November 22, 2017

Turkish Skyline Foreshadows Emerging-Market Slowdown

Today, it stands as a symbol of how far the mighty may fall.

Like the vast majority of new buildings that have blanketed the Istanbul hills in recent years, the Sapphire — at 856 feet it is the tallest in Turkey and among the loftiest in Europe — was built on the back of cheap loans, in dollars, that have flooded Turkey and other fast-growing markets like Brazil, India and South Korea. The money began to flow when the Federal Reserve and other major central banks cut interest rates to the bone in 2009 and cranked up the printing presses in a bid to spur recovery in United States and other advanced industrial nations.

But now, with expectations mounting that the Federal Reserve, led by its departing chairman Ben S. Bernanke, may soon begin to tighten its monetary spigot, Istanbul’s skyline could well be a harbinger of an emerging-market bust brought on by unpaid loans, weakening currencies, and, eventually, the possible failure of developers and banks.

This week, stocks and currencies in several developing Asian markets, including India, Indonesia and Thailand, have been hit hard as global investors continue to withdraw funds from emerging markets in anticipation of the Fed’s move to reduce its stimulus efforts in the United States. Indonesia’s benchmark index, which fell 5 percent on Monday, dropped 3.2 percent more on Tuesday. India’s stock market fell 0.3 percent after sliding 5.6 percent in the previous two trading sessions.

Other worldwide markets are also suffering. Stocks on Wall Street have fallen for four days in a row as borrowing rates climb. The Nikkei 225 index in Japan fell 2.6 percent on Tuesday, hitting its lowest closing level since June 27. South Korea and Hong Kong both fell as well.

Some analysts see it as the markets reacting to an end — real or perceived — of the Bernanke boom.

“What we are witnessing is a huge bubble, a Bernanke bubble if you will,” said Tim Lee of Pi Economics, an independent consultancy based in Greenwich, Conn.

Not everybody is as alarmed as Mr. Lee. Still, 16 years after emerging markets in Asia imploded after local currencies collapsed, even optimists are starting to grow nervous over the rapid accumulation of dollar-denominated debt not just in Turkey but in other now-struggling economies like Brazil, India and South Korea.

As it turned out, some of the biggest beneficiaries of the Fed’s largess were not so much in the developed world, but among the politically connected elite in emerging nations like Turkey, where vanity towers, glitzy shopping malls and even grander projects to come — a third bridge across the Bosporus and a vast new airport — have become representative of Turkey’s new dynamism, economic as well as geopolitical.

What these elites have so far ignored, Mr. Lee warns, is that their obligations carry with them a significant and more pressing danger beyond the risk that the investments may turn sour. That is currency risk.

Unlike the risky loans made to subprime borrowers in the United States or Irish real estate developers in the euro zone, dollar debts taken on by companies erecting skyscrapers in Istanbul, manufacturing steel in India and prospecting for oil in Brazil, need to be largely paid back in dollars by entities that earn most of their revenues in their home currency.

When the Turkish lira or the rupee in India was strong — as these currencies were until recently — local companies had every incentive to borrow in dollars at comparatively lower interest rates.

But when local currencies start to weaken, in line with diminished economic prospects, then the effect is twofold: paying off dollar loans becomes more costly for the borrower and the lender becomes increasingly skittish about his exposure to a fragile currency and may move to reduce or even slash credit lines.

The worst prospect is a currency crash and a deep recession as foreign investors leave the country and locals rush to dump their liras, reals and rupees in favor of dollars.

Article source: http://www.nytimes.com/2013/08/21/business/global/turkish-skyline-foreshadows-emerging-market-slowdown.html?partner=rss&emc=rss

Indian Rupee Falls to Record Low

HONG KONG — The Indian rupee lurched to a record low against the dollar on Tuesday, shrugging off recent measures aimed at propping it up and underscoring the severe problems facing the economy as the country heads toward an election next year.

The rupee has slumped nearly 15 percent since May, when the possibility of scaled-back bond purchases in the United States prompted foreign cash to flee emerging markets around the world. The Indian central bank reacted last month with several steps to support the currency, but the rupee continued its slide Tuesday, falling to 61.71 per U.S. dollar by late afternoon.

