Wall Street is hot on stocks in 2012, but its forecasts can miss. Pros and cons for buying
NEW YORK (AP) -- The good news is that Wall Street experts think stock prices will rise more than 10 percent next year. The bad news is that they expected big gains in 2011 and got nearly zero instead.
It's forecasting time on Wall Street, and once again the pros are trying to predict the unpredictable. History suggests their target price for stocks by the end of 2012 will prove too high or too low. They might even get the direction wrong — predicting a gain when there's a loss.
As Yogi Berra said, "It's tough to make predictions, especially about the future."
In typical times, guessing where stocks will end up in a year is difficult. There are many assumptions about economic growth, inflation and consumer spending that go into the calculation.
Now, forecasting has become nearly impossible. Big unknowns hang over the market as rarely before. Will the euro break up? Will China slow too sharply? Will squabbling in Washington scuttle the economic recovery?
"Normally, you wonder, How will sales do? How are managements doing?" says Howard Silverblatt, senior index analyst at Standard & Poor's, which puts out its own forecasts. "Now there are so many high-level issues that affect the market."
Silverblatt's firm says the S&P 500 index should rise to 1,400 by the end of 2012, up more than 10 percent from Friday's close of 1,265. That figure is an average of expectations from investment strategists, economists and other big thinkers. More bullish yet are stock analysts focused on individual companies. Add up their price targets for each stock in the index, and they see it rising to 1,457, up 15 percent.
There's plenty of reason to think stocks will rise fast in the coming year. U.S. companies are generating record profits. Americans are spending more than expected and factories are producing more. The job market finally appears to be healing, too.
The odds of the U.S. slipping into another recession have fallen since the summer, when the economy had slowed.
Stocks seem attractively priced, too. The S&P 500 is trading at 12 times its expected earnings per share for 2012. It typically trades at 15 times, meaning stocks appear cheaper now.
Binky Chadha, chief strategist at Deutsche Bank, says the S&P 500 could hit 1,500 by the end of 2012, a gain of more than 18 percent. Still, there is worry amid the bullishness.
Michael Hartnett, chief global equity strategist at Bank of America-Merrill Lynch, expects the S&P to close next year at 1,350, up 6.7 percent from Friday's close. He thinks the U.S. will avoid recession and U.S. companies will generate decent profits.
What could wreck that prediction is a worse situation in Europe than he is expecting. If European leaders move too slowly to solve their government debt crisis, the region could fall into a deep recession and throw the U.S. into one, too. If Europe tanks, profits will drop sharply and push the S&P down to 1,000, he says. That would be a sharp drop of 21 percent from Friday's close.
The frightening part is that Hartnett gives this "bear" case four-in-10 odds.
Similarly, Barry Knapp, strategist at Barclays Capital, predicts the S&P will rise to 1,330 next year. But he expects Europe's struggles with its debt and Washington gridlock could lead investors to sell before they buy. He says the S&P could fall to 1,150 by the middle of the year before rising to his target.
It could drop sooner. In the first three months next year, Italy needs to sell national bonds to raise money to pay holders of $172 billion worth of old ones coming due. The risk is that investors will demand high interest rates to buy the new bonds, and that will spread fears of a possible default. After Italy was forced to pay unexpectedly high rates in a bond auction earlier this month, stocks fell hard around the world.
"The crisis could become systemic," says Athanasios Vamvakidis, head European currency strategist at Bank of America-Merrill Lynch. "That would threaten not only Europe, but the whole global recovery."
One solution is to invest in companies selling goods that people need in both good times and bad, such as drugs and food. If the economy falls into recession, profits of these companies are less likely to collapse.
In 2011, these so-called defensive companies bucked the flat market. Stocks of utility companies have risen almost 15 percent through Friday. Healthcare and consumer staples were each up 10. Standouts include insurer UnitedHealth Group Inc., which has risen 42 percent, and Kraft Foods, up almost 20 percent.
Then again, you might do better investing in the opposite kind of companies, like makers of toys and other consumer discretionary goods. Their profits tend to zoom up and down with the economy.
A report from S&P Capital IQ notes that stocks of cyclical companies such as these tend to gain the most after market drops like the one in October, when stocks fell nearly 20 percent.
