The Weekly Layoff Report: From Banking To Backhoes

A slow but fairly steady economic recovery seems to be underway. Government figures this week showed inflation to have stayed negligible while the Federal Reserve has attempted to spur economic growth by holding down short-term interest rates at near zero, and the Dow Jones Industrial Average reached its highest point since 2008. But that doesn't dispel the gloom brought on by high unemployment. The week ending March 13 saw a small dip in initial claims for unemployment insurance, from 462,000 to 457,000. The moving average decreased by 4,250 to 471,250. The trend seems to be improving, yet there remain more than 11 million recipients of unemployment benefits, 6 million of them on extended benefits.

Google aims to retain China unit

Google hopes to retain a substantial business presence in China even if its standoff with Beijing over censorship forces it to close its flagship local search engine, local employees and industry experts say.

Speculation intensified yesterday that the US internet group was preparing to announce as early as Monday the closure of google.cn, making good on its threat to retreat from China unless the government allowed it uncensored search results.

The company runs google.cn, its China-registered website, in a joint venture with a domestic partner, as Chinese law bars -foreigners from holding controlling stakes in the internet content business. But most of Google's workforce in the country is employed by a separate company wholly owned by the US parent.

"Research and development staff all work with us," said an employee at Google Information Technology (China), a foreign-owned company, according to the Beijing administration for industry and commerce. Another employee who works in sales said most of Google's salesforce in China was employed by the same company and not by the joint venture.

"They have their R&D perfectly firewalled off, so they can continue to keep those people at work even if google.cn closes down," said Duncan Clark, chairman of BDA, a Beijing-based consultancy. However, Google executives fear that Chinese retaliation could make it hard for the company to keep any business there, including the R&D and advertising sales operations set up well before it launched google.cn.

A state-owned Chinese newspaper, quoting an unnamed Google employee, reported yesterday that the company could announce the closure of google.cn on Monday.

A person familiar with the situation said last week that Google had drawn up plans for the closure of the Chinese search engine and hoped to manage an orderly exit from the country.

"Google is likely to move features it now offers on the local search engine on to google.com and continue developing its offering for the Chinese market," said Cao Junbo, of iResearch in Beijing.

He said that if Google managed to close the local search engine and avoid frequent blocking of google.com in China, the company had a chance of holding on to some of its 35 per cent share in the Chinese search advertising market.

Google did not respond to a request for comment.

Less debt, more charm

According to this article, the outlook of private-equity managers is a difficult one. It’s said that private equity has prospered for 25 years, which owes to a favorable combination of circumstances---easy access to cheap credit, rising asset prices, a relatively stable economy and a friendly regulatory environment. However, in last year, credit was neither available nor cheap. It also points out that although it is true that equity prices did rebound last year, yet it was a double-edged sword. Private-equity firms found that deals were expensive and the markets were not quite strong. Private-equity firms realized only $58 billion last year, down from $324 billion in 2007. Further, the lack of “exits” from investments makes the situation even worse.

In summary, although some managers still have plenty of “dry powder” left which they raised funds in the boom years, they have to solve the problem--- attract or obtain more investments and re-built people’s confidence of the market---as soon as possible.

Less Interest in Interest-Only

This article reports that the fate of interest-only mortgage is not optimistic. In a typical interest-only mortgage, borrowers pay only the interest on the mortgage in the first 10 years, and then pay the principal and interest for the next 20 years. According to professionals, interest-only mortgage works best for the wealthier and financially disciplined borrowers. Or people who doesn’t want to keep their house for many years, and who needs greater cash-flow options.

However, because of that the interest-only mortgage, not many lenders are interested in investing their money on this mortgage. Or, they require higher interests, which combat borrower’s intention of borrowing money. Also, it makes banks gain risk of running their business.
Therefore, understandably, unless in a special phase which people are in need of large amount of flowing currencies, it is not easy to keep backing the interest-only mortgage.