Stemming the rupee’s rapid decline will be one of the first tasks for the next governor of the Reserve Bank of India, the nation’s central bank. Reuters reported Tuesday that the Indian government appointed Raghuram Rajan, the chief economic adviser in the finance ministry, to the post. According to a statement by the finance minister, Mr. Rajan will replace Duvvuri Subbarao, whose tenure ends on Sept. 4 after five years, Reuters reported.

Mr. Rajan joined the Indian government last August, after serving chief economist at the International Monetary Fund and a professor at the University of Chicago.

India’s fundamental problems, said Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight in Singapore, are a “chronic current account deficit,” which has worsened over the years, and a big outflow of foreign capital since Ben S. Bernanke, the chairman of the United States Federal Reserve, signaled in May that the American economy may soon be ready to be weaned off the massive bond purchases that have bolstered its economy since the global financial crisis.

“Last year, they were able to deal with the current account deficit because capital inflows were strong,” Mr. Biswas said. Now that the money is ebbing away, the rupee is coming under systemic pressure, he said.

More broadly, much-needed economic overhauls — like improving the country’s infrastructure and cutting red tape — have been notoriously tough to push through, while a slowdown in growth in recent years has made the country less attractive to foreign investors, despite the potential offered by a huge, young population.

The pace of expansion has slowed to about 5.5 percent this year from more than 8 percent in 2009 and 2010, and the latest purchasing managers indexes for the manufacturing and services sectors, released by the British bank HSBC, both slipped in July.

“There are few good signs on the economic horizon,” Mr. Biswas said, “and there is not a great deal that either the government or the central bank can do in the short term.” He added that slowing growth had further reduced the government’s room to maneuver.

The slide in the rupee, moreover, will probably make things worse, analysts warned.

Although a cheaper rupee makes Indian exports less expensive for consumers abroad, the effect provides relatively little lift to the Indian economy, as the country is far less reliant on exports than many of its Asian peers.

Meanwhile, the weaker currency raises India’s import bills for dollar-denominated goods like oil, of which the country is a big importer, adding pain to an already slowing economy and potentially fueling inflation to worrisome levels further down the line.

Article source: http://www.nytimes.com/2013/08/07/business/global/indian-rupee-falls-to-record-low.html?partner=rss&emc=rss

You’re the Boss Blog: This Week In Small Business: Mibblio, Kaggle and Shodogg

Dashboard

A weekly roundup of small-business developments.

What’s affecting me, my clients and other small-business owners this week.

Must-Reads

Ryan Tate says you can hear the screams of crushed start-ups echo across Silicon Valley. Here are five reasons undergraduate entrepreneurship courses aren’t producing entrepreneurs. Anil Dash offers 10 rules of the Internet.

The Economy: Manufacturing Is Sexy

Retail and food service (pdf) sales for June increased slightly, and consumer prices rose 1.8 percent over last year. Tim Mullaney reports on why the economy is not yet a pretty picture, Michael Lombardi explains why a recession is inevitable within 12 months, and Fabius Maximus is confused. But American manufacturers are seeing domestic growth, industrial output rose by the most in four months, and a Penn State University professor proclaims proclaims that manufacturing is sexy again. Conditions in the New York region improved modestly, and the Philadelphia area showed solid expansion. Builder confidence increased to its highest in seven years. Ben S. Bernanke tells the world the Federal Reserve is still easing. Shawn Tully explains why the interest rate party is over. Small businesses created 45 percent of the new jobs generated in June.

Finance: $92 Quadrillion

AmeriMerchant announces a new $60 million credit line to finance small businesses, HSBC starts a $1 billion loan program for small exporters, and a Paypal glitch debits $92 quadrillion from a guy’s account. Tracy Kellaher lists four ways banks alienate small-business customers. Here are the 13 biggest Kickstarter projects ever — and where they stand now. Amrik Randhawa suggests three accounting habits to practice weekly, and a new cash-flow tool promises to help businesses improve their forecasting.

Start-Up: Mibblio, Kaggle and Shodogg

Here’s why so many start-ups have silly names, like Mibblio, Kaggle and Shodogg. A start-up wants to help freelancers earn more. Here are 16 essential skills for freelancers. Google and Blackbox, a global start-up accelerator, team up to help selected start-ups. A study reveals how to spot future entrepreneurs (hint: it’s not about the grades), and one entrepreneur makes millions doing the chores we all dread. Nathan Beckord explains how he hacked the start-up conference circuit.

