In the stunning case of controversial timber company Sino-Forest, Friday was perhaps the most stunning day of all.
The Ontario Securities Commission cracked down on the company, halting trading in its shares and demanding the resignation of several top executives. Just hours later the OSC rescinded the resignation order because it apparently overstepped the regulator
European stocks held on to small gains Wednesday, shrugging off a credit downgrade of Japan that weighed on Asian markets, as investors hoped that the Federal Reserve will this week announce more stimulus for the U.S. economy.
Markets are expected to fluctuate ahead of Friday’s speech by Fed Chairman Ben Bernanke at an economics conference in Jackson Hole, Wyo.
Hopes that Bernanke will signal new action to kick start the struggling U.S. economy helped lift most major markets Monday and Tuesday, in spite of disappointing indicators on both sides of the Atlantic, and appeared to persevere in morning trading in Europe.
Britain’s FTSE 100 rose 0.4 percent to 5,148. Germany’s DAX was 1.1 percent higher at 5,590 and France’s CAC-40 rose 1 percent to 3,114.
Wall Street, however, appeared to be headed lower, after recording big gains Tuesday. Dow Jones industrial futures and S&P 500 futures were down 0.8 percent at 11,075 and 1,152 respectively.
That followed losses on most major Asian markets, as well as declining oil prices, underlining investors’ reluctance to commit to assets that could quickly lose value if the global economy heads for another downturn.
“If Bernanke does not pull a rabbit out of the hat at Jackson Hole on Friday risk trades could look vulnerable once again,” warned analysts at Credit Agricole.
Fresh data out of the eurozone indicated that businesses are already preparing for potential troubles.
Germany’s closely watched Ifo index of business optimism for fell more than expected in another negative signal about Europe’s largest economy. The index fell to 108.7 for August from 112.9 in July. Market analysts had expected a smaller drop to 111.0.
“August’s drop in Ifo business confidence adds to the growing evidence that the German economic recovery has faltered,” analysts at Capital Economics wrote in a note, adding that a slowdown for the eurozone’s growth engine is set to hurt other members of the currency union that are still fighting to pull themselves out of crisis no fax payday loans.
In Asia, Japan’s Nikkei 225 index fell 1.1 percent to close at 8,639.61 after opening higher early Wednesday.
Sentiment was dented after Moody’s Investors Service downgraded Japan’s credit rating to Aa3 from Aa2, citing weak growth prospects for the world’s No. 3 economy, massive government debt and constant political uncertainty. The new rating is three notches below Moody’s top Aaa rating.
The downgrade, which puts Moody’s rating in line with other major credit rating agencies, is the latest blow for Japan after its economy remained mired in recession in the second quarter due to tumbling factory production and exports following the March 11 earthquake and tsunami.
South Korea’s Kospi dropped 1.2 percent to 1,754.78. Hong Kong’s Hang Seng tumbled 2.1 percent to 19,466.79.
Australia’s S&P/ASX 200 fell 0.1 percent to 4,167.60 after spending much of the session in positive territory. Markets in Singapore, Taiwan and Indonesia also fell.
Mainland Chinese shares were mixed with the benchmark Shanghai Composite Index falling 0.5 percent to 2,541.09 while the Shenzhen Composite Index edged 0.1 percent higher to 1,144.74.
In commodities markets, benchmark oil for October delivery was down 16 cents to $85.28 a barrel in electronic trading on the New York Mercantile Exchange. In London, Brent crude for October delivery fell 27 cents to $109.04 on the ICE Futures exchange.
The euro rose, meanwhile, to $1.444 from $1.442 in late trading Tuesday in New York. The dollar fell to 76.54 yen from 76.66 yen.
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Pamela Sampson in Bangkok contributed to this story.
A strong earthquake with a preliminary magnitude of 6.8 struck off Japan’s northeastern coast Friday, triggering a tsunami advisory that was later lifted.
Japan’s Meteorological Agency said the quake hit at 2:36 p.m. (0536 GMT) and was centered slightly south of where a massive magnitude-9.0 temblor struck in March.
The agency issued a tsunami advisory, predicting waves of 20 inches (50 centimeters) along the coast of Miyagi and Fukushima prefectures, where a nuclear plant crippled in the March 11 quake is located. But about a half-hour later, the advisory was lifted.
There were no abnormalities in key equipment at the Fukushima Dai-ichi nuclear power plant, said Chie Hosoda, an official with the Tokyo Electric Power Co., the plant’s operator. She said some of the plant’s workers assigned to the coastal side of the facility temporarily retreated inside the building.
