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November 25, 2010

Mexico’s modern city succumbs to drug violence

Filed under: Homes, online — Tags: , , , — Gogo @ 4:12 pm

A 21-year-old university student lies dead from a gunshot to the head. Nearby, paramedics wrap the head of another woman in a blood-soaked shirt while her husband holds their cowering children.

They were shopping in a popular downtown promenade when gunmen chasing a security guard opened fire into the crowd. This wasn’t supposed to happen in Monterrey, Mexico’s modern northern city with gleaming glass towers that rise against the Sierra Madre, where students flock to world-class universities, including the country’s equivalent of MIT.

But drug violence has painted Monterrey with the look and feel of the gritty border 100 miles (160 kilometers) to the north as two former allies, the Gulf and Zetas gangs, fight for control of Mexico’s third-largest _ and wealthiest _ city.

The deterioration happened nearly overnight, laying bare issues that plague the entire country: a lack of credible policing and the Mexican habit of looking the other way at the drug trade as long as it was orderly and peaceful.

“To a certain extent, we saw ourselves as a privileged city and very isolated from Mexico’s problems,” said Blanca Trevino, Monterrey-based president and CEO of Softtek, the largest information technology consulting firm in Latin America. “The violence hit us because we were not accustomed to having it and therefore to handling it. Now we live in a sort of psychosis.”

The Mexican government announced Wednesday it is ordering a significant boost in military troops and federal police in the northeastern border state of Tamaulipas and neighboring Nuevo Leon, home to Monterrey.

The two states are under the heaviest attack since the cartel split earlier this year. Both have witnessed increasingly horrific violence spilling into daily life and claiming civilians, while politicians and journalists are either silenced or killed.

Earlier this month, residents fleeing gunbattles in Tamaulipas’ once-picturesque town of Ciudad Mier ended up in Mexico’s first drug-war refugee shelter in a nearby town, only to duck bullets from a gunbattle there.

Monterrey was used to being Mexico’s definition of opportunity. The city of 4 million “regios” _ a nickname for Monterrey residents that means “people of the regal mountains” _ represented the future as money poured into northern Mexico from free trade and the opening of scores of assembly plants.

The city’s many CEOs drove their own luxury cars unaccompanied to the trendiest Japanese restaurant or the top spot for roasted goat, the state’s specialty, in the wealthy enclave of San Pedro Garza Garcia.

Some drug lords and their families retreated to the safety of Monterrey as well. In the home of the country’s industrial heavyweights, including the world’s third-largest cement maker, Cemex, and bottling giant Femsa, they could easily blend in with executives showing off their wealth.

Then-leader of the Gulf cartel, Juan Garcia Abrego, was arrested in the nearby town of Juarez in 1996. Two years later, a U.S. sting led to criminal charges of money laundering against employees at three Monterrey-based Mexican banks.

Despite sporadic violence and the known presence of drug traffickers, the city enjoyed a tranquility that gave it a provincial feel.

That started to change four years ago, when the Sinaloa cartel began battling the Gulf cartel for a piece of Monterrey’s lucrative domestic drug market. The violence subsided after the cartels reportedly agreed to share the turf.

With the Gulf-Zeta split, the downfall was swift _ “extremely so,” in the words of U.S. Ambassador to Mexico Carlos Pascual _ for a city with huge American interests that in some ways identifies more closely with the U.S. than Mexico.

“It’s part of the risk of accommodating or allowing criminal groups to be able to live and operate quote ’safely’ in an area for the sake of peace,” Pascual told The Associated Press. “But then this rupture occurs and turns into a massive battle.”

As in much of Mexico, there was no viable law enforcement to counter the onslaught. The Zetas control the local police, Pascual said. Other police forces aligned with the Gulf cartel in the fight against them.

About half of the 750 police officers in Monterrey have been fired on suspicion of links to organized crime.

“Rather than becoming part of the solution, they become part of the problem,” Pascual said. “When criminal groups want to contest one another for territory, if you don’t have strong local law enforcement capable of immediately reacting and putting that down, then the violence has the capacity to continue.”

More than 500 people have died in drug violence in the first 10 months of the year, compared to 56 slayings for all of 2009, according to tallies kept by the city’s El Norte newspaper.

Residents are used to having their daily routines interrupted by carjackings and “narcobloqueos” _ roadblocks with stolen vehicles designed to keep police and soldiers at bay as the cartels do their business.

They drive simple cars and avoid night clubs and bars and go to parties with their pajamas, ready to spend the night in case it’s too dangerous to venture home.

In March, two students at the prestigious Monterrey Tech University, Mexico’s equivalent of the Massachusetts Institute of Technology, died when they were caught in a gunfight between soldiers and gunmen outside the campus.

Five months later, the U.S. State Department ordered diplomats to remove their children from the area after a shooting outside the American Foundation School, a private school attended by many Americans and the children of some of Monterrey’s wealthiest families. Two security guards working for the Femsa bottling company died in the gunbattle.

The city’s businesspeople are now becoming the targets of extortion and kidnappings as drug traffickers look for other ways to make money. Common criminals also take advantage of the chaos. Now almost everyone knows someone who has been a victim of a crime.

The traditional weekend shopping trips to McAllen or Laredo, Texas, have stopped _ it’s too risky to drive along highways patrolled by gunmen. Those who still travel to South Padre Island, where the rich own weekend condos, do it by airplane.

