Global Investing

McCainonomics

Republican presidential candidate John McCain has admitted in the past that economics is not his strong suit. In an interview with Reuters this week, he expressed a desire for a Treasury secretary who inspires confidence and trust if he should win the White House. rtx92vl.jpgMcCain also aid he could balance the budget by 2013 if the economy gets going and if nothing is done to harm growth.Nothing worrying about any of that.

But the odd eyebrow may have been raised when the Arizona senator got onto the dollar, which he wants to bolster, and China. “The first step that has to be taken is obviously we have to stop mortgaging our economy to China … and asking them to finance our debt,” he said. This sounds like he wants China to stop buying U.S. Treasuries.

“That I think would have the most salutary effect in the short term,” McCain added.

China owned $518.7 billion of Treasuries at last count, or 19 percent of all foreign-owned U.S. government debt. Its purchases month after month have gone a long way to keep borrowing costs down for Americans and keeping the dollar up.  Economics 101 would tell you that if China did stop, rates would soar and the dollar would dive.

Forecaster sees more Fed cuts, higher U.S. unemployment

Macroeconomic Advisers tells clients this morning they expect “weaker growth in Q3, a deeper decline in Q4 than we previously expected, and a weak rebound in Q1 of next year will now qualify this period formally as a recession.”

U.S. unemployment rate “could well reach 7%,” the forecasting firm says, as it projects a 50 to 75 basis point easing by the Federal Reserve to address the weakening data as well as financial conditions.

Going back to Quakers?

InvestorIn these troubled times, go back to basics.

Theo Zemek, AXA Investment Managers‘ global head of fixed income, says investors should adopt “Quaker investment policies” – sober and safe investment strategies that can be explained to their grandmothers.

“Anyone who utters the word ‘hedge’, after all these CDS (failures), ought to be taken out and be shot,” the 25-year markets veteran told a media briefing.

“This is the scariest market I’ve ever seen in 25 years. The world of complex instruments, credit guarantees… That world is very much an ancient history… It’s a darn tough market. Who is left standing among our counterparties?”

Commerce Secretary Gutierrez at the RNC

Commerce Secretary Carlos Gutierrez tells Corbett B. Daly, Washington Bureau Chief of Thomson Reuters Markets, that the U.S. economy is “going through a difficult time, there is no question.”

The insane mantra of emerging markets

With emerging market stocks taking a beating, now would not seem to be an obvious time to launch new equity funds for the asset class. Benchmarker MSCI’s main emerging market stock index, after all, has lost more than a quarter of its value so far this year and concerns about the U.S. economic slowdown spreading are rife.

Despite this, U.S. investment manager Putnam says it is set to launch two new emerging market equity funds in October – one for U.S. investors, the other for Europeans. Is this perverse or prescient?

Putnam, of course, reckons it is the latter. During a chat with Reuters in London, Boston-based officials said the move reflected the long-term outlook for Pulling for emerging marketsemerging markets which has not changed during the current market ructions. Growth projections for emerging economies remain far more attractive for equities than do those for developed markets, said Matthew Scales, a senior investment product manager.

Talking inflation over coffee as oil falls

CoffeeInteresting juxtapositions at a Barclays Capital chat. On the day when oil prices were plunging below $106 a barrel — more than $40 below their July record peak — the investment bank held a lunch seminar to discuss trading strategies on inflation. ”It seems odd to have an inflation seminar when oil prices more or less collapsed,” said Tim Bond, head of global asset allocation. He added, however, that there is still structural upward pressure on inflation and this theme is further to run.

Rodrigo Valdes, Barclays’ chief Latin American economist and former head of research at Chile’s central bank, talked about the varying impact on inflation from food prices, as those gathered tucked into roasted sea trout with razor clams, carrot puree and sorrel velonte.

He said the surge in food and other resource prices hits emerging markets more than others, predicting Latin American inflation to peak in Q4 or Q1 with quite a lot of interest rate hikes to come. “If you buy a cup of coffee here, there’s not much coffee in it … In Brazil, it’s not the case,” he said.

What about the Whigs?

pols.jpgAs Democrats and Republicans kick off the final countdown to the Nov. 4 election, strategists at U.S. investment bank Lehman Brothers have done some interesting data mining.

Figures looking back economic conditions in 1948-2007 show the economy under Democrats enjoyed a higher GDP growth rate (4.2 percent vs 2.8 percent for Republican adminsitrations) and a lower average unemployment rate (5.1 percent vs 5.9 percent).

Looking at a longer timeframe since 1828, however, Lehman strategists found that government and corporate bonds fared better when a Republican occupied the White  House (it excluded Whigs).

Using terrorism to gauge oil’s impact

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Do oil price spikes cause recessions? It is a controversial question and one that is very much a propos. It is all very chicken-and-egg, of course. If oil is soaring because of overheating economic demand, is it the demand or the ensuing rise in oil prices that causes the crash?

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Britain’s Centre for Economic Policy Research has had a go at trying to answer this with a report written by Natalie Chen and Andrew Oswald from the University of Warwick and Liam Graham from University College London. The twist was that the academics used terrorist incidents as an instrumental variable. Roughly, they looked at the impact of a sharp rise in oil prices on the profitability of various industries. By using terrorist events, they stripped out macroeconomic drivers and focused on something that was separate from the business cycle.

Steelmakers show industrial Germany is weathering downturn

steel2.jpgIt’s not all doom and gloom — just ask steelmakers.

Germany’s ThyssenKrupp and Salzgitter have both raised their profit forecasts, fuelled by demand from fast-growing China, India and Russia. Profits are soaring on sky-high prices for rolled and flat steel.

Both companies are cashing in on growth outside Europe, and they join Hochtief and Kloeckner who this week also showed that industrial Germany is insulated against a global economic slowdown.

Cost of expensive gasoline measured in SUV sales drop

 

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Are high gas prices killing Americans’ love affair with gas-guzzling SUVs? Looks that way.

In April, SUVs and light trucks took their smallest share of total U.S. vehicle sales in nearly nine years, and dealers sold more new cars than trucks for the second month running — the first time that’s happened since 2001. While many factors have teamed up to torpedo sales of high-ticket vehicles like SUVs — tighter credit, a tough job market, slumping real estate values and a generally soft economy — the fact that pump prices have soared to a record aren’t helping, as the chart shows.

This trend might not easily reverse in May. Gas prices are up an average of 3 percent in the first two weeks of the month, with the latest weekly average pump price setting a fresh record of $3.72 a gallon, according to the Energy Department’s Energy Information Administration.