US economy expands in Q3

October 31, 2009
THE United States economy grew at a 3.5-percent pace in the third quarter, the best showing in two years, fueled by government-supported spending on cars and homes.

The Commerce Department's report yesterday delivered the strongest signal yet that the economy entered a new, though fragile, phase of recovery and that the worst recession since the 1930s has ended.

Many analysts expect the pace of the budding recovery to be plodding due to rising unemployment and continuing difficulties by both consumers and businesses to secure loans.

"We're beginning to crawl out a very deep hole," said economist Ken Mayland, president of ClearView Economics. "It will take time to get back to normal again, and there are questions about how consumers will hold up in the months ahead. But I think the recovery will be sustained."

The much-awaited turnaround ended the streak of four straight quarters of contracting economic activity, the first time that's happened on records dating to 1947. It also marked the first increase since the spring of last year, when the economy experienced a short-lived uptick in growth.

The third quarter's performance - the strongest since right before the country fell into recession in December 2007 - was slightly better than the 3.3-percent growth rate economists expected.

Armed with cash from government support programs, consumers led the rebound in the third quarter, snapping up cars and homes.

Consumer spending on big-ticket manufactured goods soared at an annualized rate of 22.3 percent in the third quarter, the most since the end of 2001. The jump reflected car purchases spurred by the government's "Cash for Clunkers" program that offered a rebate of up to US$4,500 to buy new cars and trade in old gas guzzlers.

The housing market also turned a corner in the summer. Spending on housing projects jumped at an annualized pace of 23.4 percent, the largest jump since 1986. It was the first time since the end of 2005 that spending on housing was positive.

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Investors rush back into stocks as economy grows

October 31, 2009
STOCKS logged their best day in three months as investors rushed into the market on word the U.S. economy grew faster than expected.

The Dow Jones industrial average jumped 200 points yesterday to recoup most of its losses for the week, while demand for safe-haven holdings like Treasurys wilted.

The Commerce Department's report that gross domestic product rose at an annual rate of 3.5 percent in the third quarter reinvigorated investors who had dumped stocks for much of the past week on signs of a weakness in the housing market and a disappointing report on consumer confidence.

The economic growth came in ahead of the 3.3 percent rise forecast by economists polled by Thomson Reuters. It was the strongest growth in two years and broke four straight quarters of declines. Coming on the 80th anniversary of the stock market crash that triggered the Great Depression, it was the best indication yet that the longest recession since then has ended.

Many analysts caution that it will be hard to sustain the growth at the pace seen in the third quarter.

Government stimulus programs including the popular Cash for Clunkers auto rebates and tax credits for first-time home buyers bolstered the economy. Once the government's stimulus measures run their course, the economy could run afoul of lingering problems such as high unemployment and weak consumer spending.

"I don't think that at this point in the rebound that the economy would be self-sustainable," said Jason D. Pride, director of research at Haverford Investments in Philadelphia. "The only way to have effective sustained economic growth is to have job growth, but it tends to come later."

Analysts say the economic recovery is likely to be bumpy as consumers try to pay down debt and credit for small businesses remains tight.

But such concerns were pushed aside on yesterday.

The Dow Jones industrial average rose 199.89, or 2.1 percent, to 9,962.58. It was the best day for the Dow since July 15.

The broader Standard & Poor's 500 index rose 23.48, or 2.3 percent, to 1,066.11, while the Nasdaq composite index rose 37.94, or 1.8 percent, to 2,097.55.

Bond prices fell, pushing their yields higher. The yield on the benchmark 10-year Treasury note rose to 3.50 percent from 3.42 percent late Wednesday. Bonds extended their early losses after a lackluster auction of seven-year notes.

The ICE Futures US dollar index, which measures the dollar against other major currencies, fell after five straight days of gains. The weaker dollar made commodities more attractive for foreign buyers. Gold rose $16.60 to $1,047.10 an ounce on the New York Mercantile Exchange, while crude oil soared $2.41 to settle at $79.87 a barrel.

Mitch Schlesinger, a managing partner at FBB Capital Partners in Bethesda, Maryland, said that because of government support, fourth-quarter GDP should provide a better picture of how much the economy has recovered.

"Some of the artificial goosing of the numbers will come out and we'll get a better picture," Schlesinger said. He added that the economy is likely to grow in the fourth quarter, but probably not at as fast a pace as the third quarter.

In the interim, however, investors will welcome the better-than-expected third quarter report, he said.

Other economic news was mixed. The number of people claiming jobless benefits for the first time dropped less than expected last week. The Labor Department said workers filing first-time claims for unemployment dipped 1,000 to a seasonally adjusted 530,000 last week. Economists expected a larger decline to 521,000.

However, the number of Americans receiving unemployment benefits on an ongoing basis dropped sharply by 148,000 to 5.8 million, below economists' expectations.

Unemployment and consumer spending remain the economy's biggest hurdles. Analysts said the market's renewed confidence following yesterday's GDP report could easily be shaken by the government's monthly employment report or retail sales, especially as the crucial holiday shopping season approaches.

In earnings news, Motorola Inc. shares climbed nearly 10 percent after the cell phone maker posted its second straight quarterly profit following months of heavy losses. The stock rose 78 cents to $8.74.

Five stocks rose for every one that fell on the New York Stock Exchange, where volume came to 1.5 billion shares compared with 1.7 billion Wednesday.

The Russell 2000 index of smaller companies rose 13.86, or 2.5 percent, to 580.22.

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Is U.S. economy out of the woods?

October 31, 2009
While some think the recession fighters are already out of the woods, others argue that there could be another downturn before there is light at the end of the woods.

    This question was pondered by pundits and laymen alike.

    MORE ENCOURAGING DATA
The Commerce Department reported that the U.S. economy expanded3.5 percent in the third quarter after four consecutive quarters of contraction, the strongest signal so far that the worst recession since the 1930s had ended.

    In the first two quarters of 2009, the U.S. real GDP (gross domestic product) decreased 6.4 percent and 0.7 percent. In the last two quarters of 2008, the economy contracted 2.7 percent and 5.4 percent.

    Data showed that the increase in real GDP in the third quarter of this year reflected a wide range of positive contributions from different economic sectors.
    Real personal consumption expenditures increased 3.4 percent in the third quarter, compared with a 0.9 percent decline in the second. Consumer spending on durable goods -- items expected to last more than three years -- soared at an annualized rate of 22.3percent in the July-September period, the biggest rise since the end of 2001.

    Exports of goods and services increased 14.7 percent in the third quarter, in contrast to a decrease of 4.1 percent in the second. The change in real private inventories added 0.94 percentage points to the third-quarter change in real GDP after subtracting 1.42 percentage points from the second-quarter change.

    Federal government spending, which rose at a rate of 7.9 percent in the third quarter, also made a significant contribution to the economic turnaround.

    The housing market also showed positive signs during the summer. Spending on housing projects surged at an annualized pace of 23.4 percent, the largest jump since 1986.

    "After four consecutive quarters of decline, positive GDP growth is an encouraging sign that the U.S. economy is moving in the right direction," the White House said Thursday in a statement.

    YET CAUTIOUSLY OPTIMISTIC

    Yet even the government was cautiously optimistic when it admitted that the GDP figure represented only part of the story.

    "This welcome milestone (growth in the third quarter) is just another step, and we still have a long road to travel until the economy is fully recovered," the White House said in the statement.

    "Unemployment remains unacceptably high for every person out of work, for every family facing foreclosure, for every small business facing a credit crunch," Treasury Secretary Timothy Geithner observed. "The recession remains alive and acute."

    In response to the GDP data, U.S. President Barack Obama said that "while this report today represents real progress, the benchmark I use to measure the strength of our economy is not just whether our GDP is growing, but whether we are creating jobs, whether families are having an easier time paying their bills, whether our businesses are hiring and doing well."

    Obama's concerns were echoed by many economists, who worried that the economy might still lose its strength since the recovery was mainly driven by the government's stimulus package and might not be sustainable when the stimulus policies fell off.

    The Obama administration launched a 787 billion-dollar stimulus package in February. But some of the policies have already expired or will expire soon.

    After the Cash-for-Clunkers program came to an end in August, U.S. auto sales fell sharply.

    New home sales also decreased at an unexpectedly high annual rate of 3.6 percent in September as the government-supported 8,000-dollar tax credit program for first-time home buyers will expire on Nov. 30.

    Home builders have started to worry that they would have trouble selling their homes without the incentive.
    GREATER CHALLENGES AHEAD

    It is certain that the U.S. economy's return to growth is good news for the world economy. But the sustainability of that return is not without uncertainty.

    First, although the government is quite aware of the importanceof job creation, the high unemployment rate will not fall to reasonable levels soon, which means the economy will suffer longer than predicted.

    "Even if we've turned the corner, we know it's a long way before we're completely recovered," Christina Romer, chair of the White House Council of Economic Advisers, said. "You can't have an unemployment rate of 9.8 percent and not be deeply troubled."

    The Federal Reserve and many other economic institutions do not expect the unemployment rate to drop below 9 percent in 2010.

    Second, the long-lasting debt problem seems hard to resolve.

    The Treasury Department announced on Oct. 17 that the federal budget imbalance of the fiscal year ending Sept. 30 had soared to 1.42 trillion dollars, which accounts for about 10 percent of the total GDP, the highest proportion since World War II.

    The U.S. House rolled out the health care legislation Thursday, which will add an 894 billion-dollar fiscal burden in a 10-year period.

