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International Demand for U.S. Assets Slows as Japan, China Pare Positions

by on March 15, 2010

By Vincent Del Giudice March 15 (Bloomberg) — International demand for long-term U.S. financial assets weakened in January as China and Japan, the two biggest holders of Treasuries, reduced their positions. Net buying of long-term equities, notes and bonds totaled $19.1 billion, compared with net purchases of $63.3 billion in December, according to Treasury Department data released today in Washington. Including short-term securities such as stock swaps, total investment flows show foreigners sold a net $33.4 billion after net buying of $53.6 billion the previous month. China has been a net seller of Treasuries for three straight months, the longest such stretch since the end of 2007. Chinese officials have questioned the dollar’s role as a reserve currency and recently sought assurances about the safety of American government debt, as the U.S. budget deficit widens to a projected record $1.6 trillion this year. “Foreign central banks stopped buying Treasuries in January,” said Chris Rupkey , chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “If this were to continue, if China were to stop recycling its dollars into U.S. Treasuries, it could have dire implications for Main Street America in that mortgage rates could move higher.” Economists in a Bloomberg News survey projected long-term U.S. financial assets would show a net increase of $47.5 billion in January, according to the median of four estimates. China’s Reduction China remained the biggest foreign holder of Treasuries, even as its holdings dropped by $5.8 billion in January to $889 billion. Chinese Premier Wen Jiabao this week sought assurances that the U.S. will protect the value of China’s dollar assets. At a press conference in Beijing marking the end of China’s annual parliamentary meetings yesterday, Wen said dollar volatility is a “big” concern and “I’m still worried” about China’s U.S. currency holdings. Wen urged U.S. officials to “take concrete steps to reassure investors” about the safety of dollar assets, repeating concerns that he expressed a year ago, sparked by a growing U.S. fiscal deficit. China’s share of U.S. bills, notes and bonds in January amounted to 24 percent of the total $3.7 trillion in Treasuries owned by investors abroad, up from 19 percent three years ago, according to Treasury data. The selling by China and Japan may be temporary, as the world’s largest economy rebounds from a recession and as concern lingers about government debt of European Union countries such as Greece, economists said. No ‘Alarm’ “In the short haul there is no need for alarm, as portfolio changes often occur at the start of the year,” Rupkey said. “The U.S. will continue to see renewed inflow later this year as its economy remains a relative oasis of calm now that other sovereign credits are experiencing troubles with debt loads.” Japan, the second-largest holder, reduced its holdings in January by $300 million to $765.4 billion. The Treasury’s reporting on long-term securities captures international purchases of government notes and bonds, stocks, corporate debt and securities issued by U.S. agencies such as Fannie Mae and Freddie Mac , which buy home mortgages. Total foreign purchases of Treasury notes and bonds were $61.4 billion in January compared with purchases of $69.9 billion in December. Agency Debt Foreign demand for U.S. agency debt from companies such as Fannie Mae and Freddie Mac showed net selling of $5 billion in January, the first drop in three months. Net foreign purchases of equities were $4.3 billion in January after net buying of $20.1 billion in December. Investors sold a net $24.6 billion in U.S. corporate debt in January, the eighth straight month of selling. The Standard & Poor’s 500 Index in January dropped 3.7 percent, the biggest monthly fall since February 2009. The Dollar Index , a gauge of its strength against six other major currencies, rose 2.1 percent in January. U.S. Treasuries gained 1.58 percent in January, according to an index compiled by Bank of America Corp.’s Merrill Lynch unit. To contact the reporters on this story: Vincent Del Giudice in Washington at Or vdelgiudice@bloomberg.net