In the five times that the S&P 500 has fallen between 15 percent and 25 percent since 1978, consumer discretionary stocks have risen an average 30 percent in the next six months, according to S&P. Those stocks are up 16 percent since their Oct. 3 lows.
One reason it's difficult to guess future stock prices is that figuring out where the economy is heading isn't so easy either.
In December 2007, economists expected the economy to grow an average 2.4 percent in 2008, according to a survey of three dozen of them by the Federal Reserve Bank of Philadelphia. It shrank 0.3 percent instead. For 2009, they forecast the economy would shrink 0.8 percent. It shrank 3.5 percent.
Economists were more accurate the next two years, though not by much. Now they say the economy will grow 2.2 percent next year.
A few mutual fund managers say people aren't skeptical enough about forecasts. In a recent letter to their investors, the folks who run Castle Focus, a $43 million fund, say hopes of big profits may be dashed given all the economic uncertainty. The fund had 28 percent of its assets in cash in September, its latest report.
Most funds are doing the opposite and investing cash. The average stock mutual fund had just 3.5 percent of its assets in cash in October, according to a report from the Investment Company Institute. That is the nearly the lowest level since the firm started keeping records 25 years ago.
Maybe fund managers have been listening too much to bullish stock analysts. For the record, the same analysts surveyed by S&P who expect a 16 percent stock jump next year were optimistic about 2011, too. A year ago, they called for the S&P to rise 9 percent.
It still may, but the odds are long and time is running out. As of Friday, the index was up 0.6 percent for the year.
John Maynard Keynes
Tuesday, December 27, 2011
Wednesday, December 21, 2011
Fed proposes rules to tame Wall St risk-taking
Business Times - 21 Dec 2011
WASHINGTON - The Federal Reserve proposed new rules on Tuesday to restrain risk-taking by the largest US banks as it tries to make the financial system more resilient against future crises.
The proposal, required by the 2010 Dodd-Frank financial oversight law, includes new capital and liquidity rules for the largest banks that would roll out in two phases and not likely go further than international standards.
The plan issued on Tuesday closely follows statements the Fed has made in recent weeks to calm Wall Street concerns that US standards may be more aggressive than those of other nations, putting US banks at a disadvantage.
Some analysts were hoping the Fed would provide more details in its proposal and that in many areas it simply echoed the law, leaving the specifics for later.
'This is pretty much a book report on the Dodd-Frank bill,'said Paul Miller, a bank stock analyst at FBR Capital Markets.
The Fed said both the capital and liquidity requirements would be implemented in two phases.
The first phase would rely on policies already issued by the Fed, such as the capital stress test plan it released in November.
That stress test plan will require banks with more than US$50 billion in assets to show they can meet a Tier 1 common risk-based capital ratio of 5 per cent during a time of economic stress.
The second phase for both capital and liquidity would be based on the Fed's implementation of the Basel III international bank regulatory agreement.
That standard brings the Tier 1 common risk-based capital ratio requirement to 7 per cent, plus a surcharge of up to 2.5 per cent for the most complex firms.
'They're basically following the guidelines from Basel on the capital buffer. There were really no big surprises,' said Gerard Cassidy, bank analyst at RBC Capital Markets.
One area still unclear is how much the surcharge will be for banks that are above US$50 billion in assets, but are not in the group of eight institutions considered globally systemic. A Fed official told reporters they have yet to make a decision on the issue, but if these banks eventually face a surcharge, it will likely be a small amount.
The KBW Bank Index of stocks closed up 4.1 per cent, a slight gain over where it was prior to the Fed's release.
The rules, once finalised, will apply to all banks with more than US$50 billion in assets, including Goldman Sachs Group, JPMorgan Chase & Co and Bank of America.
Most large US banks already meet the Basel III requirements scheduled to fully go into effect in 2019.
For its liquidity requirements, the Fed is waiting on the Basel Committee on Banking Supervision to flesh out its own liquidity recommendations before setting out US requirements.
The central bank said it initially would hold US banks to a qualitative liquidity standard.