The business community published a letter in national newspapers as far back as August demanding President Felipe Calderon and Nuevo Leon Gov. Rodrigo Medina send more troops. Now it will get its wish, though the government didn’t detail how many would be sent, citing security.

But Aldo Fasci Zuazua thinks regios can make the difference. The former state public safety secretary and assistant attorney general is helping to lead a peace movement to galvanize people to stand up to the cartels.

“In Italy, in Colombia, things calmed down among the cartels, among the mafia, when people took to the streets and said, ‘Enough!’” he said.

Source

Tiffany 3Q net income shines on rising demand

Filed under: marketing, term — Tags: , , , — Gogo @ 12:16 am

Strong sales of jewelry in the U.S. and overseas helped Tiffany & Co’s third-quarter net income rise 27 percent.

The jewelry maker famous for its iconic turquoise box also on Wednesday forecast a strong holiday season and raised its yearly guidance well above expectations.

Luxury spending has rebounded as the affluent have recovered from the recession faster than others as the stock market rebounds.

Net income rose to $55.1 million, or 43 cents per share, from $43.3 million, or 34 cents per share same day payday loans. Excluding costs related to a pending move of headquarters staff, net income was 46 cents per share. That beat analyst expectations of 37 cents per share, according to a poll by Thomson Reuters.

Revenue rose 14 percent to $681.7 million. Analysts expected $652.8 million.

Revenue in the U.S., Canada and Latin and South America, which accounts for about half of Tiffany’s business, rose 9 percent. Revenue rose 24 percent in the Asia-Pacific region, 22 percent in Europe and 12 percent in Japan.

Revenue in stores open at least a year rose 7 percent. That figure is considered a key measure of a retailer’s health since it excludes stores that open and close during the year.

CEO Michael Kowalski said revenue was helped by new stores. The company has opened 6 so far this year. New products such as yellow diamonds and a leather goods collection also helped.

“We are now a few weeks into the all-important two-month holiday season and sales growth is exceeding our expectations, although the majority of the holiday season is certainly still ahead of us,” he said 24 hour payday loans.

Tiffany raised its full-year earnings outlook to $2.72 to $2.77 per share from $2.60 to $2.65. Analysts expect $2.64 per share.

Source

November 23, 2010

German Exports and Investment Drove Economic Growth in the Third Quarter - Bloomberg

Filed under: Business, marketing — Tags: , , , — Gogo @ 10:56 pm

Exports and investment drove Germany’s economic growth in the third quarter, a detailed breakdown of the data showed today.

Exports rose 2.3 percent from the second quarter and equipment investment increased 3.7 percent, the Federal Statistics Office in Wiesbaden said today. Gross domestic product gained 0.7 percent when adjusted for seasonal swings, the office said, confirming a Nov. 12 estimate. In the second quarter, GDP surged 2.3 percent.

While growth is slowing as export demand wanes, stronger domestic spending may put the expansion on a firmer footing. Germany’s economy, Europe’s largest, will expand 3.7 percent this year, according to the government’s council of economic advisors. That would be the fastest growth since 1991.

“The upswing is broadening,” said Andreas Rees, chief German economist at UniCredit MIB in Munich. “Economic growth is not only driven by exports and investment, but also by private consumption.”

Consumer spending rose 0.4 percent in the third quarter, today’s report showed. Construction spending fell 0.4 percent after its 6.9 percent surge in the second quarter. Government spending advanced 1.1 percent and imports rose 1.9 percent.

Net trade and private consumption both contributed 0.3 percentage point to GDP growth in the quarter, while equipment investment added 0.2 percentage point. Inventory changes dragged on growth.

Germany is driving economic expansion in the 16-nation euro area as the sovereign debt crisis that started in Greece spreads to other countries. Ireland this week became the second euro nation to ask the European Union for a bailout.

Euro-area economic growth slowed to 0.4 percent in the third quarter from 1 percent in the second as governments’ cut spending to rein in record budget deficits. Weaker global and euro-area demand for its goods may damp German growth.

Source

November 22, 2010

Hong Kong’s Property Sales Tumble, Shares Slide as Curbs Deter Homebuyers - Bloomberg

Filed under: economics, online — Tags: , , , — Gogo @ 10:24 am

William Yue was ready last week to pay about HK$11 million ($1.4 million) for an apartment in Hong Kong’s Kowloon Tong district. Now, he’s reconsidering.

Financial Secretary John Tsang on Nov. 19 raised stamp duties and deposit requirements, and limited mortgage insurance, the toughest measures yet to rein in home values that soared 50 percent since January 2009. Li Ka-shing’s Cheung Kong (Holdings) Ltd. fell the most in six months, and Midland Holdings Ltd., the city’s largest realtor, plunged the most in a decade.

“The down payment we need to pay would probably be a bit out of our budget,” the 58-year-old Yue said yesterday. “We need to negotiate with the seller again and see if he’d bring down the price. Imposing the extra stamp duty should’ve been enough to curb speculation. All it does is hurt real users like us.”

Weekend sales of used homes fell 83 percent from the previous week, according to data from Centaline Property Agency Ltd. The changes mean homes sold within six months of purchase incur a 15 percent stamp duty, while down payments will rise to 50 percent for properties costing HK$12 million or more, and to 40 percent for those between HK$8 million and HK$12 million.