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Bank of England, ECB Will Keep Winding Down Stimulus Steps After Fed Move

by on February 19, 2010

By Emma Ross-Thomas Feb. 19 (Bloomberg) — The Federal Reserve’s decision to raise its discount rate shows that the global recovery is on track and other central banks can afford to keep withdrawing emergency measures, former policy makers and economists said. “It’s another minor step in a long march towards normalization,” said former Bank of England official Charles Goodhart in a telephone interview. “The Fed has already moved some way to reducing credit easing, as has the ECB, as has the Bank of England.” The Fed yesterday raised the rate charged to banks for direct loans by a quarter-point to 0.75 percent, the first increase since June 2006. The Fed said it was a “normalization” of lending that wouldn’t affect monetary policy, and the main federal funds rate would remain low for an “extended period.” The move came as policy makers debate how to withdraw measures designed to haul their economies out of the worst global recession since World War II. While the European Central Bank has already ended some of its emergency liquidity tools, the euro-region economy almost ground to a halt in the fourth quarter and its task is complicated by Greece’s fiscal crisis. The Bank of England is concerned the U.K. economy may lapse back into a recession and expects inflation to undershoot its target over the next two years. The Bank of Japan says it’s still tackling the “critical challenge” of deflation, while unemployment in the U.S. and euro region is around 10 percent. The Fed’s decision nevertheless increased speculation that the U.S. recovery will be strong enough to allow it to tighten policy in the fourth quarter. The dollar strengthened 0.8 percent against the euro since yesterday’s announcement, trading at $1.3518 at 1 p.m. in London. Early Signs? “What the Fed did encourages me because it just may be that the Fed has seen the early signs of recovery,” said Meghnad Desai, Professor Emeritus of Economics at the London School of Economics, in an interview with Bloomberg Television. “European data is slightly misleading, I think there’s more recovery around than we see in the published data.” The ECB has already halted lending unlimited funds for 12 months and may stop other measures at its next meeting on March 4. While President Jean-Claude Trichet has signaled that its benchmark rate is “appropriate” for now, a faster global recovery may prompt him to tighten sooner, says Juergen von Hagen , economics professor at the University of Bonn. “The ECB has more reason than the Fed to think about a tightening of its policy in summer,” he said. “Liquidity in the euro region is abundant and the central bank is well-advised to focus on this to avoid inflationary risks. Inflation is not a problem right now, but if you wait for too long you may have to increase rates in a way which will hurt economic growth.” Options Open? Economists don’t expect the ECB to start raising its benchmark rate from a record low of 1 percent until the fourth quarter, according to a Bloomberg News survey last month. The Bank of England is leaving the option open to resume bond-buying if needed after pausing its 200-billion pound (308 billion) program this month. The U.K. economy returned to growth in the fourth quarter of last year, expanding 0.1 percent from the previous three months. Policy maker Kate Barker said in an interview published by the Belfast-based Newsletter today that the economic recovery will be “quite hesitant.” The Fed’s move may also prove a boon to an export-led recovery by bolstering the dollar, at the expense of the euro, some economists said. The single currency has lost 6 percent this year on concerns over swelling budget deficits and the impact of Greece’s debt crisis on the stability of the euro region. “If on top of that we see the market also becoming more confident on the U.S. recovery and the Fed moving towards hiking the Fed funds rate eventually, that could push the euro significantly lower,” said Marco Annunziata , chief economist at UniCredit Group in London. To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

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Fed Discount-Rate Increase Signals Recovery on Track