Under the Fed plan, banks would have to assess, at least once a month, what their liquidity needs would be for 30 days, for 90 days, and for a year, during a time when markets are stressed. They would be required to have enough liquid assets to cover 30 days of operations under these circumstances.
The proposals released on Tuesday are aimed at ensuring that financial firms have enough capital and liquid assets on hand to weather a future financial crisis. During the 2007-2009 crisis, taxpayers put up US$700 billion to bail out the financial system, partially through capital injections into banks.
Three months of lobbying
The rules will be out for public comment until March 31, 2012, giving Wall Street time to argue that being forced to keep so much cash on hand it will hurt lending and the economic recovery.
Executives, including JPMorgan Chief Executive Jamie Dimon, have complained that regulators are littering the financial landscape with rules, without properly analysing their economic impact.
A Fed official on Tuesday said the agency does not have an estimate on how much the capital and liquidity standards will impact US economic growth.
But he said the net benefit to the financial system outweighs the cost to Wall Street and any short-term decrease in credit availability.
The rules proposed will not only apply to the largest US banks. They will also cover any financial firm the government identifies as being important to the functioning of financial markets and the economy.
The government has yet to decide which non-banks, such as insurance companies and hedge funds, meet this standard.
When such companies are designated, the Fed said it may'tailor' the rules, which were drafted mostly with banks in mind, to better fit that particular company or industry.
The law also requires the Fed to write tougher standards for foreign banks with operations in the United States. Fed officials said on Tuesday they would release those proposals soon, and that they would apply to about 100 firms.
UNTANGLING THE BANKS The Fed rules also try to limit the dangers of big financial firms being heavily intertwined. It would limit the credit exposure of big banks to a single counterparty as a percentage of the firm's regulatory capital.
The credit exposure between the largest of the big banks would be subject to an even tighter limit. A bank with more than $500 billion in consolidated assets could not have a credit exposure of more than 10 percent to another bank of that size.
'I would be surprised if it caused anybody to change their financing arrangements,' said Dwight Smith, a partner at Morrison & Foerster LLP in Washington. 'This requirement is not going to force anybody to get smaller.' Further, the Fed proposal requires banks to bolster their capital if it appears they are heading into trouble, such as being overexposed to risky assets.
The rule outlines four phases of this 'remediation' process that a bank or other large financial organization would go through if it hits certain triggers signalling weakness.
If a bank does not bounce back after following through on requirements such as a capital boost, the regulators could then restrict dividends, compensation, or even recommend the institution be seized and liquidated.
The Fed did not provide details about how much of the remediation process would be made public. -- REUTERS
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
WASHINGTON - The Federal Reserve proposed new rules on Tuesday to restrain risk-taking by the largest US banks as it tries to make the financial system more resilient against future crises.
The proposal, required by the 2010 Dodd-Frank financial oversight law, includes new capital and liquidity rules for the largest banks that would roll out in two phases and not likely go further than international standards.
The plan issued on Tuesday closely follows statements the Fed has made in recent weeks to calm Wall Street concerns that US standards may be more aggressive than those of other nations, putting US banks at a disadvantage.
Some analysts were hoping the Fed would provide more details in its proposal and that in many areas it simply echoed the law, leaving the specifics for later.
'This is pretty much a book report on the Dodd-Frank bill,'said Paul Miller, a bank stock analyst at FBR Capital Markets.
The Fed said both the capital and liquidity requirements would be implemented in two phases.
The first phase would rely on policies already issued by the Fed, such as the capital stress test plan it released in November.
That stress test plan will require banks with more than US$50 billion in assets to show they can meet a Tier 1 common risk-based capital ratio of 5 per cent during a time of economic stress.
The second phase for both capital and liquidity would be based on the Fed's implementation of the Basel III international bank regulatory agreement.
That standard brings the Tier 1 common risk-based capital ratio requirement to 7 per cent, plus a surcharge of up to 2.5 per cent for the most complex firms.
'They're basically following the guidelines from Basel on the capital buffer. There were really no big surprises,' said Gerard Cassidy, bank analyst at RBC Capital Markets.
One area still unclear is how much the surcharge will be for banks that are above US$50 billion in assets, but are not in the group of eight institutions considered globally systemic. A Fed official told reporters they have yet to make a decision on the issue, but if these banks eventually face a surcharge, it will likely be a small amount.
