SUZHOU, China, Feb 28 - The premiums commanded by China’s domestically listed A shares over Hong Kong-listed H shares in the same companies will eventually close, a senior Chinese regulatory official said on Thursday.
“The gap shouldn’t be surprising because they trade in totally different markets and are held by different investors,” Yao Gang, vice chairman of the China Securities Regulatory Commission, said in response to a question at a pension fund forum.
“With a gradual liberalisation of China’s capital account, the A/H gap will naturally vanish,” he said.
But he declined to suggest when that might happen, saying only: “It’s up to investors’ own perceptions.”
As China’s stock market has sagged, the average premium of A shares over H shares has tumbled to 64 percent from peaks above 100 percent in mid-January. But the average premium is still above lows around 50 percent hit between October and December last year.
China orders minimum wages rises amid rising inflation: govt
BEIJING (AFP) - - China has ordered local governments to raise minimum wages, the labour and social security ministry said Thursday, a measure analysts expect could feed into inflation that is already at 11-year highs.
“The order was sent out before the Spring Festival,” an official with the ministry said. The Spring Festival, or the Chinese New Year, fell in early February this year.
“Minimum wages should be adjusted in line with national regulations and according to the consumer price index,” he told AFP, declining to be named.
China’s inflation rose 4.8 percent last year and hit an 11-year high of 7.1 percent in January, with food prices soaring by 18.2 percent in the month.
Guangdong province, an industrial powerhouse in the country’s south, announced last week it would raise minimum wages from April 1 by up to 17.8 percent.
After the hike minimum wages will range from 530 yuan (74 dollars) to 860 yuan in the province.
Other areas like Shanghai and Jiangsu province in the east have also said they were planning or had already raised minimum wages this year, according to earlier state media reports.
Analysts are concerned that higher wages, while helping low-income families struggling to cope with rising prices, may further push inflation up as companies would seek to pass increased labour costs on to consumers.
“Increasing wages, combined with other factors like the new Labour Law that drive up labour costs, may pose larger pressures on inflation than in the past,” said Sun Mingchun, a Hong Kong-based economist with Lehman Brothers.
The new Labour Law, which took effect on January 1, requires companies to offer their staff life-long employment if they have worked for them for more than 10 years.
China Money: Central bank rhetoric, market view diverge
Reuters - Thursday, February 28
SHANGHAI, Feb 28 - There’s often a gap between what central banks say they’ll do and what the markets think they’ll do. In China’s case, the gap is becoming particularly wide.
As inflation climbs to fresh 11-year highs this year, monetary officials are insisting they’ll keep in place a “tight” policy that was declared in early December.
Deputy central bank governor Yi Gang made the point strongly last weekend, telling a financial forum that the central bank wouldn’t back off from tight monetary policy even though domestic and global economic risks had grown.
“In 2008, we will keep implementing a tight monetary policy by adopting open market operations, using bank reserve ratios and guiding banks to extend loans in a reasonable fashion,” Yi said.
But the bond market is having none of it. The indicative five-year government bond yield tumbled 35 basis points in the three weeks to mid-February and has stayed roughly stable since then, barely moving in response to Yi’s statement.
The 15-year yield has been in a downtrend since mid-December, soon after the tight policy was announced. It has slid 43 bps over the past two months and hit a fresh eight-month low on Wednesday, Reuters Reference Rates show.
This represents a bet that as Chinese and U.S. economic growth slows in coming months, policy will not continue tightening -- and may actually ease a bit.
“The popular view in the market is for monetary policy to loosen in coming months because of slowing growth, and after the U.S. Fed’s rate cuts. Some traders even think China might cut rates later this year,” says Shi Lei, analyst at Bank of China.
Analysts see two main reasons for the divergence between official rhetoric and the market’s view. One is authorities’ fear that inflation could feed upon itself as consumers’ expectations for prices to rise become entrenched.
China may be more vulnerable to inflationary expectations than many countries. It suffered a nasty bout of inflation in the early 1990s, when the rate exceeded 10 percent, and food and basic necessities take a large portion of the income of many people. China’s use of price controls to fight inflation risks encouraging hoarding by producers.
“The central bank may feel it needs to continue saying monetary policy will be tight to prevent people’s expectations from getting out of control,” says Shi.
SETTING POLICY
Equally important may be the way in which policy is decided and announced in China. Officials at independent central banks abroad can fine-tune their rhetoric in response to changing conditions, guiding the markets from one month to the next.
But in China, the central bank is not independent of the government and basic policy is set in consultation with the cabinet. December’s shift to “tight” from “prudent” policy came from the Central Economic Work Conference, a meeting of leaders.
That makes a change in rhetoric politically difficult, especially just two months after a policy was declared.
“The central bank is unlikely to declare a loosening of monetary policy even if it wants to -- it has to echo the approach set by the Central Economic Work Conference,” says an analyst at another Chinese bank in Beijing.
The result, the bond market believes, may be an undeclared, piecemeal form of monetary easing in coming months as the central bank quietly loosens aspects of policy to ensure companies have access to funds and the expected economic slowdown is gradual.
Analysts see a chance for one or even two small hikes in benchmark interest rates this year, but most think the central bank has already ruled out aggressive rate hikes, especially since regulators are scrambling to avert a stock market crash.
Enforcement of banks’ new lending quotas may be relaxed informally and gradually. That could actually be negative for bonds in the near term, as money is diverted from investment in bonds to corporate lending, but the central bank would probably also let money market liquidity ease to support the new lending.
The central bank’s big money market drains this month via short-term bond repos may be paving the way for eventual easing -- the central bank may be using the repos as an alternative to the more permanent option of raising bank reserve ratios.
The repos have maturities of up to 182 days, and as they expire in coming months the central bank will have the option of letting the money stay in the market, improving liquidity.
Some foreign banks clearly see much less chance of an easing this year than the mass of Chinese banks.
Offshore yuan interest rate swap rates shot up this month, with the spread between seven-year onshore and offshore IRS widening by 35 bps to 46 bps in the two weeks through mid-February -- the widest in three months.
But Chinese banks, which dominate onshore, appear determined not to change their view. Onshore IRS have actually fallen since Yi Gang spoke, and the seven-year spread has narrowed to a more normal 36 bps -- mostly because of a drop back by offshore IRS.
China overtook US as Japan’s largest trading partner in 2007
AP - Friday, February 29
TOKYO - China overtook the United States to become Japan’s largest trading partner last year, a government-affiliated trade organization said Thursday.
Total trade with China excluding Hong Kong rose 12 percent to US$236.6 billion in 2007, the Japan External Trade Organization, or JETRO, said. That marked the ninth straight year of growth, and was slightly higher than the 11.5 percent growth rate in 2006.
China accounted for 17.7 percent of Japan’s total trade last year, JETRO said. The United States dropped to second place, with 16.1 percent of the total, it said.
Exports to China rose 17.5 percent last year to US$109.1 billion, as the Chinese economy’s strength helped fuel increased demand for electronics, passenger cars, auto parts and materials for making synthetic resins and fibers, the organization said.
Meanwhile, imports from China rose 7.6 percent to US$127.6 billion. That’s slower than the 8.5 percent growth in 2006, due in part to mounting concerns about Chinese food safety, JETRO said. Crude oil and coal imports also fell.
Although China has been Japan’s largest import source since 2002, the import growth rate has been sliding since 2004 partly due to stagnant sales in personal computers, the organization added.
Japan’s trade deficit with China shrank 27.9 percent to US$18.6 billion from US$25.5 billion the year before, it said.
KUALA LUMPUR (Dow Jones)--Crude palm oil futures are expected to fall below MYR2,900 a metric ton in 2008, London-based analyst James Fry said Wednesday.
Fry said a slowdown in demand, particularly in China, over the next few months, will likely lead to softer prices. The high rate of growth in demand seen recently can’t be sustained, he said.
Demand in China may slow down by May, he said; by then it would have arranged for sufficient purchases that could sustain demand anticipated for the summer Olympics.
Fry said CPO prices are likely to witness a downward correction in tandem with a similar trend for crude in 2008.
China’s largest property developers have been offering discounts and other incentives to fight shrinking sales and the credit crunch since the end of last year.
Vanke Co Ltd, the largest developer on the mainland by assets, announced an across-the-board discount of over 5 percent for 10 of its properties in Shanghai on Lantern Festival (Feb 21) that traditionally marks the end of the lunar new year celebrations. It is the first time the company offered such a large discount in the city.
Vanke is offering even better terms for cash buyers. A sales clerk at one of the company’s offices said those paying the full amount in one go will get as much as 8 percent discount. Those who can cough up half of the price as down payment will get a 6 percent discount, she said.
In Beijing, two of Vanke’s projects were offering 5 percent to 7 percent discounts on one-off payments during Spring Festival.
The unprecedented festival discounts seemed to work. Vanke raked in 257 million yuan on the lunar New Year’s Day, compared with the company’s 70 percent dive in sales from December 2007 to 1.85 billion yuan in January, according to Vanke.
More importantly, industry insiders said, such a strong promotional offer by a major developer in the city indicates the market will continue to be bleak in the months to come.
Besides, the success of Vanke’s promotion is expected to prompt other developers to follow suit, experts said.
Chen Sheng, director of China Real Estate Index System, said many other real estate developers may follow Vanke’s example by offering more discounts.
Sure enough, Shanghai-based Jing Rui Properties (Group) Co Ltd has also lowered its prices by offering a 3 percent discount for group purchases and a 2 percent discount for those recommended by previous buyers.
Hopson Development, a Hong Kong-listed real estate firm, picked out several apartments for sales promotion in Beijing, cutting down prices from 30,000 yuan per sq m to 22,500 yuan per sq m.
A project developed by Beijing-based Huayuan Real Estate is offering an over 7 percent discount for those buying small apartments.
Coastal Greenland group, also a Hong Kong developer, reduced its prices for new projects in Beijing as early as December, lowering them by around 400 yuan per sq m from the average of 17,000 yuan per sq m in the area.
Because of an uncertain economic outlook this year, including a possible recession in the US, a likely slower growth rate for the Chinese economy, rising inflation and tighter monetary policy, a number of large developers are trying to sell quickly and then take over other projects and smaller developers when the market dives, industry analysts said.
Some of them, however, are eager to sell off their projects to jazz up annual reports.
“Sales of high-end projects will face a big challenge this year as most buyers are investment-oriented,” said Zhang Lei, a marketing professional with a developer that has several high-end projects going in Beijing.
But according to Pan Shiyi, chairman of SOHO China, property projects with good locations are likely to continue to be popular while prices of low-end properties are most likely to be dragged down with the entry of more affordable housing.
Luo Xiaohua, general manager of Jing Rui Properties, said: “We won’t clearly see where housing prices are heading this year until April, after a clearer real estate policy will be announced in the annual sessions of the National People’s Congress and the Chinese People’s Political Consultative Conference.”
But land prices in Shanghai dropped sharply recently. Tishman Speyer Properties acquired a plot of 267,481 sq m in New Jiangwan Town at a starting price of 7,500 yuan per sq m in January, with no competition. Any plot in the same area would command 12,500 yuan per sq m last June and 20,000 yuan in November.
“This indicates sliding housing prices in one to two years,” said Luo.
Because of a weakened market, small and medium-sized property developers are the most nervous as they are faced with more financing pressure compared with listed companies, with commercial banks taking tighter measures to rein in credit.
Keep your hands where we can see them - Italy’s highest court has ruled that men who scratch, adjust or otherwise manipulate their genitals in public are committing a criminal offence.
The Guardian reports that judges in the “court of cassation”, the highest court of appeal in Italian law, have moved to criminalise not only shameless crotch-scratching, but also a specific local superstition.
According to Italian folklore, a swift grasp of one’s generative organs - known by Italians as their “attributi” - protects against bad luck.
A funeral procession passing by, or disaster or disease cropping up in conversation, therefore brings a flurry of men’s hands descending crotchwards.
The issue came to light after a 42-year-old workman from Como, near Milan, was convicted of indecent behaviour after “ostentatiously touching his genitals through his clothing”.
Despite claims by his lawyer that the action was nothing more sinister than a “compulsive, involuntarily movement, probably to adjust his overalls”, the court was unimpressed.
Such behaviour “has to be regarded as an act contrary to public decency, a concept including that nexus of socio-ethical behavioural rules requiring everyone to abstain from conduct potentially offensive to collectively-held feelings of decorum,” they said in their ruling, ordering the man to pay a €200 (£152) fine and €1000 (£760) costs.
While superstitious groin-grabbing has become less acceptable in recent years, the phrase “io mi tocco i…”, or “I touch my…”, is still used in much the same way as “touch wood” is in English.
Judges in the case were helpful enough to suggest that would-be crotch criminals wait until they are the privacy of their own home before letting their hands wander.
Macquarie downgrades Wilmar (F34.SG) to Neutral from Outperform; S$5.05 target price unchanged. Says FY07 results in line as higher crude palm oil prices boost plantation business, but FY08 could be more challenging due to China price curbs. Notes, from January 2008, any price rise in consumer-pack edible oils in China requires government approval; “if a price increase is not approved or is delayed, profits are likely to be impacted.” Cuts FY08-09 earnings forecasts 2%-3%. Says stock trades at premium to agribusiness peers; “we believe that much of its superior growth is now priced in and further upside could be limited.” Shares closed down 7.2% at S$4.51 yesterday. (KIG)
RPT-GLOBAL MARKETS-Stocks, dollar wince; Bernanke predicts pain
By Tom Miles Thu Feb 28, 2008 9:38pm EST
HONG KONG, Feb 29 (Reuters) - The dollar dropped to a 3-year low against the yen on Friday amid renewed worries about the U.S. economy, rattling stock markets, bolstering bonds and helping drive up prices of safe-haven gold and oil to all-time highs.
Weak U.S. economic data and a warning from Federal Reserve Chairman Ben Bernanke that some small U.S. banks could fail raised expectations for more interest rate cuts in the world's leading economy.
The dollar tumbled to 104.65 yen, its lowest since May 2005, after a slide in the U.S. currency towards the key 105 yen level triggered a wave of stop-loss orders.