February 19, 2010

By Emma Ross-Thomas Feb. 19 (Bloomberg) — The Federal Reserve’s decision to raise its discount rate shows that the global recovery is on track and other central banks can afford to keep withdrawing emergency measures, former policy makers and economists said. “It’s another minor step in a long march towards normalization,” said former Bank of England official Charles Goodhart in a telephone interview. “The Fed has already moved some way to reducing credit easing, as has the ECB, as has the Bank of England.” The Fed yesterday raised the rate charged to banks for direct loans by a quarter-point to 0.75 percent, the first increase since June 2006. The Fed said it was a “normalization” of lending that wouldn’t affect monetary policy, and the main federal funds rate would remain low for an “extended period.” The move came as policy makers debate how to withdraw measures designed to haul their economies out of the worst global recession since World War II. While the European Central Bank has already ended some of its emergency liquidity tools, the euro-region economy almost ground to a halt in the fourth quarter and its task is complicated by Greece’s fiscal crisis. The Bank of England is concerned the U.K. economy may lapse back into a recession and expects inflation to undershoot its target over the next two years. The Bank of Japan says it’s still tackling the “critical challenge” of deflation, while unemployment in the U.S. and euro region is around 10 percent. The Fed’s decision nevertheless increased speculation that the U.S. recovery will be strong enough to allow it to tighten policy in the fourth quarter. The dollar strengthened 0.8 percent against the euro since yesterday’s announcement, trading at $1.3518 at 1 p.m. in London. Early Signs? “What the Fed did encourages me because it just may be that the Fed has seen the early signs of recovery,” said Meghnad Desai, Professor Emeritus of Economics at the London School of Economics, in an interview with Bloomberg Television. “European data is slightly misleading, I think there’s more recovery around than we see in the published data.” The ECB has already halted lending unlimited funds for 12 months and may stop other measures at its next meeting on March 4. While President Jean-Claude Trichet has signaled that its benchmark rate is “appropriate” for now, a faster global recovery may prompt him to tighten sooner, says Juergen von Hagen , economics professor at the University of Bonn. “The ECB has more reason than the Fed to think about a tightening of its policy in summer,” he said. “Liquidity in the euro region is abundant and the central bank is well-advised to focus on this to avoid inflationary risks. Inflation is not a problem right now, but if you wait for too long you may have to increase rates in a way which will hurt economic growth.” Options Open? Economists don’t expect the ECB to start raising its benchmark rate from a record low of 1 percent until the fourth quarter, according to a Bloomberg News survey last month. The Bank of England is leaving the option open to resume bond-buying if needed after pausing its 200-billion pound (308 billion) program this month. The U.K. economy returned to growth in the fourth quarter of last year, expanding 0.1 percent from the previous three months. Policy maker Kate Barker said in an interview published by the Belfast-based Newsletter today that the economic recovery will be “quite hesitant.” The Fed’s move may also prove a boon to an export-led recovery by bolstering the dollar, at the expense of the euro, some economists said. The single currency has lost 6 percent this year on concerns over swelling budget deficits and the impact of Greece’s debt crisis on the stability of the euro region. “If on top of that we see the market also becoming more confident on the U.S. recovery and the Fed moving towards hiking the Fed funds rate eventually, that could push the euro significantly lower,” said Marco Annunziata , chief economist at UniCredit Group in London. To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

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Sec. Hilda Solis: The Recovery Act — One Year Later

February 17, 2010

Just weeks after taking office, President Obama put into motion an unprecedented effort to jumpstart our economy, create and save millions of jobs, and put a down payment on addressing long-neglected challenges so our country can thrive in the 21st century. A year ago we were losing over 700,000 jobs a month, banks had stopped lending money and we were on the doorstep of slipping out of a recession and into a deep depression. The American Recovery and Reinvestment Act is designed to get money into communities to get local economies moving again, and to build the foundation for a more stable economy going forward. It contains tax cuts for middle class families to put more money into family budgets. It funds transportation and infrastructure projects to create jobs. And it provides funds to help those looking to get into the workforce get good jobs with a long and stable future. That is exactly what America’s families need and deserve. I have traveled across the country, and I have heard the stories of workers and their families. They are not looking for a hand-out; they want a hand-up. The Recovery Act provided additional support for the Labor Department to provide job training opportunities, and provide support for those who lost their jobs. And I am pleased to say that the Recovery Act is working. Kevin Kolassa spent 25 years manufacturing gas tanks and steering columns when he lost his job. With his college education partly paid for by the Labor Department, Kolassa became certified and employed as a phlebotomy technician. He plans to someday become a medical lab technologist. Patrick Madonna took a buyout from his job as an assembler after 12 years at the Ford Motor Company but found it difficult to find full-time work. Through one of our programs, he received job search assistance and was quickly hired as a customer service rep by a local furniture outlet, where he was since promoted to Sales Manager. He said that the program helped him to find a better job. Sheila Jolley worked for seven years in customer service for a publications distribution firm when her job was outsourced to Canada. Jolley decided to reinvent herself and enrolled in a medical billing and coding computer program paid for by Department of Labor funds. She is now a Debit Card Specialist at a health administration company. And Cesar Schultz, who attended a YouthBuild program in Phoenix, has turned his life around by obtaining his GED and is learning how to retrofit buildings and install solar panels. While there’s been a lot of rhetoric about the Recovery Act, there is no question it has saved or created millions of jobs. It’s one of the main reasons the economy has gone from shrinking by 6 percent to growing at about 6 percent. And this morning we learned that manufacturing production posted a strong gain. Both public and private forecasters say the Recovery Act is responsible for about 2 million jobs nationwide. And the non-partisan Congressional Budget Office says that number could be as high as 2.4 million. No matter who you are work is much more than a source of income, it’s a source of dignity. Work is about who and what we are. And getting America back to work is what the Recovery Act is doing.