“The measures will likely have the biggest and most lasting impact on property prices seen to date,” Donna Kwok, a Hong Kong-based economist at HSBC Holdings Plc, said in a report. “Hong Kong has jumped onto the bandwagon of Asian central banks and is erecting its own defenses to fend off the flood” of capital from the U.S. easing, she said.

Hong Kong’s currency peg to the dollar prevents its de- facto central bank from raising interest rates to deter speculation. South Korea revived a tax on foreigners investing in its bonds last week, while Brazil tripled a tax on purchases of local fixed-income assets by overseas investors.

Stocks Fall

The Hang Seng Property Index, which tracks the city’s seven-biggest builders, fell 2.6 percent at the 4 p.m. local time close of trading. It has declined 10 percent since this year’s peak on Nov. 8.

Cheung Kong, the city’s second-biggest developer by market value, lost 3.2 percent, while Sun Hung Kai Properties Ltd., the largest, slid 3.1 percent. Midland tumbled 17 percent.

“This is a strong dose to calm down the housing market,” JPMorgan & Chase Co. analysts led by Lucia Kwong wrote in a report dated yesterday. “Given the new measures, we expect slower property sales that drive down” the net asset value of developers.

The number of transactions at some of Hong Kong’s biggest private housing estates fell to 10 on Nov. 20 and 21, Centaline, the city’s biggest privately held real-estate broker, said in a statement yesterday. There were 59 deals the previous weekend.

“We’re expecting transactions to drop between 10 and 20 percent for this quarter and prices will probably go down by about 5 percent at least,” said Wong Leung-sing, associate director of research at Centaline.

Housing Estates

The broker had only one transaction on Nov. 20 at the 12,700-unit Tai Koo Shing housing estate on Hong Kong Island, from six the previous week, District Manager Kenneth Chiu said yesterday.

“Most of the buyers we’ve been speaking to said they expect prices to drop further so they’ll hold off from making a decision for now,” Chiu said. “On the other hand, sellers on average are willing to bring down asking prices.”

The city’s home prices may drop 5 percent by year-end while transactions may fall 40 percent because of the measures, Credit Suisse Group AG analysts Cusson Leung and Joyce Kwock wrote in a report today faxless payday loans. JPMorgan also predicted a 5 percent decline in prices.

Transactions to Fall

Prices in some of Hong Kong’s most expensive districts, such as Kowloon Tong on the Kowloon peninsula bordering China, surged 52 percent since the beginning of 2009, according to an index compiled by Centaline. Those gains prompted the International Monetary Fund to warn last week that asset inflation may derail the city’s economy.

The measures will drag on home price gains rather than reverse the gains, UBS AG said in a report. Property transactions will fall by 20 percent to 30 percent, analyst Eric Wong said, adding that the measures may drive liquidity into other assets such as stocks.

Under the new measures, properties resold within 6 months to 12 months will incur a 10 percent stamp duty, while those resold between 12 months and 24 months will be charged 5 percent, Tsang said. The levy will be split between buyers and sellers.

Down payments for homes costing HK$12 million or more will be increased from 40 percent and for those between HK$8 million and HK$12 million from 30 percent, Hong Kong Monetary Authority Chief Executive Norman Chan said Nov. 19. The maximum loan to value for non owner-occupied residential properties will be lowered to 50 percent, Chan said.

More Curbs

It was the second time the government raised down-payment requirements this year. On Aug. 13 it increased them for apartments costing HK$12 million or more and for investment properties to 40 percent, from 30 percent.

Hong Kong Mortgage Corp., a government-backed home-loan insurer, capped at HK$6.8 million the value of a property that can be covered by mortgage insurance, it said Nov. 19.

Hong Kong this year has also stopped offering residency to foreigners who buy property in the city and pledged to increase land supply to curb prices, which surpassed a 1997 peak on the back of record-low mortgage rates and an influx of buyers from China.

The government “will closely monitor the market” and may introduce further measures if the latest curbs don’t stem property prices, Tsang wrote yesterday on his blog on the government’s website. The U.S. bond purchase program announced earlier this month has heightened the asset bubble risk in Hong Kong and it’s necessary for the government to adopt “pre- emptive” measures, Tsang wrote.

‘Extra Careful’

“We have to be extra careful,” said Chow Suet-kuen, a retired civil servant who is looking to buy an investment apartment, a day after the government’s measures. “We’re not speculators, but the extra stamp duties may force us to hold onto the properties longer. We’ll probably wait a bit to see how the market reacts.”

Chow, who was at the Hung Hom district sales office for Cheung Kong’s Festival City Phase II project in Sha Tin district, said her family was a long-term investor and owned three other investment properties in the Kowloon area.

The developer started selling 335 units at Festival City Phase II late on Nov. 19.

Still, Fred Leung, a 40-year-old businessman looking to buy an apartment to live in at Festival City, said the stamp duty wouldn’t affect him, though he may put off purchasing.

“I can see how the stamp duties would impact speculators, but that doesn’t really concern me,” said Leung a day after Tsang announced the measures. “I’m not sure if I’m going to make a decision now since I actually hope the developer will lower prices for the later units.”