Gold surged to a new high of $973.10 an ounce, up more than 16 percent this year, and crude oil CLc1 hit $103 a barrel for the first time in history, fuelled by the weak dollar and a fire at a big European gas terminal.
By 0230 GMT, spot gold stood at $969.40 an ounce and oil was quoted at $102.60 a barrel.
MSCI's index of Asian stocks outside Japan was down 1.5 percent by 0220 GMT, while Japan's benchmark Nikkei average .N225 and the broader TOPIX were off 2.5 percent as investors digested Bernanke's ugly prognosis.
"This will have an impact in terms of credit worries but, even more, it reflects growing concern about the worsening U.S. economy," said Yutaka Miura, senior technical analyst at Shinko Securities. "But for Tokyo, the real worry is the yen's rise against the dollar, which is going to make things really tough."
The sour mood in the stock market was a sweetener for Japanese government debt as investors sought shelter from the U.S. storm.
"Bernanke's remarks were something a central banker should never say," said a bond strategist at a U.S. brokerage. "It shocked us and certainly worsened credit jitters in the market."
March 10-year Japanese government bond futures 2JGBv1 rose as high as 138.42, their highest since Jan. 24, while the benchmark 10-year yield, which touched a 2-month peak of 1.500 percent earlier this week, tumbled to a 5-week low of 1.365 percent.
STOCKS SHOCKED
Among the hardest-hit stocks were tech firms and insurers, troubled by a lower-than-expected profit at computer maker Dell Inc and a large quarterly loss at American International Group Inc, the world's largest insurer, on write-downs of derivatives related to bad mortgage investments.
The continuing commodities rally cheered some firms in the sector, such as Korea Zinc, which was one of the top gainers in Seoul .PG.KS, rising 7.7 percent after London zinc futures MZN3 jumped 5 percent on Thursday.
Overall, the main South Korean index was down 1.4 percent. Hong Kong's Hang Seng index .HSI fell 1.8 percent, with global lender HSBC Holdings leading the blue chips lower with a 2 percent slide.
The commodities boom was not enough to stop the mining-heavy Australian index losing 2.3 percent as fear of higher interest rates to tame inflation continued to trouble banks.
And although it reported a 58 percent jump in profits, Air New Zealand Ltd fell 6.8 percent as rising fuel prices and currency difficulties pummelled airline shares.
China Money: Central bank rhetoric, market view diverge
Reuters - Thursday, February 28
SHANGHAI, Feb 28 - There’s often a gap between what central banks say they’ll do and what the markets think they’ll do. In China’s case, the gap is becoming particularly wide.
As inflation climbs to fresh 11-year highs this year, monetary officials are insisting they’ll keep in place a “tight” policy that was declared in early December.
Deputy central bank governor Yi Gang made the point strongly last weekend, telling a financial forum that the central bank wouldn’t back off from tight monetary policy even though domestic and global economic risks had grown.
“In 2008, we will keep implementing a tight monetary policy by adopting open market operations, using bank reserve ratios and guiding banks to extend loans in a reasonable fashion,” Yi said.
But the bond market is having none of it. The indicative five-year government bond yield tumbled 35 basis points in the three weeks to mid-February and has stayed roughly stable since then, barely moving in response to Yi’s statement.
The 15-year yield has been in a downtrend since mid-December, soon after the tight policy was announced. It has slid 43 bps over the past two months and hit a fresh eight-month low on Wednesday, Reuters Reference Rates show.
This represents a bet that as Chinese and U.S. economic growth slows in coming months, policy will not continue tightening -- and may actually ease a bit.
“The popular view in the market is for monetary policy to loosen in coming months because of slowing growth, and after the U.S. Fed’s rate cuts. Some traders even think China might cut rates later this year,” says Shi Lei, analyst at Bank of China.
Analysts see two main reasons for the divergence between official rhetoric and the market’s view. One is authorities’ fear that inflation could feed upon itself as consumers’ expectations for prices to rise become entrenched.
China may be more vulnerable to inflationary expectations than many countries. It suffered a nasty bout of inflation in the early 1990s, when the rate exceeded 10 percent, and food and basic necessities take a large portion of the income of many people. China’s use of price controls to fight inflation risks encouraging hoarding by producers.
“The central bank may feel it needs to continue saying monetary policy will be tight to prevent people’s expectations from getting out of control,” says Shi.
SETTING POLICY
Equally important may be the way in which policy is decided and announced in China. Officials at independent central banks abroad can fine-tune their rhetoric in response to changing conditions, guiding the markets from one month to the next.
But in China, the central bank is not independent of the government and basic policy is set in consultation with the cabinet.
December’s shift to “tight” from “prudent” policy came from the Central Economic Work Conference, a meeting of leaders.
That makes a change in rhetoric politically difficult, especially just two months after a policy was declared.
“The central bank is unlikely to declare a loosening of monetary policy even if it wants to -- it has to echo the approach set by the Central Economic Work Conference,” says an analyst at another Chinese bank in Beijing.
The result, the bond market believes, may be an undeclared, piecemeal form of monetary easing in coming months as the central bank quietly loosens aspects of policy to ensure companies have access to funds and the expected economic slowdown is gradual.
Analysts see a chance for one or even two small hikes in benchmark interest rates this year, but most think the central bank has already ruled out aggressive rate hikes, especially since regulators are scrambling to avert a stock market crash.
Enforcement of banks’ new lending quotas may be relaxed informally and gradually. That could actually be negative for bonds in the near term, as money is diverted from investment in bonds to corporate lending, but the central bank would probably also let money market liquidity ease to support the new lending.
The central bank’s big money market drains this month via short-term bond repos may be paving the way for eventual easing -- the central bank may be using the repos as an alternative to the more permanent option of raising bank reserve ratios.
The repos have maturities of up to 182 days, and as they expire in coming months the central bank will have the option of letting the money stay in the market, improving liquidity.
Some foreign banks clearly see much less chance of an easing this year than the mass of Chinese banks.
Offshore yuan interest rate swap rates shot up this month, with the spread between seven-year onshore and offshore IRS widening by 35 bps to 46 bps in the two weeks through mid-February -- the widest in three months.
But Chinese banks, which dominate onshore, appear determined not to change their view. Onshore IRS have actually fallen since Yi Gang spoke, and the seven-year spread has narrowed to a more normal 36 bps -- mostly because of a drop back by offshore IRS.
Ben Bernanke didn’t tell Congress this week exactly what the Federal Reserve would do next, but the central bank chief certainly left Wall Street with the impression that a half-point cut is a sure thing. Federal Reserve policymakers are scheduled to meet again on March 18. Right now futures listed on the Chicago Board of Trade indicate that investors are pricing in a 100% chance of a half-point cut and a 32% chance that the Fed will slash interest rates by three-quarters of a percentage point.
“A 50-point cut seems to be a reasonable compromise,” said Stuart Hoffman, chief economist at PNC Financial Services. “Any more than that and he will catch some inflation flack.” Bernanke, as part of his semi-annual hearing on the Fed’s monetary policy, spent two days testifying in the House and Senate and outlined the trio of challenges facing the Fed: an economy at risk of falling into a recession, topsy-turvy financial markets and the rising risk of inflation.
But it was the health of the U.S. economy that remained his biggest concern. The Fed chief focused on the variety of “downside risks” to the economy, including continued deterioration in the already troubled housing sector as well as the health of the consumer. His comments, along with more troubling economic numbers issued on Wednesday and Thursday, only firmed up expectations about the Fed’s next move. Prior to his testimony, investors were betting that a half point cut was all but certain – futures markets on Monday suggested there was a 94% chance that the Fed would implement a half-point cut.
A half-point cut in March would bring the fed funds rate, which affects rates on a variety of consumer loans including credit cards and mortgages, to 2.5 percent. Since September, the central bank has steadily lowered interest rates by 2.25 percentage points to help keep the economy from tipping into a recession. In January alone, the Fed instituted two cuts totalling 1.25 points.
April move tricky
The Fed’s move at its two-day policy meeting in late April may prove a little more complicated as inflation fears have started to gain more attention lately. Prices at both the consumer and wholesale level climbed more than expected during the month of January, even when accounting for volatile food and energy prices. Even the Federal Reserve chief himself acknowledged the threat, warning lawmakers that efforts to stimulate the economy could become complicated if inflation failed to moderate.
That is proving tough however as a weakened dollar and the prices of key commodities, particularly crude oil, continues to hover near record highs.
“Based on [Bernanke’s] testimony, I would say he will start to get a bit more cautious in his rate cuts after cutting again at the March 18 meeting,” said David Jones, president of consulting firm DMJ Advisors who formerly served as a chief economist at a bond house on Wall Street. In fact, experts like PNC’s Hoffman argue that unless the economy is clearly in a recession by the Fed’s April meeting, a rate cut in March might be the last for some time. “I think there’s a case to be made that the Fed may say, ‘Let’s take a breather right now and see what is happening,’ “ said Hoffman.
Banks batten down hatches amid global turmoil and as big deals suck liquidity
KALPANA RASHIWALA AND SIOW LI SEN
(SINGAPORE) The squeeze is on. Banks have tightened financing for property investment deals, which include big transactions like sales of office blocks and development sites. This, in turn, may keep some buyers from participating in the market, industry players have told BT.
It’s also taking longer to wrap up property sales deals these days as securing funding becomes more of an issue - and this could be a drag on investment sales.
Bankers cite two main causes for the tightening. The turmoil in the global financial market has led to increased awareness of risks all round, and several mega transactions in the past 12 months here have left less liquidity available for others.
Says Tan Teck Long, DBS Bank managing director, corporate and investment banking: ‘There are a couple of large deals such as the integrated resorts (IRs) which have soaked up a fair bit of liquidity.’
Yesterday, Las Vegas Sands Corp announced the completion of its $5.25 billion loan syndication for the Marina Bay Sands IR, the largest deal of its kind here.
Brad Nelson, global head of commercial real estate, Standard Chartered Bank, agrees that the big deals had been sucking liquidity out of the market. ‘Banks only have a certain amount of capital base,’ he points out.
Banks’ exposure to property-related loans is capped by law at 35 per cent of their total loans, to keep risks from the industry in check. This does not include mortgages for owner-occupied properties.
Meanwhile, banks have become more cautious and are giving smaller loans relative to a property’s valuation than, say, 12 months ago. This serves to provide them with a greater buffer in the event of a fall in property values given the weaker sentiment in the Singapore property market today.
Jones Lang LaSalle regional director and head of investments Lui Seng Fatt says that about a year ago, banks may have given loans of up to 75 per cent of valuation for income-producing assets like office blocks. Today, the figure may be closer to 60-65 per cent. Things are even harder for relatively unseasoned, smaller players buying residential development sites. They face greater scrutiny these days before banks give them loans, BT understands.
‘Financing for real estate projects has definitely tightened, especially since last quarter. This is essentially because of tighter liquidity brought about by limited appetite in the capital markets, due to current market developments,’ says Paul Kwee, Citigroup Singapore corporate bank director and head of real estate.
Lending amounts are more conservative now and covenants tighter, he says.
And despite the decline in Singapore dollar interest rates, the margins that are added to the floating interest rate reference are wider today, observes Mr Kwee. Margins are wider by 50-100 basis points now compared to last year, say bankers. Property sources say that while big established developers can still secure financing for purchases of development sites with relative ease, things are less rosy for smaller players.
Maybank head of business banking Lee Hong Khim acknowledges that his bank hesitates to finance new players whose core business is not in property development.
Mr Lee adds that Maybank is ‘more selective in the projects we finance; the location of the project is an important consideration as well’.
Giving his take, Citi’s Mr Kwee says: ‘Smaller players may find it harder because they have fewer financing options available to them as compared to the big boys who may also be able to tap the convertible bond or Sing-dollar bond market, for instance.’
But Mr Nelson of Stanchart says that ‘when liquidity is tight, lenders will normally take the position of supporting their existing relationships . . . regardless of whether they are SME (small and medium enterprise) or wholesale customers’.
Another outcome of banks becoming more cautious in evaluating loan applications is that it’s taking longer to complete property investment sales deals, says JLL’s Mr Lui.
The investment head of another major property consultancy group feels that the tighter financing environment could change the profile of institutional property buyers. ‘We may see greater participation from core funds, which assume lower risk, lower returns, and lower debt, and less participation from opportunity funds, which assume higher risks, higher returns and higher debt.’
Market watchers point to an extreme recent example, when UK-based New Star International Property Fund made a pure-cash (zero debt) acquisition of One Phillip Street, an office block in the Raffles Place area, for $99.02 million.
Funds that need to assume higher leverage to achieve their investment returns may find it difficult to buy property assets in Singapore - and their numbers may dwindle.
Banks batten down hatches amid global turmoil and as big deals suck liquidity
KALPANA RASHIWALA AND SIOW LI SEN
29 February 2008
(SINGAPORE) The squeeze is on. Banks have tightened financing for property investment deals, which include big transactions like sales of office blocks and development sites. This, in turn, may keep some buyers from participating in the market, industry players have told BT.
It’s also taking longer to wrap up property sales deals these days as securing funding becomes more of an issue - and this could be a drag on investment sales.
Bankers cite two main causes for the tightening. The turmoil in the global financial market has led to increased awareness of risks all round, and several mega transactions in the past 12 months here have left less liquidity available for others.
Says Tan Teck Long, DBS Bank managing director, corporate and investment banking: ‘There are a couple of large deals such as the integrated resorts (IRs) which have soaked up a fair bit of liquidity.’
Yesterday, Las Vegas Sands Corp announced the completion of its $5.25 billion loan syndication for the Marina Bay Sands IR, the largest deal of its kind here.
Brad Nelson, global head of commercial real estate, Standard Chartered Bank, agrees that the big deals had been sucking liquidity out of the market. ‘Banks only have a certain amount of capital base,’ he points out.
Banks’ exposure to property-related loans is capped by law at 35 per cent of their total loans, to keep risks from the industry in check. This does not include mortgages for owner-occupied properties.
Meanwhile, banks have become more cautious and are giving smaller loans relative to a property’s valuation than, say, 12 months ago. This serves to provide them with a greater buffer in the event of a fall in property values given the weaker sentiment in the Singapore property market today.