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Optimism Trumps Gloom at MBA Real Estate Finance Conference in Glitter City

February 3, 2010

More than 2,000 commercial and multifamily real estate professionals attended the Mortgage Bankers Association’s four-day Commercial Real Estate Finance/Multifamily Housing Conference, which wraps up Thursday in Las Vegas. Despite a recession and…

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Commercial Defaults Continue To Drag Down Smaller TARP Banks

December 7, 2009

As the U.S. economy pulls out of a recession and the biggest banks return to profitability, mounting defaults on commercial property may keep regional lenders from repaying bailout funds until at least 2011.

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Geithner Says U.S. Recovery Requires Banks to Take Risks, Resume Lending

November 1, 2009

By Alison Fitzgerald Nov. 1 (Bloomberg) — U.S. Treasury Secretary Timothy Geithner said the country’s economic recovery and job creation hinge on banks taking more risk and restoring the flow of credit to businesses. “The big risk we face now is that banks are going to overcorrect and not take enough risk,” Geithner said in an interview today on NBC’s “Meet the Press” program. “We need them to take a chance again on the American economy. That’s going to be important to recovery.” Geithner judged the banking system to be “dramatically more stable” than it’s been in more than a year. U.S. banks have been reluctant to lend as the economy emerges from a recession and unemployment approaches 10 percent. Loans by the biggest banks receiving the most government assistance from the $700 billion Troubled Asset Relief Program fell by 17 percent in August to $234.7 billion, the third time in six months that lending declined. Bank of America Corp.’s total loan originations fell 22 percent to $57.1 billion in August from a month earlier, according to an Oct. 15 report from the Treasury. Lending by Wells Fargo & Co. fell 18 percent to $55 billion for the month, and JPMorgan Chase & Co.’s loan originations dropped 5 percent to $43.8 billion, the report showed. Household and business borrowing have plummeted in the last year. Consumer credit fell in the second quarter by 6.5 percent, according to the Federal Reserve’s flow of funds report. Non- financial business debt fell at a 1.75 percent annual rate. U.S. Savings Rate U.S. households are saving more, which Geithner said is a logical response to the economic crisis. Geithner said he expects the recovery to be “a little choppy.” The U.S. economy expanded in the third quarter for the first time in a year, the Commerce Department said last week. Gross domestic product grew at a 3.5 percent pace from July through September. Geithner declined to say whether he thinks the recession is over. “A lot of damage was caused by this crisis. It’s going to take some time for us to grow out of this,” he said. “It could be a little choppy. It could be uneven. And it’s going to take awhile.” While the GDP report was a “good number,” he said a better measure of economic recovery will be job growth. The unemployment rate rose to 9.8 percent in September. Geithner said the rate is likely still rising, and he noted that most economists expect it to eclipse 10 percent. October Jobs A Labor Department report Nov. 6 will probably show joblessness nationwide reached 9.9 percent in October, according to a Bloomberg News survey of 61 economists. That would be the highest level since June 1983. “This is a tough economy still for huge numbers of American businesses,” he said. “The real test will be when we have unemployment come down.” The Treasury secretary said it’s not yet time to announce steps to cut the U.S. deficit , which has shot up to a record $1.4 trillion in the last year, triple the previous year, after the U.S. Congress committed billions to bailing out banks and President Barack Obama and lawmakers committed $787 billion to an economic stimulus package. Geithner said it’s “not yet” time to discuss whether another economic stimulus package should be considered, because only about half of the first one has been spent. To contact the reporters on this story: Alison Fitzgerald in Washington at Afitzgerald2@bloomberg.net

