Street Talk: How Far Will Bernanke Go?

(Businessweek) - What leading economists and market strategists are saying about the Fed's next moves

 

What will Ben Bernanke & Co. do next in the face of a weakening economy and volatile financial markets? Here's a roundup of Jan. 11 comments from Wall Street economists and market strategists on their Federal Reserve policy expectations, as compiled by Standard & Poor's and BusinessWeek editors:

Ben States His Case

David Wyss, chief economist, Standard & Poor's

[In his Jan. 10 speech] Bernanke's worries about inflation were cited with uncharacteristic clarity: "[I]nflation expectations appear to have remained reasonably well-anchored, and pressures on resource utilization have diminished a bit." However, to make sure we didn't think that the Fed was getting too complacent, he also said that, "the increase in oil prices…is also lifting overall consumer prices and probably putting upward pressure on core inflation."

But the speech stressed the risk to growth much more than inflation. "The baseline outlook for real activity in 2008 has worsened and the downside risks to growth have become much more pronounced." The bottom line is that, "we stand ready to take substantive additional action as needed to support growth and provide adequate insurance against downside risks." Markets interpret this statement to mean that the Fed will start to cut rates more aggressively, beginning with a half-point cut in January. Another cut, perhaps another half-point, is likely at the March meeting and again in April. The federal funds rate seems likely to fall to 3% by midyear, rather than the 3.5% we had been assuming.

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The AltX acquisitors

(Fin24) - Recent listings on the JSE's AltX exchange are taking advantage of their new firepower as listed entities to consolidate the lower end of their respective markets.

Companies ranging from call-centre business Dialogue Group to engineering technology business Ansys, biometrics company Ideco, consumer electronics company Ellies, and managed telecoms player Huge Group have announced acquisitions since late last year.

Meanwhile others, like cellular least-cost router TeleMasters and applications software business Dynamic Visual Technologies are trading under cautionary, the former since January 10, and the latter, since January 3.

Although Vox Telecom is not currently trading under cautionary, it has been highly acquisitive, buying 12 companies in the past 18 months.

Its most recent purchases were of Absa's internet customer base, and complementary business Storm Telecom. Vox is likely to be a player in other sector consolidation opportunities that may arise.

In the most recent of the AltX company acquisitions, Dialogue announced on January 11 that it would pay at least R47.5m in cash and shares for a company called Verge, a consultancy and provider of business process outsourcing services to the public sector, from Simeka Group.

Dialogue said this was in line with its expansion strategy and desire to further penetrate the public sector. Dialogue already owns 50% of one of Verge's businesses, Sibize International, and is buying the other half as part of this transaction. It is also buying various outsourcing contracts, the price of which will be determined at a later stage.
 

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Prosecutors raid Samsung office

(Fin24) - Investigators probing alleged corruption at the massive Samsung conglomerate raided an office of Chairperson Lee Kun-hee, an official said on Monday, as part of a special probe reluctantly approved last year by South Korea's president.

Kang Dong-ju, an official with the team carrying out the probe, would say only that a total of eight locations associated with Samsung Group executives were raided. South Korean media said Lee's home was part of the sweep, though Kang only mentioned an office.

Lee, who late last year marked 20 years at the helm of Samsung, is widely reported to mostly work from his residence. Photos and television footage showed what appeared to be prosecutors entering and later leaving his hilltop Seoul home.

Yim Jun-seok, a Samsung spokesperson, said earlier that he could not confirm media reports of the raid and could not be reached later.

Samsung, a conglomerate spanning dozens of companies with interests ranging from construction to shipbuilding, is anchored by Samsung Electronics, South Korea's biggest corporation.
 

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Platinum miners soar on JSE

(Fin24) - A record platinum price hit on Monday underpinned a robust performance among platinum mining stocks on the JSE, giving the bourse an extra boost and helping it close 1.61% higher.