Source

Ethics committee recommends censure for Rangel

Filed under: Business, management — Tags: , , , — Gogo @ 10:12 am

The House ethics committee on Thursday recommended censure for longtime Rep. Charles Rangel, suggesting that the New York Democrat suffer the embarrassment of standing before his colleagues while receiving an oral rebuke by the speaker for financial and fundraising misconduct.

Censure is the most serious congressional discipline short of expulsion. The House, which could change the recommended discipline by making it more serious or less serious, probably will consider the recommendation after Thanksgiving.

The ethics committee voted 9-1 to recommend censure and that Rangel pay any taxes he owes on income from a vacation villa in the Dominican Republic. The five Democrats and five Republicans on the panel deliberated for about three hours behind closed doors.

Earlier, at a sanctions hearing, the 20-term congressman apologized for his misconduct but said he was not a crooked politician out for personal gain. He was in the House hearing room when the ethics committee chairman, Democratic Rep. Zoe Lofgren of California, announced the recommendation.

Rangel faced Lofgren after the verdict and said, “I hope you can see your way clear to indicate any action taken by me was not with the intention of bringing any disgrace on the House or enriching myself personally.”

The vote against censure probably came from Rep. G.K. Butterfield, D-N.C., a former member of his state’s Supreme Court. He said before deliberations that he believed the facts merited a reprimand. A less serious punishment, a reprimand requires a House vote, but there’s no oral rebuke.

It’s unclear how much Rangel owes in taxes. An ethics committee document indicated he owed $16,775 as of 1990, but Rangel has paid some of his back taxes.

The ethics committee’s chief counsel, Blake Chisam, had recommended censure for Rangel. The ethics committee could have opted for lighter punishments, such as a reprimand, a fine or a report deploring the congressman’s behavior.

Rangel, 80, ended the sanctions hearing with an emotional plea to salvage his reputation.

Before speaking, Rangel sat for several minutes trying to compose himself. He placed his hands over his eyes and then his chin, before he slowly stood up and said in a gravelly voice that was barely audible: “I don’t know how much longer I have to live.”

Facing the committee members, he asked them to “see your way clear to say, ‘This member was not corrupt.’”

He continued: “There’s no excuse for my behavior and no intent to go beyond what has been given to me as a salary. I apologize for any embarrassment I’ve caused you individually and collectively as a member of the greatest institution in the world.”

In the most dramatic clash of the proceeding, Rep. Michael McCaul, R-Texas, questioned the assertion of Rangel _ the former chairman of the tax-writing Ways and Means Committee _ that he wasn’t corrupt.

“Failure to pay taxes for 17 years. What is that?” McCaul asked, referring to Rangel’s shortchanging the Internal Revenue Service on rental income from his villa in the Dominican Republic.

McCaul also noted the committee’s finding that Rangel solicited donors for the Charles B. Rangel Center at City College of New York from donors who had business before the Ways and Means Committee.

After an investigation that began in summer 2008, Rangel was convicted Tuesday by a jury of his House peers on 11 of 13 charges of rules violations.

He was found to have improperly used official resources _ congressional letterheads and staff _ to raise funds from businesses and foundations for the Rangel Center. A brochure with some of Rangel’s solicitation letters asked for $30 million, or $6 million a year for five years.

He also was found guilty of filing a decade’s worth of misleading annual financial disclosure forms that failed to list hundreds of thousands of dollars in assets, and failure to pay taxes on his Dominican unit.

Chisam said donations to the Rangel Center were going poorly, then spiked after Rangel rose to the top of the Ways and Means Committee. He noted the center would benefit minority students and asked, “What kid of example is that of what public service ought to be?”

Chisam asked what a neighbor of Rangel would think after she was evicted from her apartment in Harlem’s Lennox Terrace, for violating terms of her lease _ and then learning Rangel was allowed to convert a residential-only unit into a campaign office. Others were evicted for similar offenses, the committee found.

“How would that influence her faith in government?” Chisam asked.

And Chisam asked how a waitress struggling to pay her taxes on income and tips would feel about Rangel not paying taxes on rental money from his vacation villa.

Rangel brought in Rep. John Lewis, a Georgia Democrat, to give a testimonial for the congressman to the panel. Lewis called his colleague “a good and decent man” and said Rangel had worked tirelessly to advance civil rights.

Before Chisam commenced his remarks, Rep. Jo Bonner, R-Ala., told committee colleagues that Rangel needed only to “look in the mirror to know who to blame” for his predicament.

Source

November 20, 2010

Bernanke on perilous ground for Fed chairman

Filed under: Finance, online — Tags: , , , — Gogo @ 8:32 pm

Federal Reserve Chairman Ben Bernanke is taking some highly unusual steps to counter widespread opposition to his $600 billion plan to jump-start the economy. He’s pressing China to let its currency rise and pushing Congress to pass more stimulus aid.

Yet as he veers into these political debates, Bernanke may be putting at risk the Fed’s strongest tools _ its credibility and independence.

Bernanke has been under fire since Nov. 3, when the Fed announced a bold plan to buy $600 billion in Treasury bonds. The bond purchases are intended to lower long-term interest rates, lift stock prices and encourage higher spending to energize the weak economy.

In rat-a-tat fashion, critics have attacked the Fed’s program. They’ve warned that the bond purchases will eventually ignite inflation or a wave of speculative buying on Wall Street. China, Germany and other countries have labeled the bond purchases a scheme to drive down the dollar and give U.S. exporters an unfair price advantage. A lower dollar makes U.S. products cheaper for foreign buyers.

