Tuesday, October 15, 2002

2:50:36 PM    comment  []

United States: Does the Fall Slowdown Augur a Poor 2003? despite the considerable forces of monetary and fiscal stimulus at work to support growth, the headwinds holding the US economy back are both numerous and nearly as powerful.  These have reduced earnings expectations and raised risk premiums, and investors voting with their feet are turning their pessimism into something of a self-fulfilling prophecy . . . many of the headwinds creating uncertainty and rising risk aversion don't seem likely to ebb quickly. Among them: The exit of capacity in technology and telecommunications industries that is so necessary to stop the slide in pricing and thus revenues is slow . . . the uncertainty resulting from corporate malfeasance and opaque accounting may disappear only after another round of 10- Ks appears. And the aftershocks from those developments appear to be widening risk spreads again, thus raising the cost of capital, as investor fears of both systemic and credit risk in the financial system mount. Finally, whatever one may have thought about the "war premium" in energy prices two months ago, the escalation in geopolitical tensions and growing uncertainty over whether we will be at war with Iraq is probably boosting energy prices now. 2:20:32 PM  Google It!  comment  []

The China Factor by Stephen Roach (Deflation) Mounting deflationary risks are an important case in point. In my view, the risks of global deflation are higher today than at any point in the past 70 years. Japanese deflation is unmistakable, and America’s GDP-based inflation rate of 1% hasn’t been this low in 48 years. The risks to Europe’s 2% inflation rate are decidedly on the downside, especially given pro- cyclical fiscal and monetary policies that are now bearing down on a weakened Euroland economy. Moreover, with the exception of Korea, the rest of Asia is already in deflation; that’s true of Hong Kong, Singapore, Taiwan and, of course, China . . . China’s export-led growth dynamic now has increasingly important deflationary implications for the broader global economy. Nor am I alone in reaching this conclusion. As I travel the world, I find a growing consensus in policy and investor circles endorsing China’s role as an agent of global deflation. . . . this increasingly fragile global climate . . . a weaker US dollar -- the world’s most important relative price -- will ultimately play a key role in sparking any such rebalancing. . . . this lopsided world economy. Yet left to its own devices, the endgame would find a world dominated by the American consumer and the Chinese producer. That’s hardly a stable alternative. Global rebalancing is only way out. 1:54:12 PM  Google It!  comment  []

Irrational gloom? . . . While investors have plenty to be glum about—insipid company profits, slowing economic growth, a rising risk of defaults among bonds and loans, and even the prospect of war—it has been tempting of late to conclude that the markets have lost their sense of proportion. . . . According to Moody’s, the creditworthiness of American companies has now deteriorated for 18 consecutive quarters, one short of a record. 12:42:15 PM  Google It!  comment  []

Caterpillar to furlough more than 3,000 workers Caterpillar Inc., facing shrinking demand for its heavy-duty trucks, announced plans Monday to furlough 3,270 workers in December at five plants. The furloughs will take place in Illinois and Georgia and should last one to two weeks. The furloughs include managers, manufacturing employees and salaried workers, Cat spokeswoman Kelly Wojda said. The news comes as Caterpillar officials earlier this month announced plans to suspend operations at a dump truck facility in Waco, Texas. Caterpillar's work force is about 70,380. Other facilities might face one- or two-week shutdowns to "bring their production in line with demand," she said. 10:09:10 AM  Google It!  comment  []