Oil jumps 3% on recovery outlook

September 16, 2009
Crude prices rebounded 3 percent on Tuesday as encouraging U.S. economic data supported the notion that the recession would end this year.

Light, sweet crude for October delivery rose 2.07 U.S. dollars, or 3.0 percent, to settle at 70.93 dollars a barrel on the New York Mercantile Exchange.

The gains came after the Commerce Department said that U.S. retail sales surged 2.7 percent in August, the most since January 2006.

Oil's rally extended as Federal Reserve Chairman Ben Bernanke said technically speaking, the recession was "very likely" over at this point.

Meanwhile, the dollar fell to a new 2009 low against the euro and Wall Street struck a fresh 11-month high on Tuesday, both encouraging buying in commodities market.

In London, Brent Crude for October delivery, which was pressured ahead of the expiration, dropped 7 cents to 67.37 dollars a barrel on the ICE Futures exchange.

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US retail sales in August rise at fastest pace in 3 1/2 years

September 16, 2009
AMERICAN retail sales jumped in August by the largest amount in more than three years, spurred by widespread gains beyond the expected increases of auto sales due to the government's popular Cash for Clunkers program that offered incentives for trading in old vehicles to purchase new ones.

And while inflation at the wholesale level also rose last month as gasoline prices surged the most in a decade, the retail sales report is a sign that consumers may be less cautious about spending as the economy recovers. Consumer spending is closely watched because it accounts for about 70 percent of the nation's economic activity.

The Commerce Department said yesterday that retail sales rose a seasonally adjusted 2.7 percent last month, after falling 0.2 percent in July. That's the largest gain in three and half years and beat analysts' expectations of a 2 percent increase, according to a survey by Thomson Reuters.

Excluding autos, sales rose 1.1 percent, ahead of an expected 0.4 percent jump. Excluding autos and gas, sales rose 0.6 percent.

In a separate report, the Labor Department said wholesale prices rose 1.7 percent in August, more than double the 0.8 percent rise economists expected. Wholesale prices had fallen by 0.9 percent in July.

Both months were heavily affected by energy prices.

Excluding volatile energy and food costs, core inflation as measured by Producer Price Index posted a more modest 0.2 percent increase, close to the 0.1 percent advance economists expected. The index tracks the prices of goods before they reach store shelves.

While many analysts believe the economy is staging a recovery in the current July-September quarter, the rebound is not expected to trigger inflation pressures because the labor market remains weak.

The Commerce Department report showed that auto sales soared 10.6 percent last month, the most in almost eight years due mainly to the clunkers program. Gas station sales rose 5.1 percent, as prices at the pump rose.

Economists expected increases in both categories, but sales also rose at electronics and appliance stores, department and sporting goods stores.

The clunkers program, which ended last month, provided consumers with rebates of up to US$4,500 if they traded in older gas-guzzlers for new, more fuel-efficient models. The incentive boosted car sales 30 percent in August, after a 2.4 percent rise in July.

Many economists expect consumer spending to increase in the current July-September period, after it fell in the second quarter, mostly because of the clunkers program.

That could cause the economy to grow by as much as 3 to 4 percent in the third quarter, helping to end the worst recession since the 1930s.

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Recovery may be slowest since '40s

September 15, 2009
The US recovery may be the slowest since World War II to regain all the ground lost during the recession, even if economists' more optimistic forecasts for expansion turn out to be right.

The slump this time was so deep, said JPMorgan Chase & Co chief economist Bruce Kasman, that the 3.5 percent average quarterly growth rate he sees in the next year won't be enough to bring gross domestic product back to its $13.42 trillion pre-crisis peak. That's in contrast with the last 10 recoveries, when GDP returned to its previous levels within 12 months.

The result: A year after the Lehman Brothers Holdings Inc bankruptcy helped drive GDP down to an annualized $12.89 trillion in the second quarter, there's still "plenty of malaise", Kasman said. Unemployment may remain close to the current 26-year high of 9.7 percent through 2010, upsetting voters ahead of mid-term Congressional elections and forcing officials to keep interest rates near zero and the budget deficit around this year's record $1.6 trillion.

"This will be the most disappointing recovery," said Kasman, whose forecast compares with the median estimate of 2.5 percent growth in a Bloomberg News survey of economists.