    "Policy-makers have options to bolster the recovery, but they should be mindful of the long-run costs, particularly in terms of the budget deficit," said Karen Dynan, vice president and co-director of Economic Studies at the Washington-based think tank, the Brookings Institution.

    The third uncertainty is the dollar itself.

    Put into a global perspective, the U.S. growth was partially based on the devaluation of the dollar -- the still dominant reserve currency in the world.

    Statistics showed that the U.S. dollar had devaluated more than15 percent against major currencies since March this year.

    The Washington Post reported Thursday that "the dramatic decline of the U.S. dollar is aiding the American economic recovery but setting off alarm bells overseas, with corporate executives, politicians and pundits calling it among the biggest threats to the rebounds underway in other parts of the world."

    Besides, there are many other obstacles that lie ahead of the economic recovery, including the still tight credit condition, theailing banking system and the impending threat of inflation.

    The U.S. National Association for Business Economics predicts growth would slow to a 2.4-percent pace in the fourth quarter. It also expects a 2.5-percent growth rate in the first three months of next year, although other economists believe the pace would slow further, closer to 1 percent.

    "There is a great deal of uncertainty about the strength and speed of the nation's recovery, with gradual expansion being the most likely economic scenario," Dynan concluded. 

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Strong U.S. GDP data drives dollar lower

October 30, 2009

The dollar fell against most major currencies on Thursday as U.S. economic growth was stronger than expected in the third quarter.

Real gross domestic product (GDP) grew a 3.5 percent annual rate in the third quarter, stronger than most expectations, according to the U.S. Commerce Department. It was the first increase after four quarters of contraction. The report indicated that U.S. has emerged from its longest and deepest recession in the post-war period.

"This welcome milestone is just another step, and we still have a long road to travel until the economy is fully recovered," said Christina Romer, Chair of Council of Economic Advisors.

The strong data overstated the strength of the recovery because of temporary factors including the "cash-for-clunkers" program, the tax incentives for first-time homebuyers and the big swing in the inventories, said analysts of Global Insight.

High unemployment rate, weak consumer spending, and tight credit remain key hurdles to a full recovery. A growth relapse is expected in the next few quarters, though not into negative territory.

Senators agreed Wednesday to extend the tax credit for first-time home buyers and to offer a reduced credit to some repeat buyers. Treasury Secretary Tim Geithner and Housing and Urban Development Secretary Shaun Donovan gave their support to the extension on Thursday.

The credit has brought new families into the housing market and contributed to three consecutive months of rising home prices nationwide, Geithner and Donovan said in a statement.

The euro has been sliding in previous sessions as weak economic reports hurt hopes for recovery. The single currency rebounded on Thursday as risk appetite picked up.

The euro bought 1.4845 dollars in late New York trading compared with 1.4719 dollars it bought late Wednesday. The pound rose to 1.6548 dollars from 1.6413 dollars.

The dollar fell to 1.0662 Canadian dollars from 1.0790 Canadian dollars, and fell to 1.0181 Swiss francs from 1.0261 Swiss francs. It rose to 91.49 Japanese yen from 90.79 Japanese yen.

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Global consumers show more confidence

October 30, 2009
GLOBAL consumer confidence is rebounding, and in the United States it has risen for the first time since 2007, amid signs the world economy is picking up although spending is still restrained, a survey showed yesterday.

Confidence was highest in India, followed by Indonesia and Norway, and was weakest in Japan, Latvia, Portugal and South Korea, although in South Korea it had improved markedly, according to a quarterly survey by The Nielsen Company, conducted between September 28 and October 16.

"Consumer confidence is rising faster in BRIC countries than other markets, driven by increasing job prospects," said Oliver Rust, managing director of Nielsen Hong Kong.

In the US and Europe, high unemployment continued to discourage spending on big-ticket items although confidence had improved as the worst appeared to be over for those economies, New York-based Nielsen said.

In the US, consumer sentiment rose from three months ago for the first time since early 2007.

The data contrasts with a Conference Board index of US consumer confidence, which was released on Tuesday, which showed a sharp deterioration in confidence this month.

The Nielsen Global Consumer Confidence survey had the US reading at 84, up 4 points from a similar survey in July, but below the global average reading of 86 and well below India's score of 120.

"While consumer confidence in the US edged up 4 index points, that hasn't translated into spending confidence for the vast majority of American consumers," said James Russo, vice-president, global consumer insights at The Nielsen Company.

"Clearly, this recovery will be manifested in measured and restrained spending as consumers work to repair their balance sheets."

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U.S. new home sales drop in September,durable goods orders rise 1%

U.S. new home sales dropped unexpectedly in September as the government's tax credit for first-time home buyers is about to expire, according to official data released Wednesday.

The Commerce Department said sales decreased 3.6 percent to a seasonally adjusted annual rate of 402,000 from the downwardly revised 417,000 in August, and slumped 7.8 percent from a year ago.

The September data were much lower than most economists' forecast of 440,000 units. It was also the first decline since March.

The median sales price in September was down 9.1 percent to 204,800 U.S. dollars from 225,200 a year earlier.

Analysts said the housing market remained fragile, with the country's unemployment rate staying high and consumers reluctant to spend.

With the 8,000-dollar tax credit program for first-time home buyers to expire on Nov. 30, home builders and economists are worried that house selling will plunge after the deadline, further hurting the recession-wracked real-estate market.

The U.S. Congress is considering extending the tax credit through March 2010 and gradually phasing it out over the rest of next year.

U.S. orders for durable goods slightly rebounded in September, a positive sign for the manufacturing sector, according to government data released Wednesday.

The Commerce Department said new orders for manufactured durable goods expected to last at least three years rose 1.0 percent in September, matching economists' expectations.

September's rise in orders followed a 2.6 percent decline in August and a 4.8 percent surge in July.

A 7.9 percent rise in orders for machinery, the best showing since an 8.5 percent surge in March 2008, led the overall increase.

Excluding the transportation sector, where orders can vary widely from month to month, new orders rose 0.9 percent in September after a 0.4 percent fall in August.

Although the manufacturing sector has shown signs of recovery, many economists are worried that demand could falter in the months ahead as various government stimulus programs expire.

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Wall Street rallies on better-than-expected GDP report

October 30, 2009

Wall Street rallied on Thursday after the U.S. government posted a better-than-expected report on the economic growth.

The U.S. Commerce Department posted that the U.S. economy grew at an annual rate of 3.5 percent in the third quarter after four consecutive quarterly declines, showing a sign that the worst recession since the 1930's has ended.

Consumer spending on durable goods soared at an annualized rate of 22.3 percent in the July-September period, the biggest rise since the end of 2001. The jump largely reflected car purchases driven by the government's Cash for Clunkers program.

Federal government spending, which rose at a rate of 7.9 percent in the third quarter, also made a significant contribution to the economic turnaround.

However, some economist worried that the recovery was mainly driven by the government's stimulus package and might not be sustainable when the stimulus policies fell off.

On Thursday, the Labor Department said its tally of newly laid-off workers seeking unemployment insurance fell by 1,000 to a seasonally-adjusted 530,000 last week. Analysts expected a steeper drop to 521,000. The reading indicated that the labor market remains weak even as the economy is recovering.

Energy companies and raw-material producers rose as crude oil and metals posted gains.

Motorola Inc. and Procter &Gamble Co. climbed on better-than- estimated earnings.

The Dow Jones rose 199.81, or 2.05 percent, to 9,962.58. Broader indexes also went higher. The Standard &Poor's 500 index climbed 23.48, or 2.25 percent, to 1,066.11 and the Nasdaq rose 37.94, or 1.84 percent, to 2,089.42.

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Roubini warns of another financial crisis

October 30, 2009

Investors worldwide are borrowing U.S. dollars to buy assets including equities and commodities, fueling "huge" bubbles that may spark another financial crisis, said New York University professor Nouriel Roubini on Wednesday.

"We have the mother of all carry trades," Mr. Roubini, who predicted the banking crisis that spurred more than US$1.6-trillion of asset writedowns and credit losses at financial companies worldwide since 2007, said via satellite to a conference in Cape Town, South Africa. "Everybody's playing the same game and this game is becoming dangerous."

The dollar has dropped 12% in the past year against a basket of six major currencies as the Federal Reserve, led by chairman Ben S. Bernanke, cut interest rates to near zero in an effort to lift the U.S. economy out of its worst recession since the 1930s. Mr. Roubini said the dollar will eventually "bottom out" as the Fed raises borrowing costs and withdraws stimulus measures including purchases of government debt. That may force investors to reverse carry trades and "rush to the exit," he said.

"The risk is that we are planting the seeds of the next financial crisis," said Mr. Roubini, chairman of New York-based research and advisory service Roubini Global Economics. "This asset bubble is totally inconsistent with a weaker recovery of economic and financial fundamentals."

The MSCI World Index of advanced-nation equities has surged 65% from this year's low on March 9, while the MSCI Emerging Markets Index has jumped 96%. The Reuters/Jefferies CRB Index of 19 commodities has added 33%.

Mr. Roubini said he sees a bubble in emerging-market equities and that gains in some developing-nation currencies are becoming "excessive." The rally in oil "is not justified by the fundamentals," he said.

An asset "bust" may not occur for another year or two as a "wall of liquidity" pushes prices higher, Mr. Roubini said. In a carry trade, investors borrow in countries with low interest rates to invest in higher-yielding assets.

Mr. Roubini said the U.S. recession seems to be over, though the economic recovery in advanced nations will be "anemic." He's "more optimistic" on the outlook for emerging-nation growth.

The U.S. economy likely expanded at a 3.2% pace from July through September after shrinking the previous four quarters, according to the median estimate of 65 economists surveyed by Bloomberg News before the Commerce Department's report on gross domestic product due Oct. 29.

