Combined sales of new and existing homes in July climbed to the highest annual rate since November 2007, the month before the recession began.
Retailers
Some retailers also are seeing a shift.
Tiffany & Co., the world’s second-largest luxury-jewelry seller, said second-quarter profit fell less than analysts estimated on higher-than-expected sales and lower expenses. The New York-based company raised its annual profit forecast.
Meanwhile, job losses continue. The Labor Department may report tomorrow that the unemployment rate rose to 9.5 percent in August after dipping the month before.
Joblessness may reach 10 percent by early 2010, economists surveyed by Bloomberg predict.
Dollar Tree Inc., the U.S. retailer of items priced $1 or less, reported second-quarter profit that exceeded analysts’ estimates and boosted its full-year forecast as more shoppers sought cheaper household basics.
“Our traffic is up substantially,” Dollar Tree Chief Executive Officer Bob Sasser told analysts on a conference call last week. “We’re seeing new customers.”
Comments »Business Headlines – September 3, 2009
Shares of global gold miners jumped 10 percent Wednesday while options activity in the companies spiked, as economic pessimism and a weak U.S. dollar spurred gold to its highest level since June.
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Gold futures rallied above $980 per ounce Wednesday, up from $955 an ounce late on Tuesday, as weak U.S. private-sector jobs data and Tuesday’s sharp drop in equity markets shook investors’ confidence in the economy and prompted a flood of safe-haven gold buying.
A weak U.S. dollar and expectations of further greenback losses also helped, analysts said.
“I think the realization that the economy is not as robust as everybody thinks has the classic hedges resurfacing,” said John Ing, president of gold-focused Toronto investment dealer Maison Placements.
Gold briefly topped $1,000 an ounce in February, but has been locked in a rough $910-$960 range in the past three months. Gold bulls have maintained that billions of dollars in U.S. stimulus spending will lead to soaring inflation, thus pressuring the greenback and boosting the metal.
Canada’s Barrick climbed C$3.29 to C$41.93 on the Toronto Stock Exchange, while top U.S. gold miner Newmont rose $3.72 to $43.90 in New York.
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Rates Expected To Rise Quickly When They Turn the Corner
The Federal Reserve will have to raise interest rates as aggressively as it cut them when it becomes clear the economic recovery has taken hold, to avoid flaring up inflation, Charles Plosser, president of the Philadelphia Fed, told CNBC in an interview.
Analysts have been worried that the various stimulus programmes and money-printing around the world will cause devaluation and price rises, and some European officials have suggested that all stimulus measures be pulled out at once to prevent that.
The Fed has an exit strategy, which it will apply when needed, Plosser said.
“Our exit strategy is really quite simple: we have to begin to pull back from our extraordinary programs, we have to begin to shrink our balance sheet, otherwise we will feel inflation in the months and years ahead,” he said.
For the next few quarters inflation is not a problem but it may become so later unless the Fed orchestrates its exit carefully, according to Plosser.
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“We have the tools to do that, the question is will we be able to discern the appropriate time and the timing of that to do it in a way that will head off any future inflation,” he said. “And that may mean raising interest rates very rapidly, at least as aggressively as we cut interest rates, if the time is right.”
Asked whether rate rises are likely in 2009, Plosser said “probably not.” About the possibility of hikes next year, he said “we’ll have to wait and see how the recovery evolves.”
The US economy is in transition from a period of very sharp contraction to an expansion and it will be helped by improved growth overseas, which will boost exports, as well as by renewal of depleted inventories, which will boost factories’ output, Plosser predicted.
“Gradually over the course of the next few months I expect the good news to become more dominant and I’m looking for some growth in the second part of this year,” he added.
The commercial real estate sector, where lowering valuations can end up affecting the banks, and unemployment, which is a lagging indicator, are the biggest clouds overshadowing the recovery, according to Plosser.
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DUBAI, UAE, September 3 /PRNewswire/ —
– Citibank Teams up With Virgin Megastore for Exclusive Card Benefits
Citibank and Virgin Megastore have partnered to give Citibank customers constant excitement and rewards! A leading international bank and the foremost international entertainment retailer will work together to bring a host of exciting promotions including concerts, gaming tournaments and shopping sprees at Virgin Stores in Ramadan and Christmas exclusively for Citibank customers……
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Flash Back – What May Be Priced In
This morning’s Breakfast with Dave is another good one. Rosenberg discusses the ISM, car sales, housing, and most importantly “What’s Priced In?”