The US might not recover the 6.9 million jobs and the $13.9 trillion in wealth lost during the recession until about the middle of the decade, said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania. The unemployment rate may never get back down to the 4.4 percent low of 2007, he said.

Cyclical revival

Stock prices may take three or four years to reach their previous highs as the cyclical revival of the economy gradually boosts corporate profits, said Allen Sinai, chief economist at consulting group Decision Economics in New York.

"It will be a bull market, but not a roaring bull market," Sinai said. He sees the Standard & Poor's 500 stock index rising to 1,100 by the end of 2009 from its close of 1,042.73 on Sept 11. The index hit a record 1,565.15 on Oct 9, 2007, and then fell to a 12-year low of 676.53 on March 9, 2009.

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US firms cut wholesale inventories

September 15, 2009
UNITED States businesses reduced inventories at the wholesale level for a record 11th consecutive month in July, although sales rose by the largest amount in more than a year, sparking hope for better days ahead.

Economists expect that some modest restocking triggered by the higher sales helped boost the economy out of recession in the current quarter. Some analysts said the economy could rebound to growth near 4 percent, after it fell at a 1 percent rate in the April-June period.

The US Commerce Department reported last Friday that wholesale inventories declined 1.4 percent in July, more than the 1 percent drop economists expected. That decline followed a 2.1 percent fall in June and compares to the 1.7 percent drop originally reported.

Sales at the wholesale level rose 0.5 percent in July, the fourth straight increase and the biggest gain since a 2 percent jump in June 2008.

Jennifer Lee, an economist at BMO Capital Markets, said the rebound in sales was encouraging and should help convince businesses to restock shelves and back lots. That swing in inventories should in turn help boost the economy out of a recession in the current quarter.

The overall economy, as measured by gross domestic product, will grow at a 3.8 percent annual rate in the current July-September period, Lee forecast.

The economy posted declines of 5.4 percent and 6.4 percent in the fourth and first quarters respectively, the worst performance in a half-century.

"For the second half of this year, things are looking better than they were a few months ago with activity being helped by stimulus efforts such as the Cash for Clunkers program," Lee said.

Economists are worried, however, that the economy will slip back to weaker growth beginning next year as the impact of various stimulus programs dims and the unemployment rate keeps rising, depressing consumer incomes and their willingness to spend.

More positive news came on Friday when consumer confidence, as measured by the University of Michigan-Reuters survey, rose to a reading of 70.2 early this month, compared with 65.7 last month.

"With hope comes more spending and with more spending comes more production," Lee said.

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Record high federal deficit sparks worry over Treasuries

September 14, 2009
THE United States federal deficit surged higher into record territory last month, hitting US$1.38 trillion with one month left in the budget year.

The soaring deficits have raised worries about the willingness of foreigners to keep purchasing Treasury debt. China, now the largest foreign owner of US Treasury securities, has expressed concerns about runaway deficits. Treasury Secretary Timothy Geithner and other administration officials have sought to address those concerns by insisting that once the recession is over and the financial system is stabilized, the administration will move forcefully to get the deficits under control.

However, Republican critics contend the administration does not have a credible plan to address future deficits. Private economists worry the country could face the prospect of seeing interest rates soar in future years and the dollar weaken as foreigners dump their US holdings.

The Treasury Department last Friday said last month's deficit was US$111.4 billion, below the US$152 billion that economists expected. Still, the imbalance added to a flood of red ink already accumulated through the recession and massive spending needed to stabilize the banking system.

The Obama administration last month trimmed its forecast for this year's deficit to US$1.58 trillion, from an earlier US$1.84 trillion. The recovery of the banking system led to the reduced estimate as it meant the administration did not need to get an additional US$250 billion in bailout support for banks.

The US$1.58 trillion estimate for the full budget year signals that the administration expects the imbalance this month to be about US$200 billion. That would be a sharp deterioration from September 2008 when the government closed out that budget year with a US$45.7 billion surplus.

Many private firms have slightly smaller deficit estimates for the full year but all agree that this year will be a record-holder by a large margin. The previous record deficit was US$454.8 billion last year.

The administration is now projecting the deficit over the next decade will total US$9 trillion, US$2 trillion more than its previous estimate.

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Gold extends gains as $US slides

September 14, 2009

Gold prices extended gains in Asian trade today, encouraged by the dollar's slide, as investors shifted money out of the low-yielding US dollar.