The economy shrank 3.8% in the 12 months to June, the worst performance in seven decades.

Mr. Roubini's July 2006 warning about the financial crisis protected investors from losses in the Standard & Poor's 500 index's worst annual tumble in seven decades. The U.S. equity benchmark has surged 58% from a 12-year low in March even as Mr. Roubini said that month the advance was a "dead-cat bounce," that it may "fizzle" in May and warned in July that the economy is "not out of the woods."
The New Financial Post Stock Market Challenge starts in October. You could WIN your share of $60,000 in prizing.

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Dollar extends gains against euro

October 29, 2009

The dollar extended its gains against the euro and some other major currencies on Wednesday as safety-haven demand for the greenback improved on weak U.S. home sales data.

Sales of newly constructed homes fell unexpectedly by 3.6 percent month-to-month in September to an annualized rate of 402,000 units, the Commerce Department reported on Wednesday. The estimate for June, July and August new home sales were revised down.

The number of unsold new homes fell for the 29th consecutive month to 251,000 units. The supply of new homes at current sales rates, an inventory yardstick, was unchanged at 7.5 months. Selling a new home has never been harder as the median time for sales stood at 13 months, the highest since records began in 1963.

One possible cause for the surprisingly decline is that inventory has fallen so low that builders do not have enough completed homes on hand, and are losing sales to the market of existing homes, said analysts of Global Insight. A second possibility is that the boost from the government tax credit for first time home buyers has past.

A separate report of the Commerce Department showed new orders for durable good rose by 1.0 percent in September. Orders of core nondefense capital goods (excluding aircraft) increased by 2.0 percent, while core shipments fell slightly.

The gains of new orders were primarily driven by machinery industries, with machinery orders up 7.9 percent. Other key industries, including motor vehicles and computers were about flat.

Currency traders were watching closely to the first estimate for U.S. third-quarter gross domestic product (GDP) to be released on Thursday. Economists of some major banks cut their outlooks for the data. Goldman Sachs economists cut their forecast to 2.7 percent growth from 3 percent. Morgan Stanley cut its outlook to 3.8 percent from 3.9 percent. Bank of America-Merrill Lynch lowered its forecast to 2.3 percent from 2.5 percent.

The euro bought 1.4719 dollars in late New York trading compared with 1.4809 dollars it bought late Tuesday. The pound rose to 1.6413 dollars from 1.6386 dollars.

The dollar rose to 1.0790 Canadian dollars from 1.0632 Canadian dollars, and rose to 1.0261 Swiss francs from 1.0214 Swiss francs. It fell to 90.79 Japanese yen from 91.81 Japanese yen.

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Gold declines for fifth session on strong dollar, weak oil

October 29, 2009

Gold futures on the COMEX Division of the New York Mercantile Exchange dropped for the fifth session on Wednesday due to a rising dollar and weak oil. Silver and platinum both fell.

The most active gold contract for December delivery dropped 4.90 U.S. dollars, or 0.5 percent, to finish at 1,030.50 dollars an ounce.

Dollar rose for the fourth session on Wednesday as a report on the housing sector added to worries about the strength of the U.S. economy's rebound, which made investors flock to the greenback for safe-haven.

The Commerce Department said the U.S. new home sales dropped for the first time in five months. Sales slid 3.6 percent in September to 402,000 from 417,000 in August, well below the 440,000 analysts had forecast.

By the end of gold floor trading time, the dollar index, a gauge measuring the greenback's value against a basket of major currencies, rose 0.245 to 76.525, the strongest level in two weeks, eroding gold's demand of hedge and haven.

Plummeting energy prices put additional pressure on the precious metal. After the Energy Department reported a higher than expected jump in U.S. gasoline supplies, the benchmark crude contract for December delivery in New York tumbled almost 2 dollars to a 77.64 dollars a barrel.

December silver was down 30 cents to 16.24 dollars per ounce. January platinum lost 12.10 dollars to 1,306.90 dollars an ounce.

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Stocks slide as new home sales fall

October 29, 2009
SIGNS of a weaker U.S. housing market and a gloomier outlook on the economy gave investors more reasons to dump stocks.

Major market indexes fell sharply yesterday after the Commerce Department said new home sales dropped for the first time in five months. Sales slid 3.6 percent in September to 402,000. Analysts had expected an increase.

The Dow Jones industrial average lost 119 points, or 1.2 percent. The Nasdaq composite index fell 2.7 percent, while the Russell 2000 index of smaller companies tumbled 3.5 percent. Many of the stocks in both indexes are considered more risky and so they suffered some of the biggest losses.

The retreat came as Goldman Sachs Group Inc. reduced its expectation for the U.S. economic output for the July-September period. Goldman Sachs predicts third-quarter gross domestic product rose at an annual rate of 2.7 percent, weaker than its earlier forecast of 3 percent.

The government's report on third-quarter GDP is due Thursday. Economists are looking for growth at an annual rate of 3.3 percent after a record four straight quarters of contraction.

The day's slide signaled that investors were reassessing their hopes for a recovery in the economy. Demand for safe-havens like Treasurys rose as did stocks of companies whose business is expected to fare better in a slump. Stocks of consumer staples companies like Procter & Gamble Co., which makes Tide detergent and Gillette razors, edged higher.

Analysts said the market's slide in the past week isn't surprising given the size of the advance in the last eight months and mixed economic readings.

"I'm not panicked at the moment," said Manny Weintraub, president of Integre Advisors in New York. "I don't think anyone expected a super robust recovery."

Stocks struggled Tuesday after a disappointing report on consumer confidence stirred worries about the strength of the coming holiday shopping period.

The Dow fell 119.48, or 1.2 percent, to 9,762.69.

The broader Standard & Poor's 500 index fell for the fourth straight day, sliding 20.78, or 2 percent, to 1,042.63. The Nasdaq fell 56.48, or 2.7 percent, to 2,059.61.

The Russell 2000 index of smaller companies fell 20.63, or 3.5 percent, to 566.36.

At the New York Stock Exchange 2,777 stocks rose, while 322 rose. Volume came to 1.7 billion shares compared with 1.4 billion Tuesday.

Overseas markets also tumbled.

Bill Schultz, chief investment officer at McQueen, Ball & Associates in Bethlehem, Pennsylvania, said investors are looking at the latest data and worrying that the market has risen too much in anticipation of a recovery. The S&P 500 index is up 54.1 percent from a 12-year low in March, though it is down 5 percent since finishing at its highest level in more than a year at the start of last week.

The biggest slide since the market began rebounding eight months ago was a 7 percent slide from mid-June to mid-July.

"You're starting to see some trepidation about how we move forward," he said. Schultz said the market is likely to stall without improvements in how much revenue companies bring in and better readings on unemployment.

With about half the companies in the S&P 500 index having reported third-quarter results, revenue is down 7.5 percent from a year earlier, according Thomson Reuters. The unemployment rate stands at 9.8 percent and is expected to top 10 percent.

A strengthening dollar and falling commodities prices have weighed on stocks. The ICE Futures US dollar index rose for a fifth straight day yesterday, its longest gains since the start of July.

Bond prices rose as investors sought safety from a falling stock market. That sent yields lower. The yield on the benchmark 10-year Treasury note fell to 3.42 percent from 3.45 percent late Tuesday.

Crude oil fell US$2.09 to settle at US$77.46 per barrel on the New York Mercantile Exchange. Gold fell.

The drop in oil weighed on shares of energy companies. Oilfield services company Schlumberger Ltd. fell US$2.66, or 4.1 percent, to US$62.27.

Home builders fell after the sales data. Hovnanian Enterprises Inc. slid 41 cents, or 9.5 percent, to US$3.89. Toll Brothers Inc. fell 99 cents, or 5.5 percent, to US$16.95.

The drop in new home sales follows a report from the National Association of Realtors last week that sales of existing home posted the biggest increase in 26 years in September as buyers tried to get ahead of a tax credit set to expire.

Some corporate news also touched off worries. Goodyear Tire & Rubber Co. tumbled after it predicted operating income will fall in North America in the fourth quarter. The company said its third-quarter profit more than doubled as it cut costs and added products. The stock fell US$3.28, or 19.6 percent, to US$13.46.

In another sign of lingering troubles in the financial industry, GMAC Financial Services is in talks with the Treasury Department for a third bailout. The auto and mortgage lender has been among the financial firms hardest hit by rising loan defaults and troubled credit markets. The government already holds a 35 percent stake in GMAC after giving it US$12.5 billion in bailout money.

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Obama grants $3.4b to smarter power grid

October 29, 2009

US President Barack Obama announced Tuesday a 3.4-billion-US-dollar grant to support the nation's historic power transmission system reform.

The modernization would lead to a "smarter, stronger and more secure electric grid," Obama said after touring a solar energy center in Arcadia, Florida.

The president said the effort could compare to the ambitious development of the national highway system 50 years ago.

Some 100 firms, manufacturers, utilities and cities were awarded grants worth from $400,000 to $200 million to help build a nationwide "smart energy grid" to cut costs and upgrade the power grid.

The money comes from the $787 billion economic stimulus package Congress approved earlier this year.

Projects include installing "smart" electric meters in homes, automating utility substations, and installing thousands of new digital transformers and grid sensors.

"It is something that will give us sort of a transformational impact on how electricity is generated, delivered, and consumed," said Carol Browner, assistant to the president for energy and climate change.

The program is in line with the president's vow to lead the global battle against bloated energy consumption and climate change, and to build a "green economy" to produce new generation of jobs in an environmental revolution.