Dollar, Yen Rise as Stock Drop, Rate Increase Damp Risk Demand

The dollar and yen rose again as India unexpectedly raised interest rates. The euro had the biggest drop compared to dollar, i had since January. British sterling also dropped as Bank of England announced Britain may return to recession again soon. The stock market has been on a tear recently and investors are switching to other, safer assets- Fabian Eliasson, head of US currency sales at Mizuho corporate bank, said. An Indian increase in interest rate can be a sign that other Asian banks will do the same soon. Greek prime minister said he would have to ask help from International monetary fund if EU wouldn't set up a lending facility for Greece in the upcoming EU summit. Greece needs to raise 10 billion Euros to refinance the bonds, and greek prime minister said that Greece can't keep up with current market rates.

A Company Races to Keep a Drug Patent

Interesting article, especially because we talked about drug patents on Wednesday. The case illustrates the lengths to which drug companies will go to preserve the precious patents that separate name-brand moneymakers from generic also-rans.

Chinese Official Warns of Risk If Yuan Rises

Chinese Official Warns of Risk If Yuan Rises
BY ANDREW BROWNE

BEIJING—A senior Chinese trade official warned that any further appreciation of the Chinese currency risked driving exporters out of business, underscoring the domestic political pressures on Beijing amid growing international calls for China to let the yuan rise.

Vice Commerce Minister Zhong Shan, in an exclusive interview Thursday ahead of a visit to the U.S., said that the profit margin on many Chinese export goods was less than 2%.

Most exporters absorbed the appreciation in the value of the yuan that followed its revaluation in 2005 by boosting innovation and cutting costs, but many were forced to close, he said. ...

Bank Stocks Boost European Markets

Bank Stocks Boost European Markets
BY ISHAQ SIDDIQI AND ANDREA TRYPHONIDES

European stocks recovered some of the previous session's losses, with banking shares posting strong gains Friday after Lloyds Banking Group said it expects to return to profit this year.

The Stoxx Europe 600 Index rose 0.5% to 262.5. London's FTSE 100 was 0.7% higher at 5679.6, Frankfurt's DAX rose 0.4% to 6034.3 and Paris's CAC-40 gained 0.4% to 3956.0.

The news from Lloyds gave its shares, and the whole banking sector, a lift, particularly as Lloyds disappointed the market with its earnings last month, said Joshua Raymond, a market strategist at City Index.

"A return to profitability would be seen ...

Fed May Boost Discount Rate Before Next Meeting, Economists Say

This article discusses the idea that the Federal Reserve may increase the Discount rate before their next meeting. I am not sure if the economy would respond to this move considering the Fed just increased the Discount rate already once about two weeks ago. I may be wrong but the way i see it is that the banks already have all the cash they need so whats the point?

Tax breaks for hiring the unemployed

With the national unemployment rate remaining high and showing no sign of declining in the near future, it is absolutely necessary that the government gives business owners financial incentives to hire more workers. A $17.6 billion jobs bill has recently been approved by the Congress. According to the bill, employers will be given two tax breaks for qualifying new workers hired in 2010. Moreover, the legislation extends the provision to that allows small businesses to write off as much as $250,000 of the capital expenditure in 2010. Despite the measures being quite costly and hence significantly worsening the budget deficit, they will almost certainly create a great boost for many businesses. That being said, several small business owners still doubt the helpfulness of the stimulus package since they believe that, with their businesses severely devastated by the recession, they are in no position to create new jobs. Perhaps such firms would need help rebuilding first.

Euro Weakening Against the Dollar

There are different points of view on whether it is good or bad that the Euro has depreciated against the US dollar. It is obviously good for the European car industry which happens to be very large and it is good for exports to the United States and other countries whose currencies are pegged to the US dollar. It happens to be bad for imports of raw materials such as oil, especially since the price in dollars is increasing. Given that there are different ways of looking at the depreciation of the Euro against the dollar I think that a more individualistic would be required to decide whether or it is a bad thing or a good thing. In depth analysis has to be done for each individual country of the European Union in order to decide if a country is or is not benefitting from the weakening of the Euro.