Spot gold rose 0.4 per cent to $US1008.70 an ounce, compared to New York's notional close of $US1004.85.
It hit $US1011.55 on Friday, its highest since March 2008.

Gold jumped 1 per cent on Friday, closing above $US1000 an ounce for the first time since March 2008 as a slumping dollar and inflation fears stirred investment demand for bullion.

US gold futures for December delivery rose 0.3 per cent to $US1009.90 per ounce, compared to $US1006.40 an ounce on the COMEX division of the New York Mercantile Exchange. The session high was $US1013.70, the highest price since February 20.

The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, said its holdings stood at 1077.63 tonnes as of September 13, unchanged from the previous business day.

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Oil falls for second day on doubts over pace of demand recovery

September 14, 2009

Oil fell for a second day as US fuel stockpiles gained and crude's rally to more than $US72 a barrel last week outpaced the recovery in the global economy.

Oil fell below $US69 a barrel before a report tomorrow in the US, the world's largest oil consumer, which may show retail spending, excluding gasoline and autos, barely changed in August, according to a Bloomberg survey of economists. Oil dropped the most in two weeks September 11, ending a four-day climb.

"We're still waiting to see if the fundamentals can catch up with the sentiment in the oil market," said Toby Hassall, a research analyst at CWA Global Markets in Sydney. "There definitely seems to be a bit of significant resistance being encountered once we get into the $(US)70s."

Crude oil for October delivery dropped as much as $US1.24, or 1.8 per cent, to $US68.05 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It traded at $US68.14 this morning in Singapore.

The contract fell 3.7 per cent to $US69.29 a barrel on September 11. Prices reached $US72.90 that day, the highest intraday price since August 31.

US oil inventories are more than 13 per cent higher than a year ago, the Energy Department said in a weekly report on September 10. Distillate stockpiles, including heating oil and diesel, are at their highest since 1983.

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U.S. federal deficit hits $1.38 trln

September 13, 2009
The U.S. federal deficit has topped 1.38 trillion dollars with one month left in this fiscal year, according to Treasury Department statistics released on Friday.

The Department reported that the U.S. federal government spent 111.4 billion dollars more than it made in August, pushing the red ink so far in the current fiscal year to a new record.

The huge deficit in the 11 months of the current fiscal year started in October was more than triple the amount of red ink incurred during the year-ago period.

The deficit for all of 2008 was 454.8 billion dollars.

The Obama administration is forecasting that the budget deficit would rise to an all-time high of 1.58 trillion dollars in the current fiscal year.

The new forecast was lower than the 1.84 trillion dollars estimated in February.

However, under the administration's new estimates, the deficit will total 9.05 trillion dollars from 2010 to 2019.

The worsening budget deficit reflects the soaring costs of the government's economic stimulus package and financial rescue program, and the recession, which has resulted in sharp decline in tax revenue.

While tax revenues are down, the government is paying out more than expected for unemployment benefits and food stamps.

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How bad is the U.S. deficit really?

September 13, 2009
Out-of-control juggernaut or manageable necessity? Those are the two camps into which a hodgepodge of economists, activists, lobbyists and politicians fall on the question of the ballooning U.S. deficit.

The issue has elicited concern since the administration of U.S. President Barack Obama raised its projection for the 2010-2019 budget deficit to about 9 trillion dollars -- the largest since World War II. While the non-partisan Congressional Budget Office pegged the 10-year deficit at 7.14 trillion dollars, that figure is still considerable, experts said.

Some remain calm about the numbers, but others are in a tizzy over the ramifications. Recently, the Employment Policies Institute, a non-profit advocacy group, launched the first stage of a high profile ad campaign to tackle what it called the "threat posed by unsustainable borrowing and spending."

In a nationally televised commercial airing on a slew of cable TV stations -- CNN, Fox News, MSNBC and CNBC -- children in a classroom recite a pledge of allegiance not to the U.S. flag but to the country's swelling debt.

"I pledge allegiance to America's debt ... And to the interest ... for which we pay ... compoundable ... with higher taxes ... and lower pay ... until the day we die," goes the refrain.

Some economists, however, expressed a less apocalyptic viewpoint.

"Nine trillion dollars seems like a shocking number, but we can deal with it with a combination of tax increases and spending cuts," said Ben Carliner, director of research at the Washington-based Economic Strategy Institute. That would make sense, he added, given that the deficit's sharp upward growth stems partly from lower tax revenues.