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Gold falls on worries over metal demand

October 28, 2009

Gold fell for a fourth straight session, the longest slide since August, amid concern that the dollar will extend a rally, curbing demand for the precious metal as an alternative asset.

The US dollar rose against a basket of six major currencies, adding to three consecutive advances since October 21, when it touched a 14-month low. Gold, which often moves inversely to the greenback, has dropped 2.7 per cent in the past four sessions.

"Gold doesn't have that much buying interest," said Matt Zeman, a LaSalle Futures Group Inc. metals trader in Chicago. "The dollar could undergo a wicked short-covering rally, and the gold market needs to look out below."

Gold futures for December delivery fell $US7.40, or 0.7 per cent, to $US1035.40 an ounce on the Comex division of the New York Mercantile Exchange. The slump was the longest since August 10. The metal has climbed 17 per cent this year, reaching a record $US1072 on October 14.

A rise in bets on a drop in futures is a "signal that an increasing proportion of market players view the current gold price as unsustainable," Eugen Weinberg, a Commerzbank AG analyst in Frankfurt, said yesterday in a report. "Should this sentiment spread further, gold could come under considerable pressure."

Hedge funds and other large speculators trimmed their net- long position in gold futures by 2 per cent as of October 20, from a record in the previous week, and miners, producers and commercial users increased their net-short position, Commodity Futures Trading Commission data show. A net-long position benefits when prices rise, while net-shorts gain from a decline.

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Dollar mixed against major currencies

October 28, 2009

The dollar rose against the euro but fell against the pound on Tuesday amid weak U.S. consumer confidence and strong U.K. retail sales data. The Conference Board's consumer confidence index tumbled by 5.7 points to 47.7 in October. The present situation index dropped by 2.3 points to hit a 26-year low of 20.7. The expectations index collapsed by 8.0 points to 65.7. Buying intentions for autos, homes and major appliances declined.

The sharp decline was driven primarily by consumers' perceptions of deteriorating labor market conditions. It provided further evidence that the consumer sector will not be much of a driver of the recovery in the next few months. The report boosted safety-haven demand for the dollar, driving the U.S. currency higher against the euro.

The dollar fell against the pound as a Confederation of British Industry report showed U.K. retail sales grew at the most positiverate in almost two years in October. The survey also showed that sales in sectors related to the housing market improved, and that the high street anticipates stronger sales growth in November.

The latest S&P/Case-Shiller house price index for 20 major metropolitan areas rose 1.2 percent month-to-month in August after seasonally adjusted. It was the third consecutive gain of the index, with house prices 3 percent higher from the May low.

The government tax credit for first time home buyers boosted house prices and sales in recent months. Demand will take a hit after the tax credit expires in November, analysts said. Home prices are expected to drop another 5 percent from current levels, and to hit bottom in 2010.

The euro bought 1.4809 dollars in late New York trading compared with 1.4958 dollars it bought late Monday. The pound rose to 1.6386 dollars from 1.6303 dollars. The dollar fell to 1.0632 Canadian dollars from 1.0675 Canadian dollars, and rose to 1.0214 Swiss francs from 1.0189 Swiss francs. It fell to 91.81 Japanese yen from 92.21 Japanese yen.

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Oil rises above US$79 amid dollar volatility

October 28, 2009
CRUDE oil prices rebounded yesterday after three straight days of declines, offsetting an unexpected slump in consumer confidence.

Benchmark crude for December delivery rose 87 cents to settle at US$79.55 a barrel on the New York Mercantile Exchange.

Crude jumped to a 12-month high at US$82 a barrel last week as the dollar weakened amid concerns that massive global stimulus spending will eventually spark inflation.

The dollar has lost more than 15 percent of its value since March.

Because crude is bought and sold with dollars, investors who hold euros or other currencies that have strengthened against the dollar can essentially buy more crude with less.

Some economists expect the dollar and oil to stabilize over the next three to six months as inflation fears ease.

The dollar was mixed in yesterday trading after a report showed U.S. consumers' confidence dropping this month, raising doubts about the vitality of the economy's recovery. The 16-nation euro dropped to US$1.4809 in late New York trading from US$1.4859 late Monday. The British pound rose to US$1.6386 from US$1.6303. Meanwhile, the dollar edged up to 92.81 Japanese yen from 92.21 yen.

The Consumer Confidence Index, released by The Conference Board, sank unexpectedly to 47.7 in October - its second-lowest reading since May.

Economists watch consumer confidence because spending on goods and services by Americans accounts for about 70 percent of U.S. economic activity by federal measures. Recent economic data, from housing to manufacturing, has offered mixed signals but some evidence that an economic recovery might be slow.

An Energy Department report due Wednesday will likely show that U.S. stockpiles of crude oil rose last week, but supplies of gasoline and distillate fuel, a category that includes heating oil and diesel, declined, according to analysts.

In other Nymex trading, heating oil rose 2.16 cents to settle at US$2.0523 a gallon. Gasoline for November delivery advanced 3.67 cents to US$2.0705 a gallon, while natural gas for November delivery rose 4.4 cents to settle at US$4.557 per 1,000 cubic feet.

In London, Brent crude for December delivery settled 66 cents higher at US$77.92 on the ICE Futures exchange.

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US Stocks mostly fall on mixed data

October 28, 2009
U.S. stocks mostly fell yesterday as mixed reports on home prices and consumer confidence gave investors little incentive to step into the market.

A decision by IBM Corp. to double its stock-repurchase plan propped up the Dow Jones industrials, but the Nasdaq composite index slid after Baidu Inc., the Chinese Internet search company, warned its revenue could take a hit as it switches its advertising system. Two stocks fell for every one that rose.

Bond prices rose after strong demand at a government debt auction, signaling that investors are still seeking safety.

Stocks rose at the start of trading following a report that home prices in 20 major metropolitan markets increased for the third straight month in August. The Standard & Poor's/Case-Shiller home price index gained 1 percent in August from July.

However, the higher home prices weren't enough to offset worries that consumers might not be in a mood to spend this holiday season. The Conference Board said its Consumer Confidence Index fell unexpectedly to 47.7 in October, its second-lowest reading since May. Analysts predicted a figure of 53.1.

Worries about consumers have been around for a while, but they took some of the sheen off corporate profit reports for the July-September quarter, which have been coming in ahead of expectations.

"When I look at the consumer, I think that is the next big test," said Dave Hinnenkamp, chief executive KDV Wealth Management in Minneapolis. "We've passed a big test on the earnings front."

The Dow rose 14.21, or 0.1 percent, to 9,882.17. The broader Standard & Poor's 500 index fell 3.54, or 0.3 percent, to 1,063.41, while Nasdaq fell 25.76, or 1.2 percent, to 2,116.09.

Bond prices rose after a Treasury Department auction of $44 billion in two-year notes drew robust demand. That pushed yields lower. The yield on the two-year note rose fell to 0.94 percent from 1.04 percent late Monday. The yield on the benchmark 10-year Treasury note fell to 3.45 percent from 3.56 percent.

Stocks have fallen for most of the past week on worries about the economy. The Dow dropped 104 points Monday after a similar slide Friday. It was the first consecutive triple-digit loss for the Dow since mid-June.

The latest drops came as a strengthening dollar pushed the prices of commodities lower. The dollar mostly rose again yesterday but didn't dominate trading.

Analysts say the coming days could be choppy as traders look for fuel to extend the market's climb. The down days are welcome by those who say the advance has been too quick. The S&P 500 index is up 57.7 percent since March but down from the start of last week when it touched its highest level in more than a year.

Frank Ingarra Jr., co-portfolio manager at Hennessy Funds in Stamford, Connecticut, said the market is about where it should be but could stall if more companies can't show they will boost profits by bringing in more revenue and not just by slashing costs.

"We have a pretty good valuation here. To propel us to go forward we need to have good top-line growth and you're just not seeing it," he said.

The end of the month could also present hurdles for investors. For many mutual funds, the last trading day of their fiscal year is Friday. Fund managers looking to minimize taxes for shareholders could sell some of their investments.

Investors are also looking to the government's first reading on economic output for the third quarter. The report on gross domestic product is due Thursday and could signal an end to the recession that many analysts have said is over, at least officially.

Joe Battipaglia, market strategist for the private client group at Stifel Nicolaus & Co. in Yardley, Pennsylvania, said recent economic data don't support arguments for a fast recovery in the economy, nor do they suggest a rebound would be weak enough to push stocks back down to the levels of eight months ago.

"We are in what I would call purgatory right now where the U.S. economy is rather limp," he said.

Crude oil rose 87 cents to settle at US$79.55 per barrel on the New York Mercantile Exchange. Gold fell.

IBM, one of the 30 companies that make up the Dow, rose after it added US$5 billion to its stock repurchase fund. The total now stands at US$9.2 billion. The stock advanced 54 cents, or 0.5 percent, to US$120.65.

Baidu's American Depositary shares slid US$49.31, or 11.4 percent, to US$383.66 after it its warning about revenue.

Volume at the New York Stock Exchange came to 1.4 billion shares, in line with Monday.

The Russell 2000 index of smaller companies slid 6.69, or 1.1 percent, to 586.99.

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Crude rally hits the brakes

THE crude rally hit the brakes yesterday with a barrel of oil tumbling more than 2 percent, as the dollar strengthened after hitting a 14-month low.

Benchmark crude for December delivery fell US$1.82 to settle at US$78.68 a barrel on the New York Mercantile Exchange.