The KBW Bank Index of stocks closed up 4.1 per cent, a slight gain over where it was prior to the Fed's release.
The rules, once finalised, will apply to all banks with more than US$50 billion in assets, including Goldman Sachs Group, JPMorgan Chase & Co and Bank of America.
Most large US banks already meet the Basel III requirements scheduled to fully go into effect in 2019.
For its liquidity requirements, the Fed is waiting on the Basel Committee on Banking Supervision to flesh out its own liquidity recommendations before setting out US requirements.
The central bank said it initially would hold US banks to a qualitative liquidity standard.
Under the Fed plan, banks would have to assess, at least once a month, what their liquidity needs would be for 30 days, for 90 days, and for a year, during a time when markets are stressed. They would be required to have enough liquid assets to cover 30 days of operations under these circumstances.
The proposals released on Tuesday are aimed at ensuring that financial firms have enough capital and liquid assets on hand to weather a future financial crisis. During the 2007-2009 crisis, taxpayers put up US$700 billion to bail out the financial system, partially through capital injections into banks.
Three months of lobbying
The rules will be out for public comment until March 31, 2012, giving Wall Street time to argue that being forced to keep so much cash on hand it will hurt lending and the economic recovery.
Executives, including JPMorgan Chief Executive Jamie Dimon, have complained that regulators are littering the financial landscape with rules, without properly analysing their economic impact.
A Fed official on Tuesday said the agency does not have an estimate on how much the capital and liquidity standards will impact US economic growth.
But he said the net benefit to the financial system outweighs the cost to Wall Street and any short-term decrease in credit availability.
The rules proposed will not only apply to the largest US banks. They will also cover any financial firm the government identifies as being important to the functioning of financial markets and the economy.
The government has yet to decide which non-banks, such as insurance companies and hedge funds, meet this standard.
When such companies are designated, the Fed said it may'tailor' the rules, which were drafted mostly with banks in mind, to better fit that particular company or industry.
The law also requires the Fed to write tougher standards for foreign banks with operations in the United States. Fed officials said on Tuesday they would release those proposals soon, and that they would apply to about 100 firms.
UNTANGLING THE BANKS The Fed rules also try to limit the dangers of big financial firms being heavily intertwined. It would limit the credit exposure of big banks to a single counterparty as a percentage of the firm's regulatory capital.
The credit exposure between the largest of the big banks would be subject to an even tighter limit. A bank with more than $500 billion in consolidated assets could not have a credit exposure of more than 10 percent to another bank of that size.
'I would be surprised if it caused anybody to change their financing arrangements,' said Dwight Smith, a partner at Morrison & Foerster LLP in Washington. 'This requirement is not going to force anybody to get smaller.' Further, the Fed proposal requires banks to bolster their capital if it appears they are heading into trouble, such as being overexposed to risky assets.
The rule outlines four phases of this 'remediation' process that a bank or other large financial organization would go through if it hits certain triggers signalling weakness.
If a bank does not bounce back after following through on requirements such as a capital boost, the regulators could then restrict dividends, compensation, or even recommend the institution be seized and liquidated.
The Fed did not provide details about how much of the remediation process would be made public. -- REUTERS
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
Speculators cut bets on commodities but Goldman still bullish
Business Times - 20 Dec 2011
(NEW YORK) Speculators reduced bets on commodities to a 31-month low on mounting concern that global economic growth is slowing as Goldman Sachs Group and Barclays Capital reiterated predictions that prices will gain.
Money managers cut combined net-long positions across 18 US futures and options by 9.6 per cent to 532,521 contracts in the week ended Dec 13, Commodity Futures Trading Commission data show. That's the lowest since April 28, 2009. Wagers on gold dropped to an eight-week low and coffee holdings tumbled 60 per cent, the most since August.
Funds are less bullish after Moody's Investors Service said it is reviewing Europe's ratings and the International Monetary Fund said the region's fiscal crisis is 'escalating.' Europe accounts for 19 per cent of global copper demand and consumes about one in six barrels of the world's oil.
