Larry Summers the next big risk for emerging markets? “Larry Summers is not an advocate of QE and the reality is that all things being equal, he will unwind QE fast”

Larry Summers the next big risk for emerging markets?

Published: Monday, 2 Sep 2013 | 10:58 PM ET

By: Dhara Ranasinghe | Senior Writer

Thought speculation about Federal Reserve tapering was bad for emerging markets? Then just wait to see what happens if Larry Summers is appointed as the next U.S. central bank chief, analysts say. They argue that if Summers replaces Ben Bernanke, whose second term as Fed chairman expires in January, any scaling back in the central bank’s asset-purchase program would be ramped up by the hawkish Summers and deal a further blow to battered emerging markets. Read more of this post

Clash of the Cape crusaders: The world’s leading market historians are locked in an intense debate over the true value of stocks

September 2, 2013 7:57 pm

Clash of the Cape crusaders

By John Authers

The world’s leading market historians are locked in an intense debate over the true value of stocks

Robert Shiller’s warnings about the internet stock bubble of the late 1990s, followed after a few years by a controversial – and accurate – prediction on the US housing market, earned him the respect of Wall Street and a place on the bestseller list. The Yale economist’s call on the internet boom, articulated in his book Irrational Exuberance, was based on the measure he developed called the Cape, for cyclically adjusted price/earnings multiple. The Cape, which uses earnings data going back to 1871, has gained wide acceptance as an accurate gauge of the market. Prof Shiller and the Cape are sounding the alarm once again, implying that the US market is 62 per cent overvalued and more expensive than any other big stock market. Read more of this post

Germany’s jobs record masks hidden flaws; Number of temporary workers has trebled in 10 years

September 2, 2013 2:02 pm

Germany’s gold standard jobs record masks hidden flaws

By Chris Bryant in Frankfurt

Angela Merkel has one key trump card when voters go to the polls in September: a record 41.8m Germans are now in employment. A decade after its sclerotic labour market caused Germany to be branded the “sick man of Europe”, the country is the envy of a continent only just crawling out of recession while still grappling with record unemployment in many nations But the German “jobwunder” has come at a cost – the big increase in low paid, precarious types of employment such as part-time work, temporary contracts, so-called “minijobs” and outsourcing. Read more of this post

Ireland fears the unthinkable – a Dublin property bubble

Ireland fears the unthinkable – a Dublin property bubble

Wed, Aug 28 2013

By Padraic Halpin

DUBLIN (Reuters) – Five years after a huge property crash devastated the Irish economy, prices are finally stabilising, but a booming urban market where supply is scarce and competition fierce is raising concerns about a new bubble in the capital. House prices quadrupled on a decade of easy credit during the boom years that earned Ireland the sobriquet Celtic Tiger, then fell by more than half from 2007, leading the country into an EU/IMF bailout, a costly bank rescue and leaving almost one in five homeowners behind on their mortgage payments. Read more of this post

Long-Term Jobless Left Out of the Recovery; Despite Improving Economy, Prospects Are Bleak for Millions of Unemployed

September 2, 2013, 7:15 p.m. ET

Long-Term Jobless Left Out of the Recovery

Despite Improving Economy, Prospects Are Bleak for Millions of Unemployed

BEN CASSELMAN

For those left behind by the long, slow economic recovery, time is running out. More than four years after the recession officially ended, 11.5 million Americans are unemployed, many of them for years. Millions more have abandoned their job searches, hiding from the economic storm in school or turning to government programs for support. A growing body of economic research suggests that the longer they remain on the sidelines, the less likely they will be to work again; for many, it may already be too late. Read more of this post

Beijing Will Cut Coal Burning and Barbecues in Bid to Fight Smog

Beijing Will Cut Coal Burning and Barbecues in Bid to Fight Smog

The Chinese capital will limit cars, outdoor barbecues and coal burning under new measures to reduce air pollution that exceeded recommended World Health Organization levels by nearly 40 times in January. Coal use for electricity consumption in Beijing will be reduced by 13 million metric tons by 2017 from the 2012 level, while limits will be put on outdoor barbecues in suburban areas and the number of cars will be kept below 6 million, the city government said in a statement today. The restrictions follow 10 pollution control measures that the country announced in June, after levels of PM2.5, the fine particulates that pose the greatest health risk, hit a record 993 in January. At his first briefing as China’s premier in March, Li Keqiang said China’s smog gave him a “heavy heart” and promised more vigorous efforts to fight it. The measures in Beijing are meant to reduce concentrations of PM2.5 by 25 percent to about 60 micrograms per cubic meter in 2017 from last year. The World Health Organization recommends 24-hour exposure to PM2.5 of no higher than 25. The measures announced today also include closing 1,200 companies that generate pollutants and limiting public offerings of companies that violate environmental laws. The city had 5.2 million vehicles at the end of last year, according to the official Xinhua News Agency.