Yesterday was an exclamation mark on just how much is priced in because ISM surged to 52.9 (see more below) and pending home sales soared 3.2% MoM (best level since June, 2007, no less) — though construction spending in June did dip 0.2% as declines in nonresidential and public construction overwhelmed the recovery in the residential sector. And there was also the news that global chip sales rose in July for the fifth time in as many months — by a ripping 5.3% (though still down 18.2% YoY). Not only was the stock market down 2.2% yesterday, but it was on higher volume to boot (+19% on the NYSE) — distribution days are never very good signposts.
As everyone knows, we have been very busy working hard to identify what the markets are discounting in terms of future economic growth and came to the conclusion months ago that the equity rally in particular was leapfrogging the outlook. It’s one thing to price out the recession, which is what a 20% rally suggests, but once you surge over 50% from any low the market is usually in year two of the recovery phase. Even if the economy does better than we think it is capable of, the reality is that the stock market has discounted a whole lot of growth — from our lens, two year’s worth. We can debate the macro outlook, to be sure, but the market does look now as though it is going to sit and wait for the fundamentals that have been priced in to come to fruition.
From a purely technical standpoint, which is beyond our purview but must be addressed since so much of the bear market rally was technically-based, a 50% retracement would imply a corrective phase to 840-850 on the S&P 500, which would imply that the market is back to pricing in a 2.0% growth trajectory for the coming year (precisely where the corporate bond market is in terms of its embedded outlook for growth).
Presently, it is still unclear whether or not we are going to necessarily undergo this correction — so many times in this bear market rally buyers have come in after the type of giveback we have endured, which has been just 3.2% thus far from the 1,030.89 interim peak on August 27. A break below the most recent low of 979.73 back on August 17 would probably be very meaningful in this sense, and again, what is different this time is that we just came off a week with some new information — Mr. Market is no longer rallying on good news. And, this is exactly what the tell-tale sign was back in 2002, when after a huge rally, the S&P 500 failed to rise on the day that the ISM broke above 52.0 as it did yesterday (when the March 2002 data were released on April 1 of that year) — that was an early sign to take profits because the market slid more than 30% over the next six months.
Similarly for the bond market, it would be critical for the yield on the 10-year note, now at 3.37%, to “take out” the interim July 10 low of 3.32% — if that happens, a break towards 3.00% is very probable.Besides the VIX index being at its highest level since July 9, Baa spreads have stopped tightening and have widened back to levels seen a month ago. High-yield spreads have widened roughly 50bps from their recent tightest levels of just three weeks ago and are back to where they were at the end of July — when the S&P 500 was at 987. Keep your eyes on the credit market — it tends to “lead” equities.
ISM – A HISTORY LESSON
The ISM came in above expected at 52.9 in August, up from 48.9 in June and has risen now for eight months in a row after hitting bottom at 32.9 last December. This is the best result since October 2007.
The proverbial fly in the ointment is the fact that there still appears to be no sign of any renewed inventory cycle taking hold — in fact, at 34.4, the subindex is suggestive of continued de-stocking on the part of manufacturers. The last time the ISM production component was at 61.9, employment was at 54.3 (8 points above where it is today) and inventories were 48.1 (14 points higher than they are today).
It still seems as though the story is one of a rebound in auto production, which had sunk to levels that were well below even the depressed quarter-century lows in vehicle sales before the Cash-for-Clunkers gave spending activity a near-term boost.Next question comes down to what is priced in. The fact that the equity market sold off is a clear sign that a super-sized ISM index had been priced in long ago even as the economists went ga-ga over the prospect that it was heading for a 50+ print.
The current landscape is eerily similar to what happened in late 2001 and early 2002 when green shoots were everywhere and the Nasdaq rallied over 40% and the S&P 500 by over 20%. Back then it was all about autos — 0% financing and a massive production runup: Auto sales soared at a 65% annual rate in 4Q of 2001 and in the first quarter of 2002 we saw auto production ramp up at nearly a 20% annual rate and that kick-started real GDP to a 3.5% annual rate. According to the consensus, the recession was over and a V-shaped recovery was under way. Well, it was half-right. The lesson learned was recessions that are followed by listless recoveries do not end bear markets in equities. We also learned that inventory improvement that is not backed by higher final demand results in an economic relapse — who exactly believed at the start 2002 when the ISM index was surging above the 50 threshold that we would finish the year with 0% GDP growth and the stock market struggling at new cycle lows? The consensus is early 2002 for fourth quarter growth was 3.6% and ended up f-l-a-t.