Manufacturing in China, the biggest buyer of everything from nickel to soybeans, may contract for a second month, a private survey showed.
'For most people, the fetal position is quickly becoming their portfolio position,' said John Stephenson, who helps to manage US$2.6 billion of assets at First Asset Investment Management in Toronto. 'It could get a lot uglier.'
The Standard & Poor's GSCI Index of 24 commodities dropped 4.5 per cent last week, the most since mid-September, led by industrial and precious metals. The MSCI All-Country World Index fell 3.4 per cent as more than US$1.7 trillion was wiped off the value of global equities.
The Dollar Index, a measure against six trading partners, climbed 2.1 per cent. The yield on 10-year Treasuries dropped 21 basis points, or 0.2 percentage point, to 1.85 per cent according to Bloomberg Bond Trader prices.
Goldman Sachs said in a report Dec 1 that the world is likely to avoid a recession and maintained its 'overweight' allocation to commodities, predicting a 15 per cent return in the next 12 months. That is still the bank's view, Sophie Bullock, a London-based spokeswoman for Goldman, said in response to questions on Dec 15.
'We are cautiously positive on commodities, and that view hasn't changed,' said Sudakshina Unnikrishnan, an analyst at Barclays Capital in London. A close balance between supply and demand across raw materials 'could drive a strong price rebound in early 2012,' the bank said in a report this month.
The S&P GSCI gauge tumbled 19 per cent since reaching a 32-month high in April. Cooling expansion in emerging markets will spur further declines for raw materials, according to Michael Aronstein, the investor who said in early May that commodities were entering a multiyear bear market.
'People are just coming around to the understanding that things in the developing world are in a fairly serious retreat,' said Mr Aronstein, the president of Marketfield Asset Management in New York, who correctly predicted the 2008 slump that drove the S&P GSCI down 66 per cent in seven months.
Chinese factory output may decline for a second month in December as Europe's debt crisis weighs on exports and home sales slide, preliminary results from a Markit Economics survey indicated on Dec 15. In the euro area, manufacturing may contract for a fifth consecutive month, a separate report from London-based Markit Economics showed.
Options traders are paying the most since August 2010 to protect against losses in Chinese stocks. The Asian nation's gross domestic product will grow by 8.5 per cent in 2012, down from 9.2 per cent this year and 10.4 per cent in 2010, according to the median estimate of 15 economists surveyed by Bloomberg.
The euro dropped below US$1.30 last week for the first time since January on signs of rising funding stress in the region. German Chancellor Angela Merkel said there is no easy solution to the crisis after rejecting an increase in the upper limit of funding for a permanent bailout programme.
'The macro outlook remains poor heading into 2012 with risks skewed to the downside,' Morgan Stanley commodity analysts led by New York- based Hussein Allidina said in a report Dec 16. 'We are in the early stages of a multi-year deleveraging and de-globalisation cycle.' A crunch in financing for commodity trading, spurred by 'aggressive, sustained European bank deleveraging,' may send raw-material prices plunging next year, said Deutsche Bank AG in a report on Dec 5.
Investors put US$156 million into commodity funds in the week ended Dec 14, according to data from EPFR Global, which tracks investment flows. Gold and precious metal net inflows were US$738 million, while non-precious metal commodities had a net outflow of US$582 million, said Cameron Brandt, the director of research at the Cambridge, Massachusetts-based research company.
Funds trimmed their net-long position in gold by 11 per cent to 135,117 contracts, the lowest since Oct 18, the CFTC data show. Holdings have dropped in three of the past four weeks\. \-- Bloomberg
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
(NEW YORK) Speculators reduced bets on commodities to a 31-month low on mounting concern that global economic growth is slowing as Goldman Sachs Group and Barclays Capital reiterated predictions that prices will gain.
Money managers cut combined net-long positions across 18 US futures and options by 9.6 per cent to 532,521 contracts in the week ended Dec 13, Commodity Futures Trading Commission data show. That's the lowest since April 28, 2009. Wagers on gold dropped to an eight-week low and coffee holdings tumbled 60 per cent, the most since August.