To contact Bloomberg News staff for this story: Sarah Chen in Beijing at schen514@bloomberg.net

Rattled by investigations, foreign firms in China beef up compliance

Rattled by investigations, foreign firms in China beef up compliance

5:12pm EDT

By Michael Martina and Kazunori Takada

BEIJING/SHANGHAI (Reuters) – Foreign companies in China are getting increasingly jumpy about a spate of antitrust and corruption investigations by Chinese authorities and are hiring lawyers to make sure their operations comply with the law. The investigations represent one of the most significant risks to doing business in China in years. Antitrust regulators have looked into sectors such as pharmaceuticals, milk powder and jewelry in recent months and suggested that autos, telecommunications, banks and oil firms could be next. Read more of this post

Stock offering plans by China’s banks seen as short-term fix

Stock offering plans by China’s banks seen as short-term fix

5:15pm EDT

By Michael Flaherty and Denny Thomas

HONG KONG (Reuters) – For the Chinese banks seeking billions of dollars in upcoming stock offerings, a concern is growing that the money will only refinance old loans and do little to prevent the lenders from hitting up shareholders for more cash in a few years or less. In 2010, Chinese lenders raised $82 billion as a surging stock market helped them replenish cash after a post-financial crisis lending binge. Now, in a far less forgiving climate, they are again lining up for more money, attempting to tap investors as the economy slows, profits shrink and unpaid debts pile up. Read more of this post

Malaysia Raises Fuel Prices as Najib Seeks to Trim Budget Gap

Malaysia Raises Fuel Prices as Najib Seeks to Trim Budget Gap

Malaysia raised fuel prices for the first time since 2010, joining neighboring Indonesia in curbing subsidies that have stretched government budgets and threatened investor confidence. The price of the widely used RON 95 grade of gasoline will rise 20 sen to 2.10 ringgit ($0.64) a liter at midnight, according to an announcement by Prime Minister Najib Razak today in Putrajaya, outside of Kuala Lumpur. Diesel will increase 20 sen to 2 ringgit a liter. The increases will help the government save about 1.1 billion ringgit this year and 3.3 billion ringgit annually in future by reducing state subsidies, he said. Read more of this post

Japan Radioactive Water Raises Alarm as Government to Intervene

Japan Radioactive Water Raises Alarm as Government to Intervene

Japan may announce measures today to contain the growing volume of radiated water at the Fukushima atomic station, following findings of radioactive hot spots and leaks more than two years after reactors melted at the plant. The Nuclear Emergency Response Headquarters may present steps to tackle the leaks today and plans a “complete package” of measures on the water management crisis, Deputy Chief Cabinet Secretary Katsunobu Kato said yesterday, relaying earlier comments made by Chief Cabinet Secretary Yoshihide Suga. Read more of this post

Airbus struggles to loosen Boeing’s grip on Fortress Japan

Airbus struggles to loosen Boeing’s grip on Fortress Japan

5:08pm EDT

By Siva Govindasamy and Tim Kelly

SINGAPORE/TOKYO (Reuters) – Airbus appears to have been pushed back once again in landmark efforts to break Boeing Co’s grip on Japan’s two largest airlines, which need to buy billions of dollars worth of planes in the next decade. In Japan, where buying American jets once helped take the sting out of trade deficit tensions, Boeing dominates with around an 80 percent market share. Flag carrier Japan Airlines Co Ltd has yet to buy an Airbus aircraft even though the political prodding to purchase Boeing jets partially built in Japan has lessened. Read more of this post

Abenomics Litmus Test Looms as Pressure Mounts for Cutting Taxes

Abenomics Litmus Test Looms as Pressure Mounts for Cutting Taxes

Prime Minister Shinzo Abe faces rising pressure to expand tax relief for Japan’s companies after the longest slump in business investment since 2009, setting up a potential battle with the Finance Ministry. Officials will unveil tax breaks for capital spending in coming months, according to 15 of 16 economists surveyed by Bloomberg News — a step Finance Minister Taro Aso has backed. Aso opposes a broader cut in corporate tax rates, even after a slide in investment since the start of 2012, and his ministry has a history of shielding revenue. Read more of this post