Bernanke has struck back in unusually blunt style for a Fed chairman. In a speech at a banking conference in Frankfurt, Germany, he made his most forceful case to date that high unemployment and slow growth, not inflation, are the biggest risks to the U.S. economy. He also accused China and other emerging nations of endangering the global economy by keeping their own currencies artificially low.

Critics see Bernanke’s ventures into congressional and global policymaking as a sign of weakness, not strength. If he were confident the Fed’s polices were either succeeding or enjoyed support, Bernanke wouldn’t feel compelled to try to sell them publicly.

“He needs help, and he doesn’t think he’s getting it,” Dan Greenhaus, chief economic strategist at Miller Tabak, wrote in a research report published Friday.

In pressing Congress and the Chinese to change policy, Bernanke is barging into the political arena, taking on issues like currency valuations that are normally handled by the treasury secretary, a political appointee.

He also risks endangering the Fed’s reputation for independence. The Fed needs its credibility to make unpopular decisions, such as raising interest rates to fight inflation, without being smeared as politically motivated.

Allan Meltzer, a professor at Carnegie-Mellon University and author of a history of the Fed, argues that Bernanke has already compromised the Fed’s independence. Meltzer said that happened during the 2008 financial crisis, when the Fed bailed out insurance giant American International Group and supported JPMorgan Chase’s takeover of troubled investment house Bear Stearns.

“He has acted as the agent of the Treasury Department,” Meltzer said. He argues that Bernanke’s latest counterattack is another sign of a politicized Fed.

Bernanke is hardly the first Fed chairman to come under fire. When Paul Volcker ran the Fed in the 1980s, he ratcheted up interest rates to levels not seen since the Civil War to bring soaring inflation under control. The Fed’s key interest rate rose as high as 20 percent. Today it is near zero.

Volcker endured a barrage of attacks as the economy slowed and unemployment climbed. Angry building contractors shipped two-by-fours to his office. Protesting farmers drove tractors in front of the Fed’s stately headquarters in downtown Washington.

So angered by a Fed rate increase, President Lyndon Johnson ordered staffers to find a replacement for Chairman William McChesney Martin. Johnson thought the Fed’s policies would make it too expensive to expand social programs and fight the Vietnam War. Martin refused to change course. In the end, he became the longest-serving Fed chairman ever.

“The Fed is criticized all the time,” Meltzer said. “If you are making policy, you are going to have critics.”

What’s different this time is that a Fed chairman has struck back at both Congress and other countries in a highly public manner. After being pounded by Republican lawmakers over the bond-purchase plan, Bernanke _ a Republican himself _ shifted the focus. He urged Congress to step up stimulus if lawmakers hope to bring relief to vast numbers of unemployed Americans.

“It is certainly unusual,” Meltzer said. “Bernanke criticizing Congress in the way he did is extreme.”

Meltzer thinks Bernanke’s counterpunch against China was wrongheaded. “The best way for China to do nothing with its exchange rate is by telling them that it is something the United States wants,” Meltzer said.

But Alan Blinder, former Fed vice chairman and professor of economics at Princeton University, says Bernanke was right to “engage the intellectual arguments” of critics at home and abroad.

“I don’t think he wants to get into a shouting match with any member of Congress or the finance minister of Germany,” Blinder said.

Blinder said he worries, though, that the political backlash might discourage the Fed from taking other steps to try to salvage the economy.

Rep. Mike Pence of Indiana and Sen. Bob Corker of Tennessee, both Republicans, are pushing legislation to narrow the Fed’s mission to focus solely on inflation. The Fed has traditionally managed a dual mandate to keep both inflation and unemployment low.

Joseph Gagnon, a former Fed official who is now a senior fellow at the Peterson Institute for International Economics, said he doubts the effort will go anywhere.

“This is more about playing to the peanut gallery in the Republican party than actually doing anything,” he said.

The Fed dodged a bigger threat to its independence earlier this year when Congress overhauled regulation of the financial system. Some lawmakers wanted to strip the central bank of its authority to regulate the banking system, saying lax regulation from the Fed contributed to the financial crisis. In the end, the Fed retained most of its power.

Stanford University’s John Taylor, a critic of the Fed’s handling of the financial crisis and recession, said there’s nothing wrong with Bernanke’s going public to explain his policies. But past chairmen have tended to speak obscurely and infrequently.

“Too much talking and explaining has diminishing returns,” Taylor said. “It tends to muddy the waters.”

But Sherry Cooper, chief economist at BMO Financial Group, said the Fed chief sent an unmistakable message to his critics: “Bernanke is nobody’s punching bag.”

Source

November 19, 2010

Greek Bailout Pledge Hard to Keep as Tax Collection Lags - Bloomberg

Filed under: Loans, Uncategorized — Tags: , , , — Gogo @ 6:56 am

Greece’s budget planning is going awry because of a perennial problem: taxes.

Finance Minister George Papaconstantinou plans to tackle tax evasion and cut spending on health care and transportation as revenue fails to meet targets. Yesterday, he reduced the estimate for 2010 net budget revenue a second time, to 6 percent compared with 13.7 percent when the country agreed in May to a 110 billion-euro ($150 billion) bailout from the European Union and International Monetary Fund.