Fed's Authority Threatened

This is a very interesting article that goes over Federal Reserve Chairman Ben S. Bernanke's arguments against Senate Banking Committee Chairman Christopher Dodd's proposal to shrink the Fed's authority. The proposal's purpose is to change thins so the that the Fed only oversees financial institutions with over $50 billion in assets. Bernanke argued back saying that neither monetary policy nor the financial system will function properly if the bank does not have influence over all financial institutions. Several Federal Reserve representative already spoke on behalf of the central bank defendind Bernanke's position.

FCC Releases Plan to Improve U.S. Web Access

This is quite an interesting article discussing the potential failure if the U.S. doesn't speed up internet connections and make them accessible to more people. As a result, the economy will suffer and unconnected Americans will be left without the information they need to function in a digital society. Although the internet was developed in the U.S., 35% of Americans do not have access to high-speed internet in their homes. $7.2 billion from President Obama's American Recovery and Reinvestment Act is allocated to broadband-related initiatives.

Fed to Keep Rates Low for ‘Extended Period’

The article mainly talks about the fact that the Fed keeps the interest rate low since job growth and other economic indicators remain weak. To be specific, the feds fund rate has been around 0-0.25 percent since 2008, which is historically low. As the Federal Open Market Committee points out, household spending only grows at a moderate rate, because it is constrained by high unemployment, slow income growth and tight credit. Although spending on software and equipment has risen significantly, investment in nonresidential structures is declining. Since the interest rate cannot go any lower, it might be helpful that the Fed can come up with any other monetary policies to stimulate economic growth. The main tools which have been used by the Fed are buying enormous sums of assets and mortgage-backed securities.

U.S. Treasury Gives Up Monthly Data

The U.S. Treasury had states that they will no longer publish Bank lending summaries on a monthly basis because of how deceiving they can be. The last published summary showed that there was a 35% decrease in bank lending from December 09 to January 10. This piece of information could upset people very much because one of the goals of the financial bailout in 08 was to increase loans to consumers and small businesses. A piece of information that is not evident from the monthly summary is that the assets held by banks has decreased from 61% in November 08 to 17% in January 10. From this information we can conclude that the monthly summaries are meaningless and very deceiving which is why I agree with the Treasury Department's decision to no longer publish monthly summaries.

U.S. Industrial Production Rises but Manufacturing Lags

Industrial production increased a mere 0.1% in February, but the crucial manufacturing sector fell by 0.2%, indicating that economic recovery is still sluggish. Manufacturing took a hit due to the major winter storms in February that temporarily shut down most of the Northeast. Some economists predict the manufacturing sector to rebound in March with businesses replenishing their inventory. However, as heard over and over again, the economic recovery hinges on consumer demand increasing.

China Uses Global Trade Rules to Advantage

China has skillfully been using inconsistencies in international trade rules to spur its own economy at the expense of others, so it is no surprise that China has been recording annual growth rates as high as 8%. They are doing so by fighting against protectionism among its trade partners and holding down the value of its currency. China buys dollars and other foreign currencies by selling more of its own currency, which then depresses its value. That intervention has led to exports to increase 46% in February compared with a year earlier. As a result, China had a $198 billion trade surplus with the rest of the world last year, with its exports to the United States outpacing imports by more than four to one.

Retail Sales

Even with the awful weather, Februaries retail sales rose pleasantly, .3 percent from January. Wall Street was predicting .2 percent decline. With unemployment falling and employment hours growing incomes are growing as well which helps out the retail area. Electronics grew 3.7 percent, clothing .6 percent and building materials .5 percent.

Economies effect on trust in government

This article discusses the correlation between trust and government, along with other things. Because it is a blog entry it is a little bit conversational at times, but it does rise some interesting points about how the economy's performance will change Obama's prospects in 2012.

China’s Bank Chief Says Currency Is Unlikely to Rise

This article discusses the recent decision by China's central bank governor to freeze the exchange rate of their currency the renminbi. China is not letting the renminbi appreciate against the dollar, in response to the recent financial crisis. The head of the Chinese central bank Zhou Xiochuan said the currency will remain fixed, "as long as major economies remained mired in slow growth." The problem that many western economists and leaders have with this decision by the Chinese financial leaders is the problem this causes for competing economies. President Obama talked about how these artificially low prices of Chinese foreign goods make it impossible for other countries to compete with their exporting. Governor Zhou hinted that they may let the renminbi appreciate against the dollar once the global economy recovery continues, until then competing economies are just going to have to struggle to keep up with the low Chinese exporting prices.