By the end of trade, the platinum mining index had advanced 6.97%, and resources collected 2.28%. The gold mining index was only a mere 0.09% in the black though. Banks and financials gained 1.84% and 1.44% respectively, and
industrials recovered 0.85%.

The rand was bid at R6.74 to the dollar from R6.79 when the JSE closed on Friday, while gold was quoted at $902.50 a troy ounce from $891.45/oz at the JSE's last close.

During the day, gold hit a record high of $914.40/oz, while platinum reached new highs of $1,590/oz.

"The JSE is up, but off its best levels. It has been quite an ironic day where the gold price hit an all time high, but there was a fluctuation in gold shares with a disappointing performance by gold shares relative to the huge gain in the gold price," said a Johannesburg-based equities trader.

He added that platinum shares "just exploded" as a result of the new record platinum price, and gains in heavyweights like Anglo American and BHP Billiton lifted the JSE higher.
 

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Pelosi and Bernanke to discuss economy

(Reuters) - Federal Reserve Chairmen Ben Bernanke will meet on Monday with House of Representatives Speaker Nancy Pelosi to discuss how they can work together to boost the U.S. economy, a spokesman for the California Democrat said.

Falling home values, higher oil prices and a decline in the stock market have raised concerns that the United States could slip into recession this year.

Pelosi will meet one-on-one with Bernanke to get his views on what steps Congress should take, as well as to let him know what ideas Democratic leaders are considering, Pelosi spokesman Brendan Daly said on Saturday.

It will be a "mutual exchange," Daly said.

Bernanke, who earlier this week sent a strong signal that the Fed was prepared to cut interest rates further to spur growth, also will speak to House Democrats at their policy retreat later this month, Daly said.

Many prominent economists believe Congress should supplement any Federal Reserve action with a temporary fiscal stimulus package that could include tax breaks.

Pelosi and Senate Majority Leader Henry Reid have asked to discuss the issue with President George W. Bush soon after he returns on Wednesday from a trip to the Middle East.

 

Read more at Reuters

Gulf funds eyed for further U.S. bank bailouts

(Reuters) - The sovereign funds of Kuwait and other Gulf states were in the spotlight on Monday as Citigroup sought extra emergency funding and its fellow U.S. bank Merrill Lynch was said to want more cash too.

The moves came as one newspaper report raised questions over whether previously agreed Chinese funding for Citigroup may fall through.

Citigroup, the largest U.S. bank by assets, is looking for more funds to help it through losses from the subprime crisis after securing $7.5 billion from the Abu Dhabi Investment Authority in November, a source familiar with the situation told Reuters in New York.

Merrill is seeking about $4 billion from the Kuwait Investment Authority and others as it faces as much as $15 billion in credit market losses, The Financial Times newspaper reported.

The newspaper said a Merrill deal could be announced as soon as midweek, and that other investors could come from Europe.

A public relations official for the KIA, which manages funds for Kuwait, referred calls to Managing Director Bader al-Sa'ad, who could not be reached in his office or on his mobile phone.

In December, Merrill shored up its capital base by as much as $7.5 billion after selling a stake to Singapore state fund Temasek and asset manager Davis Selected Advisers.

 

Read more at Reuters

Romney, McCain, Huckabee Shift to Economy in Michigan

(Bloomberg) -- Michigan's hard-hit economy occupies center stage as two favorite sons, Mitt Romney and John McCain, square off in a potentially decisive contest for the Republican presidential nomination, with an outsider, Mike Huckabee, gaining ground.

``It's a strong three-man race,'' said Scott Reed, a Republican strategist who isn't affiliated with any candidate. Michigan's primary tomorrow ``is a must-win for Romney, a need- to-win for McCain, and Huckabee just has to do well enough to go on to South Carolina,'' which votes Jan. 19.

Romney, who was born and raised in Michigan, is staking his candidacy on a victory in the state after his second-place showings in Iowa and New Hampshire this month. Even though Romney, 60, hasn't lived in the state for more than three decades, he benefits from high name recognition: His late father, George, was chairman of American Motors Corp., a three- term governor in the 1960s and a presidential candidate.