Announcers on television urged residents in coastal areas to head for higher ground, but about a half-hour after the quake, there were no reports of a tsunami reaching Japan.
In Onagawa, about 210 miles (340 kilometers) north of Tokyo, town official Hironori Suzuki said there were no immediate reports of damage or injuries. There was no visible swelling of the ocean.
“It was a rather big one, perhaps it was because we are still in a makeshift office,” Suzuki told public broadcaster NHK. Suzuki said the town has urged all residents via community broadcast to stay away from the coast and evacuate to higher ground.
In Tokyo, buildings swayed only mildly.
Britain has been transfixed by the phone hacking scandal that has shaken its media world. But will it really change the nation’s press?
Much depends on the shelf life of the outcry over alleged skullduggery by journalists working for British papers owned by Rupert Murdoch, who closed a newspaper, dropped a major business deal and agreed to testify before parliament in an attempt to defuse the uproar.
An inquiry authorized by Prime Minister David Cameron and a criminal investigation aim to clear up this particular mess, but reforming the media and untangling corrosive ties between politics and the press, what some call an embedded cultural defect, require the public’s attention in the long term.
Without grassroots pressure, Britain’s press will have less incentive to change.
But there’s a fundamental dilemma: Even as Britons recoil at trashy tabloid tactics, they have bought such papers by the millions _ hungry for juicy gossip obtained by the very illegal means they decry.
Murdoch’s now-shuttered News of the World was, in fact, Britain’s best-selling paper.
“The public’s interest in these matters is fickle to say the least,” said Steven Fielding, professor of political history at the University of Nottingham. “Murdoch is probably thinking, ‘Well, if I can last for about six months, then everything will return back to normal.’”
Fielding said Britons were more concerned about the economy, jobs, services and quality of life, especially at a time when the government is implementing painful austerity measures aimed at getting the country’s finances in order.
Martin Moore, a founder of Hacked Off, a group that seeks full accountability in the phone-hacking allegations, said he was concerned that a “summer hiatus” could cool tempers and chip away at momentum for reform.
“This is a moment and an opportunity to change things,” he said.
In a speech on Thursday, Deputy Prime Minister Nick Clegg said Britain should look beyond the scandal and implement changes that will guarantee freedom of the press, which he described as the “lifeblood” of democracy, but also ensure accountability through robust corporate governance, and a solid framework that fosters diversity of ownership of media organizations.
“I know that there is real fear, among reformers, that this opportunity will pass us by. That there will be plenty of heat, but no light,” Clegg said. “The pessimists have a point. In recent decades the political class has consistently failed to stand up to the media. Seeking to curry favor with powerful media barons or prevent their own personal lives from being splashed across the front pages.”
Indeed, success and failure in British politics has long depended heavily on the blessing of the national press, which is, to put it diplomatically, unkind to those it does not respect. The media delivers judgments with icy, devastating eloquence or, in the case of some tabloids, piles on like bulky athletes in a rugby scrum.
The intimacy and sparring between British politicians and the press go back generations. Stanley Baldwin, then leader of the opposition Conservatives in 1931, was the target of a campaign for his ouster by Lord Beaverbrook, owner of the Daily Express, and Lord Rothermere, owner of the Daily Mail. He blasted their newspapers in a speech.
“They are engines of propaganda for the constantly changing policies, desires, personal wishes, personal likes and personal dislikes of two men,” declared Baldwin, who also served as prime minister. He said the press barons sought “power without responsibility, the prerogative of the harlot throughout the ages.”
The criticism did not induce Beaverbrook and Rothermere to temper their ways, though the latter later bet on the wrong horse with his enthusiastic support for Oswald Mosley, leader of the British Union of Fascists.
Murdoch, on the other hand, has been forced to make concessions, abandoning his bid to take full control of British Sky Broadcasting, a major satellite television operation.
On Friday, Rebekah Brooks quit as chief executive of his embattled British newspapers even though he had previously refused to accept her resignation. The publisher of The Wall Street Journal, who had been chairman of the company’s British newspaper arm during some of the alleged transgressions and had worked for News Corp. for more than five decades, quickly followed suit.
But these headline-grabbing developments mask broader questions about how to balance media freedom with accountability, whether new regulations should be introduced or enforcement of existing laws on corruption and other crimes is sufficient, and to what extent the politicians who now call for an overhaul of the way the media and politics intersect acted as promoters for suspect practices.
