House prices in the UK and the US are likely to fall for another two years, the chairman of one of the world’s most powerful banks has warned.
Sir Win Bischoff of Citigroup told BBC Business Editor Robert Peston he expects it will take two years for the markets to “stabilise”.
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House prices ‘will keep falling’
House prices in the UK and the US are likely to fall for another two years, the chairman of one of the world’s most powerful banks has warned.
Sir Win Bischoff of Citigroup told BBC Business Editor Robert Peston he expects it will take two years for the markets to “stabilise”.
Sir Win also expected the credit crunch - fraught conditions in financial markets - to continue through 2009.
Citigroup lost $2.5bn (£1.25bn) in the three months to the end of June 2008.
The figures were less than analysts had been expecting.
Nonetheless, the announcement took cumulative losses at the bank - until recently the world’s largest - to $17bn (£8.5bn) over the previous nine months.
Sir Win told the BBC that there would be redundancies at the bank, which employs 12,000 in the UK - some of them compulsory.
Our correspondent said the remarks by Sir Win, who chairs one of the largest consumer banks in the world, carry weight.
Citigroup is shedding assets and cutting costs by shedding staff to cope with the new financial conditions.
The interview will be broadcast on the BBC News Channel at 2230 BST, in the first of a new series of interviews with business leaders, called Leading Questions.
US slump won't lift until 2010
What's needed is a bigger, better stimulus plan
By PAUL KRUGMAN
HOME prices are in free fall. Unemployment is rising. Consumer confidence is plumbing depths not seen since 1980. When will it all end? The answer is, probably not until 2010 or later. Barack Obama, take notice. It's true that some prognosticators still expect a 'V-shaped' recovery in which the economy springs back rapidly from its slump. On this view, any day now it will be morning in America.
But if the experience of the last 20 years is any guide, the prospect for the economy isn't V-shaped, it's L-ish: rather than springing back, we'll have a prolonged period of flat or at best slowly improving performance.
Let's start with housing.
According to the widely used Case-Shiller index, average US home prices fell 17 per cent over the past year. Yet we're in the process of deflating a huge housing bubble, and housing prices probably still have a long way to fall. Specifically, real home prices, that is, prices adjusted for inflation in the rest of the economy, went up more than 70 per cent from 2000 to 2006. Since then, they've come way down - but they're still more than 30 per cent above the 2000 level.
Should we expect prices to fall all the way back? Well, in the late 1980s, Los Angeles experienced a large localised housing bubble: real home prices rose about 50 per cent before the bubble popped. Prices then proceeded to fall by a quarter, which combined with ongoing inflation brought real housing prices right back to their pre-bubble level.
And here's the thing: this took more than five years - LA home prices didn't bottom out until the mid-1990s. If the current housing slump runs on the same schedule, we won't be seeing a recovery until 2011 or later.
What about the broader economy? You might be tempted to take comfort from the fact that the last two recessions, in 1990-1991 and 2001, were both quite short. But in each case, the official end of the recession was followed by a long period of sluggish economic growth and rising unemployment that felt to most Americans like a continued recession.
Thus, the 1990 recession officially ended in March 1991, but unemployment kept rising through much of 1992, allowing Bill Clinton to win the election on the basis of the economy, stupid. The next recession officially began in March 2001 and ended in November, but unemployment kept rising until June 2003.
These prolonged recession-like episodes probably reflect the changing nature of the business cycle. Earlier recessions were more or less deliberately engineered by the Federal Reserve, which raised interest rates to control inflation. Modern slumps, by contrast, have been hangovers from bouts of irrational exuberance - the savings and loan free-for-all of the 1980s, the technology bubble of the 1990s and now the housing bubble.
Ending those old-fashioned recessions was easy because all the Fed had to do was relent. Ending modern slumps is much more difficult because the economy needs to find something to replace the burst bubble.
The Fed, in particular, has a hard time getting traction in modern recessions. In 2002, there was a strong sense that the Fed was 'pushing on a string': it kept cutting interest rates, but nobody wanted to borrow until the housing bubble took off. And now it's happening again. The Onion, as usual, hit the nail on the head with its recent headline: 'Recession-plagued nation demands new bubble to invest in.' But we probably won't find another bubble - at least not one big enough to fuel a quick recovery. And this has, among other things, important political implications.
Given the state of the economy, it's hard to see how Barack Obama can lose the 2008 election. An anecdote: This week, a passing motorist shouted at a crowd waiting outside a branch of IndyMac, the failed bank: 'Bush economics didn't work! They are right-wing Republican thieves!' The crowd cheered.