Politicians Talk, the Rupee Drops, India’s Economy Tanks

Politicians Talk, the Rupee Drops, India’s Economy Tanks

India’s economy has stalled. Growth in the second quarter fell to 4.4 percent at an annual rate, down from 8 percent two years ago. The rupee has slumped. Consumer-price inflation is about 10 percent and rising. The country faces what could be a full-scale financial crisis. This would be a testing situation even if India had a well-functioning government, but it doesn’t. With a general election due next May, politics are paralyzed. Between now and the vote, the Reserve Bank of India, led by its new governor, Raghuram Rajan, can do only so much — but the central bank can at least resist demands to make a bad situation worse. Read more of this post

India Slowdown Pressures Singh to Bolster Lowest BRIC Reserves

India Slowdown Pressures Singh to Bolster Lowest BRIC Reserves

India’s weakest economic growth since 2009 escalates pressure on the government to increase the smallest foreign-exchange reserves among BRIC nations, as policy makers struggle to contain a sliding rupee. The reserves have dropped 13 percent to $278 billion since a peak in 2011 and are equivalent to less than seven months of imports. Bank of America Merrill Lynch estimates India needs as much as 10 months of import cover for currency stability, a figure still about half the average in Brazil, Russia and China. Read more of this post

India Is Still Waiting for Superman; Even if new central banker Raghuram Rajan works miracles with monetary policy, it will take more than one man to fix the economy

September 2, 2013, 12:46 p.m. ET

India Is Still Waiting for Superman

Even if new central banker Raghuram Rajan works miracles with monetary policy, it will take more than one man to fix the economy.

ESWAR PRASAD

The Indian economy is facing a rout. The latest data, which show growth slowing sharply, and a plunging currency have laid bare the fragility of the economy. Raghuram Rajan, who takes over at the helm of India’s central bank this week, is being heralded as the savior the country needs. However, it will take a lot more than one person, even if he works miracles with monetary policy, to stem the tide. Decisive action is needed on a number of fronts to revive growth and rebuild the confidence of domestic and foreign investors. Monetary policy can play an important role but not if it remains hamstrung by other policies that are working at cross-purposes. The central bank may be forced to raise interest rates further to defend the currency, but that would only hurt the economy if other policies don’t take on the burden of supporting growth. Read more of this post

The mysterious corruption scandal engulfing PetroChina, China’s largest oil company, is a reminder of why shares in the country’s state-owned enterprises are a thorny asset class.

Updated September 2, 2013, 7:24 a.m. ET

Investors Left Hanging in PetroChina Saga

State-Owned Companies Enjoy Some Advantages—but Aren’t Run In Shareholders’ Interest

AARON BACK

The mysterious corruption scandal engulfing PetroChina, 601857.SH -0.13% China’s largest oil company by production, is a reminder of why shares in the country’s state-owned enterprises are a uniquely thorny asset class. Last week, state media named three executives at PetroChina and one at its parent company, China National Petroleum Corp., as targets of a corruption probe. All four stepped down from their posts. On Sunday, Beijing announced that the former chairman of CNPC, Jiang Jiemin, is also under investigation. Mr. Jiang left CNPC in March to become the head of a powerful government body that oversees China’s state-owned companies. PetroChina shareholders are suffering whiplash. The company’s shares had been buoyed by news that Beijing was set to increase government-controlled prices for natural gas. The stock dropped 4.4% in one session last week on news of the corruption investigation and, despite recovering slightly, has underperformed Hong Kong’s Hang Seng Index since. Read more of this post

As U.S. authorities examine the hiring by banks of relatives of powerful Chinese officials, two of the biggest IPOs in history show how widespread the practice was in Hong Kong

September 2, 2013, 3:38 p.m. ET

Banks Employing ‘Princelings’ Played Roles in Big Hong Kong IPOs

U.S. Examines Lenders’ Hiring of Relatives of Chinese Officials

CYNTHIA KOONS, NISHA GOPALAN and ROBIN SIDEL

As U.S. authorities examine the hiring by banks of relatives of powerful Chinese officials, two of the biggest IPOs in history show how widespread the practice was in Hong Kong. Some banks that won roles in IPOs, such as Industrial & Commercial Bank of China’s, hired ‘princelings.’ The initial public offerings of Agricultural Bank of China Ltd. 601288.SH -0.40% in 2010 and Industrial & Commercial Bank of China Ltd. 601398.SH -0.26% in 2006 raised $22 billion apiece. Several of the banks that won key roles in the deal employed so-called princelings. Investment banks in Hong Kong have long hired princelings, the relatives of high-ranking Chinese government officials, for their knowledge of the Chinese financial system and their connections inside China, people in the industry say. They add that most are well-educated graduates of Western universities. Read more of this post