Cameron, of the Conservatives, is on the defensive because he had hired Andy Coulson, former editor of the News of the World, as his communications director despite the misgivings of Clegg’s Liberal Democrats, the junior partner in his coalition. Coulson, who was arrested last week, resigned in January as the hacking allegations grew.
Jeremy Black, a professor of history at the University of Exeter, said the scandal was a welcome distraction for political parties that are struggling for answers to economic challenges at home and across Europe, and that broader concerns about a “coarsening of public life” and the salacious nature of large segments of British media coverage are not being addressed.
He cited some of the reporting on Madeleine McCann, a British girl whose disappearance in Portugal in 2007 drew global attention. Her father, Gerry McCann, complained of sensational journalism in the case, and the parents won libel damages from some British newspapers over suggestions that they were responsible for their daughter’s death.
“This is an over-egged crisis,” Black said of the phone hacking affair. “It provides a wonderful opportunity for people, as it were, to express their accumulated grievances.”
The Federal Reserve Board approved the Bank of Montreal’s application to buy Marshall & Ilsley Corp., which has a large presence in St. Louis.
The Bank of Montreal announced its plans to buy Milwaukee-based M&I in Dec. 2010 for $4.1 billion. The bank’s U.S. branches will be rebranded as BMO Harris Bank.
M&I Bank is among the largest banks in the St. Louis area with more than 6 percent market share of deposits as of June 30, 2010. M&I acquired Southwest Bank in October 2002 and added the M&I name to its 17 local branches in 2008. The St. Louis area branches switched to the M&I name in mid-2010.
Apollo Global Management LLC is seeking an investment in Ralcorp Holdings Inc. and plans to meet with the cereal maker’s management to discuss options, said a source familiar with the discussions.
Apollo has already made an initial approach to Ralcorp management, said the source, who declined to be identified because the matter is private. Discussions may not result in a deal, said the person. Ralcorp was forged in a spinoff from Ralston Purina Co. almost 20 years ago. The company currently makes a wide variety of store-brand items such as peanut butter, cookies and cereals. Ralcorp, based in St. Louis, also added to its private-label pasta business with the $1.2 billion purchase of American Italian Pasta Co. last year.
ConAgra Foods Inc., based in Omaha, Neb., made an unsolicited bid for Ralcorp, CNBC reported Friday. There are no current talks between the two companies, the broadcaster said.
Reporter Kayla Tausche said on CNBC, “Both companies have been plagued, as we know, by commodity prices. … Remember, after the failed buyout of Sara Lee earlier this year, there have been questions surrounding the fate of both Conagra and Ralcorp. This is potentially a move to circumvent that speculation.”
Matt Pudlowski, a representative for Ralcorp, did not respond to a voicemail seeking comment cash advance today. Spokeswomen for ConAgra and Apollo declined to comment.
New York-based Apollo, led by Leon Black, bid for Sara Lee Corp. this year before being rebuffed by the Downers Grove, Ill., maker of Ball Park hot dogs. Apollo has been working with former consumer executive C. Dean Metropoulos to find investment opportunities in the industry.
Like other food companies, Ralcorp is facing increasing prices for ingredients such as milk and wheat, forcing it to pass those costs onto consumers.
Ralcorp, which also makes Post brand cereal, rose $6.38, or 8.9 percent, to $77.80 at 4:01 p.m. in New York Stock Exchange composite trading. Investors are now buying Ralcorps shares at a 4 percent premium over the S&P 500. Three years ago the premium was 52 percent. The company had a market value of $4 billion.
ConAgra, the maker of Chef Boyardee pasta and Healthy Choice frozen meals, has done a single acquisition in the past 12 months, the June purchase of American Pie LLC. Purchasing Ralcorp would give ConAgra Chief Executive Officer Gary Rodkin the biggest maker of store-brand pasta and cereal in the U.S.
U.K. consumer confidence slumped to its weakest level since the depth of the recession in February 2009 as the government’s budget cuts began in earnest, a report by GfK NOP Ltd. showed.
The index of sentiment fell to minus 31 in April from minus 28 in March, the London-based research group said in an e-mailed statement today. The reading is down from minus 16 a year earlier and each of the five measures that make up the gauge declined on the month.
Household finances are under pressure from inflation that’s double the Bank of England’s 2 percent target and the tightest fiscal squeeze since World War II. The economy’s 0.5 percent expansion in the first quarter was just enough to recover the production lost during in the previous three months, when freezing weather disrupted business across the country.
“Coming after six months of stagnant economic growth, this is a significant drop, one that is bad news for the government and bad news for the economy” GfK Social Research Managing Director Nick Moon said in the statement. “These figures must make the possibility of a double-dip recession increasingly real.”