Carliner said the numbers are manageable and must be viewed in context -- European Union nations such as Italy, France and Sweden incurred a much higher debt load during the early to mid 1990s, he noted.

The long-term deficit, he believed, will be dealt with when the time is right. At present, however, the government needs to spend money to arrest the country's economic decline and prevent it from spiraling out of control, he said.

"When you are in a recession like this, you don't want to cut spending," he said. "It would be irresponsible to start dealing with the deficit by drastically cutting spending now."

Other economists, however, have echoed the same type of alarm expressed in the Employment Policies Institute's commercials. Irwin Stelzer, senior fellow and director of economic policy studies for the Washington-based Hudson Institute, said the numbers could turn out to be even worse than current predictions.

The White House's estimate, he argued, assumes cuts in Medicaid and Medicare -- government health plans for low income families and the elderly -- will be implemented and that cap and trade – a bill requiring companies to pay to emit carbon -- will hit projected revenues.

It also leaves out the costs of Obama's health care reforms, which experts say could exceed 1 trillion dollars. Those factors could raise the deficit to 76 percent of the nation's gross domestic product by 2019 -- nearly double this year's 41 percent, he said.

Brian M. Riedl, senior policy analyst at the Washington-based Heritage Foundation, described the new budget spending estimates as "alarming" and "absolutely unsustainable."

"The result will be the highest level of spending -- and debt -- in American history," he said. "Within a decade, Washington would have to spend nearly 800 billion dollars annually just to pay the interest on the national debt."

How official projections grew to current levels is a matter of debate. The White House said it inherited the bulk of the debt from the previous administration.

Peter Orszag, director of the White House's budget office, said the deficit "underscores the dire fiscal situation that we inherited."

Others say everyone is to blame -- from the previous to the current administration, as well as Democrats and Republicans in Congress.

Carliner said tax cuts and heightened spending during the Bush administration are to blame.

"It would have been more prudent for the government to have put its finances in order during the economic expansion of the last ten years," he said. "It was spending increases and tax cuts under Bush that put us here."

David Rosnick, an economist at the Washington-based Center for Economic and Policy Research, said the current deficit has little to do with Obama's policies and has more to do with issues such as the long-term cost of health care, which presents a significant danger, he said.

Also problematic, he said, is that no jobs have been created during the last nine years, he said.

"We had 132 million jobs in July 2000. We lost half a million total," he said, adding that the losses stemmed from the last two recessions - in 2000 and 2008 -- that book-ended Bush's two terms in office.

But he remains unperturbed about the deficit's long-term impacts.

"We can get a handle on it if we have (economic) growth so there is no reason to think we can't work our way out of this."

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Financial crisis demonstrates banks need adequate capital, gov'ts need to get regulatory balance right

September 13, 2009
Financial crisis demonstrates banks need adequate capital, gov'ts need to get regulatory balance right
The financial crisis demonstrates banks need adequate capital and governments need to get regulatory balance right, said Richard Reid, London Chairman of the global famous accountancy firm KPMG.

He said in a recent interview with media that there are a number of lessons people could learn from the crisis and all these lessons are very important. Though emerging economies were hit less by the crisis, they could also learn a lot from it.

"Banks have to get adequate capital for their balance sheet and we have seen a lot of discussions about capital requirements on banks last weekend by G20," said Reid.

From his point of view, it is very important to set the level of capital requirements on banks.

One important lesson from the crisis was to reinforce the review of risk, he added, because western banks get involved with a lot of pretty complex transactions with complex instruments.

"It is very important actually for financial institutions, no different from any other company, to have risk committees that understand what is going on financial institutions and then report up to the board," he said.

In July, the British government published a report named "Walker Review" and the review raised a great number of suggestions on the reform of bank governance system and bonus structure. "What the Walker Review is doing is to reinforce the risk committees," said Reid.

As for financial regulation, he said "regulation and the regulators are obviously actually the key in the lessons learned. We all need regulators, but the key is to make sure that we have appropriate regulation."

"What we don't want to do is to stifle entrepreneurship within any organizations, but make sure to encourage people to use their brains to develop companies. Clearly we need an appropriate level of regulation so people and the regulators can understand what's going on."

Another lesson is around remuneration. Reid said the lesson was also quite important and the Walker Review suggested linking the remuneration to more long-term performance.

