Posts Tagged crisis

Stock investors ask: What’s the next big thing?

Posted by Tetyana Matychak in Fund Markets on March 11th, 2010

A year after the stock market began its comeback from 12-year lows, investors are looking for the next big thing.

Stocks have lost some of the momentum that propelled the Dow Jones industrial average up 61.4 percent from its close of 6,547 on March 9, 2009. That’s natural - bull markets tend to slow down as they head into their second year. But the lethargic pace of the economic recovery has also been a bit of a drag on stocks. And so investors are waiting for signs that the economy is ready to put up some solid, sustainable growth numbers.

The most likely trigger: job growth. Investors need to see a Labor Department report that says employers are creating more jobs than they’re cutting.

Until then, investors are going to stay cautious. Analysts say the market is likely to move sideways or drift higher, as it’s been doing over the past few weeks. Tuesday’s trading fit the pattern of modest moves. The Dow rose nearly 12 points. The average is up 1.3 percent so far this year.

But that doesn’t mean the market isn’t going to have its fitful moments. And it certainly has volatile industries that are expected to move the rest of the market. On Tuesday, the financial companies that led stocks higher in the past year again drove trading. Analysts said financial shares rallied as investors reacted to rumors that the government might prohibit the trades known as short sales in stocks of companies it owns. The government has large stakes in Citigroup Inc., American International Group Inc. and mortgage companies Fannie Mae and Freddie Mac after bailing them out during the 2008 financial crisis. Read the rest of this entry »

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The Carry Trade Can Be Unforgiving

Posted by Tetyana Matychak in Currency on March 2nd, 2010

Billions of dollars are wagered daily in the “carry trade,” in which traders sell the currencies of countries with low interest rates like the U.S. and Japan while simultaneously buying the currency of countries with higher rates like Australia and Brazil.

These arbitrage opportunities can persist for years at a time. But before you try your hand at the carry trade, be aware that currency values can change in seconds, causing sudden losses. And because currency trading typically involves heavy financial leverage—traders borrow as much as $500 for each dollar they invest to amplify results—the carry trade can rapidly become the scary trade.

That is what happened in the fall of 2008, when traders suddenly rushed to the safety of U.S. dollars during the financial crisis. Those who had sold the dollar and Japanese yen to own higher-yielding currencies quickly piled up big losses as these other currencies sank in value. The losses wiped out several years’ worth of gains in the carry trade.

While amateur traders see the carry trade as a road to riches, “I see it as a way to get broke,” says Amarjit Sahota, chief executive at HiFX Inc., which helps companies and individuals manage currency exposure. Read the rest of this entry »

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The Greek Tragedy That Changed Europe

Posted by Tetyana Matychak in Trading Markets on February 16th, 2010

Plutus, the Greek god of wealth, did not have an easy life. As the myth goes, Plutus wanted to grant riches only to the “the just, the wise, the men of ordered life.” Zeus blinded him out of jealousy of mankind (and envy of the good), leaving Plutus to indiscriminately distribute his favors.

Modern-day Greece may be just and wise, but it certainly has not had an ordered life. As a result, the great opportunity and wealth bestowed by European integration has been largely squandered. And lower interest rates over the past decade—brought down to German levels through Greece being allowed, rather generously, into the euro zone—led to little more than further deficits and a dangerous buildup of government debt.

Now Plutus wants his money back. Europe is entering unprepared into a serious economic crisis—and the nascent global recovery could easily collapse due to the unsustainable and Ponzi-like buildup of government debt in weaker countries.

At the end of the G7 meeting in Canada last weekend, Treasury Secretary Tim Geithner told reporters, “I just want to underscore they made it clear to us—they, the European authorities—that they will manage this [Greek debt crisis] with great care.” Read the rest of this entry »

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Toyota recalls new Prius

Posted by Tetyana Matychak in Budget on February 10th, 2010

Toyota Motor Corp (7203.T) said it is recalling nearly half a million of its flagship Prius and other hybrid cars for braking problems as it seeks to address criticism over the handling of its worst safety crisis.

The world’s largest automaker is under fire for two other recalls covering more than 8 million vehicles worldwide due to problems with slipping floormats and sticky accelerator pedals.

It also faces a potential rush of litigation for crashes linked to those problems and blamed for 19 deaths and numerous injuries in the United States over the past decade.

Chastised by safety authorities and members of the Obama administration for moving too slowly on those recalls, Toyota President Akio Toyoda said he never believed the company was infallible, but it had always tried to repair defects swiftly.

“Let me assure everyone that we will redouble our commitment to quality as a lifeline of our company”, Toyoda, the grandson of the company’s founder, told a news conference in Tokyo. Read the rest of this entry »

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Proposed Bank Regulations Would Limit Risk Taking

Posted by Tetyana Matychak in Banks on February 4th, 2010

The President proposed new regulations for the banking industry this week, in an effort to curb risk taking as well as limiting the size of some of the nation’s largest banks. Former Federal Reserve Chairman Paul Volcker now one of Obama’s key economic advisers has been advocating stricter limits on the banking sector or some time.

The proposed regulations would eliminate proprietary trading at banks as well as the investment or running of equity and hedge funds. It would also seek to slow consolidation in the banking industry by putting new caps on market share of liabilities.

They want banks to be more like banks and limit the activities that put customer deposits at risk. It’s also clear the government wants to avoid the “too big” to fail scenario that the nation went through last year. Read the rest of this entry »

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Stiglitz: Regulate Banks. Now. Everywhere.