Jones Lang LaSalle regional director and head of investments Lui Seng Fatt says that about a year ago, banks may have given loans of up to 75 per cent of valuation for income-producing assets like office blocks. Today, the figure may be closer to 60-65 per cent.
Things are even harder for relatively unseasoned, smaller players buying residential development sites. They face greater scrutiny these days before banks give them loans, BT understands.
‘Financing for real estate projects has definitely tightened, especially since last quarter. This is essentially because of tighter liquidity brought about by limited appetite in the capital markets, due to current market developments,’ says Paul Kwee, Citigroup Singapore corporate bank director and head of real estate.
Lending amounts are more conservative now and covenants tighter, he says.
And despite the decline in Singapore dollar interest rates, the margins that are added to the floating interest rate reference are wider today, observes Mr Kwee.
Margins are wider by 50-100 basis points now compared to last year, say bankers. Property sources say that while big established developers can still secure financing for purchases of development sites with relative ease, things are less rosy for smaller players.
Maybank head of business banking Lee Hong Khim acknowledges that his bank hesitates to finance new players whose core business is not in property development.
Mr Lee adds that Maybank is ‘more selective in the projects we finance; the location of the project is an important consideration as well’.
Giving his take, Citi’s Mr Kwee says: ‘Smaller players may find it harder because they have fewer financing options available to them as compared to the big boys who may also be able to tap the convertible bond or Sing-dollar bond market, for instance.’
But Mr Nelson of Stanchart says that ‘when liquidity is tight, lenders will normally take the position of supporting their existing relationships . . . regardless of whether they are SME (small and medium enterprise) or wholesale customers’.
Another outcome of banks becoming more cautious in evaluating loan applications is that it’s taking longer to complete property investment sales deals, says JLL’s Mr Lui.
The investment head of another major property consultancy group feels that the tighter financing environment could change the profile of institutional property buyers. ‘We may see greater participation from core funds, which assume lower risk, lower returns, and lower debt, and less participation from opportunity funds, which assume higher risks, higher returns and higher debt.’
Market watchers point to an extreme recent example, when UK-based New Star International Property Fund made a pure-cash (zero debt) acquisition of One Phillip Street, an office block in the Raffles Place area, for $99.02 million.
Funds that need to assume higher leverage to achieve their investment returns may find it difficult to buy property assets in Singapore - and their numbers may dwindle.
US economy risks a 'lost decade' like Japan By David Litterick in Munich
The US could be facing a "lost decade" like that suffered by Japan in the 1990s as the markets fail to respond to interest rate cuts and the US Federal Reserve runs out of options, the head of one of the leading private equity firms said today.
Tim Collins of Ripplewood Holdings, said the Fed was "running out of policy alternatives" as it attempted to prevent a long recession in the US.
Mr Collins, whose firm has significant expertise in Japan after leading the buyout and turnaround of Japan Telecom, said he believed a "sharp repricing of assets" was the most likely outcome.
But he said: "My fear is that we will prolong it and suffer a death of a thousand cuts after we have exhausted all the options."
"Even without a recession and with all of the policy tools available we still have hundreds of billions of dollars of losses."
Japan has only recently emerged from a period of zero interest rates.
He said the future would not be clear until a recession had laid bare the true state of the financial system. "You have to wait for the tide to go out to see who is wearing a bathing suit," he said.
But the chairman of Ripplewood, which last year completed the $2bn buyout of Readers Digest, rejected the argument, put forward by some at this year's SuperReturn private equity conference in Munich, that Sovereign Wealth Funds would replace struggling banks to provide debt to private equity companies.
"The financial markets operate on the basis of the multiplier effect in the banking system and you cannot replicate that with what is effectively equity, not debt, from sovereign wealth funds."
What's Really Driving the Price of Oil? By Beat Balzli and Frank Hornig
The price of crude oil has doubled, from $50 to $100, within months. The increase cannot be attributed to the fundamental data, which have hardly changed. And the looming recession ought to drive the price down. So why is oil getting more expensive?
Cushing is the kind of place where you'd expect to see a cowboy ride around the corner and tie his horse to a rail in front of the Buckhorn Bar. This sleepy town of 8,000 on the Oklahoma prairie comes complete with a main street that could double for a set in a Western. Its biggest attractions include a defunct train station and a run-down movie theater, where the price of admission is $1.50.
Robert Felts, a friendly old man who works for the Cushing Industrial Authority, likes to show visitors the historic oil pump in the middle of town. He tells the story of how, in 1912, a giant oil field was discovered nearby that placed Cushing on the map and showered it with more than two decades of prosperity. Up to 50 million barrels of oil bubbled out of the ground each year in those days. "Our refineries could hardly keep up," says Felts. To solve the problem, the oil barons of the day had large storage tanks installed in the surrounding prairieland.
There isn't much to talk about besides oil in this small Oklahoma town. But reports on the situation in Cushing get global markets moving at 10:30 every Wednesday morning. That's when US government officials publish a figure that reflects the amount of oil stored in the hundreds of tanks which now stretch for miles along the horizon.
Located at a key intersection in the North American pipeline system, Cushing is home to the largest oil storage facility in the United States. Oil traded on the New York Mercantile Exchange literally changes owners here in Cushing. If the tanks are full, prices sink. But if levels in these tanks fall, prices rise. A rule of thumb for traders: Supply and demand control the market.
Normally, at any rate. But in recent months the conventional wisdom has flip-flopped. Within a year the price of a barrel of crude has doubled, from $50 to last week's high of $100. Nothing seems impossible now. Some analysts see prices rising to between $120 and $150, which would have dramatic consequences for the world economy.
Similarly spectacular price developments have only occurred four times in the last few decades: in 1973, when the Organization of Petroleum Exporting Countries (OPEC) imposed an embargo for the first time; in 1979, as a consequence of the Iranian revolution; a year later, when Iraq invaded Iran; and in 1990, when Iraq invaded Kuwait.
Which leads to one the most provocative questions being asked about the world economy today: Why are oil prices soaring again?
It's All Speculation
There are plenty of answers. Some hold the crisis in the Middle East and constantly growing demand in China responsible. Others blame producing countries for keeping the oil spigot half-closed.
But none of it's very convincing. "Supply and demand cannot explain the high prices," says Fadel Gheit of Oppenheimer & Co., a leading commodities analyst. Like many in his profession, Gheit believes financial investors are driving up prices. He's reminded of the Internet bubble around the turn of the millennium. According to Gheit, oil is also seeing "excessive speculation" at the moment.
OPEC arrives at the same conclusion. "The fundamentals are right," says OPEC President Mohammed al-Hamli. In fact, the cartel has expected excess supply on markets since early February -- a result of the American economic crisis.
This excess supply would normally cause the price per barrel to fall. Instead, dealers have now broken through the magic $100 threshold for the second time in only a few weeks.
The mood is festive among oil barons, who seem to be unimpressed by global recession fears. Exxon Mobil recently reported its profits for 2007: $40.6 billion, a record for the world's largest energy company, and in international economic history. A company has never made so much money in a year.
Enormous amounts of money are currently changing hands in the business of oil contracts. With the American real estate debacle infecting ever larger segments of the capital markets, from stocks to bonds, investors are seeking alternatives worldwide. Oil, with its supposedly straightforward market rules and ever-rising prices, seems to be a perfect tool for spreading risk and maximizing profit. But many investors will have a rude awakening when they realize that an investment in oil, though it may look different, is no less a gamble than other types of investments.
The New York Mercantile Exchange, or NYMEX, is the central arena in the game of trading in commodities like oil. For 100 years traders here, at the southern tip of Manhattan, on the banks of the Hudson River, have traded in commodities like butter, cheese and potatoes -- until they recognized, in 1978, that oil was the future.
The trading floor at the NYMEX looks like a Roman arena. Traders, standing in the galleries, shout and gesticulate and perform an almost archaic ritual. When two agree on a deal, they write the basic numbers on a piece of paper and toss it into the center of the stage, where a sturdy-looking exchange employee stands, wearing protective glasses so that the flying wads of paper don't accidentally injure his eyes. By the time he picks up one of these pieces of paper and stamps it, many barrels of oil will have already exchanged owners.
"I trade in news," says Chris Motroni, 29. He earns his money as a small, independent trader on the NYMEX, with smaller trades and a lot of self-confidence. "The prices will increase to $115," he says. Motroni loves the mood on the trading floor, where both his father and his brother have also worked. But they got out of floor trading long ago.
The same holds true for the big players, the banks, hedge funds and pension funds, which all trade by computer nowadays. Business on the NYMEX has exploded. The world consumes 86 million barrels of oil a day, but trading volume is 15 times as high. The difference represents bets on future price developments.
The traders' activities have generated sharp criticism, even in the US Congress, not exactly famous as an enemy of the oil industry. A congressional hearing in December went by the blunt title: "Speculation in the Crude Oil Market."
The upshot of all this trading is that speculators now hold up to 45 percent of all oil contracts -- three times as many as at the turn of the millennium. "Prices are being distorted," says Senator Carl Levin, the ranking Democrat on the Permanent Subcommittee on Investigations, which is investigating the speculative trading of oil futures. If supply and demand were the only factors, the price of oil would be at least $20 lower.
How could this have happened?
One of the world's 10 largest energy trading companies, Mercuria, is headquartered on Place du Molard in Geneva, Switzerland. From here, 70 employees analyze the market, dealing with such factors as tanker routes and inventory levels. Thirty billion dollars per year flow through the company's accounts.
CEO Daniel Jaeggi, a former futures trader for Goldman Sachs, knows exactly how the business changed in the late 1990s. "The big pension funds began to diversify their investments, increasingly putting their assets in oil," he says. The pension funds, according to Jaeggi, became the "driving factor in the market."
Wall Street banks were only too happy to service this demand, and Goldman Sachs was at the head of the pack. "They invented a new commodities index that also included oil," says Jaeggi. The new index was wildly successful, and the more major investors put money into it, the more oil contracts Goldman bought and the higher the prices went. An enormous market force had been created.
Everyone jumped into the game. Morgan Stanley, Deutsche Bank and many other financial giants dramatically expanded their trading volume in oil contracts. Investment banks like Goldman even established their own oil reserves, acting as if they were energy companies like BP. They hoped to gain better insight into market events.
As a result, the trading volume in crude oil has almost tripled in the last five years, while demand for the liquid itself grew by only 1.9 percent per year.
Goodbye to Supply and Demand
Once upon a time, all that counted in the oil business was production volume and consumption in the industrialized nations. Those days are gone. Oil is now part of every well-structured portfolio -- as was the case, until recently, with those abstract securities meant to enable the investor to secure a slice of the American real-estate boom.
But nothing is like it was on the commodities markets. Nowadays even the most insignificant piece of news -- like the nonviolent encounter between US warships and Iranian speedboats in the Strait of Hormuz in January -- can send oil prices on a roller-coaster ride.
The situation in Cushing, meanwhile, can still keep traders on their toes. Let's say fog cripples the port of Houston for a few days, so not enough new foreign crude flows into American pipelines. Supplies in the tanks in Oklahoma will sink, and the supply bottleneck will drive up prices. Or imagine that the McKee refinery in Texas -- a major oil buyer -- partially shuts down after a fire. Crude reserves in Cushing will rise, and prices will fall.
Strange price distortions are fairly normal. All the oil reserves of the United States have long run higher that the five-year average -- yet for historic reasons, prices on the commodities exchanges are based solely on the levels in Cushing and the type of oil stored in the tanks there, West Texas Intermediate.
"It's astonishing that a type of oil that is produced at a level of only about 300,000 barrels a day serves as the benchmark for the whole world," says Eugen Weinberg, an analyst at Germany's Commerzbank. He even believes that market players "attempt to influence" the key Cushing statistics "through their targeted actions."
Classic models, on the other hand, hardly play a role anymore in explaining the price of oil. The fact that relations with Iran have eased a little, or that there has been cautious improvement in Iraq, won't interest traders. They alternately attribute price changes to the crisis in the Middle East, to winter, to unrest in Nigeria and to exploding demand in China.
"None of this is new," says Fadel Gheit. "There hasn't been peace in the Middle East since Biblical days. And the conflict in Nigeria has also been going on for 40 years." Not to mention the recurring return of winter.
Gheit has been in the business for 30 years. He worked at Mobil Oil and JP Morgan before moving to Oppenheimer. He remembers oil prices of $9 a barrel. In the hearings before the US Congress, he served as a star witness of sorts, attesting to the madness of the speculators. "The traders use every excuse in the book to drive up prices," he says, "it's pure hysteria." On some mornings, when he arrives at his office in Manhattan, London traders have driven up prices by $4 a barrel overnight, perhaps because a pipeline burst somewhere in the world. "I have a degree in engineering," says Gheit. "This isn't heart surgery. It's a plumber's job, child's play." The damaged pipeline was probably repaired even before Gheit found out about it -- but after the traders made their profits.
The question is, how long can these galloping prices continue without doing permanent damage to the US and world economies? Rising prices for gasoline, heating oil and airline tickets will increase inflationary pressures and stifle demand in the short to medium term.
"In the end it's a straw that breaks the camel's back," says Gheit, a native Egyptian. Or it's like a weightlifter hefting weights, he says, until someone places a pencil on top and he crashes to the ground.
"This is a bubble," he insists, "and it will burst."
It was 1950 when man first stumbled upon the G spot. The discovery was made not in a Hollywood lothario's bedroom – in fact, not between the sheets at all – but in the laboratories of a rather eccentric German scientist.
When Ernst Gräfenberg claimed to have discovered a place in a woman's body that, if reached, could bring untold sexual pleasure, the science world laughed. It was long before the raised hem lines and free-living spirit of the swinging Sixties, and his report fell largely on deaf ears.
Described as "an erotic zone located on the anterior wall of the vagina along the course of the urethra that would swell during sexual stimulation," Gräfenberg said he had found the most important in a series of "erotogenic spots" located all over the body.