People: Unlimited Vacation

Justin Fox makes the case for paying people more. Bryan Goldberg explains why seeing employees get rich is awesome. The chief technology officer and co-founder of HubSpot says employees should get unlimited vacation, and this company is advertising for a happiness engineer. A business owner offers employees the use of a financial adviser. The difference between how employees are are treated at a company can boil down to which ones have children. Victor Cheng suggests five ways to keep employees from checking out on the job. Christine Comaford shares her thoughts on using psychology to engage employees. A restaurant owner fires all of his employees by text message.

Management: Crazy, Successful People

Here are some tips for making it in the art world. Carolyn Gregoire shares the one thing that many “crazy successful people” do every morning. A Sage survey finds small-business owners continue to work longer hours and take less vacation. Srikanth An says doing foolish things with enthusiasm is one of 10 traits of a successful entrepreneur, and Valerie Balester lists seven habits of highly effective communicators. Lin DeBeaulieu shares a few fitness tips for business travelers, and Paul Mah shows how to transform your hotel room into a productive workspace. Prasad Kaipa explains to tell if you’re suffering from “Superman syndrome.” Jason Piatt suggests eight steps to improve operational processes.

Marketing: Selling in Asia

Jeff Bullas points out seven marketing trends you should not ignore. Sean D’Souza says there are three core elements of good storytelling (and says your business needs them). Sonia Simone says there are five things you can do this week to fix your marketing. Craig Briggs has 12 answers to help Western marketers sell in Asia. Some retailers are tracking their shoppers’ cell phones, and research finds that mobile accounts for 85 percent of gas and convenience store searches.

Social Media: Twitter Power

Stephanie Miles shares seven strategies for maximizing the success of your social media. This infographic reveals the marketing power of Twitter. Dave Matthews hitchhikes to his own show. Bridget Ayers wants you to implement these simple security settings for your social media activities. Becky McCray explains what to do if you hate your Web site. Andy Hayes shares three Web trends that customers (and business owners) will love.

Around The Country: Boot Camp for Women

Detroit files the largest municipal bankruptcy in American history. Moody’s downgrades Chicago’s debt. Miami is experiencing a rise in start-up activity, and Phoenix small businesses are seeing a growing economy. Angered by the Zimmerman verdict, some are calling for a boycott of Florida businesses. An entrepreneur finds a niche in the San Francisco rental market. The Community College of Philadelphia is offering free small-business training. An online event will feature a panel of women entrepreneurs who have received financing from United States Special Operations Command. American Express Open will hold a boot camp for women entrepreneurs in September.

Around The World: Hitting the (Great) Wall

The world’s largest building opens for business in China even as the country’s economic growth slows (and Paul Krugman suggests it’s about to hit the wall). Central bankers in India and Brazil tighten liquidity. The infamous Russian oligarch Sergey Veremeenko shows how the .00001 percent lives in Moscow. British retailers are coming up with creative ways to capitalize on the royal baby buzz. The Middle East tops the West in female founders of tech companies.

Red Tape: Planning for Bunny Disasters

Microsoft is backing a small-business lobby to ease immigration laws. The Feds want a disaster plan to protect magic-hat bunnies. Here’s how Hurricane Sandy affected local taxes. Richard Posner says the sequester has been a failure. The Internal Revenue Service cancels one of its furlough days. A report finds that two of every three small-business executives say they’re not ready for the Affordable Care Act. Still, the new law is bringing good news about insurance premiums. Hamilton Nolan reports that part-time is the new full-time, but Matthew Yglesias says “Obamacare” is not to blame. Privacy fears over the legislation are looming as agencies begin to link up. More doctors are bailing out on their practices.

Technology: Five Million Smartwatches

A research firm says $2.1 trillion will go into information technology spending in 2013. Paid apps are on the decline. Five million smartwatches are expected to ship in 2014. Ramon Ray has 10 tips for staying safe and virus free. New Mac malware is confusing users. Here are the eight best apps for team collaboration. Samsung continues to dominate Android. Microsoft’s introduction of the Surface was “a disaster,” but Tony Bradley says the device can help small businesses reduce tech costs. Sameer Doshi, who is blind, shows how he uses a computer. Researchers have developed a phone that can be recharged with urine.