The reason we think it is important to talk about this is because it was precisely at this point in the brief ISM cycle in late 2001/early 2002 that the S&P 500 peaked — at 1,170 even though the index had three months to go before peaking out. And the decline was serious — down 34% and the falloff in bond yields to the lows was 230 basis points.
There’s lots more in Rosenberg’s four-page article about the ISM, Housing, the FHA, and historical comparisons. The most important take-away is “Keep your eyes on the credit market — it tends to “lead” equities.”
I had similar thoughts in Corporate Bond Spreads Key To Continued S&P Rally.
I have been meaning to do a followup post on credit spreads, and will try and get to that later this week.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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Asian Markets Trade Slightly Higher With China Leading the Way
By Shani Raja
Sept. 3 (Bloomberg) — Most Asian stocks advanced as gold prices climbed and after Alcoa Inc. said Chinese demand for aluminum will increase this year. Japanese carmakers fell as U.S. employers cut more jobs than forecast.
Newcrest Mining Ltd., Australia’s largest gold miner, climbed 7.7 percent after the metal climbed the most in more than five months yesterday. Aluminum Corp. of China Ltd. gained 7.3 percent in Shanghai. Honda Motor Co., which gets 45 percent of its revenue in North America, dropped 2.4 percent in Tokyo.
Five stocks advanced for every four that declined on the MSCI Asia Pacific Index, which added 0.1 percent to 112.57 as of 3:29 p.m. in Tokyo. The gauge has climbed 60 percent from a five-year low on March 9 on speculation the global economy is recovering. The rally has lifted the average price of stocks on the index to 1.5 times book value, close to an 11-month high.
“The economic data has caught up to where the market was,” said Stephen Halmarick, Sydney-based head of investment- markets research at Colonial First State, which holds about $115 billion. “For the equity market to really move on again, you need the next stage to take place, which is a more sustained recovery and better profitability.”
China’s Shanghai Composite Index climbed 4.6 percent, and Hong Kong’s Hang Seng Index gained 1 percent. Taiwan’s Taiex index advanced 0.9 percent. Japan’s Nikkei 225 Stock Average fell 0.6 percent.
U.S. Payrolls
Dainippon Sumitomo Pharma Co. rose 1.2 percent in Tokyo amid plans to buy a U.S. drugmaker. Murchison Metals Ltd. climbed 8.4 percent in Sydney after the Australian iron-ore producer increased its estimate of the size and value of a key mine. Kawasaki Kisen Kaisha Ltd., Japan’s third-largest shipping line, fell 1.8 percent after Nomura Securities Co. downgraded the stock.
Futures on the Standard & Poor’s 500 Index added 0.3 percent. The gauge lost 0.3 percent yesterday as a survey by ADP Employer Services showed businesses reduced payrolls by 298,000 in August, while economists had forecast a drop of 250,000…..
European Markets Trade Flat to Down; Brussels Ends Up Being the One Bright Spot
By Daniela Silberstein
Sept. 3 (Bloomberg) — Stocks in Europe and Asia rose and U.S. index futures gained as Alcoa Inc. said Chinese aluminum demand will increase and investors speculated the contraction in American service industries slowed.
Europe’s Dow Jones Stoxx 600 Index added 0.4 percent to 231.39 at 10:18 a.m. in London, snapping three days of declines. The gauge has slumped 2.6 percent this week on concern that a six-month rally has outpaced the prospects for earnings and economic growth. The regional measure is valued at 48.6 times profit, the highest level since June 2003, according to weekly data compiled by Bloomberg.
The MSCI Asia Pacific Index added 0.2 percent today. China’s Shanghai Composite Index surged 4.8 percent, the biggest rally since March, on speculation regulators will adopt measures to boost equities following declines in the past month.
Futures on the Standard & Poor’s 500 Index climbed 0.5 percent. The benchmark gauge for U.S. equities slid for a fourth straight day yesterday, the longest losing streak since May, as reports on job losses and factory orders spurred concern that the economy is struggling to recover.
By ALEX KENNEDY p {margin:12px 0px 0px 0px;}
SINGAPORE (AP) – Oil prices rose toward $69 a barrel Thursday in Asia as mixed U.S. crude inventory data shed little light on demand.
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Benchmark crude for October delivery was up 64 cents at $68.69 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract Wednesday settled unchanged at $68.05.