"Everyone, companies, markets, investors, the pension funds, they are looking companies for the longer term not just for results what can happen today or tomorrow, but what can happen in next three or five years, 10 years or 20 years."

When asked which lesson would be the most important, he said "I don't think any one thing is more important. It is complication. Regulation is clearly the key. Transparency within organizations in the activities they do is clearly the key."

"The more complex deal that are taken, the more important it is one understands what the deal is."

In terms of emerging markets, "I think the lesson they can learn is how important they are," said Reid, "in terms of Brics' economies, they are extraordinary important."

He took China for example and said "the growth of China is hugely important to the world's economy. It is incredibly important for everyone."

He said that the Chinese market is huge with 1.3 billion people and now a lot of the biggest banks in the world are Chinese banks.

At the same time, he said that it is also important for emerging market to learn lessons about regulation so that regulators apply appropriate control over financial institutions. From his point of view, emerging economies should also look at the results of banks on medium-term and longer-term basis.

In addition, Reid said that organizations like G20 discussed the importance of emerging markets and it is an "important sign." "So we can work together," he said.

"It is also very important we understand that there are imbalance in the world where in the west we have had for years and years a tendency to spend more and in the east they save more," he added.

"Clearly, if we get these move slightly in the opposite directions, from the world trade point of view, it will be very beneficial," he said.

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Stephen Roach: global economy recovery still precarious, sustainable Asia expected

September 12, 2009
The global stimulus plans should continue and the world, especially the Asian countries, should put emphasis on sustainable growth, Stephen Roach, Morgan Stanley's Asian Chairman, said Thursday.

The global economy recovery was still in its early stage and was precarious, Roach said in an interview with media during the Summer Davos in north China's coastal city Dalian.

Looking back the past one year since the Lehman Brothers filed for bankruptcy, one important lesson from the global financial crisis was that imbalance was not sustainable, which might cause very serious problems in the long term, he said.

For China, realizing a balanced and sustainable growth was a more critical concern than dealing with the risk of deflation and inflation, he said.

Roach will launch his new book titled "The Next Asia -- Opportunities and Challenges for a New Globalization" during the Summer Davos.

"Asia is now in position to become a real engine boosting global growth by changing its export-led economic growth pattern, and a more balanced Asia provide more sustainable growth opportunity for the region and more contribution to the global economy," Roach said.

The three-day summit, also known as the Annual Meeting of New Champions 2009, attracted about 1,400 business leaders and policy makers from 86 countries and regions.

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Greenspan warns of further gloom

September 12, 2009
Another global financial crisis is inevitable because human nature always reverts to "speculative excesses" during a period of sustained prosperity, former US Federal Reserve Chairman Alan Greenspan said.

"The crisis will happen again but it will be different," he told BBC Two's The Love of Money television series.

"That is the unquenchable capability of human beings when confronted with long periods of prosperity to presume that that will continue," he said.

Greenspan, speaking to the BBC to mark the first anniversary of the fall of US investment bank Lehman Brothers, said Britain will be hit worse than the US by the subsequent worldwide financial crisis and global recession because it has a globally-focused economy.

Countries, smarting from the near collapse of the banking system, will struggle to match their stated desire for increased regulation with their other stated need for free global trade.

Greenspan stepped down as Fed chairman in 2006 after 18 years at the helm during which he presided over the longest uninterrupted period of economic growth in modern US history from 1991 to 2001.

But his record has recently come under harsher scrutiny, with some economic watchers noting it was during Greenspan's tenure at the Fed that the seeds were sown for the housing and easy credit bubble that contributed to the financial crisis.

Greenspan, who has defended his record repeatedly, said financial crises are all different, but they have one fundamental source.

"They human beings begin to take speculative excesses with the consequences that have dotted the history of the globe basically since the beginning of the 18th and 19th century," he said.

"It's human nature: unless somebody can find a way to change human nature we will have another crisis."

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U.S.trade deficit rises to $32 bln in July

September 12, 2009
The U.S. trade deficit jumped 16.3 percent to 32 billion dollars in July, the highest level in six months, the Commerce Department said Thursday.

The July deficit was much higher than the 27.4 billion dollars expected by economists.

The higher trade deficit came as the global recession cut sharply into sales of American exports, while crude oil prices hit the highest level since December.