Tweet Of The Week

‏@SalesLeaderTodd – Is there a silver bullet for sales? Nope. If you have forgotten the basics get reacquainted and sell more.

The Week’s Best Quotes

Seth Godin believes more people are marketing badly: “The cure? Notice what is working in the real world and try to figure out why. Apply it to your work. Repeat. Learn to see, to discern the difference between good and bad, between useful and merely comfortable.”

Adrienne Asselmeier says failure really is an option: “Instead of proclaiming that you’re not afraid to fail, it’s important to contemplate challenges you may face, how you will handle them, and what you will do if ultimately you do fail. If you’re prepared for failure as an option, then you won’t end up in the gutter because you will be vigilant and flexible while still working toward your business goals.”

This Week’s Question: Are you prepared to fail?

Gene Marks owns the Marks Group, a Bala Cynwyd, Pa., consulting firm that helps clients with customer relationship management. You can follow him on Twitter.

Article source: http://boss.blogs.nytimes.com/2013/07/22/this-week-in-small-business-mibblio-kaggle-and-shodogg/?partner=rss&emc=rss

Same Script by Bernanke, but Like a Farewell Scene

Mr. Bernanke, appearing before the Senate one day after he testified before the House, largely repeated the themes and often the words of Wednesday’s testimony.

He said that the Fed had not slackened in its commitment to stimulate the economy — it will cut back only if the economy is making progress. He chastised Congress, saying it was impeding economic growth. And he demurred from talking about his own future, choosing instead to listen quietly as senator after senator treated the hearing like a goodbye party.

This may have been Mr. Bernanke’s final appearance before Congress as Fed chairman. It is widely expected that he will step down in January.

His last decision is when the Fed should begin to reduce its stimulus efforts. The Fed is buying $85 billion a month in Treasuries and mortgage-backed securities.

Mr. Bernanke said on Thursday that the Fed had concluded that such purchases, aimed at reducing long-term interest rates, do less to bolster the economy than the Fed’s traditional focus on reducing short-term rates. He also suggested that in announcing a timeline for tapering last month, the Fed had succeeded in tempering risk-taking in financial markets.

But he once again resisted the idea that the Fed was lowering its sights.

“Isn’t it still way too soon to consider any kind of policy tightening?” Senator Robert Menendez of New Jersey asked Mr. Bernanke, citing the persistently high level of unemployment and the absence of inflationary pressures.

Mr. Bernanke responded that the Fed was changing its approach, not its goals. In testimony, he underscored that the central bank had other tools at its disposal, besides asset purchases.

“I think that we will be able to maintain that high level of accommodation ultimately through rate policy and, you know — and by holding a very large balance sheet,” he said.

Some economists, including Adam S. Posen, president of the Peterson Institute for International Economics, argue that the Fed is making the wrong choice. Mr. Posen describes the Fed’s statements about its plans to hold down interest rates as “cheap talk,” and says it should continue with bond-buying instead.

A further complication for the Fed is that Mr. Bernanke’s likely departure is beginning to erode his credibility as a spokesman about the Fed’s future plans.

Mr. Bernanke has said that the Fed expects to reduce its bond-buying later this year, and to end purchases by the middle of next year, as long as economic growth remains “broadly” in line with the Fed’s expectations.

“We have given some fairly specific qualitative guidance about what we’re looking for,” he said Thursday. Specifically, the Fed wants the unemployment rate to decline from the current rate of 7.6 percent to a rate “in the general vicinity of 7 percent with inflation moving back toward this 2 percent objective.”

The Fed, however, has not included that guidance in its policy statements. And an account of the most recent meeting of the Federal Open Market Committee noted that “about half” of the 19 officials who participated said before the meeting that they expected to end asset purchases by the end of this year.

Senator Charles E. Schumer, Democrat of New York, asked Mr. Bernanke about the apparent disagreement over the question of how much longer the Fed should continue its current bond-buying campaign.