But what the economy gives, it can also take away. If the current slump follows the typical modern pattern, the economy will stay depressed well into 2010, if not beyond - plenty of time for the public to start blaming the new incumbent, and punish him in the midterm elections.
To avoid that fate, Obama - if he is indeed the next president - will have to move quickly and forcefully to address America's economic discontent. That means another stimulus plan, bigger, better, and more sustained than the one Congress passed earlier this year. It also means passing longer-term measures to reduce economic anxiety - above all, universal health care. -- The New York Times
JF Asset bets on coal over oil in Asia-Pac
(HONG KONG) Coal shares in the Asia-Pacific region are a better bet than oil producers at current prices, given the risk of a further pullback in crude prices from recent record highs, a JF Asset fund manager said yesterday.
Coal prices should be supported longer term, as rapidly industrialising China and India prefer the cheapest source of energy, driving incremental demand, added David Smith, who helps manage almost US$1.8 billion.
‘Coal companies have been smashed in the last two weeks,’ Mr Smith told Reuters in an interview. ‘You can buy the stocks 12 months forward earnings of eight times now.’
The MSCI measure of Asia-Pacific equities outside of Japan trades at 11 times 2009 earnings, according to Citigroup Global Markets.
While carbon taxes will help wind energy eat into the market share of coal, new coal-fired generation units were still being built in China and India, the world’s fastest growing economies, he said.
‘In the next two to three years I can’t see why it’s going to collapse just because it’s a pure supply, demand,’ Mr Smith said.
Amid an investment boom fuelled by surging coal prices and Beijing’s drive for ‘greener’ economic growth, China could have 100 gigawatts of wind power capacity by 2020, 10 times its current capacity, experts and industry officials say.
Australia-born Mr Smith said he was staying away from shares of oil producers at the moment, as he saw a risk of further price drops. The hot money that had poured into the sector and a lack of clarity on demand in Europe are concerning, he said.
Oil prices bounced above US$130 a barrel yesterday as buyers came back into the market after a more than 10 per cent slide in three days. Prices are well below the record high of US$147.27 on July 11.
Mr Smith, whose interest in investing was triggered by a client he met when he delivered newspapers as a teenager, thinks commodities in general could be vulnerable to further pullbacks.
To provide his portfolio with a margin of safety, he has been putting more focus on commodity-based services firms, rather than producers. A favourite holding in this sector is Orica Ltd.
For both service firms and producers, the native of Cooma, New South Wales said he favoured stocks from his home country, where issues like price controls are not a factor.
‘There’s a lot more regulatory risk in buying commodity stocks in Asia than there is in markets like Australia,’ the co-manager of JF Five Elements Fund said.
The US$87.97 million fund, launched on March 17, aims to capitalise on the trends of urbanisation and industrialisation in Asia by investing in commodities, mining, infrastructure, logistics, power and agricultural stocks.
The product can invest up to a fifth of its assets in futures. It now has a little over a 10th of the assets in sugar, cotton and gold futures. Mr Smith said he recently sold the fund’s wheat futures because of prospects of a good crop in Australia.
The fund’s largest holdings at the end of April were BHP Billiton, which he said was still one of his favourite stocks, Incitec Pivot Ltd, Rio Tinto Ltd, Reliance Infrastructure Ltd and Leighton Holdings Ltd.
Other top holdings were Shanghai Industrial Holdings Ltd, Nitto Denko Corp, Korea Zinc Co Ltd, Anhui Conch Cement Co Ltd and Reliance Industries Ltd.
Mr Smith said more recent large holdings included beaten up engineering and construction plays like South Korea’s Daelim Industrial and Australia’s United Group.
The JF Five Elements fund, which does not have a benchmark, has had a rough start, losing 7.99 per cent in the three months to June 30, according to data from fund tracker Lipper, a Thomson Reuters company. -- Reuters
The Dow at 7,200? Superbear's Scary Roar
By DAN DORFMAN
July 18, 2008
"The bear is dead; long live the bull." The words varied, but that was the prevalent message — or perhaps hope — throughout Wall Street following Wednesday's 207-point surge in the Dow Industrials and yesterday's spirited follow-up stock buying.
In brief, the market's renewed strength, spurred largely by a sudden retreat in the price of oil from the recent all-time high, has created the belief a major and sustained rally is under way.
Such a view is hardly astonishing, as most Street pros rate the market deeply oversold after its wicked nine-month drop of 23%, or about 3,200 Dow points.