For July, exports of goods and services climbed 2.2 percent to 127.6 billion dollars but imports shot up 4.7 percent to 159.6 billion dollars, the largest monthly advance on records that go back to 1992.

U.S. oil imports climbed 3.6 percent to 23.7 billion, the highest level since December.

Economists expect the trade deficit to shrink significantly this year as the recession depresses demand for imported products.

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Gold edges lower, paring losses on weak dollar

September 11, 2009
Gold futures on the COMEX Division of the New York Mercantile Exchange declined slightly on Thursday, rebounding from one-week low as the dollar weakened. Silver ended higher, but platinum inched down.

Gold price for December delivery fell 30 cents, or 0.03 percent, to finish at 996.80 U.S. dollars an ounce. In overnight electronic session, the contract dipped as low as 983.20 dollars, the weakest level since last Wednesday.

Dollar was still weak despite a four-day plunge, especially after the trade data. The Commerce Department said on Thursday that the U.S. trade deficit rose 16.3 percent, the largest percentage increase in more than a decade, to 32 billion dollars in July, much larger than the 27.4 billion dollars imbalance that economists had expected.

Dollar's weakness pulled the precious metal out of its intraday low and removed most of the earlier losses.

The Labor Department said Thursday that initial claims for unemployment insurance fell to a seasonally adjusted 550,000 from an upwardly revised 576,000 in the previous week.

On the jobs front, the Labor Department reported that initial claims for unemployment insurance fell to a seasonally adjusted 550,000 from an upwardly revised 576,000 in the previous week, lower than economists' expectations of 560,000.

Improvements in labor market provided more evidence that the economy is right on the way to recovery, weighing on gold as the yellow metal's appeal as asset of safe-haven was reduced. December silver finished at 16.67 dollars per ounce, up 20 cents. October platinum fell 1.70 dollars to 1289.70 dollars an ounce.

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World oil demand to resume growth in 2010: report

September 11, 2009
World oil demand will grow next year for the first time since 2007 and return to pre-recession levels by 2012, according to a newly released report.

World oil demand is expected to grow by 900,000 barrels to 84.6million barrels per day (mbd) in 2010, and return to its 2007 high of 86.5 mbd by 2012, the report released Tuesday by IHS-Cambridge Energy Research Associates, a U.S. energy information provider, said.

Oil demand dropped by 2.8 mbd from its 2007 high to 83.8 mbd in2009. The last time that the world experienced such a severe decline in oil consumption was in the early 1980s and it took nine years for demand to return to the 1979 pre-recession high.

The current recovery will come more quickly than the last major oil crash in the 1980s thanks to robust demand from emerging markets and fewer options for substituting fuels on a global scale, said Jim Burkhard, managing director of global oil research for the firm.

"In the 1980's the largest area of the demand decline came from power generation, where oil was replaced by readily available substitutes like coal, gas or nuclear," Burkhard said.

"Today, global demand growth is coming from the transportation sector in emerging markets where there are fewer large-scale options for switching fuels," he said.

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Renault: financial crisis is over

September 10, 2009
Carlos Ghosn, the head of French carmaker Renault, Wednesday told French newspaper Le Figaro that the financial crisis is over, expecting a gradual recovery for several years.

"While we are still in a depressed economic situation, the financial crisis is clearly behind us," Ghosn said during the interview.

"We are seeing an explosion of investment in technologies by automakers, particularly concerning clean cars, at a time of great

financial fragility. This situation is pushing them to work together to share investment," Ghosn added.

Ghosn expected to first see a recovery in the United States and the emerging countries in the first quarter of 2010, followed by the Europe at the end of 2010 or the beginning of 2011.

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Top bankers say bonuses are worth every penny

September 10, 2009
Top bankers defended their culture of bonuses yesterday against an onslaught of regulation that aims to put them on a tighter leash.

"We're against absolute caps on compensation levels," Morgan Stanley Co-President Walid Chammah told the annual Banks in Transition conference in Germany's financial capital, a two-day meeting of the banking world's elite.

Deutsche Bank AG Chief Executive Josef Ackermann chimed in that banks could not let star staff slip through their fingers by being tight fisted.

"The war for talent is in full swing," he said. "The question of whether we have learned something focuses too much on the question of bonuses and leaves out other aspects."

Their comments mark the investment bank industry's defence against those keen to crimp eye-popping payouts that critics say led to excessive risk-taking and pushed the financial system to the edge of the abyss.