The doctor, after whom the G spot is named, was ridiculed for claiming there was an area that could hold the key to the most powerful female orgasm. But now it seems that Gräfenberg's theory may have hit the spot after all. For the first time in history, a group of Italian scientists claim to have found compelling evidence that the G spot exists.
Just as Gräfenberg predicted, researchers at the University of L'Aquila in Italy have located the G spot in the tissue between the urethra and vagina. But there is, they believe, a slight catch.
The Italians found that in some women the area is simply not anatomically equipped for the pinnacle of female pleasure. In short: some women have a G spot. And some women don't.
Using ultrasound, res-earchers scanned nine women who said they could experience vaginal orgasm, and 11 who could not.
They found that those who could had a thicker wall of tissue between the urethra and the vagina: the point where they say the G spot is located.
Dr Emmanuele Jannini, the Italian scientist behind the study, claims that for the first time it is possible to determine by a simple, rapid and inexpensive method if a woman has a G spot.
His study, which was published in the Journal of Sexual Medicine, says that women without this thickened wall of tissue will never be able to orgasm without clitoral stimulation.
The news has caused uproar in the world of gynaecology, where experts have long debated whether it even existed.
According to Dr Tim Spector at St Thomas' Hospital, this nerve-rich area may simply be the internal part of the clitoris, and not distinct from it at all.
"The authors found a thicker vaginal wall near the urethra and hypothesise this may be related to the presence of the controversial G spot", he said.
"However, many other explanations are possible – such as the actual size of the clitoris, which, although not measured in this study – appears highly variable."
Dr Spector is not the first G-spot sceptic. Much of the early research – including Gräfenberg's – was discounted as being too reliant on women's anecdotal accounts. One study in the 1980s was widely criticised for being based entirely on the experience of one woman, who claimed to experience a "deeper" orgasm when that area was stimulated.
It is still unclear how Gräfenberg himself conducted his original research, but judging by the descriptions of his "experiments" they were a little on the haphazard side.
"Even when there was a good response in the entire vagina, this particular area was more easily stimulated by the finger than the other areas of the vagina," wrote the gynaecologist. "Women tested this way always knew when the finger slipped from the urethra by the impairment of their sexual stimulation."
Whatever their methods, it seemed that the followers of the holy grail of female pleasure were having trouble proving this fabled pleasure spot existed.
By 1981, Dr J Jones Stewart said he had categorically proved the G spot was a myth. The gynaecologist said that all evidence pointed to it being a myth, after women who had the supposed G spot area removed reported no loss of sensation.
And now the same contentions regarding the rigour of research methods have returned. When Dr Gräfenberg wrote in 1950 that "although female orgasm has been discussed for many centuries or even thousands of years, the problems of female satisfaction are not yet solved", he could not have predicted that this statement would remain true for so long.
Despite Dr Jannini's latest findings, we are still not much closer to definitive knowledge of female sexual pleasure.
"The solution of the problem would be better furthered, if the sexologists know exactly what they are talking about," said Gräfenberg, but even now, a lack of comprehensive studies of female orgasm mean it is a topic scientists still don't fully understand.
Dr Jannini admits that the numbers surveyed for his study were too small to be comprehensive, and it is not yet clear even what proportion of women have a G spot.
But previous questionnaire-based research suggests it might be a very small proportion, as a recent survey of women revealed that fewer than a third believed they had experienced orgasm during intercourse.
Yet, while many couples across the country will breathe a sigh of relief that the G spot does indeed exist, what does this mean for the women who, according to Dr Jannini, will never be able to experience such heights of sexual pleasure?
Colin Holt, a psychosexual therapist, said that couples should not become too preoccupied with the G spot as the only route to satisfaction. "People could get hung up on the idea they're lacking it, but most women still orgasm through clitoral stimulation," said Mr Holt. "I think people should stop fussing about reaching all these different spots, relax and enjoy sex."
Bernanke Keeps Door Open to Rate Cuts To Boost Economy
By MICHAEL M. PHILLIPS and GREG IP February 28, 2008
WASHINGTON -- The Bush administration is hardening its opposition to the chorus of Democrats, bankers, economists and consumer advocates calling for a big-money government rescue program for struggling homeowners.
In an interview yesterday, Treasury Secretary Henry Paulson branded many of the aid proposals circulating in Washington as "bailouts" for reckless lenders, investors and speculators, rather than measures that would provide meaningful relief to deserving, but cash-strapped, mortgage borrowers.
Mr. Paulson's comments came amid signs that the nation's housing market is getting worse, not better. Indeed, at a House hearing yesterday, Federal Reserve Chairman Ben Bernanke kept the door open to further interest-rate cuts to boost the economy, even as he warned that inflation pressures have intensified in recent weeks.
President Bush and other administration officials have voiced skepticism before about a major government effort to ease the burden of the nation's housing slump. But Mr. Paulson's comments are the most explicit to date in laying out the administration's opposition to the recent spate of rescue plans.
Mr. Paulson, citing estimates that as many as two million Americans could lose their homes to foreclosure this year, predicted that the administration's market-based approach will be enough to keep the situation under control. Its centerpiece is a plan that encourages the mortgage industry to voluntarily ease up on certain borrowers.
"I don't think I've seen any scenario where the American taxpayer needs to be stepping in with more taxpayer dollars," Mr. Paulson told The Wall Street Journal.
Mr. Paulson's stance highlights the rifts appearing in the bipartisan cooperation that led to the passage of a $152 billion economic-stimulus package by Congress earlier this year. Both the Bush administration and the Democrats who control Congress now appear to be staking out increasingly rigid positions.
Rep. Barney Frank (D., Mass.), chairman of the House Financial Services Committee and typically an ally of Mr. Paulson's, said that, until now, he had supported the Treasury's steps to address mortgage delinquencies and the credit crunch they have spawned. "But they're not helping enough people," Mr. Frank said yesterday. "We're not going to get out of the crunch until we stop this cascade of foreclosures."
The Fed's Mr. Bernanke appeared to take a slightly more flexible position than Mr. Paulson, telling a congressional committee yesterday that the turmoil in the housing market doesn't yet merit large amounts of public money. "I don't think we're at that point, but I do think it's worthwhile to keep thinking about those issues," Mr. Bernanke said.
Despite a generally downbeat outlook on the economy, Mr. Bernanke suggested some of the pessimism on the housing front might be overdone. Home-price declines are partly self-correcting, he said; as prices decline, more buyers will be tempted to jump into the market. He predicted home prices would hit bottom some time next year.
There's a growing sense in Washington that the federal government, either during this administration or the next, may feel compelled to mount a more aggressive, expensive response to mortgage defaults, which have destabilized financial markets and threatened to mire the broader economy in recession.
Running Out of Ideas
Administration officials "have been willing to broker deals, but they haven't been willing to put taxpayer money on the line," said Mark Zandi, chief economist at Moody's Economy.com, a West Chester, Pa., consulting firm. "I think they're trying to stick to those principles, and now they're running out of ideas that are consistent with those principles."
Both Democratic presidential hopefuls have criticized President Bush, saying he exacerbated the housing market's woes by tolerating overly aggressive lending practices. Sen. Barack Obama (D., Ill.) has advocated the creation of a $10 billion fund to help borrowers avoid foreclosure or buy first homes, while Sen. Hillary Clinton (D., N.Y.) has proposed a 90-day moratorium on foreclosures and a five-year interest-rate freeze on adjustable-rate mortgages.
Several major banks, including Credit Suisse Group, have floated plans that would expand an existing federal program run by the Federal Housing Administration to extend government insurance to thousands of troubled loans. Former Fed Vice Chairman Alan Blinder has proposed reviving a Depression-era agency to buy up troubled mortgages and refinance them at affordable rates.
Even the Office of Thrift Supervision, an independent agency within Treasury, is developing a plan that would make it easier for banks and thrifts to refinance loans for homeowners whose houses are worth less than the amount they owe.
Rep. Frank's plan would provide about $10 billion in loans and grants to help states buy foreclosed homes, plus a similar sum to allow the FHA to guarantee new, more-affordable mortgages for homeowners on the brink of losing their houses. Democratic lawmakers, including Senate Majority Leader Harry Reid of Nevada and Sen. Chris Dodd of Connecticut, chairman of the Banking Committee, have legislative remedies in mind, as well.
"I'm seeing a series of ideas suggested involving major government intervention in the housing market, and these things are usually presented or sold as a way of helping homeowners stay in their homes," Mr. Paulson said. "Then when you look at them more carefully what they really amount to is a bailout for financial institutions or Wall Street."
The secretary added one caveat: "It would be imprudent not to have contingency plans, but we are so far away from seeing something that would have me calling for a bailout that I don't see it."
Mr. Bush is threatening to veto a Senate bill that includes $4 billion to help states and localities redevelop abandoned and foreclosed houses. "I believe the evidence is clear that these [voluntary industry] initiatives alone will not steer enough families away from foreclosure or our country away from further economic weakening," Mr. Reid wrote in a letter to the president yesterday, referring to the main element of the White House-backed industry plan. "In my view, the enormity of the foreclosure crisis requires a much more aggressive response."
The Reid bill also includes a provision -- opposed by many Republicans and the White House -- that would allow bankruptcy judges to alter the terms of mortgages.
Mr. Paulson, a former chief executive of Goldman Sachs Group, repeated his view that the U.S. economy is fundamentally on sound footing and would dodge a recession. Still, he warned again yesterday that the chances of worse-than-expected economic growth are greater than the chances of an upside surprise.
In his congressional testimony, Mr. Bernanke indicated that the Fed is inclined to lower interest rates to support the economy.
"The further increases in the prices of energy and other commodities in recent weeks, together with the latest data on consumer prices, suggest slightly greater" risk that inflation will be higher this year than officials expected last month, Mr. Bernanke said in the first of two days of testimony to Congress.
Market Expectations
Nonetheless, he showed more concern that the economy will grow more slowly than the already-sluggish performance envisioned a month ago, due to the possibility that housing, the job market or credit conditions may deteriorate more than expected. The Fed "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," Mr. Bernanke said.
His comments cemented market expectations that the Fed will lower its short-term interest-rate target to 2.5% from the current 3% at its next meeting, March 18.
A particular risk Mr. Bernanke highlighted in response to questions from lawmakers was that the Fed's 2.25 percentage points of interest-rate cuts since September aren't being fully passed through to consumers and businesses because banks, other lenders and the capital markets have become more reluctant to lend.
A major reason for their reluctance is that losses related to subprime mortgages and other risky loans have depleted the capital of many banks and other major financial intermediaries, such as government-sponsored mortgage giants Fannie Mae and Freddie Mac. Mr. Bernanke called on such institutions to raise additional capital so that they could resume normal lending activity.
Mr. Paulson cited estimates that 1.5 million homeowners lost their houses to foreclosure last year and that the toll could reach two million this year. During normal economic times, there are some 650,000 foreclosures a year in the U.S.
In the coming days, a mortgage-industry alliance called Hope Now is expected to report on its efforts, backed by the administration, to expedite refinancing or rate freezes for as many as 1.2 million subprime borrowers whose adjustable interest rates are due to rise in the next two years. Mr. Paulson said he planned to keep the pressure on mortgage servicers to cut a deal with homeowners who are current on their payments but might slip into delinquency if their rates jump up.
He also said he would press the industry to expand the program to reach borrowers struggling with prime-rate and other mortgages.
* A rogue trader at MF Global rang up $141.5 million (€93.6 million) in losses
* Losses cost the company almost a fifth of its market value
* Evan Dooley was trading wheat contracts in amounts that exceeded his trade limit
* An entry-order system that should have blocked the trades failed
February 28, 2008
NEW YORK (AP) -- A rogue trader at MF Global rang up $141.5 million (€93.6 million) in losses on the broker's account this week, the company said Thursday, costing the company almost a fifth of its market value.
MF Global fired trader Evan Dooley and liquidated the wheat contracts, which led to a $141.5 million loss.
The Bermuda-based broker said on Wednesday morning it discovered Evan Dooley, a trader at the company's Memphis, Tennessee, branch, trading wheat contracts in amounts that exceeded how much he was allowed to trade.
MF Global fired Dooley and liquidated the wheat contracts, which led to a $141.5 million (€93.6 million) loss.
An entry-order system that should have blocked the trades failed, the company said.
Dooley had bought a few thousand lots of wheat futures contracts on the Chicago Board of Trade, MF Global said.
The price of wheat has surged in the past month because of constraints to global supply and swelling demand from China.
24 comments:
SUZHOU, China, Feb 28 - The premiums commanded by China’s domestically listed A shares over Hong Kong-listed H shares in the same companies will eventually close, a senior Chinese regulatory official said on Thursday.
“The gap shouldn’t be surprising because they trade in totally different markets and are held by different investors,” Yao Gang, vice chairman of the China Securities Regulatory Commission, said in response to a question at a pension fund forum.
“With a gradual liberalisation of China’s capital account, the A/H gap will naturally vanish,” he said.
But he declined to suggest when that might happen, saying only: “It’s up to investors’ own perceptions.”
As China’s stock market has sagged, the average premium of A shares over H shares has tumbled to 64 percent from peaks above 100 percent in mid-January. But the average premium is still above lows around 50 percent hit between October and December last year.
China orders minimum wages rises amid rising inflation: govt
BEIJING (AFP) - - China has ordered local governments to raise minimum wages, the labour and social security ministry said Thursday, a measure analysts expect could feed into inflation that is already at 11-year highs.
“The order was sent out before the Spring Festival,” an official with the ministry said. The Spring Festival, or the Chinese New Year, fell in early February this year.
“Minimum wages should be adjusted in line with national regulations and according to the consumer price index,” he told AFP, declining to be named.
China’s inflation rose 4.8 percent last year and hit an 11-year high of 7.1 percent in January, with food prices soaring by 18.2 percent in the month.
Guangdong province, an industrial powerhouse in the country’s south, announced last week it would raise minimum wages from April 1 by up to 17.8 percent.
After the hike minimum wages will range from 530 yuan (74 dollars) to 860 yuan in the province.
Other areas like Shanghai and Jiangsu province in the east have also said they were planning or had already raised minimum wages this year, according to earlier state media reports.