“We all know the country’s economy is at a critical turning point,” Papaconstantinou said at a press conference in Athens. There is “a big difference between what we are doing now and what we did in May,” he said.

Greece has among the poorest rates of tax collection in Europe and avoidance remains rife, as more than 33 percent of workers are listed as “self-employed” and yet they provide just 4 percent of revenue, according to estimates from Athens- based EFG Eurobank. Inspectors from the EU and IMF began this week a review of progress to approve a third loan payment.

Taxes are vital to lower what was the largest budget deficit in the euro region last year at 15.4 percent of gross domestic product, according to the IMF. The shortfall will be 7.4 percent in 2010, the Finance Ministry said yesterday.

‘Strange Economy’

“We had an un-functioning, strange economy for 20 years and 18 months doesn’t get it back into place,” said Jason Manolopoulos, who helps manage $100 million for a hedge fund at Athens-based Dromeus Capital. “It’s not only tax evasion, it’s that the Greek tax system is so complicated it pushes people into the grey. It’s going to take time.”

Money from income, corporation and sales taxes increased 3.7 percent in first 10 months of the year, the ministry said. Revenue from taxes is among the lowest in the EU at 32.6 percent of GDP, compared with the 39.3 percent average for the 27 EU nations, according to a 2009 Eurostat report.

Reductions to wages, pensions and investment have helped mask lagging revenue in Prime Minister George Papandreou’s deficit-cutting drive. The government is counting on the last two months of the year to boost state income, buoyed by motor fees, real estate taxes and the effect of increases in sales taxes, even as the economy contracts 4.2 percent.

The IMF said Sept. 14, after approving a second loan installment, that curbing tax evasion and improving collection are key to achieving the deficit-reduction pledges.

“The program’s credibility hinges critically on improving tax compliance,” the IMF said. “Without improved compliance, restoring fiscal sustainability will likely require additional hikes in tax rates and painful expenditure cuts.”

Crimes Unit

In the first nine months of 2010, the country’s Financial and Economic Crimes unit imposed 3.1 billion euros of fines, almost double the year-earlier figure, said Ioannis Kapeleris, who runs the office, in an Oct. 7 interview. His office isn’t responsible for collecting the money, he said.

“We’re being asked today to fix the errors of a decade,” he said. “There was an absence of tax collection. Restoring this mechanism and getting it working again requires some time. It can’t be done from one day to the next.”

The government will announce specific steps next week to curb tax evasion and overhaul tax services, including abolishing 100 offices and deploying collectors elsewhere, Papaconstantinou said yesterday. All the measures announced in the 2011 budget were approved by officials from the EU and IMF, he said.

Back Taxes

The budget includes 1.6 billion euros to be raised from clamping down on tax evasion by collecting back taxes and fines, and a new system to settle disputes to increase revenue next year without raising tax rates, Papaconstantinou said. The government extended the deadline to Nov. 29 after collecting 300 million euros, he said yesterday.

Greeks are complaining about notifications being sent to the dead, unemployed and tax-paying enterprises.

Theodoros Hiotakis, a 57-year-old with a veterinary practice in Athens, said he was “horrified” when he was told he owed 2,500 euros of back taxes.

“I pay my taxes every year, every single year,” Hiotakis said. ‘We’ve told the tax department there’s a mistake and we’re waiting to see what they’ll say.”

Deputy Finance Minister Dimitris Kouselas said that of the 1.5 million notices sent by the tax office, some may be mistakes. Preliminary results from the amnesty show “a significant response from taxpayers,” he said.

Concerns about the fairness of Papandreou’s austerity measures may risk the social and political support that is essential for the program to succeed, the IMF said.

‘Poor State’

Ninety-five percent of income-tax payers declare annual income of less than 30,000 euros, according to data compiled last year by the Federation of Greek Industries.

“The problem with Greece is that it is a poor state with rich people,” said Kapeleris at the Financial and Economic Crimes unit. “Some people didn’t just magically achieve wealth. They were breaking the law, evading taxes.”

Papandreou revealed a budget deficit after coming to power in October 2009 that was twice what was reported by the previous administration, in part exacerbated by falling tax revenue as the country geared up for elections.

Additional tax evasion in the two months before elections amounts to 1.5 percent of GDP when aggregated over all the elections since the return of democracy in 1974 after the military junta, according to a study by Spyros Skouras, a professor at the Athens University of Economics and Business, and Nikos Christodoulakis, a former economy minister.

Source

November 17, 2010

Inflation subdued, housing starts tumble

Filed under: Mortgage, money — Tags: , , , — Gogo @ 3:48 pm

Consumer inflation was subdued in October and new home building slumped to a 1-1/2 year low, lending support to the Federal Reserve’s move to boost the sluggish economy through additional monetary easing.

The data on Wednesday could help ease criticism of the Fed’s November 3 move to pump more money into the economy through purchases of $600 billion worth of government debt.

“The reports really indicate why the Fed sees the need to ease (monetary policy) further. They stress the downside risks to the economy,” said Zach Pandl, a U.S. economist at Nomura Securities International in New York.

The Consumer Price Index rose 0.2 percent last month after edging up 0.1 percent in September, the Labor Department said. Economists had expected a 0.3 percent gain.

Excluding food and energy costs, prices were flat for a third straight month and the increase from a year ago of 0.6 percent was the smallest since records started in 1957.