“There seems to be some disparity between the other members and you, and if you’re not there come next year, there’s a worry there,” Mr. Schumer said. “Do they think unemployment will be 7 percent this year, or do they have different assessments about the relative cost and benefit of” quantitative easing?

Mr. Bernanke responded that officials had various reasons for their views. Some regard asset purchases as ineffective, while others may be more optimistic about the economy. But he added that the committee had “a very careful discussion” that led to his public statement about the probable timetable for tapering.

“The general scenario which I described in my press conference is broadly supported by people on the committee and including both voters and nonvoters,” he said.

Article source: http://www.nytimes.com/2013/07/19/business/fed-chief-again-declines-to-set-timetable-for-stimulus-end.html?partner=rss&emc=rss

Fed Chief Again Declines to Set Timetable for Stimulus End

Mr. Bernanke, appearing before the Senate a day after he testified before the House, largely repeated the themes and often the words of Wednesday’s testimony.

He said that the Fed had not slackened in its commitment to stimulate the economy and that it would cut back only if the economy was making progress. He also chastised Congress, saying it was impeding economic growth. And he demurred from talking about his own future, choosing instead to listen quietly as senator after senator spoke about him as one speaks of the departed.

This may have been Mr. Bernanke’s final appearance before Congress as Fed chairman. He is widely expected to step down in January.

The expected departure is beginning to erode Mr. Bernanke’s status as a spokesman for the Fed, particularly regarding decisions that most likely will be made without him.

Senator Charles E. Schumer, Democrat of New York, asked Mr. Bernanke about the apparent fragmentation among Fed officials over the question of how much longer the Fed should continue its current bond-buying campaign.

The central bank is adding $85 billion a month to its holdings of Treasury securities and mortgage-backed securities to encourage job creation.

Mr. Bernanke has said that the Fed expects to reduce the volume of its bond-buying later this year, and to end purchases by the middle of next year, as long as economic growth remains “broadly” in line with the Fed’s expectations.

“We have given some fairly specific qualitative guidance about what we’re looking for,” he said on Thursday. Specifically, the Fed wants the unemployment rate to decline from the current rate of 7.6 percent to a rate “in the general vicinity of 7 percent with inflation moving back toward its 2 percent objective.”

The Fed, however, has not included that guidance in its policy statements, and an account of the most recent meeting of the Federal Open Market Committee noted that “about half” of the 19 officials who participated said before the meeting that they expected to end asset purchases by the end of this year.

“There seems to be some disparity between the other members and you,” Mr. Schumer said. “Do they think unemployment will be 7 percent this year?”

Mr. Bernanke responded that officials had various reasons for their views. Some regard asset purchases as ineffective, while others may be more optimistic about the economy. Some have cited concern about the consequences.

But Mr. Bernanke added that the committee had “a very careful discussion” that led to his public statement about the probable timetable for curtailing the purchases. He said on Wednesday that the timetable enjoyed “good support.”

When Mr. Schumer asked if the Fed intended to curtail purchases at its September meeting, Mr. Bernanke responded, “I think it’s way too early to make any judgment.”

Article source: http://www.nytimes.com/2013/07/19/business/fed-chief-again-declines-to-set-timetable-for-stimulus-end.html?partner=rss&emc=rss

Wall Street in Record Territory

Stocks jumped on Thursday, putting the Standard Poor’s 500-stock index within range of its highest close on record, after the Federal Reserve chairman, Ben S. Bernanke, once again said monetary policy will remain “accommodative” for some time.

In afternoon trading the S. P gained 1.1 percent to 1,670 points, the Dow Jones industrial average rose 0.9 percent, and the Nasdaq composite was 1.3 percent higher.

More than 85 percent of shares on the New York Stock Exchange were higher on Thursday, led by gains in materials and technology shares.

Mr. Bernanke sparked a rally in equity futures Wednesday night after he said that the United States unemployment rate of 7.6 percent overstated the health of the job market and noted inflation was still below the Fed’s target of 2 percent.

“His speech last night was much more dovish than most people anticipated,” said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, N.J. “The negative side of that is that they keep sending conflicting signals, and it does spasm the market up and down.”