Analysts are concerned that higher wages, while helping low-income families struggling to cope with rising prices, may further push inflation up as companies would seek to pass increased labour costs on to consumers.
“Increasing wages, combined with other factors like the new Labour Law that drive up labour costs, may pose larger pressures on inflation than in the past,” said Sun Mingchun, a Hong Kong-based economist with Lehman Brothers.
The new Labour Law, which took effect on January 1, requires companies to offer their staff life-long employment if they have worked for them for more than 10 years.
China Money: Central bank rhetoric, market view diverge
Reuters - Thursday, February 28
SHANGHAI, Feb 28 - There’s often a gap between what central banks say they’ll do and what the markets think they’ll do. In China’s case, the gap is becoming particularly wide.
As inflation climbs to fresh 11-year highs this year, monetary officials are insisting they’ll keep in place a “tight” policy that was declared in early December.
Deputy central bank governor Yi Gang made the point strongly last weekend, telling a financial forum that the central bank wouldn’t back off from tight monetary policy even though domestic and global economic risks had grown.
“In 2008, we will keep implementing a tight monetary policy by adopting open market operations, using bank reserve ratios and guiding banks to extend loans in a reasonable fashion,” Yi said.
But the bond market is having none of it. The indicative five-year government bond yield tumbled 35 basis points in the three weeks to mid-February and has stayed roughly stable since then, barely moving in response to Yi’s statement.
The 15-year yield has been in a downtrend since mid-December, soon after the tight policy was announced. It has slid 43 bps over the past two months and hit a fresh eight-month low on Wednesday, Reuters Reference Rates show.
This represents a bet that as Chinese and U.S. economic growth slows in coming months, policy will not continue tightening -- and may actually ease a bit.
“The popular view in the market is for monetary policy to loosen in coming months because of slowing growth, and after the U.S. Fed’s rate cuts. Some traders even think China might cut rates later this year,” says Shi Lei, analyst at Bank of China.
Analysts see two main reasons for the divergence between official rhetoric and the market’s view. One is authorities’ fear that inflation could feed upon itself as consumers’ expectations for prices to rise become entrenched.
China may be more vulnerable to inflationary expectations than many countries. It suffered a nasty bout of inflation in the early 1990s, when the rate exceeded 10 percent, and food and basic necessities take a large portion of the income of many people. China’s use of price controls to fight inflation risks encouraging hoarding by producers.
“The central bank may feel it needs to continue saying monetary policy will be tight to prevent people’s expectations from getting out of control,” says Shi.
SETTING POLICY
Equally important may be the way in which policy is decided and announced in China. Officials at independent central banks abroad can fine-tune their rhetoric in response to changing conditions, guiding the markets from one month to the next.
But in China, the central bank is not independent of the government and basic policy is set in consultation with the cabinet. December’s shift to “tight” from “prudent” policy came from the Central Economic Work Conference, a meeting of leaders.
That makes a change in rhetoric politically difficult, especially just two months after a policy was declared.
“The central bank is unlikely to declare a loosening of monetary policy even if it wants to -- it has to echo the approach set by the Central Economic Work Conference,” says an analyst at another Chinese bank in Beijing.
The result, the bond market believes, may be an undeclared, piecemeal form of monetary easing in coming months as the central bank quietly loosens aspects of policy to ensure companies have access to funds and the expected economic slowdown is gradual.
Analysts see a chance for one or even two small hikes in benchmark interest rates this year, but most think the central bank has already ruled out aggressive rate hikes, especially since regulators are scrambling to avert a stock market crash.
Enforcement of banks’ new lending quotas may be relaxed informally and gradually. That could actually be negative for bonds in the near term, as money is diverted from investment in bonds to corporate lending, but the central bank would probably also let money market liquidity ease to support the new lending.
The central bank’s big money market drains this month via short-term bond repos may be paving the way for eventual easing -- the central bank may be using the repos as an alternative to the more permanent option of raising bank reserve ratios.
The repos have maturities of up to 182 days, and as they expire in coming months the central bank will have the option of letting the money stay in the market, improving liquidity.
Some foreign banks clearly see much less chance of an easing this year than the mass of Chinese banks.
Offshore yuan interest rate swap rates shot up this month, with the spread between seven-year onshore and offshore IRS widening by 35 bps to 46 bps in the two weeks through mid-February -- the widest in three months.
But Chinese banks, which dominate onshore, appear determined not to change their view. Onshore IRS have actually fallen since Yi Gang spoke, and the seven-year spread has narrowed to a more normal 36 bps -- mostly because of a drop back by offshore IRS.
China overtook US as Japan’s largest trading partner in 2007
AP - Friday, February 29
TOKYO - China overtook the United States to become Japan’s largest trading partner last year, a government-affiliated trade organization said Thursday.
Total trade with China excluding Hong Kong rose 12 percent to US$236.6 billion in 2007, the Japan External Trade Organization, or JETRO, said. That marked the ninth straight year of growth, and was slightly higher than the 11.5 percent growth rate in 2006.
China accounted for 17.7 percent of Japan’s total trade last year, JETRO said. The United States dropped to second place, with 16.1 percent of the total, it said.
Exports to China rose 17.5 percent last year to US$109.1 billion, as the Chinese economy’s strength helped fuel increased demand for electronics, passenger cars, auto parts and materials for making synthetic resins and fibers, the organization said.
Meanwhile, imports from China rose 7.6 percent to US$127.6 billion. That’s slower than the 8.5 percent growth in 2006, due in part to mounting concerns about Chinese food safety, JETRO said. Crude oil and coal imports also fell.
Although China has been Japan’s largest import source since 2002, the import growth rate has been sliding since 2004 partly due to stagnant sales in personal computers, the organization added.
Japan’s trade deficit with China shrank 27.9 percent to US$18.6 billion from US$25.5 billion the year before, it said.
CPO Price Bubble May End Soon - Analyst
KUALA LUMPUR (Dow Jones)--Crude palm oil futures are expected to fall below MYR2,900 a metric ton in 2008, London-based analyst James Fry said Wednesday.
Fry said a slowdown in demand, particularly in China, over the next few months, will likely lead to softer prices. The high rate of growth in demand seen recently can’t be sustained, he said.
Demand in China may slow down by May, he said; by then it would have arranged for sufficient purchases that could sustain demand anticipated for the summer Olympics.
Fry said CPO prices are likely to witness a downward correction in tandem with a similar trend for crude in 2008.
China Property prices begin to slide
28 February 2008
China’s largest property developers have been offering discounts and other incentives to fight shrinking sales and the credit crunch since the end of last year.
Vanke Co Ltd, the largest developer on the mainland by assets, announced an across-the-board discount of over 5 percent for 10 of its properties in Shanghai on Lantern Festival (Feb 21) that traditionally marks the end of the lunar new year celebrations. It is the first time the company offered such a large discount in the city.
Vanke is offering even better terms for cash buyers. A sales clerk at one of the company’s offices said those paying the full amount in one go will get as much as 8 percent discount. Those who can cough up half of the price as down payment will get a 6 percent discount, she said.
In Beijing, two of Vanke’s projects were offering 5 percent to 7 percent discounts on one-off payments during Spring Festival.
The unprecedented festival discounts seemed to work. Vanke raked in 257 million yuan on the lunar New Year’s Day, compared with the company’s 70 percent dive in sales from December 2007 to 1.85 billion yuan in January, according to Vanke.
More importantly, industry insiders said, such a strong promotional offer by a major developer in the city indicates the market will continue to be bleak in the months to come.
Besides, the success of Vanke’s promotion is expected to prompt other developers to follow suit, experts said.
Chen Sheng, director of China Real Estate Index System, said many other real estate developers may follow Vanke’s example by offering more discounts.
Sure enough, Shanghai-based Jing Rui Properties (Group) Co Ltd has also lowered its prices by offering a 3 percent discount for group purchases and a 2 percent discount for those recommended by previous buyers.
Hopson Development, a Hong Kong-listed real estate firm, picked out several apartments for sales promotion in Beijing, cutting down prices from 30,000 yuan per sq m to 22,500 yuan per sq m.
A project developed by Beijing-based Huayuan Real Estate is offering an over 7 percent discount for those buying small apartments.
Coastal Greenland group, also a Hong Kong developer, reduced its prices for new projects in Beijing as early as December, lowering them by around 400 yuan per sq m from the average of 17,000 yuan per sq m in the area.
Because of an uncertain economic outlook this year, including a possible recession in the US, a likely slower growth rate for the Chinese economy, rising inflation and tighter monetary policy, a number of large developers are trying to sell quickly and then take over other projects and smaller developers when the market dives, industry analysts said.
Some of them, however, are eager to sell off their projects to jazz up annual reports.
“Sales of high-end projects will face a big challenge this year as most buyers are investment-oriented,” said Zhang Lei, a marketing professional with a developer that has several high-end projects going in Beijing.
But according to Pan Shiyi, chairman of SOHO China, property projects with good locations are likely to continue to be popular while prices of low-end properties are most likely to be dragged down with the entry of more affordable housing.
Luo Xiaohua, general manager of Jing Rui Properties, said: “We won’t clearly see where housing prices are heading this year until April, after a clearer real estate policy will be announced in the annual sessions of the National People’s Congress and the Chinese People’s Political Consultative Conference.”
But land prices in Shanghai dropped sharply recently. Tishman Speyer Properties acquired a plot of 267,481 sq m in New Jiangwan Town at a starting price of 7,500 yuan per sq m in January, with no competition. Any plot in the same area would command 12,500 yuan per sq m last June and 20,000 yuan in November.
“This indicates sliding housing prices in one to two years,” said Luo.
Because of a weakened market, small and medium-sized property developers are the most nervous as they are faced with more financing pressure compared with listed companies, with commercial banks taking tighter measures to rein in credit.
Italian high court bans public crotch-rubbing
By Tom Chivers - 28/02/2008
Keep your hands where we can see them - Italy’s highest court has ruled that men who scratch, adjust or otherwise manipulate their genitals in public are committing a criminal offence.
The Guardian reports that judges in the “court of cassation”, the highest court of appeal in Italian law, have moved to criminalise not only shameless crotch-scratching, but also a specific local superstition.
According to Italian folklore, a swift grasp of one’s generative organs - known by Italians as their “attributi” - protects against bad luck.
A funeral procession passing by, or disaster or disease cropping up in conversation, therefore brings a flurry of men’s hands descending crotchwards.
The issue came to light after a 42-year-old workman from Como, near Milan, was convicted of indecent behaviour after “ostentatiously touching his genitals through his clothing”.
Despite claims by his lawyer that the action was nothing more sinister than a “compulsive, involuntarily movement, probably to adjust his overalls”, the court was unimpressed.
Such behaviour “has to be regarded as an act contrary to public decency, a concept including that nexus of socio-ethical behavioural rules requiring everyone to abstain from conduct potentially offensive to collectively-held feelings of decorum,” they said in their ruling, ordering the man to pay a €200 (£152) fine and €1000 (£760) costs.
While superstitious groin-grabbing has become less acceptable in recent years, the phrase “io mi tocco i…”, or “I touch my…”, is still used in much the same way as “touch wood” is in English.
Judges in the case were helpful enough to suggest that would-be crotch criminals wait until they are the privacy of their own home before letting their hands wander.
Macquarie downgrades Wilmar (F34.SG) to Neutral from Outperform; S$5.05 target price unchanged. Says FY07 results in line as higher crude palm oil prices boost plantation business, but FY08 could be more challenging due to China price curbs. Notes, from January 2008, any price rise in consumer-pack edible oils in China requires government approval; “if a price increase is not approved or is delayed, profits are likely to be impacted.” Cuts FY08-09 earnings forecasts 2%-3%. Says stock trades at premium to agribusiness peers; “we believe that much of its superior growth is now priced in and further upside could be limited.” Shares closed down 7.2% at S$4.51 yesterday. (KIG)
RPT-GLOBAL MARKETS-Stocks, dollar wince; Bernanke predicts pain
By Tom Miles
Thu Feb 28, 2008 9:38pm EST
HONG KONG, Feb 29 (Reuters) - The dollar dropped to a 3-year low against the yen on Friday amid renewed worries about the U.S. economy, rattling stock markets, bolstering bonds and helping drive up prices of safe-haven gold and oil to all-time highs.
Weak U.S. economic data and a warning from Federal Reserve Chairman Ben Bernanke that some small U.S. banks could fail raised expectations for more interest rate cuts in the world's leading economy.
The dollar tumbled to 104.65 yen, its lowest since May 2005, after a slide in the U.S. currency towards the key 105 yen level triggered a wave of stop-loss orders.
Gold surged to a new high of $973.10 an ounce, up more than 16 percent this year, and crude oil CLc1 hit $103 a barrel for the first time in history, fuelled by the weak dollar and a fire at a big European gas terminal.
By 0230 GMT, spot gold stood at $969.40 an ounce and oil was quoted at $102.60 a barrel.
MSCI's index of Asian stocks outside Japan was down 1.5 percent by 0220 GMT, while Japan's benchmark Nikkei average .N225 and the broader TOPIX were off 2.5 percent as investors digested Bernanke's ugly prognosis.
"This will have an impact in terms of credit worries but, even more, it reflects growing concern about the worsening U.S. economy," said Yutaka Miura, senior technical analyst at Shinko Securities. "But for Tokyo, the real worry is the yen's rise against the dollar, which is going to make things really tough."
The sour mood in the stock market was a sweetener for Japanese government debt as investors sought shelter from the U.S. storm.
"Bernanke's remarks were something a central banker should never say," said a bond strategist at a U.S. brokerage. "It shocked us and certainly worsened credit jitters in the market."
March 10-year Japanese government bond futures 2JGBv1 rose as high as 138.42, their highest since Jan. 24, while the benchmark 10-year yield, which touched a 2-month peak of 1.500 percent earlier this week, tumbled to a 5-week low of 1.365 percent.
STOCKS SHOCKED
Among the hardest-hit stocks were tech firms and insurers, troubled by a lower-than-expected profit at computer maker Dell Inc and a large quarterly loss at American International Group Inc, the world's largest insurer, on write-downs of derivatives related to bad mortgage investments.
