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Monthly Archives: May 2011

Why Christine Lagarde should never be head of the IMF

Christine Lagarde is in pole position. Having put her name forward last week, the silver-haired French finance minister may well become the new managing director of the International Monetary Fund (IMF).

Lagarde has, with a depressing inevitability, secured the backing of most European countries. The UK was among the first to endorse her. There are rumours the mighty US could soon throw its weight behind Lagarde – making her bid a fait accompli.


The Baseline Scenario: The Problem With Christine Lagarde

By Simon Johnson

Ms. Christine Lagarde, French finance minister, is the nominee of the European Union for the recently vacant position of managing director at the International Monetary Fund.  The EU has just over 30 percent of the votes in this quasi-election; the US has another 16.8 percent and seems willing to keep a European at the fund if an American can remain head of the World Bank.  It should be easy for Ms. Lagarde to now travel round the world engaging in some old-fashioned horse trading, along the lines of: Support me now, and I or the French government will get you something suitable in return, either at the IMF or elsewhere.

The contest to run the IMF seems over before it has even really begun.  But Ms. Lagarde has a serious problem that may still derail her candidacy, if there is ever any substantive, open, or transparent discussion of her merits.  There is major design flaw in the eurozone and Ms. Lagarde is the last person that non-European governments should want to put in charge of helping sort that out.


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Arizona Land Sells for 8% of Price Calpers Group Paid at Peak

A 10,200-acre (4,100-hectare) desert site in Arizona sold for $32.5 million this week, five years after a group with investors including the California Public Employees’ Retirement System paid $400 million for the land.

Arcus Property Solutions LLC, a private-equity fund with about $100 million under management, paid cash for the property in Goodyear, about 60 miles (97 kilometers) southwest of Phoenix, said Kent Kleinman, a spokesman for the Gilbert, Arizona-based company. The site, now called Amaranth Land LLC, had been planned for a 42,000-home community by the Calpers- financed group when it was purchased in 2006.

The deal shows how property investors are taking advantage of a plunge in values after the real estate bubble burst in Arizona. A group of lenders, led by Goldman Sachs Group Inc. (GS), seized control of the Amaranth site in 2009 after the bust halted development, said Jeff Garrett, owner of Garrett Development Corp., the land’s manager after the foreclosure.

“Five, six years ago, people were spending $200 million or $300 million or $400 million,” Garrett said in a telephone interview. “This just sold for about eight cents on the dollar.”


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Ireland to Have Tin Cup in Hand Again

“(Reuters) – Ireland may have to ask for another loan from the European Union and International Monetary Fund because it will struggle to return to debt markets to raise funds next year, a government minister said on Sunday.

In comments to The Sunday Times newspaper, Transport Minister Leo Varadkar became the first cabinet member to cast doubt in public on Ireland’s ability to raise cash on the bond market because of punishing yields demanded by investors.

“I think it’s very unlikely we’ll be able to go back next year. I think it might take a bit longer … 2013 might be possible but who knows?” Varadkar was quoted as saying.

“It would mean a second program (of loans from the EU/IMF),” he said. “Either an extension of the existing program or a second program. I think that would generally be most people’s view.”

Full article

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IWCC: Copper Consumption to Slow by 50% in the Next 18 Months

“Global demand growth for copper is expected to slow to 8.4 percent in 2011-12, slowing substantially from the average growth of 16.4 percent between 2005-2010, the International Wrought Copper Council (IWCC) said.

China’s demand for the red metal, used extensively in the electrical manufacturing, construction and power sectors, is expected to grow by 7 percent this year, down from a double-digit growth in 2010, the general secretary of the International Wrought Copper Council Mark Loveitt said on Sunday.

The IWCC, which represents copper fabricators such as wire and tube makers worldwide, said the short-term outlook for copper remains uncertain as high prices were encouraging end-users to run down their inventories. Consumers were also reluctant to hold unnecessary inventories.

Prices at current levels have also prompted end-users in some sectors to either substitute copper with aluminium or to use smaller and thinner components, Loveitt said at an industry conference in Shanghai.

On China, which accounts for about 40 percent of global consumption, Lovevitt said it was uncertain if the world’s largest consumer would undergo a large-scale restocking in the second-half of this year…..”

Full article

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Saudi Arabia Gets a New Neighbor

This is not a good story for oil or our thinly stretched military…..

While only one town is claimed to be taken by Al Qaeda the whole Suni / Shia kettle is boiling over everywhere in the middle east.

Full article

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Marc Faber:”Technical Recession For China Within a Year”

“Pretty interesting commentary from Marc Faber in this Bloomberg video, considering he is usually a mega Asian bull.  While his terminology for a recession is different than what is commonly used (two quarters of negative GDP growth) we saw what even a mild slowdown in China did post 2008 Olympics spending spree.   If this comes to bear, the impact on the commodity market would be of course enormous as China is the world’s marginal buyer of everything, dominating some markets to the tune of 50% of all global purchases.  Ironically lower commodity prices would be helpful to the strained U.S. consumer, but I don’t think the stock market would be looking that far ahead.  Anyhow, just one man’s opinion but someone I enjoy listening to. His indicators of why he is seeing bubble activity on the ground in China are also quite interesting.

As for the Chinese market? It’s not acting well at all lately.”

Full article and video

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Australian Business Council Proposes a Carbon Tax

“The Business Council of Australia said a carbon tax should be implemented gradually, starting at A$10 ($10.70) a metric ton to limit the financial impact on households and businesses.