The U.S. Energy Department’s Energy Information Administration on Wednesday said crude inventories fell 372,000 barrels last week, while analysts had expected a drop of 1.9 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.
However, gasoline inventories fell by 3 million barrels, a steeper decline than analysts had expected.
“There’s a mix of good news and bad news,” said Clarence Chu, a trader with market maker Hudson Capital Energy in Singapore. “That’s why the market will likely trade in a range of $65 to $75 this month.”
Trading volume in Asia was light Thursday ahead of the Labor Day holiday weekend in the U.S., Chu said.
The growth of Chinese crude consumption will likely help push prices higher over the next year, a Morgan Stanley report said.
Chinese oil consumption has risen to 43 percent of U.S. demand, up from 16 percent in 2000, while by 2024, China will likely be the world’s largest oil market, the report said.
Morgan Stanley expects oil to average $85 a barrel in 2010.
In other Nymex trading, gasoline for October delivery rose 0.74 cent to $1.82 a gallon and heating oil gained 0.99 cent to $1.76 a gallon. Natural gas was steady at $2.72 per 1,000 cubic feet.
In London, Brent crude was up 45 cents at $68.11.
By Kanoko Matsuyama and Tom RandallSept. 3 (Bloomberg) — Dainippon Sumitomo Pharma Co. will buy Sepracor Inc. for $2.6 billion, gaining a U.S. sales force and experimental treatments in the world’s biggest drug market.
Dainippon agreed to pay $23 a share, 28 percent more than Sepracor’s $18.03 closing price on Sept. 1, the companies said in a statement today. Marlborough, Massachusetts-based Sepracor will become a wholly owned unit of Dainippon after the all-cash transaction is completed, they said.
Japanese pharmaceutical companies have spent more than $12 billion since 2008 buying U.S. rivals, taking advantage of the yen’s 26 percent gain against the dollar in the past two years to expand in the $291 billion U.S. prescription-drug market. Osaka-based Dainippon, a unit of Japan’s second-biggest chemical company, said the acquisition will add to earnings per share in the year starting April 2011….
South Korea’s Economy Grows Quicker Than Expected
By Saeromi Shin
Sept. 3 (Bloomberg) — South Korea’s economy expanded in the second quarter at a faster pace than initially estimated, driven by consumer spending and business and construction investment.
Gross domestic product grew 2.6 percent from the previous three months, compared with the July 24 estimate of 2.3 percent, the Bank of Korea said in Seoul today. The economy shrank 2.2 percent from a year earlier, compared with the previously published 2.5 percent decline.
“The revision shows private demand is actually picking up, and growth is not just driven by government support,” said Kwon Young Sun, a Hong Kong-based economist at Nomura Holdings Inc. “I believe the current upswing will continue as there’s room for more factory output amid lean inventory.”
The benchmark Kospi stock index has gained 43 percent this year and the currency 1 percent against the dollar, the third- best performer among Asia’s 10 most-traded currencies excluding the yen. Exporters including Samsung Electronics Co., Hyundai Motor Co. and LG Electronics Inc. boosted profits last quarter as South Korea, China and Singapore led a regional rebound.
South Korea’s economic expansion in the three months to June 30 is its fastest since the fourth quarter of 2003.
Private consumption advanced 3.6 percent from the first quarter, compared with a 3.3 percent expansion in the initial GDP report, due to increased spending on goods such as cars….
China Warns on Shortages of Rare Earth Minerals
By Bloomberg News
Sept. 3 (Bloomberg) — China said supplies of dysprosium and terbium, minerals needed to make hybrid cars and televisions, may be inadequate for its own needs, adding to concerns that the largest producer of rare earths may further cut exports.
China, accounting for more than 90 percent of global rare- earth output, “may not have enough supply” of the two minerals as demand increases, Wang Caifeng, deputy director-general of the raw materials department at the Ministry of Industry and Information Technology, said today.
Surging production of hybrid cars and music players such as Toyota Motor Corp.’s Prius and Apple Inc.’s iPod have driven up demand for rare earths. China has cut export quotas to shore up prices and ensure domestic supplies, though there will be no ban on exports of the elements, Wang said today.
“The rest of the world has become a little concerned” about possible export bans from China, said Judith Chegwidden, managing director at London-based Roskill Information Services Ltd, an industry research group. “Dysprosium is increasingly used in permanent magnet motors in hybrid cars like Prius or wind turbines. Demand is growing fast.”