The continuing commodities rally cheered some firms in the sector, such as Korea Zinc, which was one of the top gainers in Seoul .PG.KS, rising 7.7 percent after London zinc futures MZN3 jumped 5 percent on Thursday.
Overall, the main South Korean index was down 1.4 percent. Hong Kong's Hang Seng index .HSI fell 1.8 percent, with global lender HSBC Holdings leading the blue chips lower with a 2 percent slide.
The commodities boom was not enough to stop the mining-heavy Australian index losing 2.3 percent as fear of higher interest rates to tame inflation continued to trouble banks.
And although it reported a 58 percent jump in profits, Air New Zealand Ltd fell 6.8 percent as rising fuel prices and currency difficulties pummelled airline shares.
天下无双(Tian Xia Wu Shuang)
歌手：张靓颖(Jane Zhang)
专辑：电视剧神雕侠侣主题(Return of the Condor Hero 2006)
啊.....
穿越红尘的悲欢惆怅
和你贴心的流浪
刺透遍野的青山和荒凉
有你的梦伴着花香飞翔
今生因你痴狂
此爱天下无双
剑的影子
水的波光
只是过往是过往
今生因你痴狂
此爱天下无双
如果还有贴心的流浪
枯萎了容颜难遗忘
漫步人生路
歌手: 邓丽君(Teresa Teng)
歌曲: 中岛美雪
歌词: 郑国江
在你身边路虽远未疲倦
伴你漫行一段接一段
越过高峰另一峰却又见
目标推远
让理想永运在前面
路纵崎岖亦不怕受磨练
愿一生中苦痛快乐也体验
愉快悲哀在身边转又转
风中赏雪
雾里赏花快乐回旋
毋庸计较
快欣赏身边美丽每一天
还愿确信美景良辰在脚边
愿将欢笑声盖掩苦痛那一面
悲也好
喜也好
每天找到新发现
让疾风吹呀吹
尽管给我俩考验
小雨点
放心洒
早已决心向着前
路纵崎岖亦不怕受磨练
愿一生中苦痛快乐也体验
愉快悲哀在身边转又转
风中赏雪
雾里赏花快乐回旋
毋庸计较
快欣赏身边美丽每一天
还愿确信美景良辰在脚边
愿将欢笑声盖掩苦痛那一面
悲也好
喜也好
每天找到新发现
让疾风吹呀吹
尽管给我俩考验
小雨点
放心洒
早已决心向着前
*************
ひとり上手(Hitorijouzu)
作詞/作曲: 中島みゆき/中島美雪(Miyuki Nakajima)
私の帰る家は
あなたの声のする街角
冬の雨に打たれて
あなたの足音をさがすのよ
あなたの帰る家は
私を忘れたい街角
肩を抱いているのは
私と似ていない長い髪
心が街角で泣いている
ひとりはキライだとすねる
ひとり上手とよばないで
心だけ連れてゆかないで
私を置いてゆかないで
ひとりが好きなわけじゃないのよ
雨のようにすなおに
あの人と私は流れて
雨のように愛して
サヨナラの海へ流れついた
手紙なんてよしてね
なんどもくり返し泣くから
電話だけで捨ててね
僕もひとりだよとだましてね
心が街角で泣いている
ひとりはキライだとすねる
ひとり上手とよばないで
心だけ連れてゆかないで
私を置いてゆかないで
ひとりが好きなわけじゃないのよ
ひとり上手とよばないで
心だけ連れてゆかないで
私を置いてゆかないで
ひとりが好きなわけじゃないのよ
China Money: Central bank rhetoric, market view diverge
Reuters - Thursday, February 28
SHANGHAI, Feb 28 - There’s often a gap between what central banks say they’ll do and what the markets think they’ll do. In China’s case, the gap is becoming particularly wide.
As inflation climbs to fresh 11-year highs this year, monetary officials are insisting they’ll keep in place a “tight” policy that was declared in early December.
Deputy central bank governor Yi Gang made the point strongly last weekend, telling a financial forum that the central bank wouldn’t back off from tight monetary policy even though domestic and global economic risks had grown.
“In 2008, we will keep implementing a tight monetary policy by adopting open market operations, using bank reserve ratios and guiding banks to extend loans in a reasonable fashion,” Yi said.
But the bond market is having none of it. The indicative five-year government bond yield tumbled 35 basis points in the three weeks to mid-February and has stayed roughly stable since then, barely moving in response to Yi’s statement.
The 15-year yield has been in a downtrend since mid-December, soon after the tight policy was announced. It has slid 43 bps over the past two months and hit a fresh eight-month low on Wednesday, Reuters Reference Rates show.
This represents a bet that as Chinese and U.S. economic growth slows in coming months, policy will not continue tightening -- and may actually ease a bit.
“The popular view in the market is for monetary policy to loosen in coming months because of slowing growth, and after the U.S. Fed’s rate cuts. Some traders even think China might cut rates later this year,” says Shi Lei, analyst at Bank of China.
Analysts see two main reasons for the divergence between official rhetoric and the market’s view. One is authorities’ fear that inflation could feed upon itself as consumers’ expectations for prices to rise become entrenched.
China may be more vulnerable to inflationary expectations than many countries. It suffered a nasty bout of inflation in the early 1990s, when the rate exceeded 10 percent, and food and basic necessities take a large portion of the income of many people. China’s use of price controls to fight inflation risks encouraging hoarding by producers.
“The central bank may feel it needs to continue saying monetary policy will be tight to prevent people’s expectations from getting out of control,” says Shi.
SETTING POLICY
Equally important may be the way in which policy is decided and announced in China. Officials at independent central banks abroad can fine-tune their rhetoric in response to changing conditions, guiding the markets from one month to the next.
But in China, the central bank is not independent of the government and basic policy is set in consultation with the cabinet.
December’s shift to “tight” from “prudent” policy came from the Central Economic Work Conference, a meeting of leaders.
That makes a change in rhetoric politically difficult, especially just two months after a policy was declared.
“The central bank is unlikely to declare a loosening of monetary policy even if it wants to -- it has to echo the approach set by the Central Economic Work Conference,” says an analyst at another Chinese bank in Beijing.
The result, the bond market believes, may be an undeclared, piecemeal form of monetary easing in coming months as the central bank quietly loosens aspects of policy to ensure companies have access to funds and the expected economic slowdown is gradual.
Analysts see a chance for one or even two small hikes in benchmark interest rates this year, but most think the central bank has already ruled out aggressive rate hikes, especially since regulators are scrambling to avert a stock market crash.
Enforcement of banks’ new lending quotas may be relaxed informally and gradually. That could actually be negative for bonds in the near term, as money is diverted from investment in bonds to corporate lending, but the central bank would probably also let money market liquidity ease to support the new lending.
The central bank’s big money market drains this month via short-term bond repos may be paving the way for eventual easing -- the central bank may be using the repos as an alternative to the more permanent option of raising bank reserve ratios.
The repos have maturities of up to 182 days, and as they expire in coming months the central bank will have the option of letting the money stay in the market, improving liquidity.
Some foreign banks clearly see much less chance of an easing this year than the mass of Chinese banks.
Offshore yuan interest rate swap rates shot up this month, with the spread between seven-year onshore and offshore IRS widening by 35 bps to 46 bps in the two weeks through mid-February -- the widest in three months.
But Chinese banks, which dominate onshore, appear determined not to change their view. Onshore IRS have actually fallen since Yi Gang spoke, and the seven-year spread has narrowed to a more normal 36 bps -- mostly because of a drop back by offshore IRS.
Chinese human caligraphy
GY, it reminds me of one old Chinese movie, “降头”...大法师 wrote the 金刚经 over the human body to 驱邪避凶。
Wall Street sees a half-point Fed cut
February 28
By David Ellis, CNNMoney.com staff writer
Ben Bernanke didn’t tell Congress this week exactly what the Federal Reserve would do next, but the central bank chief certainly left Wall Street with the impression that a half-point cut is a sure thing. Federal Reserve policymakers are scheduled to meet again on March 18. Right now futures listed on the Chicago Board of Trade indicate that investors are pricing in a 100% chance of a half-point cut and a 32% chance that the Fed will slash interest rates by three-quarters of a percentage point.
“A 50-point cut seems to be a reasonable compromise,” said Stuart Hoffman, chief economist at PNC Financial Services. “Any more than that and he will catch some inflation flack.” Bernanke, as part of his semi-annual hearing on the Fed’s monetary policy, spent two days testifying in the House and Senate and outlined the trio of challenges facing the Fed: an economy at risk of falling into a recession, topsy-turvy financial markets and the rising risk of inflation.
But it was the health of the U.S. economy that remained his biggest concern. The Fed chief focused on the variety of “downside risks” to the economy, including continued deterioration in the already troubled housing sector as well as the health of the consumer. His comments, along with more troubling economic numbers issued on Wednesday and Thursday, only firmed up expectations about the Fed’s next move. Prior to his testimony, investors were betting that a half point cut was all but certain – futures markets on Monday suggested there was a 94% chance that the Fed would implement a half-point cut.
A half-point cut in March would bring the fed funds rate, which affects rates on a variety of consumer loans including credit cards and mortgages, to 2.5 percent. Since September, the central bank has steadily lowered interest rates by 2.25 percentage points to help keep the economy from tipping into a recession. In January alone, the Fed instituted two cuts totalling 1.25 points.
April move tricky
The Fed’s move at its two-day policy meeting in late April may prove a little more complicated as inflation fears have started to gain more attention lately. Prices at both the consumer and wholesale level climbed more than expected during the month of January, even when accounting for volatile food and energy prices. Even the Federal Reserve chief himself acknowledged the threat, warning lawmakers that efforts to stimulate the economy could become complicated if inflation failed to moderate.
That is proving tough however as a weakened dollar and the prices of key commodities, particularly crude oil, continues to hover near record highs.
“Based on [Bernanke’s] testimony, I would say he will start to get a bit more cautious in his rate cuts after cutting again at the March 18 meeting,” said David Jones, president of consulting firm DMJ Advisors who formerly served as a chief economist at a bond house on Wall Street. In fact, experts like PNC’s Hoffman argue that unless the economy is clearly in a recession by the Fed’s April meeting, a rate cut in March might be the last for some time. “I think there’s a case to be made that the Fed may say, ‘Let’s take a breather right now and see what is happening,’ “ said Hoffman.
China Snow Storm...让爱回家
Property players sweat over lending squeeze
Banks batten down hatches amid global turmoil and as big deals suck liquidity
KALPANA RASHIWALA AND SIOW LI SEN
(SINGAPORE) The squeeze is on. Banks have tightened financing for property investment deals, which include big transactions like sales of office blocks and development sites. This, in turn, may keep some buyers from participating in the market, industry players have told BT.
It’s also taking longer to wrap up property sales deals these days as securing funding becomes more of an issue - and this could be a drag on investment sales.
Bankers cite two main causes for the tightening. The turmoil in the global financial market has led to increased awareness of risks all round, and several mega transactions in the past 12 months here have left less liquidity available for others.
Says Tan Teck Long, DBS Bank managing director, corporate and investment banking: ‘There are a couple of large deals such as the integrated resorts (IRs) which have soaked up a fair bit of liquidity.’
Yesterday, Las Vegas Sands Corp announced the completion of its $5.25 billion loan syndication for the Marina Bay Sands IR, the largest deal of its kind here.
Brad Nelson, global head of commercial real estate, Standard Chartered Bank, agrees that the big deals had been sucking liquidity out of the market. ‘Banks only have a certain amount of capital base,’ he points out.
Banks’ exposure to property-related loans is capped by law at 35 per cent of their total loans, to keep risks from the industry in check. This does not include mortgages for owner-occupied properties.
Meanwhile, banks have become more cautious and are giving smaller loans relative to a property’s valuation than, say, 12 months ago. This serves to provide them with a greater buffer in the event of a fall in property values given the weaker sentiment in the Singapore property market today.
Jones Lang LaSalle regional director and head of investments Lui Seng Fatt says that about a year ago, banks may have given loans of up to 75 per cent of valuation for income-producing assets like office blocks. Today, the figure may be closer to 60-65 per cent.
Things are even harder for relatively unseasoned, smaller players buying residential development sites. They face greater scrutiny these days before banks give them loans, BT understands.
‘Financing for real estate projects has definitely tightened, especially since last quarter. This is essentially because of tighter liquidity brought about by limited appetite in the capital markets, due to current market developments,’ says Paul Kwee, Citigroup Singapore corporate bank director and head of real estate.
Lending amounts are more conservative now and covenants tighter, he says.
And despite the decline in Singapore dollar interest rates, the margins that are added to the floating interest rate reference are wider today, observes Mr Kwee. Margins are wider by 50-100 basis points now compared to last year, say bankers. Property sources say that while big established developers can still secure financing for purchases of development sites with relative ease, things are less rosy for smaller players.
Maybank head of business banking Lee Hong Khim acknowledges that his bank hesitates to finance new players whose core business is not in property development.
Mr Lee adds that Maybank is ‘more selective in the projects we finance; the location of the project is an important consideration as well’.
Giving his take, Citi’s Mr Kwee says: ‘Smaller players may find it harder because they have fewer financing options available to them as compared to the big boys who may also be able to tap the convertible bond or Sing-dollar bond market, for instance.’
But Mr Nelson of Stanchart says that ‘when liquidity is tight, lenders will normally take the position of supporting their existing relationships . . . regardless of whether they are SME (small and medium enterprise) or wholesale customers’.
Another outcome of banks becoming more cautious in evaluating loan applications is that it’s taking longer to complete property investment sales deals, says JLL’s Mr Lui.
The investment head of another major property consultancy group feels that the tighter financing environment could change the profile of institutional property buyers. ‘We may see greater participation from core funds, which assume lower risk, lower returns, and lower debt, and less participation from opportunity funds, which assume higher risks, higher returns and higher debt.’
Market watchers point to an extreme recent example, when UK-based New Star International Property Fund made a pure-cash (zero debt) acquisition of One Phillip Street, an office block in the Raffles Place area, for $99.02 million.
Funds that need to assume higher leverage to achieve their investment returns may find it difficult to buy property assets in Singapore - and their numbers may dwindle.