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Hamptons, New York, Home Prices Rise as Buyers Return to $2 Million Deals

October 19, 2009

By Oshrat Carmiel Oct. 19 (Bloomberg) — Home prices in the Hamptons, the Long Island beachside getaway for Wall Street financiers and celebrities, rose 4.7 percent in the third quarter amid a surge in sales of properties from $2 million to $5 million. The median price increased to $900,000 from $860,000 a year earlier, according to Town & Country Real Estate . The number of sales in the $2 million-plus category rose 44 percent to 46 transactions in the period. “Some of these areas corrected by 25 percent or more and that caused people to sit up and take notice,” said Judi Desiderio , president of Town & Country. “If you’re a guy that’s been out there looking at a house between $8 million to $10 million and all of a sudden you’re looking at the same house and it’s $2 million less, that kind of a correction I think made guys jump into the pool.” The total number of sales fell 2.3 percent in the third quarter, with homes priced under $500,000 showing the biggest decline, at 22 percent. The figures demonstrate that the Hamptons are still experiencing the effects of a recession and crisis that drove New York City’s unemployment rate to 10.3 percent in August. Financial firms have reported more than $1.6 trillion in losses and asset writedowns tied to record defaults on home loans. Executives at those companies are a driving force in the Hamptons property market, Desiderio said. The median sales price for a luxury home on Long Island’s East End dropped 9.4 percent in the second quarter from a year earlier to almost $4 million, according to New York-based appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate. To contact the reporter on this story: Oshrat Carmiel in New York at ocarmiel1@bloomberg.net .

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Recession Hits Immigrants Hard: Survey Finds Decline In Foreign-Born Residents For First Time In 40 Years

September 21, 2009

The number of foreign-born residents of the U.S. declined for the first time since at least 1970, as a recession and tight labor market dented America’s image as the land of opportunity. In multiple ways — falling homeownership, families moving in with others, couples putting off marriage — the report illustrated that the recession has upended Americans’ lives. Read the Census Bureau’s American Community Survey .

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Top Brazil Currency Forecaster Says Real to Surge 18% by End 2010 on China