A separate report from the Commerce Department showed housing starts plummeted 11.7 percent to a 519,000 unit annual rate, the lowest since April 2009 and well below the 600,000 economists had projected.

Weak inflation as the economy recovers moderately from the worst recession since the 1930s lifted prices for U.S. Treasury debt, while the dollar fell against the euro and yen.

Stocks on Wall Street were mostly higher, but investors were awaiting clarity on how a European Union-International Monetary Fund mission would solve Ireland’s debt crisis.

Sovereign debt problems in some European countries weighed on the U.S. economy’s recovery earlier this year. Data outside the housing market so far suggests the economy found some strength as the fourth quarter started, but investors are keeping a wary eye on developments in Ireland.

RETAILERS OPTIMISTIC

Signs of some improvement are also emerging at the corporate level, with retailers growing optimistic on holiday sales.

Discount chain Target Corp (TGT.N: Quote, Profile, Research, Stock Buzz) offered an upbeat fourth-quarter sales forecast on Wednesday, while earlier this week top retailer Wal-Mart Stores (WMT no fax cash advance.N: Quote, Profile, Research, Stock Buzz) said holiday sales would break a six-quarter streak of U.S. same-store sales declines.

But much of the anticipated sales gains will be the result of price cuts. This implies inflation will remain low, though economists do not foresee an outright deflation.

A government report on Tuesday showed core producer prices recorded their biggest decline in more than four years last month as vehicle prices tumbled.

“These price reports suggest that market fears about a potential outbreak of inflation from the Fed’s recent moves are massively overblown and are completely out-of-sync with the reality,” said Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Massachusetts.

The U.S. central bank’s decision to launch another round of large-scale bond buying, a policy known as quantitative easing — or QE2 as analysts call it — is intended to prevent prices from spiraling down further. It has been sharply criticized both at home and abroad for risking inflation and devaluing the dollar.

Economists, however, do not expect the Fed to change course. The 0.6 percent reading on core inflation is way below the Fed’s comfort zone of between 1.7 percent and 2.0 percent.

“There is no double-dip (recession) or deflation on the horizon, but the data will encourage the Fed to keep on its QE2 path,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.

In October, overall consumer prices were lifted by a 4.6 percent jump in gasoline prices, which built on a September increase of 1.6 percent. Food prices rose by a muted 0.1 percent after gaining 0.3 percent in September

New motor vehicle prices, which depressed core wholesale prices in October, contributed to holding down the core CPI number, as well. New vehicle prices fell 0.2 percent, while the cost of used trucks dropped 0.9 percent.

Shelter costs edged up 0.1 percent, while apparel fell 0.3 percent in October.

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November 16, 2010

10 ways to cut Uncle Sam’s budget

Filed under: Homes, Mortgage — Tags: , , , — Gogo @ 5:04 am

Cut the budget! That was the rallying cry for many candidates of both parties, but if you listened closely, you heard little in the way of specifics.

Enter the co-chairmen of President Obama’s bipartisan deficit commission. On Wednesday, they recommended 58 ways to cut spending. And their cuts are downright specific.

The report from Erskine Bowles and Alan Simpson — experienced Washington hands — recommends reducing discretionary spending to 2010 levels in 2012, and then cutting discretionary spending by 1% a year through 2015.

After 2015, inflation-adjusted growth would be allowed.

Overall, Simpson and Bowles are recommending that total spending not exceed 22% of GDP initially, but no more than 21% eventually.

To show how Congress could hit those targets, Bowles and Simpson offered examples of cuts totaling $200 billion for the year 2015.

Here are their top 10 money-saving proposals, six of which come from the defense portion of the federal budget:

Streamline the Defense Department: In May, Defense Secretary Robert Gates announced a plan to cut defense spending and reallocate the money within defense. But Bowles and Simpson say that $28 billion in savings could be used to reduce the deficit.

Reduce defense procurement: The co-chairmen proposed cutting $20 billion in defense contracts. On the chopping block are two next-generation fighting machines: the V-22 Osprey and the Expeditionary Fighting Vehicle.

Cut 250,000 non-defense contractors: There are simply too many government contractors (2.4 million added between 2002 and 2005), according to Bowles and Simpson. Cutting 250,000 jobs would save an estimated $18 payday loan lenders.4 billion.

Eliminate all earmarks: Long the whipping boy of government spending, cutting these handpicked pork projects would save an estimated $16 billion.

Freeze pay for non-defense workers for 3 years: The wages of federal employees have continued to climb during the recession, despite the fact that private-sector wages have stalled. A three-year freeze on government pay would net $15.1 billion in savings, according to the co-chairmen.

Cut non-defense workforce by 10%: If the government hires only two workers for every three that leave their jobs, the federal workforce will decline by 200,000 by 2020, saving the government $13.2 billion.

Freeze non-combat military pay: Regular military pay is expected to grow by $9.2 billion from 2011 to 2015. The report recommends a three-year freeze at 2011 pay levels (excluding combat pay).

Cut overseas military deployments: Reducing the 150,000 military personnel on overseas deployment by one-third would save an estimated $8.5 billion. Both former Defense Secretary Donald Rumsfeld and National Security Adviser Jim Jones have supported similar proposals in the past.

Reduce military R&D: A 10% reduction in military research and development would save an estimated $7 billion. Bowles and Simpson argue the cut is consistent with the military’s move away from major weapons system research.