The Frankfurt event comes on the eve of the anniversary of investment bank Lehman Brothers' collapse, a watershed in the financial crisis as investors realised with horror, and at times panic, that even leading institutions were not too big to fail.

Banks are feeling the heat as regulators, central banks and national governments take measures to try to ensure freewheeling banks do not again become loose cannons in the economy.

Central bankers on Sunday proposed a new regulatory framework that would force banks to set aside more profits as a cushion against hard times.

Some finance ministers from the Group of 20 countries also want to explore ways to rein in bonuses.

Superstar bonuses

Although regulators and politicians broadly agree that risk-hungry behaviour by highly paid bankers was one of the main causes of the financial crisis, they have struggled to agree on how to regulate or cap bonuses.

"Superstars are going to get superstar bonuses. That is not going to change," one London-based banker said, citing the multi-million-dollar guaranteed bonuses that banks still dangle to keep top dealmakers or lure them away from rivals.

Assurances about cutting bonuses have followed separate moves by banks such as Morgan Stanley, UBS AG and Citigroup Inc to hike basic salaries as a way to keep remuneration high, even at banks which accepted bailout money.

Top bankers in Frankfurt pleaded for a prudent approach to rule-making. Asked whether he felt pressure to change his bank's business model, Morgan Stanley's Chammah said: "Not really ... We'll continue to do what we do well."

Chammah and others opposed efforts to scale back sprawling global banks.

HSBC Holdings Plc Chairman Stephen Green said the term "too big to fail" was unhelpful because small banks also went under.

He said the lesson from Lehman's demise was instead that corporate structures need to be simpler so regulators can understand better which parts they need to monitor.

Deutsche Bank's Ackermann said there was no clear link or pattern between a good or bad bank based on their business model or the size of bonuses they awarded.

Lloyds Banking Group Plc and Banco Santander SA were both retail banks but enjoyed somewhat different fortunes, while investment bank Goldman Sachs Group Inc thrived even as Lehman folded its tent, he noted.

The Swiss executive atop Germany's flagship lender warned that regulators could choke off an economic rebound if they made overly restrictive rules.

"It is important that, before we take a detailed look (at capital requirements), we do a cost-benefit analysis for the economy. The consequences for credit availability and the price of credit need to be considered," he said.

But he acknowledged the banking industry did not have enough capital. "And I deem it right that this has to be corrected."

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Dollar falls amid recovery hope

September 10, 2009
The dollar fell against most major currencies on Wednesday after some new reports and data added hope for an economic recovery.

Despite labor markets remain weak with persistent downward pressure on wages, U.S. economic activity continued to stabilize in the summer months, according to the U.S. Federal Reserve Beige Book released on Wednesday.

In the Fed's 12 regional bank districts, five districts reported an improvement and four reported more stable conditions. Only one district reported declining activity, but the rate of decline moderated. Manufacturing and housing market improved, while labor market and consumer spending remained soft.

The U.K. Office for National Statistics said exports rose by 5 percent in July, the largest increase since January 2008. Other reports showed U.K. consumer confidence improved further in August and house prices stabilized.

The U.S. currency was still under pressure from a United Nations report which called for new global currency to replace dollar. Investors also worried that China may accelerate reserve diversification, which would undermine the dollar in long term.

The euro bought 1.4542 dollars in late New York trading compared with 1.4490 dollars it bought late Tuesday. It touched 1.46 dollars during the session, the highest level since this year. The pound rose to 1.6530 dollars from 1.6487 dollars.

The dollar rose slightly to 1.0812 Canadian dollars from 1.0807 Canadian dollars, and fell to 1.0421 Swiss francs from 1.0472 Swiss francs. It fell to 92.13 Japanese yen from 92.27 Japanese yen.

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WB report: World economies set new record in business regulation reform

September 10, 2009
A record 131 economies around the world reformed business regulation in 2008/2009, according to a report released by the World Bank and its private sector-leaning arm the International Finance Cooperation (IFC) on Tuesday.

The report, Doing Business 2010: Reforming through Difficult Times, recorded 287 reforms between June 2008 and May 2009, up 20 percent from the previous year.

Reformers around the world focused on making it easier to start and operate businesses, strengthening property rights and improving commercial dispute resolution and bankruptcy procedures.

"Business regulation can affect how well small and midsize firms cope with the crisis and seize opportunities when recovery begins," said Penelope Brook, Acting Vice President for Financial and Private Sector Development for the World Bank Group.