Decades of Ruptures from Defect Show Perils of Old Pipe; Replacing all the ERW pipe still in use would cost as much as $1 million a mile, or more than $50 billion

Decades of Ruptures from Defect Show Perils of Old Pipe

Cristobal Sustaita didn’t know about the pipeline running underground near his West Texas home until it erupted into a fireball in 1976, burning to death five people including his wife and 20-month old son. The explosion was one of the first to focus attention on a lethal welding flaw in U.S. pipelines built before 1970. In the decades since, this type of pipe has continued to leak, rupture and explode, killing more people, despite repeated warnings to the industry from federal investigators and private consultants. Read more of this post

Suddenly, emerging market countries are rediscovering just how hard economic policy can be. Just what can they do?

Sep 2, 2013

Emerging Market Economic Policy Is Hard

By Alen Mattich

Suddenly, emerging market countries are rediscovering just how hard economic policy can be. Just what can they do? For years, the side-effects of globalization, past structural reforms and hot money inflows generated strong economic growth. The citizens of these countries were made to feel even better as appreciating currencies kept inflation in check and boosted their purchasing power so they could by ever more imports. The burgeoning middle classes of Turkey and Brazil and Indonesia and South Africa fell in love German cars and Japanese electronics. Even the global financial crisis of 2008 only caused a temporary bump on the endless road forward. Read more of this post

Buybacks to Dividends at Risk With Record-Low U.S. Yields Ending

Buybacks to Dividends at Risk With Record-Low U.S. Yields Ending

U.S. companies, which have almost doubled profits since the financial crisis, are losing the benefit of record-low debt expenses as Federal Reserve plans to taper bond purchases send borrowing costs higher. Borrowing costs for Standard & Poor’s 500 Index companies fell to 1.4 percent of sales the last 12 months, a record low in 11 years of data compiled by Bloomberg. While interest rates on corporate bonds are below the 5.7 percent average since the start of the financial crisis, yields are increasing the most since 2009 and rose to about 4.3 percent from a 17-year low of 3.35 percent in May, as economists project the Fed will start reducing economic stimulus this month. Read more of this post

Ill Wind Blows on Treasurys

September 2, 2013, 7:38 p.m. ET

Ill Wind Blows on Treasurys

Yields Expected to Keep Rising, But at Slower Pace

CAROLYN CUI

The bond market is likely headed for more pain this fall, as many investors say the prices of ultrasafe U.S. Treasurys will have to decline further before the debt starts looking like a good buy. This year is on track to be the worst for fixed-income investors since 1994, when the Federal Reserve surprised the market with rate increases. Money has flowed out of bond funds in 2013 at the fastest clip in nine years, with $57.3 billion leaving U.S.-listed taxable mutual funds and exchange-traded funds in the past three months alone, according to Lipper. U.S. Treasury yields have increased by more than a percentage point since May, a rise that has caught many analysts and investors off guard. Read more of this post

New York to Seattle Buyers Tap Brakes After Rates Rise

New York to Seattle Buyers Tap Brakes After Rates Rise

Amy and Ted Wilder lost out in the bidding for several Seattle-area homes during the past six months, even with offers well above the asking price. After May’s sudden spike in mortgage rates, the Microsoft Corp. consultants put their search on hold. “We fell in love with a house for about $400,000 and thought we could afford it, and then we discovered it was $300 more a month than what we would have paid in February when we started looking,” Amy Wilder, 42, said. “The mortgage rates just pushed it too far.” Read more of this post

The liquidation of First Strut (Pty) Ltd. following the murder of its chairman in June has cut sales of high-yielding debt in South Africa as investors shun the risk of more corporate bond defaults

First Strut Default Jolts High-Yield Market: South Africa Credit

By Renee Bonorchis – Sep 2, 2013

The liquidation of First Strut (Pty) Ltd. following the murder of its chairman in June has cut sales of high-yielding debt in South Africa as investors shun the risk of more corporate bond defaults. First Strut, a building company also traded as First Tech, applied for provisional liquidation on July 16 after Chairman Jeff Wiggill was found dead with bullet wounds next to his Bentley in Soweto, southwest of Johannesburg. In 2011 the company sold 925 million rand ($90 million) of floating-rate notes due September 2016 at 550 basis points above the three-month Johannesburg interbank agreed rate, which was 5.13 percent on Aug. 30. High-yield emerging-market bonds have fallen 575 basis points in 2013, according to Bloomberg indexes. Read more of this post