PFGBest analyst Phil Flynn said weakness in the U.S. dollar has driven the price of oil far beyond the realities of what normal supply and demand fundamentals typically bear.

"The increase was driven not so much by demand but by declining gas production and a weakening dollar," Flynn said in his morning report. "Things are out of whack as (U.S.) refiners have scaled back production to historic lows as their margins get squeezed."

Crude prices, which rose to US$82 last week, fluctuated yesterday as the dollar hit a fresh 14-month low against the euro before strengthening. Because commodities are priced in dollars, a drop in the U.S. currency makes them cheaper to international investors.

The euro touched a 14-month high of US$1.5061 in overnight trading before falling to US$1.4859 in New York yesterday afternoon. Late on Friday in New York, the euro was at US$1.5002.

Meanwhile, traders will be looking to a slew of corporate results and economic indicators for guidance this week. The Commerce Department is scheduled to announce third-quarter gross domestic product, with reports on housing prices, new home sales, consumer confidence and durable goods orders also due during the week.

Third-quarter earnings from Kellogg Co., Procter & Gamble Co. and Visa Inc. will provide insight into consumer spending while ConocoPhillips, Exxon Mobil Corp., Aetna Inc. and MetLife Inc. are also due to announce results.

"If the oil price continues to rise in the next week or two, there is a danger that economic recovery will be strangled at birth and these fears will give rise to talk that OPEC must act to put more oil into the market to cap prices," said a report from Britain's KBC Market Services. "Today's US$80 (per barrel) price is not firmly grounded because the fundamentals for both the economy and the oil market remain weak."

A new cease-fire agreement between the Nigerian government and rebels in the oil-rich Niger Delta region was helping to keep a ceiling on oil prices.

Unrest in the region had cut Nigeria's oil production by about a million barrels a day, allowing Angola to overtake it as Africa's top oil producer.

In other Nymex trading, heating oil fell 4.21 cents to settle at US$2.0335 a gallon. Gasoline for November delivery lost a penny to settle at US$2.0338 a gallon. Natural gas for November delivery slid 27.4 cents to settle at US$4.513 per 1,000 cubic feet.

In London, Brent crude for December delivery gave up US$1.66 to settle at US$77.26 a barrel on the ICE Futures exchange.

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October 27, 2009
A STRENGTHENING dollar and worries about an overheated market pounded stocks yesterday.

Shares started the day higher but turned sharply lower at midmorning as interest rates rose and a rebound in the value of the dollar stalled a rally in commodities. Early gains in prices for oil and other commodities had pushed up shares of energy and materials companies.

The sharp swings in currency and commodity markets sent the Dow Jones industrial average whipsawing in a 200-point range, surrendering an early advance for a loss of 104 points. Stocks have fallen in four of the last five days.

Oil gave up early gains to slide US$1.82 to US$78.68 per barrel on the New York Mercantile Exchange. That hurt the shares of major oil companies such as ConocoPhillips.

Changes in the dollar's value against other currencies like the euro or Japanese yen frequently send commodity prices up or down. Since most commodities are priced in dollars they become more attractive to non-U.S. investors when the dollar is weak, and more expensive when the dollar is strong.

Analysts also said some investors are looking to pocket gains after a stock market run that has stretched nearly eight months and brought share prices to their highest levels in a year last week.

Technology shares fared better than other parts of the market after Marvell Technology Group Ltd., which makes chips used in phone networks, raised its fiscal third-quarter revenue forecast. That helped the technology-focused Nasdaq composite index limit its losses. RadioShack Corp.'s third-quarter sales topped expectations, helping retailers.

Richard Ross, global technical strategist at Auerbach Grayson in New York, said the direction of the dollar as well as volatility continues to drive trading. "You're seeing this sort of waltz between the dollar and volatility and stocks," Ross said.

The Dow fell 104.22, or 1.1 percent, to 9,867.96.

The broader Standard & Poor's 500 index fell 12.65, or 1.2 percent, to 1,066.95. The index, which is the basis for many mutual funds, is down 2.8 percent from its recent peak a week ago.

The Nasdaq fell 12.62, or 0.6 percent, to 2,141.85.

About three stocks fell for every one that rose on the New York Stock Exchange, where volume came to 1.4 billion shares compared with 1.3 billion Friday.

Stocks fell Friday after a rise in the dollar hurt commodity prices. The Dow lost 0.2 percent last week, while the S&P 500 index fell 0.7 percent.

Bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.57 percent from 3.49 percent late Friday. It was the first time since late August that the yield topped 3.50 percent.

The dollar rose against most other major currencies, while gold fell.

Financial stocks posted some of the biggest losses as an influential analyst lowered his ratings on some regional banks and as traders worried about what might happen if regulators try to impose rules on the size of financial institutions.

"We're seeing legislation in Washington drive trading," said John Brady, senior vice president of global interest rate products at MF Global in Chicago.

Meanwhile, Rochdale Securities bank analyst Richard Bove lowered his ratings on Fifth Third Bancorp, SunTrust Banks Inc. and US Bancorp. Fifth Third fell 82 cents, or 7.9 percent, to US$9.52 and SunTrust slid US$1.14, or 5.4 percent, to US$19.85. US Bancorp fell 80 cents, or 3.2 percent, to US$24.15.

Among oil companies, ConocoPhillips sank US$1.23, or 2.4 percent, to US$50.74.

In other trading, Marvell rose 41 cents, or 2.8 percent, to US$14.99, while RadioShack rose US$2.49, or 15.9 percent, to US$18.15.

The Russell 2000 index of smaller companies fell 7.18, or 1.2 percent, to 593.68.

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Home sales in US pick up momentum

October 25, 2009
SALES of previously owned homes in the United States rose in September to the highest level in more than two years, beating expectations, as buyers scrambled to complete their purchases before a tax credit for first-time owners expires.

The National Association of Realtors said yesterday that sales rose 9.4 percent to a seasonally adjusted annual rate of 5.57 million in September, from a downwardly revised pace of 5.1 million in August. Sales had been expected to rise to an annual pace of 5.35 million, according to economists surveyed by Thomson Reuters.

The median sales price was US$174,900, down 8.5 percent from a year earlier, and slightly lower than August's median of US$177,300.

"There's a mini-boom going on in the housing market," said Thomas Popik, who conducts a monthly survey of real estate agents for Campbell Communications, a research firm.

The inventory of unsold homes on the market fell about 7 percent to 3.63 million. That's a 7.8-month supply at the current sales pace, and the lowest level since March 2007.

Nationwide sales are up nearly 24 percent from their bottom in January, but are still down 23 percent from four years ago. Sales rose around the country, especially in the West, where they grew 13 percent from a month earlier. Foreclosure sales are booming in cities like Los Angeles, San Diego and Las Vegas.

First-time home buyers and investors are snapping up those homes and taking advantage of low mortgage rates.

These buyers can also take advantage of a tax credit of 10 percent of the sales price, up to US$8,000, if the sale is completed by the end of November.

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Oil breaks resistance, may hit $US90

October 25, 2009
 Crude oil has breached a key resistance level of $US76.28 a barrel, giving it the "capacity" to rise to just under $US90 based on Fibonacci retracements, ANZ analysts said.

Oil, which is trading near a one-year high in New York, is "taking a pause" to consolidate before moving up toward $US89.85 a barrel, said Geoff Clear, the Singapore-based head of Asian commodities at ANZ.

"We saw a break above $US76.28 a barrel - that was the big `break up' level," Clear said. "We're in a new range."

Crude prices have surged 83 per cent since March 5 while the Dollar Index, which tracks the currency against those of six major U.S. trading partners, has fallen 16 per cent since then. The sliding US dollar and a recovery in equity markets prompted investors to buy commodities as an inflation hedge.

Crude may encounter its next resistance level at $US83.60, according to Clear.

"If we start to get close to the $US83.60 level, it's the next targeted Fibonacci retracement that I can see in the market," Clear said. "Prices will do a bit of work below $US83.60 initially, and then we'll go on from there."

Crude oil for November delivery was at $US79.75 a barrel, up 14 cents, in electronic trading on the New York Mercantile Exchange at 9:43 a.m. Singapore time. Prices settled at $US79.61 yesterday, the highest close since Oct. 13, 2008.

The November contract expires today. The more actively traded December contract was at $US80.06 a barrel, up 10 cents in Singapore.

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U.S. may lose AAA-rating, Moody's warns

October 25, 2009
The United States my lose its AAA-rating if it can not control its deficit hike, rating agency Moody's Investors Service warned on Thursday.

    Steven Hess, Moody's lead analyst for the United States, said in a TV interview that the AAA rating of the United States is "not guaranteed." He said if the U.S. deficit does not drop to a sustainable level in the next three to four years, the U.S. rating will be "in jeopardy."

    The U.S. government posted a record deficit of 1.417 trillion U.S. dollars in the fiscal year ended Sept. 30. Stimulus package to combat the severe recession and a series of bailout rescues to banks and automakers have put a heavy burden on government spending.

    The Obama administration has predicted that deficits would top 1 trillion dollars through fiscal year 2011.

    Currently Moody's has a stable outlook on the U.S. rating, an indication that there will not be a change in the next 18 months.

    Also on Thursday, Moody's said European countries' rising debt won't trigger across-the-board credit-rating downgrades as countries are measured relative to each other. Earlier this year, Standard & Poor's lowered its outlook on Britain from stable to negative, causing unrest in global equity markets.

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Increase in number of new jobless claims in US

October 25, 2009
THE number of newly laid-off workers filing claims for jobless benefits in the United States rose more than expected last week, after falling in five of the past six weeks, as employers remain reluctant to hire even with the economy showing signs of recovery.