"The quality of business regulation helps determine how easy it is to reorganize troubled firms to help them survive difficult times, to rebuild when demand rebounds, and to get new businesses started," he said.

Singapore, a consistent reformer, is the top-ranked economy on the ease of doing business for the fourth year in a row, with New Zealand as runner-up.

But most of the action occurred in developing economies. Two-thirds of the reforms recorded in the report were in low-and-lower-middle-income economies.

For the first time a Sub-Saharan African economy, Rwanda, is the world's top reformer of business regulation, making it easier to start businesses, register property, protect investors, trade across borders and access credit.

Reformers were particularly active in Eastern Europe, Central Asia, the Middle East and North Africa, according to the report.

This year, there were four new reformers among the top 10: Liberia, the United Arab Emirates, Tajikistan and Moldova.

Others include Rwanda, Egypt, Belarus, Macedonia, Kyrgyzstan and Colombia. Colombia and Egypt have been top global reformers in four of the past seven years.

Doing Business analyzes regulations that apply to an economy's businesses during their life cycles, including start-up and operations, trading across borders, paying taxes, and closing a business, according to a statement released by the World Bank.

Meanwhile, the report does not measure all aspects of the business environment that matter to firms and investors. For example, it does not measure security, macroeconomic stability, corruption, skill level, or the strength of financial systems.

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Who beats U.S. in economic competitiveness?

September 9, 2009
The Global Competitiveness Report 2009-2010 released on September 8, 2009 by World Economic Forum (WEF) shows that Switzerland has overtaken the U.S. as the world's most competitive economy, while Chinese mainland's ranking rises from last year's No. 30 up to No.29.

This year's World Economic Forum report covers a total of 133 economies, and the top 10 most competitive economies are the same as last year, only a slight change in the order. The top 10 are Switzerland, the United States, Singapore, Sweden, Denmark, Finland, Germany, Japan, Canada and the Netherlands.

The competitiveness of the United States ranked first in the world for several years, but this year it dropped to second, which is due to the rapid deterioration of some weak points in competitiveness of the United States under the international financial and economic crisis.

In general, the biggest weakness of the United States is still macroeconomic stability. This index ranking dropped from No.66 last year to No. 93.

In recent years, there is growing imbalances in American macro economy. The cumulative budget deficit led to the rapid increase in government debt, especially the implementation of large-scale stimulus spending in response to the economic crisis exacerbated this problem.

In addition, the U.S. financial markets maturity ranking dropped from No. 9 last year to No. 20.

Last year, Chinese mainland was among the top 30 for the first time, and this year it makes further progress and continues to be No.1 among the "BRIC countries".

In other BRIC countries, India rises from No. 49 last year to No. 50. Brazil rises from last year's No. 64 up to No. 56, while Russia drops from 51st last year to No.63.

Since 2004, Chinese mainland has been giving increasingly better performance in such reports. In 2004, it was No.46, and in 2008 it achieved a qualitative leap, up to No.30 for the first time, and led "BRIC countries".

The report said Chinese mainland's increasing competitiveness mainly comes from its huge market and outstanding economic performance.

In addition, China is constantly improving its business environment, and its innovation capability is increasing. Besides, China is in good financial state. These favorable factors constitute the basis for upgrading China's competitiveness.

The report says that Switzerland and the Nordic countries continue to rank well mainly because of strong innovation ability of these countries. They have very mature corporate culture, and transparent regulatory agencies, and their governments have maintained a healthy budget surpluses and low debt.

Traditional European economies account for most of the seats in the top 10 list, including Finland, Germany and the Netherlands.

Britain is still very competitive, but it continues the downward trend of last year's ranking, dropped by one, ranking 13th this year. The report thinks that this was mainly due to Britain's weakening domestic financial market.

The Asian economies have eye catching performance. Japan, Hong Kong, South Korea and Chinese mainland are among the top 30.

In Latin America, Chile is the highest ranked country, followed by Costa Rica and Brazil.

In the Middle East and North Africa, some countries ranked in the top 50%. The leading countries are Qatar, the United Arab Emirates, Israel, Saudi Arabia, Bahrain, Kuwait and Tunisia.

World Economic Forum is a non-governmental international organization. Since 1979, the Forum annually publishes a report on global competitiveness.

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