Posted by Tetyana Matychak in Banks, Favourites on February 1st, 2010

Officials in Davos should try to reach a global consensus about the need for a new regulatory regime for banks, Nobel Prize laureate Joseph Stiglitz told CNBC Friday.

Banks threaten to move to another location as soon as new taxes or regulation are announced, so the main problems that led to the financial crisis are not addressed, Stiglitz explained.

“If there was a broad consensus… this could stop this race to the bottom which got us into the mess we’re in now,” he said.

Bankers have incentives to take risk and one way to restrain them would be limiting the leverage that banks can have, according to Stiglitz.

“When they win they walk off with the profits, when they lose the taxpayer pays,” he pointed out. “We really need to go more directly at these issues like incentives.” Read the rest of this entry »

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China’s boom to end soon

Posted by Tetyana Matychak in Favourites, Trading Markets on January 25th, 2010

After more than a quarter century of rapid growth, China’s factory-to-the-world economy could now be set for a major slowdown, even as it tries to spend its way to strength, according to an expert on the causes of the global financial crisis.

Noted economist and author Richard Duncan said that, faced with sluggish global growth and a tapped out U.S. consumer, there’s little hope that China can keep its factory-geared economy in motion much longer.

“China has followed an export-led growth model for the last 25 years, and it has just hit a brick wall when the U.S. economy went into crisis,” Bangkok-based Duncan said in an interview with MarketWatch.

Duncan is the former London-based head of global investment strategy at ABN Amro. In 2003 he authored “The Dollar Crisis,” which warned that imbalances in global trade would lead to a meltdown of the financial system.

Duncan now believes China is caught in a jam created by excessive credit. Years of easy lending and booming investment inflows have saddled its economy with surplus industrial capacity to the point where China out-produces what it consumes. Read the rest of this entry »

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Obama confident his proposed bank fee will become law

Posted by Tetyana Matychak in Banks on January 18th, 2010

President Barack Obama said Saturday that he’s determined his proposal to require banks repay taxpayers for financial-crisis aid through a special 10-year fee will become law.

“We’re not going to let Wall Street take the money and run. We’re going to pass this fee into law. And I’m going to continue to work with Congress on common-sense financial reforms to protect people and the economy from the kind of costly and painful crisis we’ve just been through,” Obama said in his weekly radio and Internet address.

The “Financial Crisis Responsibility Fee” proposed by Obama Thursday would total at least $90 billion over 10 years. The fee would be charged to financial institutions with more than $50 billion in assets. The assessment would remain in place for at least 10 years, or until all losses from the Troubled Asset Relief Program or TARP were repaid. Ten firms will pay 60% of the tax. Read more about the proposed fee.

“Those who oppose this fee say the banks can’t afford to pay back the American people without passing on the costs to their shareholders and customers. But that’s hard to believe when there are reports that Wall Street is going to hand out more money in bonuses and compensation just this year than the cost of this fee over the next ten years,” Obama said. Read the rest of this entry »

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There Will Be No ‘Second Wave’ Crisis

Posted by Tetyana Matychak in Budget on December 25th, 2009

Treasury Secretary Timothy Geithner said Tuesday the Obama administration is confident it will prevent a repeat of last year’s financial crisis, the worst to hit the country in seven decades.

“We are not going to have a second wave of financial crisis,” Geithner said in an interview with National Public Radio. “We cannot afford to let the country live again with a risk that we are going to have another series of events like we had last year. That is not something that is acceptable.”

Geithner, interviewed on NPR’s “All Things Considered” program, rejected the idea that a serious new crisis could be triggered by lingering problems with commercial real estate loans or with a sudden weakening in the value of the dollar.

“We will do what is necessary to prevent that and that is completely within our capacity to prevent,” he said.

Geithner spoke on a day when President Barack Obama met with executives from a number of community banks, reiterating his plea for banks to do more to lend to small businesses. Obama took a more conciliatory tone with the leaders of the smaller community banks than he had in a meeting last week with leaders of the country’s largest banks. Read the rest of this entry »

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Nobel Laureate: How to Get Out of the Financial Crisis

Posted by Tetyana Matychak in Budget, Favourites on December 18th, 2009

The amount of bad news over the past weeks has been bewildering for many people in the world. Stock markets have plunged, banks have stopped lending to one another, and central bankers and treasury secretaries appear daily on television looking worried. Many economists have warned that we are facing the worst economic crisis the world has seen since 1929. The only good news is that oil prices have finally started to come down.

While these times are scary and strange for many Americans, a number of people in other countries feel a sense of deja vu. Asia went through a similar crisis in the late 1990s, and various other countries (including Argentina, Turkey, Mexico, Norway, Sweden, Indonesia and South Korea) have suffered through banking crises, stock-market collapses and credit crunches.

Capitalism may be the best economic system that man has come up with, but no one ever said it would create stability. In fact, over the past 30 years, market economies have faced more than 100 crises. That is why I and many other economists believe that government regulation and oversight are an essential part of a functioning market economy. Without them, there will continue to be frequent severe economic crises in different parts of the world. The market on its own is not enough. Government must play a role.

It’s good news that Treasury Secretary Henry Paulson seems to finally be coming around to the idea that the U.S. government needs to help recapitalize our banks and should receive stakes in the banks that it bails out. But more must be done to prevent the crisis from spreading around the world. Here’s what it will take. Read the rest of this entry »

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