Property players sweat over lending squeeze
Banks batten down hatches amid global turmoil and as big deals suck liquidity
KALPANA RASHIWALA AND SIOW LI SEN
29 February 2008
(SINGAPORE) The squeeze is on. Banks have tightened financing for property investment deals, which include big transactions like sales of office blocks and development sites. This, in turn, may keep some buyers from participating in the market, industry players have told BT.
It’s also taking longer to wrap up property sales deals these days as securing funding becomes more of an issue - and this could be a drag on investment sales.
Bankers cite two main causes for the tightening. The turmoil in the global financial market has led to increased awareness of risks all round, and several mega transactions in the past 12 months here have left less liquidity available for others.
Says Tan Teck Long, DBS Bank managing director, corporate and investment banking: ‘There are a couple of large deals such as the integrated resorts (IRs) which have soaked up a fair bit of liquidity.’
Yesterday, Las Vegas Sands Corp announced the completion of its $5.25 billion loan syndication for the Marina Bay Sands IR, the largest deal of its kind here.
Brad Nelson, global head of commercial real estate, Standard Chartered Bank, agrees that the big deals had been sucking liquidity out of the market. ‘Banks only have a certain amount of capital base,’ he points out.
Banks’ exposure to property-related loans is capped by law at 35 per cent of their total loans, to keep risks from the industry in check. This does not include mortgages for owner-occupied properties.
Meanwhile, banks have become more cautious and are giving smaller loans relative to a property’s valuation than, say, 12 months ago. This serves to provide them with a greater buffer in the event of a fall in property values given the weaker sentiment in the Singapore property market today.
Jones Lang LaSalle regional director and head of investments Lui Seng Fatt says that about a year ago, banks may have given loans of up to 75 per cent of valuation for income-producing assets like office blocks. Today, the figure may be closer to 60-65 per cent.
Things are even harder for relatively unseasoned, smaller players buying residential development sites. They face greater scrutiny these days before banks give them loans, BT understands.
‘Financing for real estate projects has definitely tightened, especially since last quarter. This is essentially because of tighter liquidity brought about by limited appetite in the capital markets, due to current market developments,’ says Paul Kwee, Citigroup Singapore corporate bank director and head of real estate.
Lending amounts are more conservative now and covenants tighter, he says.
And despite the decline in Singapore dollar interest rates, the margins that are added to the floating interest rate reference are wider today, observes Mr Kwee.
Margins are wider by 50-100 basis points now compared to last year, say bankers. Property sources say that while big established developers can still secure financing for purchases of development sites with relative ease, things are less rosy for smaller players.
Maybank head of business banking Lee Hong Khim acknowledges that his bank hesitates to finance new players whose core business is not in property development.
Mr Lee adds that Maybank is ‘more selective in the projects we finance; the location of the project is an important consideration as well’.
Giving his take, Citi’s Mr Kwee says: ‘Smaller players may find it harder because they have fewer financing options available to them as compared to the big boys who may also be able to tap the convertible bond or Sing-dollar bond market, for instance.’
But Mr Nelson of Stanchart says that ‘when liquidity is tight, lenders will normally take the position of supporting their existing relationships . . . regardless of whether they are SME (small and medium enterprise) or wholesale customers’.
Another outcome of banks becoming more cautious in evaluating loan applications is that it’s taking longer to complete property investment sales deals, says JLL’s Mr Lui.
The investment head of another major property consultancy group feels that the tighter financing environment could change the profile of institutional property buyers. ‘We may see greater participation from core funds, which assume lower risk, lower returns, and lower debt, and less participation from opportunity funds, which assume higher risks, higher returns and higher debt.’
Market watchers point to an extreme recent example, when UK-based New Star International Property Fund made a pure-cash (zero debt) acquisition of One Phillip Street, an office block in the Raffles Place area, for $99.02 million.
Funds that need to assume higher leverage to achieve their investment returns may find it difficult to buy property assets in Singapore - and their numbers may dwindle.
US economy risks a 'lost decade' like Japan
By David Litterick in Munich
The US could be facing a "lost decade" like that suffered by Japan in the 1990s as the markets fail to respond to interest rate cuts and the US Federal Reserve runs out of options, the head of one of the leading private equity firms said today.
Tim Collins of Ripplewood Holdings, said the Fed was "running out of policy alternatives" as it attempted to prevent a long recession in the US.
Mr Collins, whose firm has significant expertise in Japan after leading the buyout and turnaround of Japan Telecom, said he believed a "sharp repricing of assets" was the most likely outcome.
But he said: "My fear is that we will prolong it and suffer a death of a thousand cuts after we have exhausted all the options."
"Even without a recession and with all of the policy tools available we still have hundreds of billions of dollars of losses."
Japan has only recently emerged from a period of zero interest rates.
He said the future would not be clear until a recession had laid bare the true state of the financial system. "You have to wait for the tide to go out to see who is wearing a bathing suit," he said.
But the chairman of Ripplewood, which last year completed the $2bn buyout of Readers Digest, rejected the argument, put forward by some at this year's SuperReturn private equity conference in Munich, that Sovereign Wealth Funds would replace struggling banks to provide debt to private equity companies.
"The financial markets operate on the basis of the multiplier effect in the banking system and you cannot replicate that with what is effectively equity, not debt, from sovereign wealth funds."
What's Really Driving the Price of Oil?
By Beat Balzli and Frank Hornig
The price of crude oil has doubled, from $50 to $100, within months. The increase cannot be attributed to the fundamental data, which have hardly changed. And the looming recession ought to drive the price down. So why is oil getting more expensive?
Cushing is the kind of place where you'd expect to see a cowboy ride around the corner and tie his horse to a rail in front of the Buckhorn Bar. This sleepy town of 8,000 on the Oklahoma prairie comes complete with a main street that could double for a set in a Western. Its biggest attractions include a defunct train station and a run-down movie theater, where the price of admission is $1.50.
Robert Felts, a friendly old man who works for the Cushing Industrial Authority, likes to show visitors the historic oil pump in the middle of town. He tells the story of how, in 1912, a giant oil field was discovered nearby that placed Cushing on the map and showered it with more than two decades of prosperity. Up to 50 million barrels of oil bubbled out of the ground each year in those days. "Our refineries could hardly keep up," says Felts. To solve the problem, the oil barons of the day had large storage tanks installed in the surrounding prairieland.
There isn't much to talk about besides oil in this small Oklahoma town. But reports on the situation in Cushing get global markets moving at 10:30 every Wednesday morning. That's when US government officials publish a figure that reflects the amount of oil stored in the hundreds of tanks which now stretch for miles along the horizon.
Located at a key intersection in the North American pipeline system, Cushing is home to the largest oil storage facility in the United States. Oil traded on the New York Mercantile Exchange literally changes owners here in Cushing. If the tanks are full, prices sink. But if levels in these tanks fall, prices rise. A rule of thumb for traders: Supply and demand control the market.
Normally, at any rate. But in recent months the conventional wisdom has flip-flopped. Within a year the price of a barrel of crude has doubled, from $50 to last week's high of $100. Nothing seems impossible now. Some analysts see prices rising to between $120 and $150, which would have dramatic consequences for the world economy.
Similarly spectacular price developments have only occurred four times in the last few decades: in 1973, when the Organization of Petroleum Exporting Countries (OPEC) imposed an embargo for the first time; in 1979, as a consequence of the Iranian revolution; a year later, when Iraq invaded Iran; and in 1990, when Iraq invaded Kuwait.
Which leads to one the most provocative questions being asked about the world economy today: Why are oil prices soaring again?
It's All Speculation
There are plenty of answers. Some hold the crisis in the Middle East and constantly growing demand in China responsible. Others blame producing countries for keeping the oil spigot half-closed.
But none of it's very convincing. "Supply and demand cannot explain the high prices," says Fadel Gheit of Oppenheimer & Co., a leading commodities analyst. Like many in his profession, Gheit believes financial investors are driving up prices. He's reminded of the Internet bubble around the turn of the millennium. According to Gheit, oil is also seeing "excessive speculation" at the moment.
OPEC arrives at the same conclusion. "The fundamentals are right," says OPEC President Mohammed al-Hamli. In fact, the cartel has expected excess supply on markets since early February -- a result of the American economic crisis.
This excess supply would normally cause the price per barrel to fall. Instead, dealers have now broken through the magic $100 threshold for the second time in only a few weeks.
The mood is festive among oil barons, who seem to be unimpressed by global recession fears. Exxon Mobil recently reported its profits for 2007: $40.6 billion, a record for the world's largest energy company, and in international economic history. A company has never made so much money in a year.
Enormous amounts of money are currently changing hands in the business of oil contracts. With the American real estate debacle infecting ever larger segments of the capital markets, from stocks to bonds, investors are seeking alternatives worldwide. Oil, with its supposedly straightforward market rules and ever-rising prices, seems to be a perfect tool for spreading risk and maximizing profit. But many investors will have a rude awakening when they realize that an investment in oil, though it may look different, is no less a gamble than other types of investments.
The New York Mercantile Exchange, or NYMEX, is the central arena in the game of trading in commodities like oil. For 100 years traders here, at the southern tip of Manhattan, on the banks of the Hudson River, have traded in commodities like butter, cheese and potatoes -- until they recognized, in 1978, that oil was the future.
The trading floor at the NYMEX looks like a Roman arena. Traders, standing in the galleries, shout and gesticulate and perform an almost archaic ritual. When two agree on a deal, they write the basic numbers on a piece of paper and toss it into the center of the stage, where a sturdy-looking exchange employee stands, wearing protective glasses so that the flying wads of paper don't accidentally injure his eyes. By the time he picks up one of these pieces of paper and stamps it, many barrels of oil will have already exchanged owners.
"I trade in news," says Chris Motroni, 29. He earns his money as a small, independent trader on the NYMEX, with smaller trades and a lot of self-confidence. "The prices will increase to $115," he says. Motroni loves the mood on the trading floor, where both his father and his brother have also worked. But they got out of floor trading long ago.
The same holds true for the big players, the banks, hedge funds and pension funds, which all trade by computer nowadays. Business on the NYMEX has exploded. The world consumes 86 million barrels of oil a day, but trading volume is 15 times as high. The difference represents bets on future price developments.
The traders' activities have generated sharp criticism, even in the US Congress, not exactly famous as an enemy of the oil industry. A congressional hearing in December went by the blunt title: "Speculation in the Crude Oil Market."
The upshot of all this trading is that speculators now hold up to 45 percent of all oil contracts -- three times as many as at the turn of the millennium. "Prices are being distorted," says Senator Carl Levin, the ranking Democrat on the Permanent Subcommittee on Investigations, which is investigating the speculative trading of oil futures. If supply and demand were the only factors, the price of oil would be at least $20 lower.
How could this have happened?
One of the world's 10 largest energy trading companies, Mercuria, is headquartered on Place du Molard in Geneva, Switzerland. From here, 70 employees analyze the market, dealing with such factors as tanker routes and inventory levels. Thirty billion dollars per year flow through the company's accounts.
CEO Daniel Jaeggi, a former futures trader for Goldman Sachs, knows exactly how the business changed in the late 1990s. "The big pension funds began to diversify their investments, increasingly putting their assets in oil," he says. The pension funds, according to Jaeggi, became the "driving factor in the market."
Wall Street banks were only too happy to service this demand, and Goldman Sachs was at the head of the pack. "They invented a new commodities index that also included oil," says Jaeggi. The new index was wildly successful, and the more major investors put money into it, the more oil contracts Goldman bought and the higher the prices went. An enormous market force had been created.
Everyone jumped into the game. Morgan Stanley, Deutsche Bank and many other financial giants dramatically expanded their trading volume in oil contracts. Investment banks like Goldman even established their own oil reserves, acting as if they were energy companies like BP. They hoped to gain better insight into market events.
As a result, the trading volume in crude oil has almost tripled in the last five years, while demand for the liquid itself grew by only 1.9 percent per year.
Goodbye to Supply and Demand
Once upon a time, all that counted in the oil business was production volume and consumption in the industrialized nations. Those days are gone. Oil is now part of every well-structured portfolio -- as was the case, until recently, with those abstract securities meant to enable the investor to secure a slice of the American real-estate boom.
But nothing is like it was on the commodities markets. Nowadays even the most insignificant piece of news -- like the nonviolent encounter between US warships and Iranian speedboats in the Strait of Hormuz in January -- can send oil prices on a roller-coaster ride.
The situation in Cushing, meanwhile, can still keep traders on their toes. Let's say fog cripples the port of Houston for a few days, so not enough new foreign crude flows into American pipelines. Supplies in the tanks in Oklahoma will sink, and the supply bottleneck will drive up prices. Or imagine that the McKee refinery in Texas -- a major oil buyer -- partially shuts down after a fire. Crude reserves in Cushing will rise, and prices will fall.
Strange price distortions are fairly normal. All the oil reserves of the United States have long run higher that the five-year average -- yet for historic reasons, prices on the commodities exchanges are based solely on the levels in Cushing and the type of oil stored in the tanks there, West Texas Intermediate.
"It's astonishing that a type of oil that is produced at a level of only about 300,000 barrels a day serves as the benchmark for the whole world," says Eugen Weinberg, an analyst at Germany's Commerzbank. He even believes that market players "attempt to influence" the key Cushing statistics "through their targeted actions."
Classic models, on the other hand, hardly play a role anymore in explaining the price of oil. The fact that relations with Iran have eased a little, or that there has been cautious improvement in Iraq, won't interest traders. They alternately attribute price changes to the crisis in the Middle East, to winter, to unrest in Nigeria and to exploding demand in China.
"None of this is new," says Fadel Gheit. "There hasn't been peace in the Middle East since Biblical days. And the conflict in Nigeria has also been going on for 40 years." Not to mention the recurring return of winter.