A measure of consumers’ assessment of their personal financial situation over the last 12 months dropped 4 points to minus 23, and the index on the next 12 months declined the same amount to minus 14. A gauge of their willingness to make major purchases fell 2 points to minus 31.
GfK’s index covering consumers’ views on the general economic situation over the past 12 months dropped 3 points to minus 57, while a measure of sentiment on the general economic situation in the coming 12 months fell 1 point to minus 30.
Interest-Rate Bets
The report may reinforce investor expectations that the Bank of England will maintain its benchmark interest rate at a record low of 0.5 percent to support the economy.
The rate will rise by 25 basis points by November, according to forward contracts on the sterling overnight interbank average, or Sonia, compiled by Tullett Prebon Ltd. On March 30, Sonia contracts showed investors expected a rate increase in July.
“The squeeze on consumer disposable income will continue for some while yet,” Chief Executive Officer George Weston said in a phone interview.
Chancellor of the Exchequer George Osborne said yesterday’s economic growth report “reinforces our determination” to stick to a deficit-reduction plan that will eliminate more than 300,000 public-sector jobs by 2015.
GfK surveyed 2,015 people from April 1 to April 10. The results have a margin of error of 2 percentage points.
Walk down Little Italy’s main drag and you see coffee-sipping window shoppers brush past old Italian men relaxing in the spotless piazza. New businesses keep popping up, the restaurants are packed and condo construction is in full swing here in downtown San Diego.
From the outside, it’s easy to forget this is cash-strapped California, where Gov. Jerry Brown has slashed billions of dollars in public services since taking office. Or San Diego, a city whose mayor is looking for ways to close a $56 million budget gap by the end of June.
Little Italy has been picking up the slack where the city falls short for more than a decade.
But it wasn’t always that way.
"All the beautiful flowers, and the pots, the street banners that are hanging on the lamp posts — none of that stuff was here," said Marianna Brunetto, whose family has lived in the neighborhood for more than ninety years.
Seafood had always been king in Little Italy, with most residents making their living fishing for tuna or processing and serving it. But in the 1970s that business started drying up. At the same time, a new highway went up in San Diego, which isolated the neighborhood and displaced residents. The local economy began to crumble.
By the mid-’80s, only about a dozen Italian-owned businesses remained and the face of the neighborhood had faded.
"All the canneries and all the tuna seiners had to move from San Diego to Thailand, Taiwan. It displaced that economy in Little Italy," said Marco Li Mandri, executive director of the Little Italy Association.
"We were basically the parking lot for buildings downtown," he added.
To stop the tide of neglect, local business owners came together to create a public benefit corporation in 1996. Known as the Little Italy Association, the group works to improve the area — everything from trimming the trees and emptying public trash cans to sweeping sidewalks and addressing off-leash dog runs payday lenders.
"Little Italy employees manage Little Italy like a mall company would manage a mall," said Li Mandri. "They deal with the curb to property line."
Public benefit corporations such as this one have been established across the country, including in Oakland, Calif., and San Francisco, in an attempt to revitalize neighborhoods. But San Diego’s Little Italy is one of the best examples of their successes.
The LIA operates on a $1.5 million annual budget made up of money collected from property and business assessment fees, parking meter funds, special events and private sources.
Little Italy also relies on California’s Redevelopment Agencies, something the governor has proposed to eliminate in the coming months. If that happens, major projects in Little Italy, like repairing the 100-year old sidewalks, would not be completed.
"In the next five years, the impact will likely be around $2 million in lost funding, for projects which were in the planning stages," said Li Mandri.
While Li Mandri searches for other means of funding, Little Italy employees and residents continue to maintain the neighborhood and that keeps drawing people in.
"I’d seen all of the improvements and I really wanted to be a part of that," said Brunetto, who recently moved back to the old neighborhood and is now on the association’s board of directors. "I wanted to ensure that Little Italy was around for my children and my grandchildren the way it was for me growing up."
Long and variable lags.
I doubt that inviolable tenet of how monetary policy works is etched into the cornerstone of the Federal Reserve Board in Washington. It is, however, an article of faith for anyone who has ever worked there.
And yet, Fed Chairman Ben Bernanke and his core group of doves at the Fed seem comfortable with the overnight rate at an emergency-like 0 percent to 0.25 percent when the economy is growing at a modest pace, private-sector job growth has topped 200,000 in the last two months and sensitive raw materials prices are skyrocketing.
Where’s the justification?