The idea of a sustained rebound is ridiculed by Wall Street's superbear, veteran Florida investment adviser Martin Weiss, who describes it as nonsensical. "Anyone who believes such dribble is living on cloud nine," he says.
Street bears are a dime a dozen, but none of them is more frightening than Mr. Weiss, whose current outlook — a horror story for investors — calls for another vicious drop in the Dow, to 7,200. That would be equivalent to another 4,446-point loss, or about a 37% decline from current levels.
If you're about to say that's insane, don't. As a crystal-ball gazer, Mr. Weiss's prowess should not be taken lightly. I last caught up with him in February, when he told me: "American stocks are in a new bear market and anyone who believes otherwise is living on another planet." Given the subsequent 23% decline, he was dead right.
In addition, he has made a string of impressive calls in recent years, including such on-the-money forecasts as a housing market crash, a sharply slowing American economy, a big run-up in oil and gold, a collapse in bond insurers, and a surge in such foreign markets as China and Brazil.
In the past six and a half weeks, jittery investors, reacting to the market's nonstop erosion, went on a panic-like selling spree, unloading an estimated $21 billion worth of American equity mutual funds.
Mr. Weiss applauds the selling, asserting that "the dire economic and financial conditions in America are now equivalent to those of 2002, or worse" (a reference to the year of the Internet debacle).
Mr. Weiss, editor of the Safe Money Report, a monthly investment newsletter in Jupiter, Fla., has become even more alarmed since we last spoke, noting: "We're losing jobs at the rate of 73,000 a month (438,000 so far this year). In addition, banks and lenders have closed the credit spigot to both companies and individuals, making it difficult to get a loan or a mortgage." That, he says, is what recessions and falling stock prices are all about.
Mr. Weiss insists America is "in a deepening recession that eventually will be declared retroactive to this point in time. Making matters worse," he says, "the nearly $400 billion in losses we've seen in financial institutions worldwide is just the tip or only one quarter of the iceberg." The International Monetary Fund, he notes, estimates total credit and mortgage losses could ultimately run $945 billion, while some other projections peg the figure as high as $1.5 trillion.
Citing, too, the great oil shock of 2008 and its impact on corporate profits, Mr. Weiss raises the potential threat, as have others, of bankruptcy for Ford, General Motors, and most major world airlines.
"Face it," he says. "You can't have airlines practically shutting down, automakers collapsing, housing prices tanking nonstop, banks losing hundreds of billions of dollars, consumer confidence imploding, and joblessness rising without a severe impact on the broad economy."
Mr. Weiss says it all adds up to "a chain reaction of failures, massive layoffs (with the unemployment rate shooting up to 7% to 8% from its current 5.5% rate), and a panic in the Dow."
How does he figure a 7,200 Dow? Mr. Weiss reasons that if the index were to simply match the decline that has already occurred in the all-important banking sector, it would sink to the 7,200 level. Noting that the KBW Bank Index, which tracks the country's largest financial institutions, has plummeted more than 53% from its peak, he points out if the Dow were to do the same thing — which he feels is not an unreasonable assumption — it would put the index back near its mid-October 2002 low of 7,197.
Given his grim outlook, the obvious question is, what should investors do? Should they sell all their stocks and go 100% into cash?
Mr. Weiss's advice: Investors should sell a third of their stock holdings and put the money into inverse exchange-traded funds. These ETFs are designed to rise in price as various stock indices, market sectors, and emerging markets fall in price. He says his favorite such ETFs trade under the symbols SRS, REW, DOG, RYJUX, and SCC.
Survival now is the name of the game, Mr. Weiss says, "and it's better to be hedged than to be dead."
China`s impossible dream
Anurag Viswanath
19 July 2008
New Delhi -- Beijing struggles to make its coming-of-age Olympics party perfect despite controversies, unsold tickets and media hyperventilation.
China's monumental showcase, the Olympics, begins on the auspicious Chinese "eighth of the eighth" ・August 8, 2008, at 8 pm. Since it won the Olympic bid in 2001, it has pulled out all the stops to weave a spectacular "Tong yi ge menxiang, Tong yi ge shij" (or "One world, one dream") event.
For China, the Games, with a whopping $2 billion budget (but short of Athens's $2.4 billion), is not a mere sporting event but a chance to show the world that after three decades of reclusive socialism, it has leapt into the big league following three decades of economic "open door".
The technocratic fourth generation of leaders under President Hu Jintao and Prime Minister Wen Jiabao want to use the Olympics to showcase how prosperous and advanced the country really is.