China has about half of the world’s reserves of rare earths, a range of more than 15 elements such as scandium and lanthanum. The government started to curb output and exports in 2006 as prices dropped, and Zhao Shuanglian, deputy chief of China’s Inner Mongolia province yesterday said the country may stockpile elements in a strategic reserve.
That could force companies to broaden their search for other suppliers.
Toyota Alternatives……
Australia’s Trade Deficit Widens
By Jacob Greber
Sept. 3 (Bloomberg) — Australia’s trade deficit widened in July as exports fell and imports of oil and consumer goods rose.
The shortfall swelled to A$1.56 billion ($1.3 billion) from a revised A$538 million in June, the Bureau of Statistics said in Sydney today. The median estimate in a Bloomberg survey of 17 economists was for an A$880 million gap.
Central bank Governor Glenn Stevens left the benchmark interest rate unchanged at a 49-year low of 3 percent this week to spur domestic demand as the global recession erodes exports such as farm goods. Imports jumped the most in almost a year in August after the government distributed A$12 billion to households this year.
There is “firm domestic demand, which has strengthened owing to the significant amount of fiscal stimulus injected into the economy in recent years,” said Helen Kevans, an economist at JPMorgan Chase & Co. in Sydney.
The Australian dollar traded at 83.42 U.S. cents at 12:32 p.m. in Sydney from 83.40 cents just before the report was released. The two-year government bond yield rose 1 basis point to 4.41 percent. A basis point is 0.01 percentage point.
Exports fell 1 percent to A$20.04 billion in July, today’s report showed. Farm shipments dropped 4 percent and tourism earnings declined 1 percent.
Imports rose 4 percent to A$21.6 billion, the fastest gain since October 2008. Oil imports jumped 21 percent and consumer goods gained 2 percent.
Economic Growth
Rising imports add to evidence the nation’s domestic economy is strengthening as the government spends A$22 billion upgrading schools, railways, roads and ports…..
Australia’s Service Industry Shrinks Less Than Expected
By Jacob Greber
Sept. 3 (Bloomberg) — Australia’s services industry contracted in August at a slower pace amid rising consumer and business confidence.
The performance of services index gained 3.9 points to 48, Commonwealth Bank of Australia and the Australian Industry Group said in Sydney today. A figure below 50 indicates the sector is contracting.
Central bank Governor Glenn Stevens left the benchmark interest rate at a half-century low of 3 percent this week to stoke economic growth that unexpectedly accelerated in the second quarter at the fastest pace in more than a year. Gross domestic product expanded 0.6 percent from the previous quarter, when it gained 0.4 percent, a report showed yesterday.
“The services sector continued to improve in August,” said Australian Industry Group Chief Executive Heather Ridout. “While the improvement is welcome, it’s not clear whether the expansion in activity will survive the winding down of government stimulus, let alone a rise in interest rates.”
Today’s report, which is based on a poll of about 200 companies, is similar to the U.S. non-manufacturing ISM index.
It measures sales, new orders, deliveries, inventories and employment for companies such as banks, real estate agents, insurers, restaurants, transport firms and retailers to compile the overall performance of services index.
Pilgrims Pride May Get Pulled Out of Banruptcy
By JEFFREY MCCRACKEN and LAUREN ETTER
Brazilian beef giant JBS SA is set to announce as soon as next week the acquisition of Texas-based Pilgrim’s Pride Corp. for a price of roughly $2.5 billion, say people familiar with the matter. The deal would pull the second-largest chicken company in the U.S. out of bankruptcy court and shake up the global meat business.
Bloomberg News
If the JBS deal for Pilgrim’s Pride advances, the new company would create a stronger rival to Tyson Foods. Above, the Brazil company called itself ‘The world’s largest meat producer’ after it acquired Swift & Co. in 2007.
The deal was in the final stages of negotiation Wednesday and could fall apart. But if it moves ahead as expected, it would create a new US. rival to Tyson Foods Inc., the biggest U.S. meat company that produces beef, chicken and pork. Combined, Pilgrim’s Pride and JBS’s U.S. unit — which includes sales at the JBS business in Australia — would have posted about $20 billion in revenue last year. Tyson’s fiscal 2008 revenue was $27 billion.
A JBS-Pilgrim deal would probably attract scrutiny from U.S. antitrust enforcers, who have said they plan to take a hard look at competition in the agriculture business. Any deal is sure to raise concerns across U.S. farm country. Some ranchers and chicken farmers are worried that greater concentration in the industry could decrease their power in the market and translate into lower prices for their animals in the long run.