August 14, 2009

By Fabio Alves Aug. 14 (Bloomberg) — Brazil’s real, the best-performing currency this year, will climb 18 percent by the end of 2010 as exports to China surge and stock inflows grow, said Standard Chartered Plc, the firm that most accurately forecast the rally. The real will rise to 1.8 per dollar by the end of this year from 1.8236 and reach an 11-year high of 1.55 by December 2010, according to the London-based bank that gets most of its revenue from developing nations. The real gained 26 percent this year, more than all other 171 currencies tracked by Bloomberg. Rising demand for Brazilian sugar, coffee and orange juice helped the trade surplus expand 16 percent between January and July from the same period in 2008 as China overtook the U.S. as the country’s biggest export market, according to Brazil’s Trade Ministry . The dollar revenue likely will overwhelm central bank efforts to staunch the real’s advance by intervening in the foreign-exchange market, said Mike Moran , a senior currency strategist at Standard Chartered in New York. “We’re going to see a tremendous amount of more trade between Brazil and China,” Moran said in a telephone interview. “The positive trade flows will be quite supportive for the currency.” Central bank President Henrique Meirelles told Brazilian President Luiz Inacio Lula da Silva that he plans to step up dollar purchases to quell the real’s gains, Folha de S. Paulo reported yesterday, without saying how it obtained the information. ‘Excess Euphoria’ Asked about the report yesterday, Meirelles told reporters in Goiania, a city in central Brazil, that “the central bank buys according to market flows and doesn’t try to influence the rate.” Last week he said investors needed to be cautious about “excess euphoria” as the nation’s currency and stocks surge, reiterating a concern he’s stated several times this year. Brazil’s foreign reserves climbed to a record $213 billion from $199 billion at the end of February after the central bank re-started its dollar-purchasing program in May. The real fell 0.7 percent today to 1.8367 per U.S. dollar at 11:18 a.m. New York time, from 1.8236 yesterday. The currency is headed toward its first weekly drop in more than a month, falling 0.8 percent since Aug. 7. The real is benefiting from a rebound in commodities, which account for about two-thirds of Brazilian exports. Prices have climbed 31 percent since the end of February, according to the UBS Bloomberg Constant Index of 26 raw materials. Increased demand for Brazilian stocks and bonds also is lifting the real as Latin America’s largest economy recovers from a recession and interest rates remain high relative to developed markets, said Douglas Smith , Standard Chartered’s chief economist for the Americas in New York. Stocks Rally The Bovespa stock index has risen 52 percent this year, the world’s 12th-best performer among 89 measures tracked by Bloomberg, as foreign investors moved 13.7 billion reais into the market through July, the most since the exchange began tracking data in 1993. Brazilian local bonds returned 37 percent in dollar terms after falling 13.8 percent in 2008, according to JPMorgan Chase & Co.’s ELMI+ index. Interest Rate The nation’s 8.75 percent benchmark interest rate, while down from 13 percent a year ago, remains the second-highest among the 10 countries in the Americas tracked by Bloomberg. Only Argentina’s benchmark rate is higher at 11.5 percent. Standard Chartered’s real forecast for the end of 2010 would surpass the 1.5545 level it reached in August 2008 before tumbling 33 percent over the next five months as credit markets seized up and commodities tumbled. In January, when the real traded as weak as 2.3996, Moran and Smith predicted it would rebound to 1.9 by the end of this year, compared with the 2.24 median forecast in a Bloomberg survey. The median forecast since has shifted to match Standard Chartered’s initial outlook, highlighting how the real’s rally caught most economists off guard. Moran and Smith, meanwhile, adjusted their year-end call in June to 1.8 per dollar. “We saw a severe undervaluation of the currency at the end of 2008,” said Moran, 35. “The real was heavily oversold.” The real has soared 34 percent since sliding to a 2 1/2- month low of 2.4501 per dollar on March 2. It touched a 10-month high of 1.8065 last week. “Everybody was surprised by the rally,” said Aryam Vazquez , an emerging-market economist at Wells Fargo & Co. in New York. He’s changed his year-end real forecast to 1.8 from 2.5 at the start of the year. “The resilience of the Brazilian economy to weather this crisis has been spectacular and has been the driving force behind the real,” Vazquez said. Retail Sales The International Monetary Fund predicts Brazil’s gross domestic product will shrink 1.3 percent this year, less than the 7.3 percent contraction it forecasts for Mexico, Latin America’s second-biggest economy, and the 3.8 percent drop projected for advanced economies. Brazilian retail sales rose 5.6 percent in June, almost double the 2.9 percent pace in May, a government report showed yesterday. A recovering economy “supports the strong direct investment in Brazil,” said Smith, 39, who began covering Brazil as an economist at the U.S. Treasury Department in 1998. Standard Chartered’s projection for the real at the end of 2010 is more bullish than the 1.8 per dollar median forecast of analysts surveyed by Bloomberg. “The outlook for Brazil remains positive,” said Smith. It “highlights Brazil as a good destination” for foreign investment, he said. To contact the reporter on this story: Fabio Alves in New York at falves3@bloomberg.net

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