Funds are less bullish after Moody's Investors Service said it is reviewing Europe's ratings and the International Monetary Fund said the region's fiscal crisis is 'escalating.' Europe accounts for 19 per cent of global copper demand and consumes about one in six barrels of the world's oil.
Manufacturing in China, the biggest buyer of everything from nickel to soybeans, may contract for a second month, a private survey showed.
'For most people, the fetal position is quickly becoming their portfolio position,' said John Stephenson, who helps to manage US$2.6 billion of assets at First Asset Investment Management in Toronto. 'It could get a lot uglier.'
The Standard & Poor's GSCI Index of 24 commodities dropped 4.5 per cent last week, the most since mid-September, led by industrial and precious metals. The MSCI All-Country World Index fell 3.4 per cent as more than US$1.7 trillion was wiped off the value of global equities.
The Dollar Index, a measure against six trading partners, climbed 2.1 per cent. The yield on 10-year Treasuries dropped 21 basis points, or 0.2 percentage point, to 1.85 per cent according to Bloomberg Bond Trader prices.
Goldman Sachs said in a report Dec 1 that the world is likely to avoid a recession and maintained its 'overweight' allocation to commodities, predicting a 15 per cent return in the next 12 months. That is still the bank's view, Sophie Bullock, a London-based spokeswoman for Goldman, said in response to questions on Dec 15.
'We are cautiously positive on commodities, and that view hasn't changed,' said Sudakshina Unnikrishnan, an analyst at Barclays Capital in London. A close balance between supply and demand across raw materials 'could drive a strong price rebound in early 2012,' the bank said in a report this month.
The S&P GSCI gauge tumbled 19 per cent since reaching a 32-month high in April. Cooling expansion in emerging markets will spur further declines for raw materials, according to Michael Aronstein, the investor who said in early May that commodities were entering a multiyear bear market.
'People are just coming around to the understanding that things in the developing world are in a fairly serious retreat,' said Mr Aronstein, the president of Marketfield Asset Management in New York, who correctly predicted the 2008 slump that drove the S&P GSCI down 66 per cent in seven months.
Chinese factory output may decline for a second month in December as Europe's debt crisis weighs on exports and home sales slide, preliminary results from a Markit Economics survey indicated on Dec 15. In the euro area, manufacturing may contract for a fifth consecutive month, a separate report from London-based Markit Economics showed.
Options traders are paying the most since August 2010 to protect against losses in Chinese stocks. The Asian nation's gross domestic product will grow by 8.5 per cent in 2012, down from 9.2 per cent this year and 10.4 per cent in 2010, according to the median estimate of 15 economists surveyed by Bloomberg.
The euro dropped below US$1.30 last week for the first time since January on signs of rising funding stress in the region. German Chancellor Angela Merkel said there is no easy solution to the crisis after rejecting an increase in the upper limit of funding for a permanent bailout programme.
'The macro outlook remains poor heading into 2012 with risks skewed to the downside,' Morgan Stanley commodity analysts led by New York- based Hussein Allidina said in a report Dec 16. 'We are in the early stages of a multi-year deleveraging and de-globalisation cycle.' A crunch in financing for commodity trading, spurred by 'aggressive, sustained European bank deleveraging,' may send raw-material prices plunging next year, said Deutsche Bank AG in a report on Dec 5.
Investors put US$156 million into commodity funds in the week ended Dec 14, according to data from EPFR Global, which tracks investment flows. Gold and precious metal net inflows were US$738 million, while non-precious metal commodities had a net outflow of US$582 million, said Cameron Brandt, the director of research at the Cambridge, Massachusetts-based research company.
Funds trimmed their net-long position in gold by 11 per cent to 135,117 contracts, the lowest since Oct 18, the CFTC data show. Holdings have dropped in three of the past four weeks\. \-- Bloomberg
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
Friday, December 16, 2011
IMF chief warns no country immune from crisis
Business Times - 16 Dec 2011
WASHINGTON - No country is immune from an 'escalating' euro zone crisis and each one must act to head off the risk of a global depression, the head of the International Monetary Fund said on Thursday.
IMF Managing Director Christine Lagarde, speaking at the US State Department, said the outlook for the world economy is 'quite gloomy' and warned that failure to act collectively could lead to protectionism and isolation reminiscent of the 1930s depression.