Representatives for JBS and Pilgrim’s declined to comment…..
SEC Fumbles Madoff Scam Allowing Him To Commit Fraud For 16 More Years Than Needed
By KARA SCANNELL
WASHINGTON — The Securities and Exchange Commission botched numerous opportunities to uncover Bernard Madoff’s Ponzi scheme, in part because of an inexperienced staff and delays in examinations, said an SEC inspector general report.
The report, an executive summary of which was released on Wednesday, provides the most-detailed, strongest criticism to date of the agency’s failure to uncover the multibillion-dollar scheme. The release of the findings comes as the SEC is seeking to rebuild its credibility.
According to the report, the SEC received six warnings about Mr. Madoff’s trading business over 16 years, but failure of staff to follow up adequately — including to determine whether trades were executed when Mr. Madoff said they were — and poor communication within the agency’s divisions enabled him to continue his scheme.
Mr. Madoff confessed to the scheme in December and is serving a 150-year prison sentence.
The investigation found no evidence that the SEC staff had been influenced by Mr. Madoff or any of his family members. A senior SEC examinations official was dating Mr. Madoff’s niece during part of that period and is currently married to her, sparking speculation that Mr. Madoff’s firm may have gotten a break.
SEC Chairman Mary Schapiro said on Wednesday that missing the fraud “is a failure that we continue to regret.” She has taken some steps to address the SEC’s problems, including recruiting a new enforcement director, who is implementing substantial changes to how the agency operates. Ms. Schapiro has also proposed rules aimed at tightening regulatory holes that Mr. Madoff had taken advantage of.
Sen. Charles Grassley (R., Iowa) called the SEC’s failures “further evidence of a culture of deference toward the Wall Street elite at the SEC.” He said, “Until that culture is transformed, the SEC will not be the tough cop on the beat that the public needs.”……
OECD Says We Have Reached The End To Global Recession
By Brian Love
PARIS (Reuters) – The global recession is coming to an end faster than thought just a few months ago and may already be over, according to forecasts published by the Organization for Economic Co-operation and Development on Thursday.
The recovery may even prove a little stronger than previously predicted, OECD chief economist Jorgen Elmeskov told Reuters in an interview where he elaborated on the forecasts for several key economies.
“Compared with expectations a few months ago, we now have a recovery which … may be coming a little earlier and it may be slightly stronger because financial conditions have improved more rapidly than we assumed a few months ago,” Elmeskov said.
The OECD forecasts show a third-quarter return to expansion of economic output, as measured by gross domestic product, in the United States and the 16-country euro zone, led by its two largest economies, Germany and France.
The forecasts showed an annualized expansion of 1.6 percent in the United States in the third quarter, 0.3 percent in the euro zone and 1.1 percent in Japan, and were generally more optimistic than the last update in June.
The pickup that started with a “quite dramatic turnaround” in China and other Asian emerging market economies in the second quarter remained heavily dependent on government stimulus and ultra-low interest rates across the world, Elmeskov said.
The OECD’s 30 member countries do not include rising powers such as China but do include the long-industrialized ones where the trouble began in 2007 as the credit and housing boom in the United States turned to bust, triggering a crisis in banking and financial markets that infected the real economy.
TURNING POINT FOR G7
While it predicted continued third-quarter contractions in Britain and Italy, and a rise followed by a fourth-quarter dip for Japan, the OECD said the broad picture for the G7 group of industrialized powers was better.
The forecasts, including information up to Sept 2, show the euro area turning positive in both of the last two quarters of 2009 after five straight quarters of contraction.
In June, it predicted quarter-on-quarter shrinkage of 1.1 and 0.5 percent respectively in the third and fourth quarters on an annualized basis. It now expects 2 percent growth in the fourth quarter. The previous forecasts for the United States had been zero and 0.5 percent — now upped to 1.6 percent and 2.4 percent respectively.
The OECD is still predicting GDP contractions for 2009 as a whole across the G7 group, primarily because of a particularly bad first half, despite the improvement now in the pipeline.
But it sees annualized GDP rises of 1.2 and 1.4 percent in the third and fourth quarters for the G7 as a whole, also signaling an exit from recession at that level.
“In some countries including the United States it also looks as if the bottom of the housing market might have been hit a little earlier than assumed,” Elmeskov said, noting a rise in house sales and a drop in the “overhang” of unsold homes.
DON’T PULL THE PLUG YET Continued…