Modernize military health care: Reforming the DOD’s health care systems would save an estimated $6 billion.  

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November 14, 2010

G-20, APEC Yield Little to Resolve Imbalances, Stem Capital Inflow Concern - Bloomberg

Filed under: management, marketing — Tags: , , , — Gogo @ 1:04 pm

Leaders of the world’s biggest economies ended four days of talks without taking decisive measures to address the global imbalances that have fueled asset bubbles and risk leading to a protectionist backlash.

Asia-Pacific leaders yesterday in Japan pledged to take “concrete steps” toward creating a regional free-trade agreement without setting a target for achieving that goal. Their meeting followed the Nov. 11-12 Group of 20 summit in Seoul that “opposed protectionist trade actions” while failing to agree on a remedy for trade and investment distortions.

Officials went into the G-20 vowing to reduce global trade friction by agreeing to avoid weakening their currencies to boost exports. Once there, the U.S. and China took turns blaming the other’s foreign exchange policy, with President Barack Obama calling the yuan “undervalued” and Chinese officials saying the Federal Reserve’s monetary easing was undermining the dollar.

“The problem that people really were concerned about, the effects of U.S. monetary policy in terms of capital flows, was barely addressed at all,” said Uwe Parpart, chief economist and strategist for Asia at Cantor Fitzgerald HK Capital Markets. A solution that doesn’t involve China boosting domestic demand and the U.S. increasing savings “deals with symptoms, not the real cause,” he said.

Hu indicated no change in his country’s currency policy in a Nov. 13 speech, adding that pressure for quick reforms “will do no good to international cooperation.” The same day, National Security Adviser Thomas Donilon told reporters that the U.S. wants China to let the yuan rise more before Hu visits Washington in January.

Trip Ends

Obama flew home yesterday after a 10-day trip aimed at supporting his goal of doubling exports in five years. He pressed Hu on allowing the yuan to strengthen during an 80- minute meeting on Nov. 11 as China’s record $28 billion trade surplus with the U.S. in August heightened criticism its government maintains an unfair cap on the currency.

The yuan, also known as the renminbi, has risen about 3 percent against the dollar since June 19, when China scrapped its two-year peg. China has $2.65 trillion of foreign currency reserves, more than double any other country.

“The pressure from the U.S. is most likely to result in none too subtle threats about the dollar’s reserve status,” Paul

Donovan, deputy head of global economics at UBS AG, said in an e-mail yesterday. ‘‘It is unlikely to speed up the process of renminbi revaluation.”

Boost Growth

Obama told reporters after the G-20 that the Federal Reserve’s plan to buy an additional $600 billion of Treasuries was designed to boost growth. He said a stronger economy would help the U.S. cut a budget deficit that reached $1.294 trillion in the fiscal year that ended Sept. 30, second only to the $1.415 trillion shortfall in 2009.

The G-20 statement said emerging markets facing a surge of capital inflows can adopt regulatory steps to cope, offering them cover to limit currency swings and stem asset bubbles. Finance ministers from the G-20 will work next year on a set of so-called indicative guidelines designed to identify large economic imbalances and actions needed to fix them, the leaders said in a statement.

‘‘The decision to create a framework is a useful step as it can show the relative significance of individual country imbalances and provide an indication of where adjustments should take place,’’ Philippine central bank Governor Amando Tetangco said in a mobile phone message yesterday.

APEC Meeting

Leaders of APEC’s 21 economies, which account for more than 50 percent of the global economy and almost 45 percent of its trade, said the region ‘‘is recovering from the recent economic and financial crisis, but uncertainty remains.’’ Echoing the G-20 statement, the group called for greater currency flexibility and warned against volatile movement in the foreign exchange market that can disrupt economic growth.

‘‘We will move toward more market-determined exchange rate systems’’ and ‘‘refrain from competitive devaluation of currencies,’’ the statement said. Advanced countries will be vigilant to ‘‘help mitigate the risk of excessive volatility in capital flows facing some emerging market economies.’’

‘‘The APEC meeting was overshadowed by G-20, where countries were divided over the yuan and other currency policies,’’ said Koji Murata, professor of international relations at Doshisha University in Kyoto. ‘‘The result was vague and lacking substance.’’

Trade Talks

The U.S. pushed for the completion of the nine-country Trans-Pacific Partnership by next year’s APEC meeting in Honolulu, Trade Representative Ron Kirk said yesterday in an interview in Yokohama, Japan. That would lay the groundwork for a wider agreement that may include China, he said.

Obama on Nov. 13 said he ‘‘very much welcomed’’ Japan’s interest in joining talks on the TPP, which would be the largest U.S. trade accord since the 1994 North American Free Trade Agreement with Canada and Mexico. The talks now include the U.S., Australia, Singapore, New Zealand, Brunei, Chile, Vietnam, Peru, and Malaysia.

Japanese Prime Minister Naoto Kan, who favors joining the TPP talks, faces resistance from his own party amid a backlash from farmers who benefit from tariff protection. His Cabinet last week agreed only to begin preliminary discussions on the negotiations.

‘‘We just want to keep our foot to the pedal and see how far we can get to closure by the time we convene next year,’’ Kirk said, adding that five rounds of talks are scheduled for 2011. ‘‘What we are ultimately creating will become the Free- Trade Agreement of the Asia-Pacific.’’

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