Wall Street has recently rebounded from a sell-off begun in late May after Mr. Bernanke first raised the prospect of an earlier-than-expected reduction in the Fed’s bond buying program. By the June 24 close, the S. P. 500 had fallen 5.8 percent from its May 21 record closing high of 1,669.16 points.

Coming off the Fed chairman’s latest comments, the benchmark index is poised to retest that record.

The remarks spurred a rally in shares and bonds globally on Thursday. The dollar tumbled and commodities like gold and copper were bolstered. United States-listed shares of Barrick Gold climbed 7.6 percent while Freeport McMoRan Copper Gold gained 4.4 percent.

Advanced Micro Devices jumped 10.8 percent after Bank of America Merrill Lynch upgraded it to buy from underperform.

Celgene, up 6.7 percent, was among the top performers after the company said a late-stage trial of its cancer drug Revlimid met the main goal of improving survival in newly diagnosed blood cancer patients.

Microsoft rose 2.1 percent after the company announced a reorganization that it said will allow the software maker to deliver multiple devices and services as a single company.

European shares hit five-week highs, led by growth-sensitive stocks. The FTSEurofirst 300 index was 0.6 percent higher at the close. Earlier, Asian shares hit a near-four-week high, with the Shanghai composite index closing 3.2 percent higher.

The dollar, which had touched three-year highs before the Fed remarks on Wednesday, tumbled 1.2 percent against a basket of major currencies, while the euro roared to a three-week high of $1.3209 before falling to $1.3051.

Article source: http://www.nytimes.com/2013/07/12/business/daily-stock-market-activity.html?partner=rss&emc=rss

Investors Parse Fed Report And a 4-Day Rally Fizzles

The Dow slipped and the Standard Poor’s 500-stock index edged up less than a point on Wednesday, interrupting a four-day rally as investors tried to gauge when the Federal Reserve might scale back its economic stimulus.

Minutes from the Fed’s June policy meeting, which were released on Wednesday afternoon, showed that some members of the governing board wanted more reassurance that the labor market was improving before reining in stimulus measures. Even so, consensus built within the Fed that there probably was a need to begin pulling back soon on its monthly bond buying.

The three major stock indexes recovered some ground immediately after the release of the minutes. But those gains were short-lived as investors parsed the details of the minutes.

The Dow Jones industrial average dipped 8.68 points, or 0.06 percent, to end at 15,291.66. The S. P. 500 index inched up just 0.30 of a point, or 0.02 percent, to finish at 1,652.62. The Nasdaq composite index gained 16.50 points, or 0.47 percent, to close at 3,520.76.

Investors appeared to be more encouraged by a speech from the Fed chairman, Ben S. Bernanke, that was delivered after the market closed. Mr. Bernanke said highly accommodative monetary policy was needed for the foreseeable future and that the unemployment rate at 7.6 percent may be overstating the job market’s health.

His comments sent stock index futures higher. The central bank has said it will continue buying bonds until the labor market outlook improves substantially.

“That is calming market fears,” said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, N.Y., referring to Mr. Bernanke’s comments. “Speculation that the tapering could be from September is now turning into, ‘Maybe the Fed is going stay longer.’ ”

Mr. Bernanke spooked investors last month when he said the economy’s expansion was strong enough for the central bank to start slowing the pace this year of its monthly purchases of $85 billion in bonds, known as quantitative easing.

Some in the market have pegged September as time when the Fed could start pulling back, but the minutes suggested that was not a foregone conclusion.

The S. P. 500 has risen more than 2 percent over the last five sessions, nearing its high of 1,669.16, reached May 21.

Analysts expect earnings at S. P. 500 companies to grow 2.6 percent in the second quarter from a year ago, while revenue is forecast to increase 1.5 percent, Thomson Reuters data shows.

In government bonds, the benchmark 10-year Treasury note fell 9/32 to 92 2/32, sending the yield up to 2.67 percent, from 2.64 percent late Tuesday.

Article source: http://www.nytimes.com/2013/07/11/business/daily-stock-market-activity.html?partner=rss&emc=rss

Wall Street Opens Higher

Stocks rose solidly on Tuesday, partially recovering from recent steep declines as strong data pointed to improvements in the economy.

In afternoon trading the S.P. 500 was 0.9 percent higher, the Dow Jones industrial average gained 0.7 percent and the Nasdaq composite added 0.6 percent.