Michigan's highest-in-the-nation unemployment rate and ballooning home-mortgage foreclosures have forced the candidates to tout their economic remedies.

``When the nation begins to feel a hiccup, we all talk about a stimulus package, the need to put money in the hands of consumers and so forth,'' Romney said in an interview today. ``But when Michigan has been suffering for 10 years, people have sat by and been somewhat idle.''

This weekend, Romney and McCain sparred over who would best be able to address the state's economic woes. Romney, who promises to lower tax rates ``across the board'' to stimulate the economy, criticized McCain for saying some lost jobs would never come back.

`Going Away'

``Some say these are jobs that are just going away and you better get used to it,'' the former Massachusetts governor said at a campaign stop Jan. 12 outside a General Motors Corp. plant in Ypsilanti where the automaker has announced plans to fire 200 workers. ``Are we going to allow the entire domestic automotive manufacturing industry to disappear?''

After losing to Huckabee in Iowa and to McCain in New Hampshire, Romney is relying on a win in Michigan to stay competitive. Last week, his campaign canceled ad purchases in South Carolina and Florida and shifted the money to the Wolverine State.

``Romney's running as someone who really understands Michigan's problems,'' said Tom Rath, one of the candidate's top strategists.

2000 Race

McCain, 71, also is well-known in Michigan, having won the state's Republican primary in 2000, defeating then-Texas Governor George W. Bush.

The Arizona senator is counting on a repeat performance to give him momentum for subsequent primaries. Like Romney, McCain rushed from New Hampshire to Michigan, where he began touting an economic agenda that includes reining in federal spending, shoring up Social Security and Medicare, middle-class tax cuts and job training.

Michigan had a 7.4 percent unemployment rate in November, compared with a national rate of 4.7 percent, according to the U.S. Labor Department. It is also feeling the effects of the credit crisis: In 2007, Michigan accounted for 35,404 of the 588,882 U.S. home-mortgage foreclosures, according to foreclosure.com.

In Livonia on Jan. 12, McCain said training and technological improvements would lead to new, better-paying jobs.

`Bright Future'

``Michigan has a bright future; but it will not be reached attempting to recreate the past,'' McCain said.

Huckabee, 52, has also jumped into the economic debate. In an address at the Detroit Economic Club on Jan. 11, the former Arkansas governor laid out his proposals for a ``fair tax'' based on consumption that would replace federal income and payroll levies.

The state ``helped save America'' during World War II ``and now it may be time for America to help save Michigan,'' he said.

His low-budget campaign is also is running a TV ad that obliquely takes a shot at Romney's background as co-founder of Bain Capital LLC, a Boston buyout firm, suggesting he reminds Americans of ``the guy who laid them off.''

The ordained Baptist minister's appeal goes beyond his economic message. Lower and Western Michigan have blocs of evangelical voters who may turn out for him in large numbers. These voters account for up to 30 percent of the state's Republican electorate, and their support for Huckabee would hurt Romney more than McCain, said Reed, who managed Bob Dole's 1996 presidential campaign.

 

Read more at Bloomberg

Merck, Schering-Plough's Vytorin Misses Study Goal

(Bloomberg) -- Merck & Co. and Schering-Plough Corp. said their combination cholesterol drug Vytorin did no better job of reducing the risk of stroke by clearing arteries of plaque buildup than did Zocor, an older generic medicine that forms part of Vytorin.

The study examined the carotid artery and found ``no statistically significant difference between treatment groups,'' the companies said in a release distributed today by Business Wire. If that artery is blocked, it can cut blood supply to the brain and cause a stroke. The 720-person trial, called Enhance, is looking at the highest possible dose of Vytorin for patients with a genetic predisposition to high cholesterol.

The drugs had similar safety profiles, the companies reported. The results were submitted to the American College of Cardiology for presentation to a meeting in March.

 

Read more at Bloomberg