'There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies that will be immune to the crisis that we see not only unfolding but escalating,' Ms Lagarde cautioned.
'It is not a crisis that will be resolved by one group of countries taking action. It is going to be hopefully resolved by all countries, all regions, all categories of countries actually taking action.'
The IMF has warned that it is likely to cut its 2012 growth projections, with the economy struggling with a worsening two-year euro zone debt crisis and sluggish US growth. There are also signs from falling Chinese factory output that manufacturers are struggling with waning global demand and tighter credit conditions.
European leaders last week agreed to lend up to 200 billion euros (US$259.95 billion) to the IMF to help struggling euro zone states and are hoping non-European countries will also step in with loans provided through the global lender to help.
The IMF is currently in talks with member countries on providing additional resources to the Fund.
Ms Lagarde said global economic leaders now needed to take a holistic approach towards addressing systemic weaknesses, such as those underscored by the current euro zone debt crisis.
'It is going to require efforts, it is going to require adjustment, and clearly it is going to have to start from the core of the crisis at the moment, which is obviously the European countries and in particular the countries of the euro zone,' Ms Lagarde said.
She cautioned, however, that democratic government processes often made quick fixes difficult, saying the collision of market expectations with political reality must be resolved.
'It is really that Gordian Knot that needs to be cracked, that needs to be addressed as collectively as possible, starting with those at the centre but with the support of the international community probably channelled through the IMF,' she said.
Ms Lagarde noted some relative bright spots in the economies of Asia and Latin America, which she said had taken steps, with IMF help, during crises in the 1980s and 1990s to address weaknesses in their banking systems and financial regulatory frameworks.
'All those challenges that they faced in the days of the Asian crisis, of the Latin American crisis have now served them well,' Ms Lagarde said. -- REUTERS
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
WASHINGTON - No country is immune from an 'escalating' euro zone crisis and each one must act to head off the risk of a global depression, the head of the International Monetary Fund said on Thursday.
IMF Managing Director Christine Lagarde, speaking at the US State Department, said the outlook for the world economy is 'quite gloomy' and warned that failure to act collectively could lead to protectionism and isolation reminiscent of the 1930s depression.
'There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies that will be immune to the crisis that we see not only unfolding but escalating,' Ms Lagarde cautioned.
'It is not a crisis that will be resolved by one group of countries taking action. It is going to be hopefully resolved by all countries, all regions, all categories of countries actually taking action.'
The IMF has warned that it is likely to cut its 2012 growth projections, with the economy struggling with a worsening two-year euro zone debt crisis and sluggish US growth. There are also signs from falling Chinese factory output that manufacturers are struggling with waning global demand and tighter credit conditions.
European leaders last week agreed to lend up to 200 billion euros (US$259.95 billion) to the IMF to help struggling euro zone states and are hoping non-European countries will also step in with loans provided through the global lender to help.
The IMF is currently in talks with member countries on providing additional resources to the Fund.
Ms Lagarde said global economic leaders now needed to take a holistic approach towards addressing systemic weaknesses, such as those underscored by the current euro zone debt crisis.
'It is going to require efforts, it is going to require adjustment, and clearly it is going to have to start from the core of the crisis at the moment, which is obviously the European countries and in particular the countries of the euro zone,' Ms Lagarde said.
She cautioned, however, that democratic government processes often made quick fixes difficult, saying the collision of market expectations with political reality must be resolved.
'It is really that Gordian Knot that needs to be cracked, that needs to be addressed as collectively as possible, starting with those at the centre but with the support of the international community probably channelled through the IMF,' she said.
Ms Lagarde noted some relative bright spots in the economies of Asia and Latin America, which she said had taken steps, with IMF help, during crises in the 1980s and 1990s to address weaknesses in their banking systems and financial regulatory frameworks.
'All those challenges that they faced in the days of the Asian crisis, of the Latin American crisis have now served them well,' Ms Lagarde said. -- REUTERS
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
Wednesday, December 14, 2011
Housing starts down, another sign of a weak market - Chris Zappone (Dec 13, 2011)
Dwelling starts fell in the third quarter, sinking 6.8 per cent and providing yet another sign of weakness in the Australian housing market.