Equities were volatile for much of the session, as the data initially raised concerns about central bank stimulus, but analysts said a rebound was due coming off a large drop in Monday’s session, which itself followed the worst week for the S.P. 500 since April.

“Everyone panicked after the Fed, but the fear is starting to come out of the system now. Investors are realizing that the Fed is still a long way from raising rates,” said Mark Foster, who helps manage $600 million at Kirr Marbach Co. in Columbus, Indiana.

The recent downturn in markets started after the Federal Reserve chairman, Ben S. Bernanke, said last week that the Fed’s stimulus program may be scaled back this year if the economy improves, placing traders in a paradoxical situation where good data could indicate less stimulus, which would in turn be a threat to growth.

Economic reports topped analysts’ expectation. The Commerce Department said durable goods orders increased 3.6 percent in May, above the 3 percent forecast, the latest signs of a pickup in economic activity. Also, the S.P. Case Shiller composite index of house prices in 20 metropolitan areas gained 1.7 percent on a seasonally adjusted basis, topping forecasts for 1.2 percent, indicating the housing recovery continues to gain momentum.

Finally, consumer confidence jumped in June to its highest level in over five years, as Americans said they were more optimistic about business and labor market conditions, according to the Conference Board, an industry group.

Housing stocks were among the strongest of the day, surging on the data as well as because Lennar Corporation, the No. 3 homebuilder, posted strong results and the company pointed to a “solid housing recovery.” The stock rose 1.6 percent, while another homebuilder, PulteGroup Inc was up 4.1 percent.

Walgreen fell 7 percent after reporting weaker-than-expected results, citing slow front-end sales and a challenging economy.

Barnes Noble, the bookstore chain, slumped 19.6 percent after it reported its quarterly net loss more than doubled.

Asian markets had a day of wild swings, during which Chinese stocks plunged to their lowest since the global financial crisis, ending with a late rally on hopes authorities would step in to prevent a crisis.

“China’s new leaders are determined to address the financial risks that have built in the financial system because of excessive lending,” said Koen De Leus, senior economist at KBC.

In Europe the broad FTSEurofirst 300 index ended the day up 1.5 percent, recovering some of the 5.5 percent lost in the previous three trading days.

“After all the moves we’ve seen in U.S. dollar buying, selling bonds, selling equities, I think we’re going into a consolidation period,” said Greg Matwejev, director of FX Hedge Fund Sales and Trading at Newedge.

Article source: http://www.nytimes.com/2013/06/26/business/daily-stock-market-activity.html?partner=rss&emc=rss

Markets Rally, Awaiting Fed

But the Federal Reserve loomed large, with investors trying to guess what the central bank will say on Wednesday about how long it plans to keep its stimulus programs in place.

The market’s gains were steady and broad. The Standard Poor’s 500-stock index rose 12.77 points, or 0.78 percent, to 1,651.81. All 10 of its sectors rose, led by industrial and telecommunications companies.

The Dow Jones industrial average rose 138.38 points, or 0.91 percent, to 15,318.23. The Nasdaq composite index rose 30.05 points, or 0.87 percent, to 3,482.18.

The wait-and-see atmosphere had a familiar template. The Fed has had an outsize effect on the stock market in recent weeks, with the major indexes seesawing as investors try to guess how long the central bank will keep supporting the economy.

Some investors say it is troubling that the market is relying more on the central bank for direction than on economic fundamentals. The latest turning point was May 22, when Ben S. Bernanke, the chairman, startled markets by announcing that the Fed could soon pull back on its bond-buying program if the economy improves.

“Here we are again,” said Gregg S. Fisher, chief investment officer of Gerstein Fisher, a financial advisory firm in New York. “We don’t know what the actions will be. We’re all trying to figure that out.”

The Fed, which is best known for helping set interest rates, has taken an increasingly bigger role in trying to bolster the economy since the 2008 financial crisis. Its bond-buying program is meant to keep interest rates low, which can encourage borrowing and drive investors into the stock market. The Fed’s purchases have swollen its portfolio to $3.4 trillion, a fourfold increase since before the crisis.