As a result, China is under intense media scrutiny. The press has raked up its human rights record and put the dormant issues of Tibet and Taiwan under the scanner. It has also put a spotlight on contentious domestic issues such as unrest in the Uighur province of Xinjiang and widespread Tibetan protests in provinces such as Gansu and Qinghai.
More recently, the epic 130-day Olympic torch relay ran amuck in cities such as Paris, where it was hijacked by a blitzkrieg of Tibetan activists. The relay also enraged environmentalists protesting against the highway up to Mt Everest.
But China is leaving these dampeners behind as it edges towards the stunning opening ceremony directed by veteran film director Zhang Yimou (Raise the Lantern, Hero). The nation has roped in Cai Quoqiang, a New-York-based artiste known for his work with gunpowder, who will apply his talents towards the pyrotechnics at the opening and closing ceremonies.
Though the details are a closely guarded-secret, Zhang told the The New York Times, "The Olympic circle is round, the National Stadium is circular and there is Cai's circle in the sky", indicating that Cai is likely to create a mesmerising artistic display involving the circle.
But it is China's monumental venues featuring cutting-edge designs that will be the centre of all attention, beginning at the gateway to the Games ・the Beijing Airport. The airport has been designed by British architect Norman Foster, who beat stiff competition from artist Damien Hirst (among others) to bag "Britain's Best 2008" in the arts category.
Terminal 3 is an architectural gem, its surface area larger than all of Heathrow's five terminals. The airport, estimated to handle 50 million passengers by 2020, has a distinctive silhouette that shows off its blazing yellow, orange and red lights (the Olympic colours).
In comparison, the recently unveiled Bangalore airport, designed by a Swiss consortium, has proved a disappointment. It waits to be seen if Delhi's slated Terminal 3 by an Indian consortium will put it on the world design map ・hopes are high, since the same consortium put up a nicer airport in Hyderabad.
The showpiece of the Games is the 230-feet tall, $500 million "Bird's Nest" or National Stadium, which will play host to the opening and closing ceremonies. It is a unique structure of metal lattice built with 45 tonnes of unwrapped steel. It has been designed by Swiss architects Jacques Herzog and Pierre de Meuron, who also designed Tate Modern, London, and more recently, Barcelona Forum in Spain.
The Bird's Nest, marked as one of the most iconic buildings of this decade, boasts an innovative green design and features a rainwater collection system and a translucent roof to provide sunlight for the grass.
Other jewels in Beijing's crown include the National Aquatics Centre, also called the "Water Cube", built using more than 100,000 sq m of lightweight, transparent Teflon over a steel base to replicate the natural formation of air bubbles.
There is also the Wukesong Cultural and Sports Centre, the main sports venue; the Laoshan cycling cluster with a 250-meter circumference wooden cycling track designed to produce new world speed records; and the Laoshan BMX venue, reportedly the most difficult track in the world.
With the Commonwealth Games slated to be held in Delhi in 2010, Delhi may well take pointers from Beijing. Beijing city, with a 17 million population (Delhi, 15 million), has been spruced up for an estimated 10,500 athletes, 200,000 accredited personnel and 6 million spectators.
Beijing's infrastructural makeover includes a network of new subway lines that will carry between 200,000-300,000 people a day, ring roads (such as in Delhi), power plants and water treatment facilities.
It also boasts of a slew of new cultural facilities such as the China National Grand Theatre, west of Tiananmen Square, designed by renowned French architect Paul Andreu, a bubble-shaped, glass and titanium wonder.
Beijing has enrolled its taxi drivers for English lessons, and a nation that loves its "Double Happiness" cigarettes has started posting "No smoking" signs inside its 66,000 cabs to create a non-smoking Olympics.
One of the most incredible things about China is the safety that cabs and public transportation affords women ・and while Delhi is pumping $6 million on sanitation and $230 million on its Games village, it needs to work on ensuring a safer Delhi. Beijing had eliminated the use of ozone-depleting substances in 2004, six years ahead of the Montreal Protocol's target date.
The city has employed 1,000 doctors and nurses with a volunteer team of 3,000 doctors to treat athletes, journalists and VIPs at 170 medical stations and 140 ambulances, and the Beijing Olympics call centre will operate 24x7.
State-of-the-art systems have been devised to guide people to tourist spots, and 5,000-plus high-tech public toilets with remote sensor flushing and piped music (which cost $57 million) have been completed.
Beijing has used 1,109 kg of silver to make 6,000 medals, and much of that silver, China hopes, will end up in Chinese hands. Unlike India, where athletes have to struggle for funds, China has a system of rigorous athletic schools.