Separately, housing finance fell in October even as personal finance commitments increased.
Dwelling commencements fell to 35,672 units in the September quarter, seasonally adjusted, from an upwardly revised 38,290 units in the previous three months, according to the Australian Bureau of Statistics (ABS). Analysts polled by Bloomberg tipped a 1 per cent drop in the quarter.
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It was the fourth decline in five quarters, and the biggest drop in dwelling starts for a year.
In the year to September 2011, total dwelling commencements dropped 11.5 per cent, seasonally adjusted, the ABS said.
St George Bank Economist Besa Deda said the latest fall in dwelling starts would contribute to slowing conditions in the housing sector.
"It's another big fall," she said. "Dwelling starts are nowhere near keeping pace with the rate of population growth so that's exacerbating the housing shortage which we see as growing to about 140,000 (homes) next year."
"We've seen a pick-up a housing finance but haven't really seen that translate into dwelling approvals or housing starts," she said.
Home loans rose 0.7 per cent in October in data released by the ABS yesterday - the sixth straight increase in the measure.
"We should see an improvement in approvals and starts but it may well take some time given the global backdrop, the nervousness associated with that and funding pressures that are growing in Europe and spreading elsewhere," Ms Deda said.
Personal finance
A separate ABS report showed total personal finance commitments rose 5.2 per cent in October to $7,317 billion.
The seasonally-adjusted commitments were up from $6.956 billion in September.
Total commercial finance in October rose 16.5 per cent to $36.310 billion, seasonally adjusted, from $31.158 billion in September.
Lease finance was down 2.4 per cent in October to $417 million, compared with $427 million the month before.
Housing finance for owner occupation fell 1.2 per cent to $14.377 billion in October, from $14.546 billion in September.
The Age Newspaper
Separately, housing finance fell in October even as personal finance commitments increased.
Dwelling commencements fell to 35,672 units in the September quarter, seasonally adjusted, from an upwardly revised 38,290 units in the previous three months, according to the Australian Bureau of Statistics (ABS). Analysts polled by Bloomberg tipped a 1 per cent drop in the quarter.
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It was the fourth decline in five quarters, and the biggest drop in dwelling starts for a year.
In the year to September 2011, total dwelling commencements dropped 11.5 per cent, seasonally adjusted, the ABS said.
St George Bank Economist Besa Deda said the latest fall in dwelling starts would contribute to slowing conditions in the housing sector.
"It's another big fall," she said. "Dwelling starts are nowhere near keeping pace with the rate of population growth so that's exacerbating the housing shortage which we see as growing to about 140,000 (homes) next year."
"We've seen a pick-up a housing finance but haven't really seen that translate into dwelling approvals or housing starts," she said.
Home loans rose 0.7 per cent in October in data released by the ABS yesterday - the sixth straight increase in the measure.
"We should see an improvement in approvals and starts but it may well take some time given the global backdrop, the nervousness associated with that and funding pressures that are growing in Europe and spreading elsewhere," Ms Deda said.
Personal finance
A separate ABS report showed total personal finance commitments rose 5.2 per cent in October to $7,317 billion.
The seasonally-adjusted commitments were up from $6.956 billion in September.
Total commercial finance in October rose 16.5 per cent to $36.310 billion, seasonally adjusted, from $31.158 billion in September.
Lease finance was down 2.4 per cent in October to $417 million, compared with $427 million the month before.
Housing finance for owner occupation fell 1.2 per cent to $14.377 billion in October, from $14.546 billion in September.
The Age Newspaper
Monday, December 5, 2011
White Christmas in New York
I am away in for a month in New York. This is my first trip to USA after 19 years. Time flies!
I will remember to send all your regards to OhBama.
Going back to alma mater. Catching with my mba classmates and professors up in cornell.
See you guys around when I am free.
BTW I just flew in last nite from KL and tomorrow I am flying from Melbourne to LA first.
I will remember to send all your regards to OhBama.
Going back to alma mater. Catching with my mba classmates and professors up in cornell.
See you guys around when I am free.
BTW I just flew in last nite from KL and tomorrow I am flying from Melbourne to LA first.
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