The Labor Department yesterday said new jobless claims rose to a seasonally adjusted 531,000 last week, from an upwardly revised 520,000 the previous week.

Economists closely watch initial claims, which are considered a gauge of layoffs and an indication of companies' willingness to hire new workers.

The four-week average of claims fell slightly to 532,250, the lowest since mid-January and about 125,000 below the peak for the recession reached this spring. But claims remain well above the 325,000 that economists say is consistent with a healthy economy.

The number of people continuing to claim benefits did drop for the fifth straight week to 5.9 million, from just over 6 million. The figures on continuing claims lag initial claims by a week.

Many recipients are moving onto extended benefit programs approved by Congress in response to the recession, which began in December 2007 and is the worst since the 1930s. Those extensions add up to 53 weeks of benefits on top of the 26 typically provided by the states.

When those programs are included, the total number of recipients dropped to 8.8 million in the week ending October 3, the latest data available, down about 50,000 from the previous week. That decline is likely due to recipients running out of benefits, rather than finding jobs, economists say.

Many analysts expect the economy grew as much as 3 percent in the July-September quarter, but employers are reluctant to hire as they wait to see if such growth can be maintained.

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Bank failures top 100, only part of industry woes

October 24, 2009
The cascade of bank failures this year surpassed 100 on Friday, the most in nearly two decades. And the trouble in the banking system from bad loans and the recession goes even deeper than the number suggests.

Dozens, perhaps hundreds, of other banks remain open even though they are as weak as many that have been shuttered. Regulators are seizing banks slowly and selectively — partly to avoid inciting panic and partly because buyers for bad banks are hard to find.

Going slow buys time. An economic recovery could save some banks that would otherwise go under. But if the recovery is slow and smaller banks' finances get even worse, it could wind up costing even more.

The bank failures, 106 in all, are the most in any year since 181 collapsed in 1992, at the end of the savings-and-loan crisis. On Friday, regulators took over three small Florida banks — Partners Bank and Hillcrest Bank Florida, both of Naples, and Flagship National Bank in Bradenton — along with American United Bank of Lawrenceville, Ga., Bank of Elmwood in Racine, Wis., Riverview Community Bank in Otsego, Minn., and First Dupage Bank in Westmont, Ill.

When a bank fails, the Federal Deposit Insurance Corp. swoops in, usually on a Friday afternoon. It tries to sell off the bank's assets to buyers and cover its liabilities, primarily customer deposits. It taps the insurance fund to cover the rest.

Bank failures have cost the FDIC's fund that insures deposits an estimated $25 billion this year and are expected to cost $100 billion through 2013. To replenish the fund, the agency wants banks to pay in advance $45 billion in premiums that would have been due over the next three years.

The FDIC won't say how deep a hole its deposit insurance fund is in. It can tap a credit line from the Treasury of up to a half-trillion dollars to cover the gap.

The list of banks in trouble is getting longer. At the end of June, the FDIC had flagged 416 as being at risk of failure, up from 305 at the end of March and 252 at the beginning of the year.

Yet the pace of actual bank failures appears to be slowing. The FDIC seized 24 banks in July, 11 in September and 11 in October.

If any bank poses an immediate danger to customers or the broader financial system, regulators close it immediately, bank supervisors said. The issue is murkier for troubled banks that might qualify to close but whose closings might still be postponed or even prevented.

The FDIC's first priority, spokesman Andrew Gray said, is to maintain public confidence in the banking system. "As evidenced by the stability of insured deposits throughout last year, this mission has been a success," he said.

He said public confidence isn't reason enough to delay a bank closing, because legally the decision to close rests with whoever chartered the bank — a state or federal agency.

But more than a dozen experts, including current and former regulators, bankers and lawyers, say the FDIC's mission to maintain public confidence in the banking system contributes to the go-slow approach.

"The FDIC was set up to create confidence and prevent bank runs," says Mark Williams, a former bank examiner for the Federal Reserve. Being too aggressive about bank closings "can be counter to the mission."

Sarah Bloom Raskin, Maryland's top banking regulator, said: "Technically it's the states who decide, but in reality it's the FDIC calling you to say" when the bank will be closed.

Last fall, the financial turmoil was rooted in bad bets that the nation's biggest banks, like Citigroup Inc. and Bank of America Corp., had made on complicated, high-risk mortgage investments.

Smaller banks have been undone by something more conventional — real estate, construction and industrial loans that have soured as the recession has deepened. Defaults are up as developers abandon failing projects and landlords can't meet their loan payments.

Small- and mid-sized banks hold lots of those loans and have been hurt more than big ones by the sinking commercial real estate market, especially in states like California, Georgia and Illinois. As defaults rise, these banks must set aside more money to cover losses.

For the banks, this means mounting losses and shrinking reserves.

In a healthy economy, Williams said, the Fed and the FDIC would be inclined to close such weak banks. But these days, those agencies and other regulators prefer to hold off, hoping an economic recovery will eventually restore the health of some of the banks.

But the recovery is expected to be slow. Americans remain hesitant to spend money because of job losses, flat wages, tight credit and high debt. Their cutbacks have triggered tens of thousands of business failures.

Abandoned retail space in downtowns and suburban malls means no rental income for property owners. As landlords default on real estate loans, they weaken the banks that hold the loans.

The situation now is especially grave in Southern California, Georgia and Illinois, which have some of the highest home foreclosure rates. Twenty banks have closed in Georgia alone.

Individual bank depositors aren't at risk when a bank fails. Their money is guaranteed up to $250,000 by the government. Ever conscious of maintaining public confidence, agency officials hammer this point in public statements.

When weak banks are allowed to stay open, their growing losses potentially can drain the FDIC's deposit insurance fund faster, says Bert Ely, an independent banking consultant.

Federal agencies aren't the only ones with an interest in slowing the pace of bank closings. State regulators with closer ties to local communities want to avoid the ripple effects when a town loses its main source of consumer and business credit, Williams said.

But finding buyers for wobbly banks has been tough.

FDIC Chairman Sheila Bair acknowledged as much in testimony this month before a Senate panel. The FDIC has been offering to share buyers' losses on the assets being transferred, she said.

"In the past several months investor interest has been low," she said in prepared testimony.

In an effort to find more potential buyers, the FDIC has relaxed the rules for private-equity firms to buy banks. In the past, regulators had feared such a move would allow investors to protect themselves from the cost of bank failures, escaping serious consequences while drawing down the FDIC's fund.

An early success of the new strategy was a deal announced this month to sell assets from Corus Bank of Chicago to a group of private investors. But there still aren't enough buyers to absorb quickly all the assets held by at-risk banks.

That's because there are so many weak and failing banks on the market — and so few others strong enough to buy them. That's one reason it's hard to know how many more banks could be closed in coming months, said Daniel Alpert, Managing Partner of the New York investment bank Westwood Capital LLC.

"How many banks will survive?" Alpert asked. "Loans are still deteriorating, but there are glimmers of hope in the economy. Ultimately, it's all about employment."

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Treasury to order bailed-out firms to slash pay

October 24, 2009
The Treasury Department on Thursday is expected to order seven companies that have not paid back last year's government bailouts to halve their top executives' average compensation.

The cuts apply to the 25 highest-paid executives at banks and other companies that received the most assistance, with salaries being slashed by as much as 90 percent, according to a person familiar with the matter.

Kenneth Feinberg, the special master at Treasury appointed to handle compensation issues as part of the government's $700 billion financial bailout package, is making the pay decisions. He is scheduled to release the details Thursday afternoon.

The seven companies are Bank of America Corp., American International Group Inc., Citigroup Inc., General Motors, GMAC, Chrysler and Chrysler Financial.

Elizabeth Warren, who heads the Targeted Asset Relief Program's oversight committee, said Thursday on CBS's "The Early Show" that reports of pending slashes in executive salaries are "real."

Smaller companies and those that have repaid the bailout money, including Goldman Sachs Group Inc. and JPMorgan Chase &Co., are not affected.

Tom Wilkinson, a GM spokesman, said Wednesday that the auto company was "currently in discussions with Mr. Feinberg's office regarding executive compensation. We will have further information once those discussions have concluded."

GMAC has "been working on a proposal that aims at embodying the principles set forth for compensation along with balancing the need to retain critical talent necessary to execute our turnaround. Until we receive notification about that plan, we have no further comment," said Gina Proia, a spokeswoman.

Chrysler Group issued a similar statement. Representatives for Chrysler Financial, Bank of America, Citigroup and AIG declined to comment.

But company officials and lobbyists earlier this month said Bank of America, Citigroup, GMAC Financial Services and others were reworking their pay plans to ensure compensation reflects executive performance. They're giving executives more of their compensation in stock and stock options, and spreading pay over a longer period. They are also adopting plans to recapture some pay when bets go bad.

The changes are not limited to those on Feinberg's list. JPMorgan Chase &Co. and Goldman Sachs Group Inc. also are compensating senior employees with more stock and less cash.

In the AIG trading division, the arm of the company whose risky trades caused its downfall, no top executive will receive more than $200,000 in total compensation, the person familiar with Feinberg's plan said. The giant insurance company has received taxpayer assistance valued at more than $180 billion.

In an August filing with the Securities and Exchange Commission, AIG disclosed that new CEO Robert Benmosche would be paid $7 million a year, with the potential to make millions more in performance-based incentives. According to reports from the time, the package included $3 million initially with $4 million in stock to be held for five years as well as performance bonuses.