The group, made up of chief executive officers of Australia’s top 100 companies including BHP Billiton Ltd. (BHP) and Rio Tinto Ltd. (RIO), said that businesses should initially receive full compensation for the tax to ensure Australia’s policy to price greenhouse gas emissions doesn’t affect trade and investment. The council made its proposals in a submission to the government yesterday.

Australia, which burns coal to generate more than 80 percent of its electricity, plans to impose a price on greenhouse gas pollution starting July 2012 in preparation for a trading system that could begin as early as 2015, Prime Minister Julia Gillard said in February.”

Full article

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Alwaleed: “We don’t want the West to go and find alternatives,” ….”an oil price of $70 to $80 a barrel is in the best interests of Saudi Arabia “

“Prince Alwaleed bin Talal said an oil price of $70 to $80 a barrel is in the best interests of Saudi Arabia because it diminishes the urgency in the U.S. and Europe to develop alternative energy sources.

“We don’t want the West to go and find alternatives,” Alwaleed, a nephew of Saudi King Abdullah, said in an interview on CNN’s “Fareed Zakaria GPS,” scheduled for broadcast tomorrow. “The higher the price of oil goes, the more they have incentives to go and find alternatives.”

The rebellion in Libya, political turmoil in Bahrain and speculative buying are responsible for driving oil prices to more than $100 a barrel, Alwaleed said. Crude for July delivery rose 36 cents to settle at $100.59 a barrel on the New York Mercantile Exchange yesterday. Prices have increased 35 percent in the past year.”

Full article

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S & P Performance After Memorial Day

“This weekend marks the unofficial beginning of summer, so CNBC.com looked at how the stock market has historically performed leading up to Memorial Day and during the months that follow.

Wall Street

In the past 20 years, the major U.S. indices have been, on average, relatively flat in the week prior to Memorial Day. In recent years, however, they have been slightly negative.

A week after Memorial Day, all three indexes posted a gain, with the NASDAQ showing the biggest average gain, up 1.42 percent.

Within a month, those gains fizzled for the S&P 500 and Dow, both turning negative returns. And in recent years, those losses have accentuated, down about 2 percent or more…….”

Full article

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US says China yuan undervalued, but not manipulated

* US Treasury says China yuan “substantially undervalued”

* US-China Business Council says backs Treasury decision

* Analyst says currency report becoming a “minor joke” (Adds quotes from report)

By Doug Palmer

WASHINGTON, May 27 (Reuters) – The U.S. Treasury Department ruled on Friday China was not manipulating its currency to gain an unfair trade advantage, but said Beijing still needs to allow the yuan to rise much faster in value.

Although the Obama administration has often used blunt language to warn China over its currency practices, the semiannual report issued by Treasury on Friday maintained its practice of avoiding the harsher step of naming it a currency manipulator.


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Fitch cuts Japan credit rating outlook to negative

(Reuters) – Ratings agency Fitch on Friday cut its outlook on Japan’s sovereign debt, warning that the vast cost of a March earthquake and tsunami and the still-unknown bill for the clean-up after the nuclear disaster would further strain the country’s already shaky public finances.

The Fitch move means all three major ratings agencies now have their fingers poised on the trigger to downgrade Japan’s credit status unless they see moves by the government to strengthen the country’s finances.

Fitch cut its outlook to negative from stable and affirmed its AA minus local currency rating, its fourth highest and the same level as S&P’s but one notch below Moody’s Aa2.

“A stronger fiscal consolidation strategy is necessary to buffer the sustainability of the public finances against the adverse structural trend of population aging,” Andrew Colquhoun, head of Fitch’s Asia-Pacific Sovereigns team, said in a statement.


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Trade Dispute Threatens Key Deals worth 13bln in US Exports

WASHINGTON—The centerpiece of the American trade agenda—a trio of international trade pacts worth $13 billion in new U.S. exports—is in peril as Democrats and Republicans battle over a program that provides aid to U.S. workers.

The dispute over the future of the 50-year-old Trade Adjustment Assistance program, which provides benefits to American workers displaced by foreign competition, is putting pending free-trade pacts with South Korea, Colombia and Panama in jeopardy by pulling them into the contentious debate over federal spending.

The Obama administration and Democrats in Congress want the TAA program renewed. Some Republicans question its value and say it should be scaled back to narrow the deficit.

The delay caused by the congressional sparring means it is now virtually impossible to pass the South Korea agreement before a trade pact between Korea and the European Union takes effect July 1. That will put a wide range of U.S. industries at a competitive disadvantage.

Just a few weeks ago, the administration saw the TAA battle as surmountable. Now, unless lawmakers reach consensus soon, the trade pacts won’t pass before the August recess, congressional aides say. After that, chances of passage grow slimmer as the 2012 election nears and lawmakers avoid controversial votes.


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Police Fire Upon Peaceful Protesters in Spain

“Police just cleared the protest camp on the Plaça de Catalunya in Barcelona, firing rubber bullets at protesters and hitting indiscriminately (videos here!).

Information is still sketchy (if you’re in Barcelona, please give us an update!) but it appears that riot police have just cleared the peaceful protest camp at Plaça de Catalunya in Barcelona with force.

At least 43 are reported to have been treated for injuries, although actual numbers are likely to be higher.

Video footage shows police beating away indiscriminately at protesters sitting on the ground. Reports say police even fired rubber bullets to disperse a small group of protesters that peacefully resisted eviction.”

Full article

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