Gheit has been in the business for 30 years. He worked at Mobil Oil and JP Morgan before moving to Oppenheimer. He remembers oil prices of $9 a barrel. In the hearings before the US Congress, he served as a star witness of sorts, attesting to the madness of the speculators. "The traders use every excuse in the book to drive up prices," he says, "it's pure hysteria." On some mornings, when he arrives at his office in Manhattan, London traders have driven up prices by $4 a barrel overnight, perhaps because a pipeline burst somewhere in the world. "I have a degree in engineering," says Gheit. "This isn't heart surgery. It's a plumber's job, child's play." The damaged pipeline was probably repaired even before Gheit found out about it -- but after the traders made their profits.
The question is, how long can these galloping prices continue without doing permanent damage to the US and world economies? Rising prices for gasoline, heating oil and airline tickets will increase inflationary pressures and stifle demand in the short to medium term.
"In the end it's a straw that breaks the camel's back," says Gheit, a native Egyptian. Or it's like a weightlifter hefting weights, he says, until someone places a pencil on top and he crashes to the ground.
"This is a bubble," he insists, "and it will burst."
One in 100 US adults behind bars
Mystery of the G spot explored
By Emily Dugan
Friday, 22 February 2008
It was 1950 when man first stumbled upon the G spot. The discovery was made not in a Hollywood lothario's bedroom – in fact, not between the sheets at all – but in the laboratories of a rather eccentric German scientist.
When Ernst Gräfenberg claimed to have discovered a place in a woman's body that, if reached, could bring untold sexual pleasure, the science world laughed. It was long before the raised hem lines and free-living spirit of the swinging Sixties, and his report fell largely on deaf ears.
Described as "an erotic zone located on the anterior wall of the vagina along the course of the urethra that would swell during sexual stimulation," Gräfenberg said he had found the most important in a series of "erotogenic spots" located all over the body.
The doctor, after whom the G spot is named, was ridiculed for claiming there was an area that could hold the key to the most powerful female orgasm. But now it seems that Gräfenberg's theory may have hit the spot after all. For the first time in history, a group of Italian scientists claim to have found compelling evidence that the G spot exists.
Just as Gräfenberg predicted, researchers at the University of L'Aquila in Italy have located the G spot in the tissue between the urethra and vagina. But there is, they believe, a slight catch.
The Italians found that in some women the area is simply not anatomically equipped for the pinnacle of female pleasure. In short: some women have a G spot. And some women don't.
Using ultrasound, res-earchers scanned nine women who said they could experience vaginal orgasm, and 11 who could not.
They found that those who could had a thicker wall of tissue between the urethra and the vagina: the point where they say the G spot is located.
Dr Emmanuele Jannini, the Italian scientist behind the study, claims that for the first time it is possible to determine by a simple, rapid and inexpensive method if a woman has a G spot.
His study, which was published in the Journal of Sexual Medicine, says that women without this thickened wall of tissue will never be able to orgasm without clitoral stimulation.
The news has caused uproar in the world of gynaecology, where experts have long debated whether it even existed.
According to Dr Tim Spector at St Thomas' Hospital, this nerve-rich area may simply be the internal part of the clitoris, and not distinct from it at all.
"The authors found a thicker vaginal wall near the urethra and hypothesise this may be related to the presence of the controversial G spot", he said.
"However, many other explanations are possible – such as the actual size of the clitoris, which, although not measured in this study – appears highly variable."
Dr Spector is not the first G-spot sceptic. Much of the early research – including Gräfenberg's – was discounted as being too reliant on women's anecdotal accounts. One study in the 1980s was widely criticised for being based entirely on the experience of one woman, who claimed to experience a "deeper" orgasm when that area was stimulated.
It is still unclear how Gräfenberg himself conducted his original research, but judging by the descriptions of his "experiments" they were a little on the haphazard side.
"Even when there was a good response in the entire vagina, this particular area was more easily stimulated by the finger than the other areas of the vagina," wrote the gynaecologist. "Women tested this way always knew when the finger slipped from the urethra by the impairment of their sexual stimulation."
Whatever their methods, it seemed that the followers of the holy grail of female pleasure were having trouble proving this fabled pleasure spot existed.
By 1981, Dr J Jones Stewart said he had categorically proved the G spot was a myth. The gynaecologist said that all evidence pointed to it being a myth, after women who had the supposed G spot area removed reported no loss of sensation.
And now the same contentions regarding the rigour of research methods have returned. When Dr Gräfenberg wrote in 1950 that "although female orgasm has been discussed for many centuries or even thousands of years, the problems of female satisfaction are not yet solved", he could not have predicted that this statement would remain true for so long.
Despite Dr Jannini's latest findings, we are still not much closer to definitive knowledge of female sexual pleasure.
"The solution of the problem would be better furthered, if the sexologists know exactly what they are talking about," said Gräfenberg, but even now, a lack of comprehensive studies of female orgasm mean it is a topic scientists still don't fully understand.
Dr Jannini admits that the numbers surveyed for his study were too small to be comprehensive, and it is not yet clear even what proportion of women have a G spot.
But previous questionnaire-based research suggests it might be a very small proportion, as a recent survey of women revealed that fewer than a third believed they had experienced orgasm during intercourse.
Yet, while many couples across the country will breathe a sigh of relief that the G spot does indeed exist, what does this mean for the women who, according to Dr Jannini, will never be able to experience such heights of sexual pleasure?
Colin Holt, a psychosexual therapist, said that couples should not become too preoccupied with the G spot as the only route to satisfaction. "People could get hung up on the idea they're lacking it, but most women still orgasm through clitoral stimulation," said Mr Holt. "I think people should stop fussing about reaching all these different spots, relax and enjoy sex."
Paulson Dismisses
Mortgage Rescue Plans
Bernanke Keeps Door
Open to Rate Cuts
To Boost Economy
By MICHAEL M. PHILLIPS and GREG IP
February 28, 2008
WASHINGTON -- The Bush administration is hardening its opposition to the chorus of Democrats, bankers, economists and consumer advocates calling for a big-money government rescue program for struggling homeowners.
In an interview yesterday, Treasury Secretary Henry Paulson branded many of the aid proposals circulating in Washington as "bailouts" for reckless lenders, investors and speculators, rather than measures that would provide meaningful relief to deserving, but cash-strapped, mortgage borrowers.
Mr. Paulson's comments came amid signs that the nation's housing market is getting worse, not better. Indeed, at a House hearing yesterday, Federal Reserve Chairman Ben Bernanke kept the door open to further interest-rate cuts to boost the economy, even as he warned that inflation pressures have intensified in recent weeks.
President Bush and other administration officials have voiced skepticism before about a major government effort to ease the burden of the nation's housing slump. But Mr. Paulson's comments are the most explicit to date in laying out the administration's opposition to the recent spate of rescue plans.
Mr. Paulson, citing estimates that as many as two million Americans could lose their homes to foreclosure this year, predicted that the administration's market-based approach will be enough to keep the situation under control. Its centerpiece is a plan that encourages the mortgage industry to voluntarily ease up on certain borrowers.
"I don't think I've seen any scenario where the American taxpayer needs to be stepping in with more taxpayer dollars," Mr. Paulson told The Wall Street Journal.
Mr. Paulson's stance highlights the rifts appearing in the bipartisan cooperation that led to the passage of a $152 billion economic-stimulus package by Congress earlier this year. Both the Bush administration and the Democrats who control Congress now appear to be staking out increasingly rigid positions.
Rep. Barney Frank (D., Mass.), chairman of the House Financial Services Committee and typically an ally of Mr. Paulson's, said that, until now, he had supported the Treasury's steps to address mortgage delinquencies and the credit crunch they have spawned. "But they're not helping enough people," Mr. Frank said yesterday. "We're not going to get out of the crunch until we stop this cascade of foreclosures."
The Fed's Mr. Bernanke appeared to take a slightly more flexible position than Mr. Paulson, telling a congressional committee yesterday that the turmoil in the housing market doesn't yet merit large amounts of public money. "I don't think we're at that point, but I do think it's worthwhile to keep thinking about those issues," Mr. Bernanke said.
Despite a generally downbeat outlook on the economy, Mr. Bernanke suggested some of the pessimism on the housing front might be overdone. Home-price declines are partly self-correcting, he said; as prices decline, more buyers will be tempted to jump into the market. He predicted home prices would hit bottom some time next year.
There's a growing sense in Washington that the federal government, either during this administration or the next, may feel compelled to mount a more aggressive, expensive response to mortgage defaults, which have destabilized financial markets and threatened to mire the broader economy in recession.
Running Out of Ideas
Administration officials "have been willing to broker deals, but they haven't been willing to put taxpayer money on the line," said Mark Zandi, chief economist at Moody's Economy.com, a West Chester, Pa., consulting firm. "I think they're trying to stick to those principles, and now they're running out of ideas that are consistent with those principles."
Both Democratic presidential hopefuls have criticized President Bush, saying he exacerbated the housing market's woes by tolerating overly aggressive lending practices. Sen. Barack Obama (D., Ill.) has advocated the creation of a $10 billion fund to help borrowers avoid foreclosure or buy first homes, while Sen. Hillary Clinton (D., N.Y.) has proposed a 90-day moratorium on foreclosures and a five-year interest-rate freeze on adjustable-rate mortgages.
Several major banks, including Credit Suisse Group, have floated plans that would expand an existing federal program run by the Federal Housing Administration to extend government insurance to thousands of troubled loans. Former Fed Vice Chairman Alan Blinder has proposed reviving a Depression-era agency to buy up troubled mortgages and refinance them at affordable rates.
Even the Office of Thrift Supervision, an independent agency within Treasury, is developing a plan that would make it easier for banks and thrifts to refinance loans for homeowners whose houses are worth less than the amount they owe.
Rep. Frank's plan would provide about $10 billion in loans and grants to help states buy foreclosed homes, plus a similar sum to allow the FHA to guarantee new, more-affordable mortgages for homeowners on the brink of losing their houses. Democratic lawmakers, including Senate Majority Leader Harry Reid of Nevada and Sen. Chris Dodd of Connecticut, chairman of the Banking Committee, have legislative remedies in mind, as well.
"I'm seeing a series of ideas suggested involving major government intervention in the housing market, and these things are usually presented or sold as a way of helping homeowners stay in their homes," Mr. Paulson said. "Then when you look at them more carefully what they really amount to is a bailout for financial institutions or Wall Street."
The secretary added one caveat: "It would be imprudent not to have contingency plans, but we are so far away from seeing something that would have me calling for a bailout that I don't see it."
Mr. Bush is threatening to veto a Senate bill that includes $4 billion to help states and localities redevelop abandoned and foreclosed houses. "I believe the evidence is clear that these [voluntary industry] initiatives alone will not steer enough families away from foreclosure or our country away from further economic weakening," Mr. Reid wrote in a letter to the president yesterday, referring to the main element of the White House-backed industry plan. "In my view, the enormity of the foreclosure crisis requires a much more aggressive response."
The Reid bill also includes a provision -- opposed by many Republicans and the White House -- that would allow bankruptcy judges to alter the terms of mortgages.
Mr. Paulson, a former chief executive of Goldman Sachs Group, repeated his view that the U.S. economy is fundamentally on sound footing and would dodge a recession. Still, he warned again yesterday that the chances of worse-than-expected economic growth are greater than the chances of an upside surprise.
In his congressional testimony, Mr. Bernanke indicated that the Fed is inclined to lower interest rates to support the economy.
"The further increases in the prices of energy and other commodities in recent weeks, together with the latest data on consumer prices, suggest slightly greater" risk that inflation will be higher this year than officials expected last month, Mr. Bernanke said in the first of two days of testimony to Congress.
Market Expectations
Nonetheless, he showed more concern that the economy will grow more slowly than the already-sluggish performance envisioned a month ago, due to the possibility that housing, the job market or credit conditions may deteriorate more than expected. The Fed "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," Mr. Bernanke said.
His comments cemented market expectations that the Fed will lower its short-term interest-rate target to 2.5% from the current 3% at its next meeting, March 18.
A particular risk Mr. Bernanke highlighted in response to questions from lawmakers was that the Fed's 2.25 percentage points of interest-rate cuts since September aren't being fully passed through to consumers and businesses because banks, other lenders and the capital markets have become more reluctant to lend.
A major reason for their reluctance is that losses related to subprime mortgages and other risky loans have depleted the capital of many banks and other major financial intermediaries, such as government-sponsored mortgage giants Fannie Mae and Freddie Mac. Mr. Bernanke called on such institutions to raise additional capital so that they could resume normal lending activity.
Mr. Paulson cited estimates that 1.5 million homeowners lost their houses to foreclosure last year and that the toll could reach two million this year. During normal economic times, there are some 650,000 foreclosures a year in the U.S.
In the coming days, a mortgage-industry alliance called Hope Now is expected to report on its efforts, backed by the administration, to expedite refinancing or rate freezes for as many as 1.2 million subprime borrowers whose adjustable interest rates are due to rise in the next two years. Mr. Paulson said he planned to keep the pressure on mortgage servicers to cut a deal with homeowners who are current on their payments but might slip into delinquency if their rates jump up.
He also said he would press the industry to expand the program to reach borrowers struggling with prime-rate and other mortgages.
Rogue trader cost MF Global $142M
* Story Highlights
* A rogue trader at MF Global rang up $141.5 million (€93.6 million) in losses
* Losses cost the company almost a fifth of its market value
* Evan Dooley was trading wheat contracts in amounts that exceeded his trade limit
* An entry-order system that should have blocked the trades failed
February 28, 2008
NEW YORK (AP) -- A rogue trader at MF Global rang up $141.5 million (€93.6 million) in losses on the broker's account this week, the company said Thursday, costing the company almost a fifth of its market value.
MF Global fired trader Evan Dooley and liquidated the wheat contracts, which led to a $141.5 million loss.
The Bermuda-based broker said on Wednesday morning it discovered Evan Dooley, a trader at the company's Memphis, Tennessee, branch, trading wheat contracts in amounts that exceeded how much he was allowed to trade.
MF Global fired Dooley and liquidated the wheat contracts, which led to a $141.5 million (€93.6 million) loss.
An entry-order system that should have blocked the trades failed, the company said.
Dooley had bought a few thousand lots of wheat futures contracts on the Chicago Board of Trade, MF Global said.
The price of wheat has surged in the past month because of constraints to global supply and swelling demand from China.
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