As CEO, Benmosche's pay would be considered outside of the $200,000 average compensation for AIG's trading unit. But, according to reports at the time, Feinberg saw splitting the salary and future stock bonuses as a model because it tied compensation to the company's long-range performance.

The administration will warn AIG that it must significantly reduce the $198 million in bonuses promised to employees in its financial services division, the person familiar with Feinberg's decisions said.

The pay restrictions for all seven companies will require any executive seeking more than $25,000 in special benefits—things such as country club memberships, private planes and company cars—to get permission for those perks from the government.

Until now, these companies were only required to provide guidelines for the use of such luxuries. The inspector general at Treasury who oversees the bailout program found a range of standards. GM, for instance, generally prohibits employees from flying in private jets for business travel. Bank of America, on the other hand, encourages senior management to use corporate aircraft "for safety and efficiency purposes."

Feinberg's decisions come days after administration officials voiced sharp criticism of plans by some firms, particularly those on Wall Street, to pay huge bonuses even as the country continues to struggle with rising unemployment and the effects of the recession.

Goldman Sachs, which has paid back its bailout money, has said it earmarked $16.7 billion for compensation so far this year, more than $500,000 per employee. Citigroup is paying $5.3 billion in bonuses to its employees and Bank of America $3.3 billion.

Elsewhere, Freddie Mac is giving its chief financial officer compensation worth as much as $5.5 million, including a $2 million signing bonus. The government-controlled mortgage finance company doesn't have to follow the executive compensation rules because it is being paid outside the TARP.

Congress passed legislation in February requiring Treasury to oversee pay at companies that took bailout money. Treasury created the pay czar's office in June as one means of implementing that law.

Treasury's rules require the special master to review pay for the 25 top earners at companies that received "exceptional assistance," examining overall pay structures and recapturing payouts that go against taxpayers' interests.

Feinberg on Tuesday told a Washington audience that negotiating with the companies was a study in contradictions.

"Perfect metrics, competitive pay, no excessive risk, loyalty to the company," he said. "What I have to do under the law—and everyone's waiting" is to create compensation packages "reflecting those often conflicting principals."

Feinberg has until Oct. 30 to design pay packages for top earners.

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U.S. Fed survey sees modest economic recovery

October 24, 2009
Economic conditions in the United States showed "modest" improvement, with residential real estate and manufacturing leading the early stages of the economic recovery, the Federal Reserve (Fed) said on Wednesday in its latest survey on business conditions around the nation.

    The snapshot of economic conditions found that most Federal Reserve districts "indicated either stabilization or modest improvements in many sectors since the last report," although the improvements were "often from depressed levels."

    "Reports of gains in economic activity generally outnumber declines, but virtually every reference to improvement was qualified as either small or scattered," the Fed said.

    Both housing and manufacturing sectors "continued a pattern of improvement that emerged over the summer."

    An 8,000-dollar tax credit for first time home buyers boosted the residential housing market. But economists worry that the fledgling housing revival could be derailed by continued soaring unemployment and the expiration on Nov. 30 of the tax credit policy.

    "Most Districts reported that manufacturing activity was generally stronger since the last report," the Fed noted.

    However, consumer spending remained weak and commercial real estate was also reported to be one of the weakest sectors, the Fed said.

    Consumers, whose spending accounts for about 70 percent of economic activity, are expected to stay cautious given rising job losses, stagnant incomes and hard-to-get credit.

    The nation's unemployment rate climbed to a 26-year high of 9.8percent in September, and is not expected to fall below 9 percent in 2010.

    The weakest sector was commercial real estate, with conditions described as either weak or deteriorating across all districts.

    The Fed said that districts generally reported little or no increase to either price or wage pressures, but references to downward pressures were occasionally noted. Inflation pressures were generally subdued in most districts.

    The survey, known as the Beige Book, was based on economic information supplied by the Fed's 12 regional banks and collected before Oct. 13, and struck a more positive tone than the last report, which was released in early September.

    The survey summarizes comments received from business and other contacts outside the Fed and is not a commentary on the views of Fed officials.

    But its findings will figure into discussions when Fed policymakers meet to consider their stance on interest rates and other monetary issues on Nov. 3-4.

    The central bank is expected to keep interest rates at record low at that time to help foster the still fragile recovery.

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U.S. unveils new rules to slash executive compensation

October 24, 2009

The U.S. Treasury and the Federal Reserve on Thursday unveiled a set of rules to slash excessive executive compensation in a move to comfort the furor over executive pay at companies bailed out with taxpayer money.

ROLE OF PAY CZAR

According to the order released by the Treasury Department, seven firms that received the most federal aid, namely Bank of America Corp., American International Group Inc., Citigroup Inc., General Motors, GMAC, Chrysler and Chrysler Financial, will be forced to slash their compensation to 175 highest-paid employees.

The cuts will apply to the 25 top earners at seven companies, with on average cut total compensation this ear by about 50 percent. Meanwhile, the cash salary for affected executives will go down by an average of 90 percent.

Any executive seeking over 25,000 dollars in special perks, such as private planes, limos, company cars or country club memberships, would have to receive particular scrutiny.

The seven firms have received a total of about 250 billion dollars in bailout funds from the Troubled Assets Relief Program (TARP), which was approved by the Congress last year. Other companies and those that have repaid the bailout money, including Goldman Sachs Group Inc. and JPMorgan Chase & Co., are not affected by the plan.

The decision was made by Kenneth Feinberg, the special master at Treasury appointed to handle compensation issues as part of the government's 700 billion financial bailout package.

According to the plan, the form of the pay will be changed to align the personal interest of the executives with the longer-term financial health of the firms.

Feinberg, the so-called U.S. pay czar, said that the government did not want to make executives return compensation already received this year, but the reduced pay levels will be the base for making decisions on salary in 2010.

Treasury Secretary Timothy Geithner praised Feinberg's efforts." Ken Feinberg has done a commendable job of applying the strong compensation standards of the Congressional legislation to the companies that received exceptional assistance from the government," he said in a statement.

"We gave him the difficult task of cutting excessive pay, striking a balance between compensation and risk taking, and keeping strong management teams in place to help the companies recover -- all in the public interest," said Geithner.

"We all share an interest in seeing these companies return taxpayer dollars as soon as possible, and Ken today has helped bring that day a little bit closer," he added.

FEDERAL RESERVE'S GUIDANCE

Earlier Thursday, the Federal Reserve issued a proposal to curb incentive compensation at banks to ensure they will not "undermine the safety and soundness" of their organizations.

Unlike the Treasury plan, the Fed proposal would be more aggressively, covering thousands of banks, including many that never received a bailout.

The proposal includes two supervisory initiatives. The first one, applicable to 28 large, complex banking organizations, will review each firm's policies and practices to determine their consistency with the principles for risk-appropriate incentive compensation set forth in the proposal.

Second, supervisors will review compensation practices at regional, community, and other banking organizations not classified as large and complex as part of the regular, risk-focused examination process.

These reviews will be tailored to take account of the size, complexity, and other characteristics of the banking organization.

"Compensation practices at some banking organizations have led to misaligned incentives and excessive risk-taking, contributing to bank losses and financial instability," Federal Reserve Chairman Ben S. Bernanke said in a statement.

"The Federal Reserve is working to ensure that compensation packages appropriately tie rewards to longer-term performance and do not create undue risk for the firm or the financial system," he added.

Flaws in incentive compensation practices were one of many factors contributing to the financial crisis.

Inappropriate bonus or other compensation practices can in cent senior executives or lower level employees, such as traders or mortgage officers, to take imprudent risks that significantly and adversely affect the firm, said the U.S. central bank.

COMPLAINTS OF FIRMS

U.S. President Barack Obama praised the compensation cuts, noting that excessive executive pay has offended U.S. values and the Feinberg's decision marked an "important step forward."

"I believe he has taken an important step forward today on curbing the influence of executive compensation on Wall Street while still allowing these companies to succeed and prosper," Obama said at the White House.

"We don't disparage wealth, we don't begrudge anybody for doing well. We believe in success," said the President. "But it does offend our values when executives of big financial firms, firms that are struggling, pay themselves huge bonuses even when they continue to rely on taxpayer assistance to stay afloat."

Feinberg's four-month effort to curtail pay is one of the most visible ways the U.S. government has become intertwined with the private sector since the crisis began, said an article carried by The Wall Street Journal

"There's definitely never been anything like this where a government sets pay for a company that's publicly traded," said J.W. Verret, a corporate law expert at George Mason University.

However, some also complained that government's interference in the free market will hurt the companies, which might loose top executive talent to competitors due to the sharp pay cuts.

An executive at one of the seven firms was quoted by the U.S. media as saying that the terms came as a shock, especially because they changed so suddenly.

The compensation restriction "were clearly much worse than what had been anticipated," he said.

Many firms declined to comment, as GM and Chrysler only stated that they will continue to work with Feinberg in developing new compensation plans for their executives.

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US economy recovering in many areas

October 23, 2009
The Midwest is starting to see a comeback in manufacturing and technology. Home sales are rising in parts of the Northeast. But states like Florida, Nevada and California, still suffering from the housing bust, remain depressed.

The economy's tentative recovery is occurring in pockets around the country, with some states and cities starting to rebound while neighboring areas still struggle, two government reports showed Wednesday.

They showed improving job markets in some Midwestern states, such as Indiana and Ohio. But other states, such as Rhode Island, posted new record-high joblessness.

In the Fed's latest survey of businesses nationwide, all but two of 12 regions showed at least some signs of improvement. Only the Atlanta and St. Louis regions reported weaker economic activity.

The survey found many parts of the country either stabilized or improved modestly over the past six weeks. The Boston, Cleveland and Richmond, Va., regions reported growing home sales, though the gains came from depressed levels.

