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Thursday, August 4, 2011

Keiser Report: Exorbitant privilege

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Industrial groups ring alarm bells

Leading industrial executives have sounded stark warnings that risks to the global economy are increasing, growth is slowing and that customers are growing more cautious.

While European and US industrial groups mostly delivered robust first-half results and maintained their guidance on their full-year earnings, confidence has dimmed as the manufacturing recovery shows signs of losing steam.

Emerson Electric Co, the US industrial conglomerate, gave one of the starkest corporate warnings yet in a regulatory filing last week:

“Emerson order growth remained solid ... but we have seen a definite weakening of general business activity in June and July,’’ the company said. “US and European economies have clearly slowed and entered a soft-patch and it remains unclear if they will improve much in the second half of the calendar year.’’

Joe Kaeser, chief financial officer of Siemens, said there had been a slowdown in investment by some of the conglormerate’s export-orientated customers in the Mittelstand, Germany’s industrial base of small and medium-sized companies.

“It’s not yet a structural economic change but as we’ve seen in the past a negative change of our customers’ investment behaviour can of course lead to a slowing of economic growth,” he said.

Industrial companies’ concerns span the debt problems in US and eurozone, a possible slowdown in China, the risk of overheating in other emerging markets and the effect of rising raw materials costs.

Volkswagen, Europe’s biggest carmaker by sales, cautioned that “volatility in interest and exchange-rate trends and commodities prices” would temper earnings growth, even as it boosted its guidance on its full-year earnings last week.

Kurt Bock, chief executive of BASF, the world’s largest chemical maker by sales, said the persistently high oil price was “having a negative impact on margins across our value chains and is leading to some customers being more cautious in their orders”.

The comments represent a departure from the optimism of a year ago, when corporate order books filled up rapidly as companies in emerging markets rushed to invest in capital goods to fuel the recovery.

“The true macro environment is one of uncertainty and challenge,” said Dave Anderson, chief financial officer of Honeywell, the US conglomerate. “I call it a grinding sub-par recovery,” although he noted that Honeywell continues to achieve “respectable” growth.

“The $64,000 question is how long the industrial economy can keep outperforming the broader economy,” he added.

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American lake turns blood-red, sparking end-times wonder

The severe drought throughout most of Texas is taking a toll on ranchers, travelers, athletes, businesses and natural resources, including the OC Fisher Reservoir, which has dead fish floating on its little remaining water.

But what has caught the attention of many is the fact that the water has turned blood-red.

The development, coming amid the various turmoil around the globe and justas a comet has been reported to be racing toward Earth at the peak of God's holy days,has sparked talk of biblical prophecy even from distributors of scientific information such as Live Science.

There, a headline questioned, "End Times? Texas Lake Turns Blood-Red."

Pastor Paul Begley of the Community Gospel Baptist Church in Knox, Ind., said people should be taking note.

Read more:American lake turns blood-red, sparking end-times wonderhttp://www.wnd.com/?pageId=329421#ixzz1U5gg1600

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China warns U.S. on managing its debt

HONG KONG — China's central bank governor called Wednesday for the U.S. to "take responsible policy measures to handle its debt," a day after the world's largest economy reached a bipartisan deal to reduce its deficit and lift its borrowing limit to avoid a default.

The comments from People's Bank of China Governor Zhou Xiaochuan, posted on the central bank's website, signal China's lingering concern over America's financial health. China is the U.S.' largest foreign creditor, holding at least $1.16 trillion in Treasury securities.

Zhou also warned that stability is needed in the highly traded U.S. debt market, and said China plans to continue diversifying its currency reserves.

"Large fluctuations and uncertainties in (the Treasury) market would undermine the stability of the international financial system and hinder global recovery," he said.