At 8.8 percent in March, the unemployment rate is still unacceptably high for the dual-mandated Fed, charged with monitoring both unemployment and inflation.
And with no acceleration in wages — average hourly earnings are stuck at a 1.7 percent annual increase — Bernanke is comfortable he can minister to the unemployed without any adverse effects on intermediate-term inflation and inflation expectations.
That would be a mistake. Empirically, prices lead wages. If it were the other way around, wages would be in some kind of leading inflation indicator, such as the one created by the Economic Cycle Research Institute.
While the ECRI refused to discuss the composition of its Future Inflation Gauge when I called Friday, wages aren’t in the index because “they aren’t a good leading indicator of inflation,” a then-less-secretive research director told me in 2000.
Your Father’s Economy
Causation can run in both directions, with prices and wages feeding off one other, according to Gad Levanon, associate director of macroeconomic research at the Conference Board in New York. “Overall inflation leads both core inflation and average hourly earnings based on a cross correlation test.”
The Fed operates on the premise that core inflation, which excludes food and energy, leads overall.
The focus on wages is a residual from the wage-price spirals of the 1970s: no wage increase, no inflation.
Before deregulation — when companies were shielded from outside competition — labor unions could negotiate a contract for their workers, and the employer would pass the higher costs along to consumers in the form of higher prices.
Union membership declined to a 70-year low of 11.9 percent last year, according to the Bureau of Labor Statistics. For the first time in history, more union workers were employed by the government than by the private sector. Only 7.2 percent of the private-sector workforce was unionized.
Symptom, Not Cause
In today’s world, any union demand for a wage increase is likely to be met with a shift in production: from Michigan to South Carolina for the auto industry; from North Carolina to China for textiles.
To the extent that labor has any negotiating power in a de- unionized, globally competitive world, wages are set “based on last year’s inflation,” said Joe Carson, director of global economic research at AllianceBernstein in New York.
Think of wages as a price: the price of labor. They happen to be the biggest share of compensation costs in services industries. That still doesn’t mean they cause inflation. Rather, they are a symptom of it.
Some Fed bank presidents understand the central bank can’t wait to see higher wages before starting to withdraw the stimulus. The Minneapolis Fed’s Narayana Kocherlakota and Richmond’s Jeffrey Lacker are making noises about raising interest rates by year-end. The Philadelphia Fed’s Charles Plosser has talked about calling a halt to the central bank’s second round of quantitative easing, in this case the planned purchase of $600 billion of Treasury securities set to conclude in June.
Dudley Do-Right
For Bill Dudley, that talk is premature. Speaking in Puerto Rico Friday, the New York Fed president said unemployment is much too high (agreed); the “coast is not completely clear” for the U.S. economy (it never is); and commodity prices are experiencing “a little bit of a bubble” (this from the ex- post-only bubble-identification gang) and have “virtually nothing to do with U.S. monetary policy.”
Reporters let him get away with that? Last month, Dudley had his head handed to him by an audience in Queens, New York. When he tried to tell a group of ordinary folks inflation was under control because technology prices continue to fall, members of the crowd asked him when he last went grocery shopping.
What’s more, Dudley’s view that commodity price increases aren’t the Fed’s doing runs counter to the Fed’s stated intentions for QE2. In a Nov. 4 op-ed in the Washington Post, Bernanke outlined the channels through which the Fed’s bond purchases would operate. One was through higher stock prices, which would increase consumer wealth and trigger spending.
Measure of Success
Success! The Dow Jones Industrial Average is nearing a three-year high, up almost 25 percent since Bernanke first hinted at QE2 in late August.
Surely Dudley understands that commodity speculators aren’t immune to the same incentives — zero-percent interest rates — that encourage investors to move out the risk curve.
The Fed should be careful what it wishes for.
(Caroline Baum, author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.)
A former schoolmate of a one-time billionaire hedge fund boss has testified at an insider trading trial in New York that his former friend told him he would pay $500,000 annually to an overseas account if he revealed secrets about public companies.
Anil Kumar (AH-nuhl KOO-mahr) testified for the prosecution at the trial of Raj Rajaratnam (rah-juh-RUHT’-nuhm). Kumar worked for McKinsey & Co.
Rajaratnam is accused of earning tens of millions of dollars illegally by trading on inside information payday loan. He had pleaded not guilty to conspiracy and security fraud charges.
Prosecutors have said the probe of Rajaratnam and others was the biggest hedge fund insider trading case in history. In all, more than two dozen people have been charged. Nineteen, including Kumar, have pleaded guilty.
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