But the picture is still far bleaker in places hit hardest by the collapse of the housing market. Florida reported a record-high jobless rate of 11 percent, according to the Labor Department. Nevada's climbed to 13.3 percent, also a record.

Michigan, home of the battered American auto industry, claimed the highest jobless rate in the country—15.3 percent.

While Americans still hold tight to their wallets, pickups in housing and manufacturing activity are leading the budding recovery in most of the country, according to Fed's survey.

Economists warn that the improvements could fizzle, though, after government help is removed. For example, gains in the housing market could be threatened if a tax credit for first-time homebuyers is allowed to expire Nov. 30.

"The main story here is the economy is starting to turn around," said Robert Dye, senior economist at PNC Financial Services Group. "This is not a consumer-led recovery. This is very much a stimulus-led recovery. And it begs the question: What happens when the government supports are withdrawn?"

Factories have been increasing production as businesses restock depleted inventories. Part of that restocking was due to the Cash for Clunkers program this summer, which caused a brief burst in car sales.

By contrast, the Fed said the weakest link in the recovery is commercial real estate, with vacancies high across the country and businesses unable to get credit to buy or build commercial space.

The nation's unemployment rate climbed to a 26-year high of 9.8 percent in September, and is expected to top 10 percent this year. Economists predict it will rise as high as 10.5 percent by the middle of next year before slowly drifting down.

The Labor Department report said unemployment rose in 23 states last month. While layoffs have slowed, companies remain reluctant to hire. Forty-three states reported job losses in September, while only seven gained jobs.

The findings of the Fed survey will figure into discussions when Fed Chairman Ben Bernanke and his colleagues meet in early November. The Fed is expected to keep interest rates at record lows into next year to help foster the recovery.

Many analysts believe the economy started to grow again in the third quarter. Results will be out next week, and a return to growth would be a turning point for the economy after a full year of contraction.

The Fed survey, known as the Beige Book, offers anecdotal snapshots of economic and financial activity nationwide from businesses which are on the front lines of the economy. Information for the report was collected before Oct. 13.

The tone "was more tentatively positive," said economist Jennifer Lee at BMO Capital Markets. "Not super-duper-jumping-up-and-down-with-great-excitement positive, but slightly more optimistic than seen in recent reports."

Among the findings: Dallas said there were slight improvements in residential real estate and at staffing firms. New York saw gains in manufacturing and retail. Philadelphia, Cleveland and San Francisco cited small pickups in manufacturing. Kansas City noted improvements at technology companies, while Richmond posted revenue gains at service companies.

By region, the West had the highest unemployment rate, 10.6 percent. The South's was 9.3 percent, and the Northeast had the lowest, 9 percent. The Midwest, at 9.8 percent, was the only region where joblessness fell from the month before.

Indiana, for example, has benefited from a rebound in the auto sector and a healthy medical device industry, and unemployment has dropped two months in a row, said Robert Guell, an economics professor at Indiana State University in Terre Haute.

He's no longer skeptical that the improvements have been a fluke. "It does look green shoot-like," he said.

The state is home to many auto parts and assembly plants, which are ramping up production as General Motors and Chrysler replenish inventories depleted by the popular clunkers program.

In Ohio, the jobless rate fell to 10.1 percent, from 10.8 percent in August and 11.2 percent in July.

Lucia Dunn, an economics professor at Ohio State University, said the state has benefited from growth in financial services and technology companies. Recruiters from a JPMorgan Chase &Co. regional office frequently contact her seeking candidates for economist and statistician jobs.

"Most people here feel that the worst is over," Dunn said.

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Wall Street rallies on better-than-expected earnings

October 23, 2009
Wall Street rallied on Thursday, as better-than-estimated earnings from Travelers Cos., AT&T Inc. and McDonald's Corp. overshadowed a bigger-than-forecast increase in jobless claims.

    Upbeat earnings from Dow components, such as AT&T Inc., Travelers Cos. and McDonald's Corp., boosted the Dow Jones average.

    AT&T Inc., the biggest U.S. phone company, climbed more than 1 percent and led telecom stocks higher after reporting a third-quarter profit that beat analysts' estimates.

    Travelers Cos. boosted its quarterly dividend by 10 percent and said it may increase share buybacks after posting its first profit gain since 2007.

    McDonald's Corp., the world's largest fast-food company, said third-quarter profit rose 5.9 percent as global sales increased more than analysts' anticipation.

    On economic data, the U.S. Labor Department reported that initial jobless applications rose by 11,000 to 531,000 last week, from a revised nine-month low of 520,000 in the prior week. The increase exceeded economists' estimates.

    However, the Conference Board's gauge of the economic outlook for the next three to six months climbed a greater-than-forecast 1percent, indicating the economy is likely to expand into early 2010.

    Conference Board, a New York-based private research group, said the increase marks the biggest six-month gain in 26 years, topping analysts' expectations.

    The Dow Jones rose 131.95, or 1.33 percent, to 10,081.31. The Standard & Poor's 500 index was up 11.51, or 1.06 percent, to 1,081.09 and the Nasdaq rose 14.56 to 2,165.29.

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Dollar edged up amid mixed economic data

October 23, 2009
The dollar rose slightly against major currencies on Thursday amid a strong leading economic index and weaker-than-expected job data.

    The Conference Board Leading Economic Index (LEI) for the U.S. increased 1.0 percent in September, following a 0.4 percent gain in August. It was the six consecutive gain of the index, which intended to forecast economic activities in the future three to six months. The LEI grew 5.7 percent in the past six months, its highest pace since 1983.

    "Except for average workweek and building permits, all the leading indicators contributed positively to the index this month," said Ataman Ozyildirim, economist at The Conference Board.

    The report also showed the contraction in the coincident economic index has halted in recent months, but the continued downtrend in employment is keeping this index of current economic conditions from rising faster. U.S. initial claims of jobless benefits rose unexpectedly by 11,000 to 531,000 last week, the Labor Department reported.

    The rise may point to a need to temper expectations for a sharp improvement in the decline in nonfarm payrolls during the month, said analysts of Nomura Economic Research.

    With unemployment rate at a 26-year high of 9.8 percent, the weak labor market remains a key obstacle to U.S. economic recovery.

    Quarterly results of communication giant AT&T, diversified manufacturer 3M, and fast food chain McDonald's beat Wall Street expectations. But earning reports from some other major companies, including e-commerce site eBay and office equipment producer Xerox, disappointed investors.

    Central banks may act to weaken the euro should its gains against the dollar persist, according to UBS AG, the world's second-biggest currency trader.

    "If euro-dollar continues to gain in a volatile manner ahead of the November Group of 20 (meeting of finance ministers and central bank governors), action at that meeting can be expected," said Amelia Bourdeau, a currency strategist of UBS.

    The euro bought 1.5026 dollars in late New York trading compared with 1.5036 dollars it bought late Wednesday. The pound fell to 1.6624 dollars from 1.6631 dollars. The dollar rose to 1.0486 Canadian dollars from 1.0391 Canadian dollars, and rose to 1.0048 Swiss francs from 1.0047 Swiss francs. It rose to 91.29 Japanese yen from 91.06 Japanese yen.

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Oil falls slightly, US jobless claims weigh

October 23, 2009
OIL prices fell from a one-year high yesterday as a rise in new US jobless claims sent investors seeking safer havens.

US crude oil futures settled down 18 cents at US$81.19 a barrel, after touching a one-year high of US$82 a barrel on Wednesday. In London, Brent crude fell 18 cents to US$79.51 a barrel.

The number of American workers filing new jobless claims rose by 11,000 last week, indicating the labor market remained fragile despite some signs of an economic recovery.

Energy markets have looked to economic data for signs of a rebound in the economy that could bolster flagging oil demand.

"Oil isn't getting any lift from the stock markets today as economic data and corporate earnings results are mixed," said Andy Lebow, a broker for MF Global, New York.

The Dow industrials gained yesterday on strong earnings reports from several components, while the Nasdaq market fell on weakness in Ericsson and other technology names.

The dollar recovered after a sharp slide against major currencies, as the euro retreated from a 14-month high above US$1.50.

"It is becoming almost imperative to trade the commodity markets from the perspective of the dollar these days, as nothing else seems to count for very much," MF Global wrote in a research note.

Crude prices jumped on Wednesday after weekly US government data showed a large drop in gasoline inventories over the past week and fuel demand rising about 4 percent year-on-year. But absolute oil inventory levels remained high globally due to slack demand.

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WB: economic crisis to push 89 mln more people into extreme poverty by 2010

October 22, 2009
The World Bank (WB) said on Tuesday that 89 million more people would live under the international poverty line due to the unprecedented economic crisis.

    WB Vice President and Chief Economist Justin Yifu Lin said those people would join the under-poverty-line group by 2010 which already has 1.4 billion people.

    Lin, who attended the international conference themed "Challenges and strategies to promote the economic growth", said that although the international economic crisis had a far-reaching impact on many economies, the market-oriented economy was still the best way to distribute capital and resources in and among countries.

    He disagreed with the opinion that the current crisis meant the need to return to the models of planned economies or to have strong governmental investment.

    The model of market economy is "more competitive," Lin said, adding that history had proved planned or government-controlled economies were not efficient.

    Lin also maintained that developing countries had more options in coping with economic crisis than developed ones, which have mature economic systems and are less malleable.

    He said that as long as the interest rates in developing economies were kept low, there would be enough incentives for businessmen to invest in new technologies and industries, which is good for economic recovery and industrial modernization.

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