Athletes join national teams from the age of 18, but in exceptional circumstances they can do so from 12 years onwards. Those who make the team receive generous state allowances along with medical, life and accident insurance policies.
Cheering on the sidelines are the mascots Fuwa (literally, good luck dollies), a group of five: Bei Bei, the fish, which signifies prosperity; Jing Jing, the panda, which signifies happiness; Nini, the Tibetan antelope, to signify vastness; and Ying Ying, the swallow, representing the infinite sky and good luck; all surrounding Huan Huan, or the fire of the Olympic Flame.
Each of the Fuwa has a rhyming two-syllable name, and collectively the first syllable of each results in the phrase "Beijing huanying ni" or "Beijing welcomes you".
In order to ensure the Olympics go off without a hitch, China has embarked on an ambitious security programme following reported threats by the Uighurs. It has deployed Red Flag 7 missiles. The US, Britain and Interpol have issued travel warnings even as Interpol's help has been sought to gather names, fingerprints, photographs and DNA profiles of anyone who might pose a threat.
For the duration of the Olympics, China will have automated access to Interpol's passport and visa application screening processes, giving it the most advanced early detection system against fake travel documents and criminals.
Critics claim much of the terror threat has been fabricated to provide an excuse for a crackdown on dissenting groups. Any marches, demonstrations or other large gatherings exceeding 1,000 participants need prior authorisation.
What is less known is that so nervous is the government that it has tightened visa restrictions for both visitors and foreign residents living in China. Prior to the games, foreigners could get year-long work visas with little hassle through a number of agencies in Hong Kong, but since the spring of this year these same foreigners, many of whom had been living in China for as long as eight years, discovered they could no longer renew their visas.
No official explanation has been issued. And tourists wanting to visit China for the Games have had to undergo a huge rigmarole to obtain visas, with demands that they provide proof of tickets and notarised invitation letters if they choose to stay anywhere but in a hotel.
Some visa seekers at the Chinese embassy in London, having endured four-hour waits, have given up. The visa restrictions are hurting China. Beijing has 120 Olympic-contracted hotels with a capacity of 32,000 rooms, but even by late June, hotels in Beijing and Shanghai reported occupancy rates at 60 per cent, well below those during the normal summer season, and at last count there were over 1 million Olympic tickets left unsold.
Even though the cup of nationalism is overflowing with slogans such as "New Beijing, Great Olympics" or "Unite together towards the Olympics", not everyone believes in them. The massive scale and cost of operations have raised questions.
While the design, quality and speed of construction of much of the infrastructure are impressive, many of the totems of patriotism have been designed with the help of foreign architects. There was controversy in Beijing where the massive projects involved relocation of over 6,000 families, even as thousands of underpaid migrant workers slogged 24 hours a day across the city's numerous construction sites.
Some of those originally involved in the Olympics have lost faith in the dream. Hollywood director Steven Spielberg, the artistic adviser, resigned on grounds of China's Darfur policy. Actor Mia Farrow slammed the Olympics as "Genocidal Olympics". Celebrated Chinese artist Ai Wei Wei, associated with the Bird's Nest, criticised the government for using the Olympics to whip up a false sense of nationalism.
Ai told The Age, "It is a pretend harmony and happiness." In a sense Ai is right. In striving so hard to make everything perfect, China is acting a bit like an overzealous PR firm. Only in August will we find out if it manages to pull it off.
Chinese Music -- Dream Pursuer 追梦人
让青春吹动了你的长发让它牵引你的梦
不知不觉这城市的历史已记取了你的笑容
红红心中蓝蓝的天是个生命的开始
春雨不眠隔夜的你曾空独眠的日子
让青春娇艳的花朵绽开了深藏的红颜
飞去飞来的满天的飞絮是幻想你的笑脸
秋来春去红尘中谁在宿命里安排
冰雪不语寒夜的你那难隐藏的光采
看我看一眼吧莫让红颜守空枕
青春无悔不死永远的爱人
让流浪的足迹在荒漠里写下永久的回忆
飘去飘来的笔迹是深藏的激情你的心语
前尘红世轮回中谁在声音里徘徊
痴情笑我凡俗的人世终难解的关怀
看我看一眼吧莫让红颜守空枕
青春无悔不死永远的爱人
让流浪的足迹在荒漠里写下永久的回忆
飘去飘来的笔迹是深藏的激情你的心语
前尘红世轮回中谁在声音里徘徊
痴情笑我凡俗的人世终难解的关怀
痴情笑我凡俗的人世终难解的关怀
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