Slow Going

This article discusses the rather poor unemployment figures we've been seeing and their continual drop. The article argues that the still-dropping unemployment rate might indicate that thr economy is not recovering as fast as we might think and might be in a worse state than GDP indicates. It argues that GDI (Gross Domestic Income), while not the common measure of the state of the economy, has been growing in popularity as research suggests it might be a better indicator of the economy. The state of the economy with respect to GDI is much more in line with the unemployment rate than GDP's measure. It also indicates that when most economists predicted we were leaving the recession (using GDP) we were still in bad shape.

Slowly, Americans are regaining their lost wealth

This article talks about how household net worth is gradually rising. Net worth includes the value of assets like houses, checking accounts, and investments minus the value of debts, such as credit cards. Net worth has been rising very slowly, however, and net worth still needs to rise over 21 percent to be at where it was before the recession. Growth in stock portfolios has contributed to the increase in net worth. Th article also mentions how household debt has been decreasing, the first time since 1945.

Market Defies Fear of Real Estate Bubble in China

This article discusses the problem of real estate market in China. China is in the middle of a rapidly real estate boom, and property developer states that now people in China want something more luxurious so that expensive estate has no trouble finding buyers.
However, it is also clear that Chinese real estate market is in a growing bubble and if it collapsed, the world economy would be impacted, as China is a main economy pulling the world out of recession. Beijing is concerned and have recently moved to rein in the easy credit that has helped finance China’s hyperdevelopment, including making it more difficult for home buyers to take out a second mortgage.
Last year, a record $560 billion of residential property was sold in China, an increase of 80 percent from the year before, according to government statistics that are widely considered reliable. Yet analyst still warns that the sign of exuberance is just a bubble. It is also predicted that the prices will continue to rise, as prices have nearly every year for more than a decade.
A possible reason for the problem of high price in real estate market may be the government. As they try to modulate the market, local and central governments here are walking a thin line. Land sales were a major source of government revenue, raising about $234 billion last year, an amount equal to over a third of the cost of China’s half-trillion-dollar stimulus program.
Whether the country is in the middle of a bubble has become the subject of a debate. Some economists, like Nicholas R. Lardy at the Peterson Institute for International Economics in Washington, say the housing boom is being propelled by a huge urbanization push that is creating premium-priced houses.
Other analysts say prices are being propped up by greedy developers and government policies that are making housing increasingly unaffordable for the masses migrating to big cities.

A postmortem on Lehman Brothers--Oh, brother

A nine-volume, 2,200-page report by a court-appointed examiner into the causes of Lehman Brothers’ bankruptcy,published on Thursday March 11th, has a table of contents that lasts for 38 pages. Its most exciting finding relates to an off-balance-sheet accounting gimmick. But the work of Anton Valukas, the chairman of Jenner & Block, a law firm, is crisp, clear and explosive.
The report’s juiciest finding relates to Lehman’s use of an accounting device called Repo 105, which allowed the bank to bring down its quarter-end leverage temporarily. Repurchase (“repo”) agreements, whereby borrowers swap collateral for cash and agree to buy the collateral back later at a small premium, are a very common form of short-term financing. They normally have no effect on a firm’s overall leverage: the borrowed cash and the obligation to repurchase the collateral balance each other out.
The conclusion is that Lehman’s aggressive growth strategy and its approach to risk reflected “serious but non-culpable errors of business judgment” rather than any breach of fiduciary duties. But the stain on the reputation of the bank’s executives and directors has grown even larger.

Great Time to Buy (Famous Last Words)

This article discusses whether or not now is a good time to buy a home. Housing prices have declined over 33 percent in the past few years. However, housing prices could drop an additional 15 percent. It is very difficult to predict the housing market, and this article advises that a better thing to do is bet on interest rates. It is most likely that interest rates have bottomed out. So, based on interest rates, now is the right time to buy, regardless of whether home prices have bottomed out yet or not.