Ikea chief drops plan to double pace of store openings; rapid pace of the expansion had been opposed by Ingvar Kamprad, Ikea’s mercurial 87-year-old founder, who favoured more investment in existing stores

September 1, 2013 3:09 pm

Ikea chief drops plan to double pace of store openings

By Richard Milne in Älmhult

Ikea’s new chief executive has rowed back on his predecessor’s pledge to double the pace of store openings, underlining a power shift at the world’s largest furniture retailer. In his first interview as chief executive, Peter Agnefjäll told the Financial Times he was hoping to increase the number of annual store openings from five this year, a figure he called a “record low”. But asked about his predecessor Mikael Ohlsson’srepeated pledge to open 20-25 stores a year, Mr Agnefjäll said: “I don’t recognise that, really.” The shift is significant because the rapid pace of the expansion had been opposed by Ingvar Kamprad,Ikea’s mercurial 87-year-old founder, who favoured more investment in existing stores. Read more of this post

China Banking Regulator Warns of Rising Risks

September 2, 2013, 4:24 PM

China Banking Regulator Warns of Rising Risks

China’s banks don’t properly serve the country’s real economy, and the financial system has become so complex that risks are falling through the gaps in the regulatory system. That is now a familiar message from the cohort of bearish analysts and hedge-fund managers counting the cracks in China’s economic model. It is less familiar coming from China’s banking regulator. In a question-and-answer interview in this week’s Seeking Truth magazine, the Communist Party’s theoretical journal, China Banking Regulatory Commission Chairman Shang Fulin says the financial system’s support of the real economy “needs to be vastly improved,” and he warns of the need to “prevent regulatory arbitrage” and “reduce the risks of financial contagion.” Read more of this post

Fallen SASAC chief Jiang Jiemin; Xi’s anti-graft sweep to turn focus to PLA

Fallen SASAC chief Jiang Jiemin

Staff Reporter

2013-09-02

Jiang Jiemin. (Photo/CFP)

China’s disciplinary authorities have announced a corruption probe into Jiang Jiemin, head of the commission overseeing the country’s biggest state-owned enterprises. Until March this year, the 57-year-old Jiang was the chief of state-owned China National Petroleum Corporation, the country’s largest integrated energy company. Born in eastern China’s Shandong province in 1955, Jiang graduated from the University of Shandong and also underwent an in-service postgraduate course for ministerial officials and provincial heads at the CPC Central Committee party school. Read more of this post

Why the Chinese government spent $33 billion on cotton that nobody wants

Why the Chinese government spent $33 billion on cotton that nobody wants

By Gwynn Guilford @sinoceros August 30, 2013

Texhong Textile Group, one of China’s biggest textile makers, has been shifting production to Vietnam, and the market loves it, reports Bloomberg—the stock is up 445% from a year ago. And that’s not because of the much-bemoaned rise of Chinese labor costs. It’s because the Chinese government is making cotton way more expensive than it should be.

Cotton stockpiling: a terrible idea

The Chinese government buys and stockpiles domestic cotton when prices fall below a set level, a policy designed to support the textile industry after the 2008 financial crisis swallowed export demand. The problem? Excess supply has made foreign cotton much cheaper than Chinese cotton. Ever conscious of dwindling profits, companies like Texhong have turned to cotton imports, which has forced the government to shell out $33 billion in the last two years to soak up the excess in domestic cotton, as Reuters reports. In 2012 alone, it stockpiled 89% of China-produced cotton (link in Chinese). The government’s price in blue, international cotton indices in red and green.Cottonchina.org

Read more of this post

In sweatshops, the ‘Brazilian dream’ goes awry

In sweatshops, the ‘Brazilian dream’ goes awry

Sun, Sep 1 2013

By Lucas Iberico-Lozada

SAO PAULO (Reuters) – When Margot Alarconciles woke up one morning last year and found her son sick with what appeared to be a cold, there was little she could do but wrap him in an extra blanket, walk down the hallway and start her workday: sewing clothes for up to 11 hours a day, six days a week. “I couldn’t leave my machine,” she said. “Without my job, we could not eat.” Her 5-year-old son’s condition deteriorated, and without proper care he soon died. Still grieving, Alarconciles now questions her decision to leave her native Bolivia for Brazil, where salaries can be many times higher but poor immigrants often must settle for work in sweatshops. Read more of this post