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Gov't will borrow $72B in debt auctions next week

WASHINGTON (AP) -- The government will borrow $72 billion in debt auctions next week now that Congress has raised the nation's borrowing limit.
The Treasury Department says it will sell 3-year notes, 10-year notes and 30-year bonds to raise the money. About one-third will go to repay debts that are due on Aug. 15.
President Barack Obama cleared the way for the auction on Tuesday when he signed into a law a bill that raises the debt ceiling and promises more than $2 trillion in cuts to government spending over the next decade.
The U.S. government currently borrows 40 cents of every dollar that it spends.
An initial debt ceiling increase of $400 billion took effect immediately on Tuesday. That will allow the nation to borrow what it needs through September, the Treasury Department estimates.
The next $500 billion boost will occur after lawmakers vote on resolutions stating they approve of the increase. The votes are mainly ceremonial, because the president can veto the resolutions.
The final $1.5 trillion increase will occur after a bipartisan committee of lawmakers from both chambers identifies how the government can cut $1.5 trillion from the federal deficit over the next ten years. If the committee's fails to agree on the cuts, the borrowing limit will rise by between $1.2 trillion and $1.5 trillion.
Treasury's advisory group of private bond sellers agreed that credit rating agencies are unlikely to downgrade the nation's sterling credit rating soon. However, they said that Treasury should continue to focus on selling longer-term bonds to minimize the threat of a downgrade based on high future deficits.

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Global stock markets slump on eurozone debt fears

Traders in New York

New York's Dow Jones index was trading more than 3% down, while Frankfurt's Dax and London's FTSE 100 indexes closed almost 3.5% lower.

European Commission President Jose Manuel Barroso's warning that the sovereign debt crisis is spreading spooked the markets.

Meanwhile, the price of gold hit a new record high of $1,677 an ounce.

More weak jobs data from the US also raised concerns about the strength of the economic recovery there.

Banks were hit particularly hard, with Lloyds Banking Group down 9.9% and Royal Bank of Scotland falling 7% in London, Societe Generale losing 6.9% in Paris and Commerzbank dropping 6.8% in Frankfurt.

Miners also suffered, with Vedanta Resources slumping 9.5% and Xstrata and Eurasian Natural Resources falling more than 8% in London.

The oil price also slumped on fears that a weaker global recovery would hit demand. US light crude fell by more than $4 a barrel, or almost 5%, to $87.63. London Brent fell by almost $5 a barrel to $108.85.'Exceptional circumstances'

In a letter to European governments, Mr Barroso warned that the eurozone debt crisis was spreading beyond the so-called periphery nations of Greece, Portugal and the Republic of Ireland.

He said markets "remain to be convinced that we are taking appropriate steps to resolve the crisis".


Bailout fallout: Italy, Spain next

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US borrowing tops 100% of GDP: Treasury

US debt shot up $238 billion to reach 100 percent of gross domestic project after the government's debt ceiling was lifted, Treasury figures showed Wednesday.

Treasury borrowing jumped Tuesday, the data showed, immediately after President Barack Obama signed into law an increase in the debt ceiling as the country's spending commitments reached a breaking point and it threatened to default on its debt.

The new borrowing took total public debt to $14.58 trillion, over end-2010 GDP of $14.53 trillion, and putting it in a league with highly indebted countries like Italy and Belgium.

Public debt subject to the official debt limit -- a slightly tighter definition -- was $14.53 trillion as of the end of Tuesday, rising from the previous official cap of $14.29 trillion a day earlier.

Treasury had used extraordinary measures to hold under the $14.29 trillion cap since reaching it on May 16, while politicians battled over it and over addressing the country's bloating deficit.

The official limit was hiked $400 billion on Tuesday and will be increased in stages over the next 18 months.

The last time US debt topped the size of its annual economy was in 1947 just after World War II. By 1981 it had fallen to 32.5 percent.

Ratings agencies have warned the country to reduce its debt-to-GDP ratio quickly or facing losing its coveted AAA debt rating.

Moody's said Tuesday that the government needed to stabilize the ratio at 73 percent by 2015 "to ensure that the long-run fiscal trajectory remains compatible with a AAA rating."

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Gold hits all time high at 1665 onz

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I Fully Expect More Social Unrest In The World

I fully expect more social unrest in the world, I fully expect more turmoil, but I didn't expect it to happen this quickly because food prices are somewhat depressed. It will slow growth but some people are going to benefit - Brazil's booming, Canada's booming, Australia's booming, you're going to see some people benefit and some people suffer, that's the way the world works. - in a interview to an Australian newspaper

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Italy 'to default' but Spain may 'just' escape

Silvio Berlusconi

Debt-laden Italy is likely to default, but Spain might just avoid it, according to the British think tank, the Centre for Economics and Business Research.