Analysts predicted that Mr. Bernanke would use his news conference on Wednesday to cast a reassuring tone and make it clear that the Fed will not pull back on any of its programs until it is certain that the economy can handle it. He is also likely to drop more hints about when the Fed could start trimming its stimulus programs.

Some said that recent market volatility has not been caused by fear that the Fed would pull back on its stimulus programs — most everyone expects that to happen eventually.

The Commerce Department reported on Tuesday that the pace of new home building increased in May, helped by more buyers coming to the market and a scarcity of houses for sale.

The Labor Department reported that consumer prices rose last month, but only slightly.

The benchmark 10-year Treasury note fell 2/32, to 96 5/32, bringing the yield up to 2.19 percent, from 2.18 percent late Monday.

Article source: http://www.nytimes.com/2013/06/19/business/daily-stock-market-activity.html?partner=rss&emc=rss

Economix Blog: The Gorilla and the Maginot Line

Janet Yellen, vice chairwoman of the Federal Reserve, shown at a conference in March, knows her way around a metaphor.Gary Cameron/Reuters Janet Yellen, vice chairwoman of the Federal Reserve, shown at a conference in March, knows her way around a metaphor.

Janet Yellen likes metaphors. This is a common trait among central bankers, at least the ones who see value in trying to explain their work.

In 2007, she compared problems in the housing market to a 600-pound gorilla lurking in the corner of the Federal Reserve’s meeting room.

In 2010, she described the state of financial regulation before the crisis as “a financial Maginot Line that we believed couldn’t be breached.”

We all know what happened next: The gorilla broke through the Maginot Line.

She is not the most colorful of the current crop of Fed officials. That honor surely belongs to Richard Fisher, president of the Federal Reserve Bank of Dallas, whose most recent speech was titled “Oil and Gas, Blondes and Over-Accessorized Brunettes, and Ruthless, Hard-Drinking Cowboys.”

Nor has she ever produced anything quite as enduringly memorable as former Fed chairman William McChesney Martin’s famous description of central banking. The job, he said, is “to take away the punch bowl just as the party gets going.”

But Ms. Yellen, whom I profiled Thursday as a logical successor to Ben S. Bernanke, the Fed chairman, can paint a picture. Consider her description at the September 2007 meeting of the Fed’s policy-making group, the Federal Open Market Committee, of “the earthquake that began roiling financial markets in mid-July.  Our contacts located at the epicenter — those, for example, in the private equity and mortgage markets — report utter devastation.  Anecdotal reports from those nearby — for example, our contacts in banking, housing construction, and housing-related businesses — suggest significant damage from the temblor.”

In 1995, concerned that the Fed was keeping interest rates too high, she compared the effects to “a termites in the basement problem,” suggesting that the high rates would gradually weaken and undermine the vitality of the economy.

“A ‘termites in the basement’ problem is a nagging, chronic little problem that can eventually cause a lot of grief if it is not attended to,” Ms. Yellen said at the Fed’s September meeting, according to the Fed’s transcript. “Termites nibble away slowly so the problem just creeps up and there is no great sense of urgency that one absolutely has to deal with it on one day as opposed to the next.”

Other members of the committee then picked up on the metaphor, invoking termites to make their own case for lower interest rates.

And then there is my personal favorite. Earlier in 1995, the Fed was debating whether to endorse Congressional legislation directing the Fed to make price stability its sole objective, replacing the “dual mandate” that instructs the central bank to minimize both unemployment and inflation.

Ms. Yellen was one of the strongest voices in opposition, arguing repeatedly that the people wanted the central bank to mitigate economic downturns in addition to minimizing inflation, and that the central bank had the ability and therefore the responsibility to do so.

Even the German central bank, famous for its commitment to suppress inflation, sought to mitigate economic downturns, she said.

“Who would be prepared to believe that the F.O.M.C. is single-mindedly going to pursue an inflation target regardless of real economic performance, if not even the Bundesbank is prepared to go that far?” she said. “So, that means that the targets are going to be perceived as a hoax.”

And then, to drive the point home, she added, “They are not going to be any more believable than I would be if I told my child that I was going to cut off his hand if he put it in the candy drawer.”

Article source: http://economix.blogs.nytimes.com/2013/04/25/the-gorilla-and-the-maginot-line/?partner=rss&emc=rss