With the countries weighed down by debt, the think tank modelled "good" and "bad" economic scenarios for both.

It found that Italy will not avoid default unless it sees an unlikely big jump in economic growth.

However, it said, "there is a real chance that Spain may avoid default".

Even though Italy has managed to run tight budgets, and has vowed to eliminate its deficit by 2014, the economy needs a significant boost in growth.

But its economy grew by just 0.1% in the first quarter of 2011 and further growth is expected to remain sluggish.

On Wednesday, Italian Prime Minister Silvio Berlusconi addressed parliament, saying the economy was "strong" and the nation's banks "solvent".

But many economists believe that the eurozone's third largest economy risks being engulfed in the debt crisis.

In a report published on Thursday, the CEBR calculated that Italy's debt would rise from 128% of annual output to 150% by 2017 if bond yields stay above the current 6% and growth remains stagnant.

"Even if the cost of borrowing goes back down to 4%, the growth rate is so anaemic that we see the debt-GDP ratio remaining at 123% in 2018," said Doug McWilliams, the CEBR's chief executive.

The conditions in Spain are better because its debt is much lower. Even under the "bad" scenario, Madrid's debt ratio would climb to no higher than 75% of national output.

"Fingers crossed but there is a real chance that Spain may avoid default and debt restructuring, unless it gets dragged down by contagion," Mr McWilliams said.

"Realistically, Italy is bound to default, but Spain may just get away without having to do so," he said.

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Bond market developments are deep concern, says Barroso

Luxembourg Prime Minister and Eurogroup president Jean-Claude Juncker (right) meets Italian Finance Minister Giulio Tremonti

European Commission President Jose Manuel Barroso has described the bond markets' treatment of Italy and Spain as "a cause of deep concern".

Yields on Spanish and Italian bonds have hit euro-era records this week.

Italian finance minister Giulio Tremonti has held talks with Jean-Claude Juncker, chair of the eurozone countries' finance ministers group.

Italian Prime Minister Silvio Berlusconi is due to address parliament on the economy on Wednesday.

"Developments in the sovereign bond markets of Italy and Spain are a cause of deep concern," Mr Barroso said.

"These developments are clearly unwarranted on the basis of economic and budgetary fundamentals in these two member states and the steps that they are taking to reinforce those fundamentals."

Yields on Spanish and Italian 10-year bonds hit their highest levels since the launch of the euro on Tuesday, meaning that it would cost both countries' governments more to borrow money if they wanted to.

Yields rose again on Wednesday before falling back somewhat.

The Italian 10-year bond was yielding 6.02% while the Spanish 10-year bond was at 6.14%.

Many analysts see a bond yield above 6% as unsustainable.

"The upward march in Spanish and Italian bond yields is evidence of the relentlessness of the sovereign debt crisis," said Jane Foley, an analyst at Rabobank International.Political problems
The problems come less than two weeks after eurozone leaders agreed a second bailout for Greece, which was partly aimed at preventing the sovereign debt problems spreading to other countries.

Portugal and the Irish Republic have also received bailouts to help them cope with their debt problems.

Italy, which is the eurozone's third-largest economy, has so far managed to avoid sovereign debt problems, despite having one of the highest debt-to-GDP ratios in the eurozone at 120%.

But Italy's economy is twice as big as Greece, Portugal and the Irish Republic combined, so a bailout would probably be unaffordable.

Concerns have been exacerbated recently by political problems.

The Italian parliament approved a 43bn-euro ($62bn; £38bn) austerity package last month, but there is some doubt about whether Mr Berlusconi's government can implement the cuts.

"Despite numerous attempts, the European authorities have still not done enough to satisfy a sceptical bond market and the debt crisis looks far from over," said Juliet Tennant, economist at Goodbody Stockbrokers in Dublin.

As worries about the southern European economies grow, investors have been less keen to buy their bonds, which has meant the prices have fallen.

The head of Italy's treasury, Vittorio Grilli, is on a tour of Asia to try to drum up interest in buying Italian bonds, according to sources quoted by the AFP news agency.

Half of Italian bonds are owned by Italian institutions and individuals, while most of the rest are held by investors elsewhere in Europe.


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