• More than $48 billion was withdrawn from emerging market funds in 2008, with the largest chucks of change pulled from funds tracking Asia, according to EPFR Global. An emerging markets bellwether, the MSCI Emerging Markets Index, dropped 54% last year, its worst performance since it was created in 1987, Bloomberg reported.

• Bank of America Corp. (BAC) sold 5.62 billion of its China Construction Bank Corp. shares, raising $2.83 billion. Based on the Construction Bank’s IPO price, Bank of America realized a profit of about $1.13 billion, Reuters reported.

• Bargain retailer Family Dollar Stores Inc. (FDO) closed its fiscal fourth quarter with a 14% rise in profit and raised its annual forecast, Reuters reported. The compact expects to earn $1.63 to $1.81 a share, up from $1.58 to $1.78, in its fiscal year ending August 29. It also expects sales, same-store sales and total sales to rise as well.

• Orbitz Worldwide, Inc. (OWW), an online travel agency, announced a new president and chief executive, and that it would institute more measures to save an additional $20 to $25 million annually. Barney Harford will replace Steve Barhart as CEO, The Wall Street Journal reported.

• Russia cut off all gas supplies to Europe through Ukraine yesterday (Wednesday) leaving more than a dozen countries struggling with dwindling energy supplies in the depths of winter, The Associated Press reported. “It is unacceptable that the EU gas supply security is taken hostage to negotiations between Russia and Ukraine,” said European Union spokeswoman Pia Ahrenkilde Hansen.

• Monsanto Co. (MON), the world’s largest producer of genetically modified seeds, closed up more than 17% yesterday (Wednesday) after the company reported that first-quarter profit more than doubled. Revenue jumped 29% to $2.65 billion from $2.05 billion.

• India’s Sun Pharmaceuticals Industries Ltd. said yesterday (Wednesday) that it’s secured U.S. Food & Drug Administration approval to sell a generic tablet version of the painkiller Vicodin. The U.S. market for branded and generic versions of that drug is worth $540 million. Sun has also received approval for generic versions of cholesterol-fighting Lopid, for Aredia, which is used to treat high blood calcium, and for the anti-allergent drug Phenargen, in multiple strengths, Reuters reported.

• Light, sweet crude for February delivery yesterday (Wednesday) tumbled 12%, or $5.95, to settle at $42.63 a barrel on the New York Mercantile Exchange. The drop was the mainly the result of a report from the Energy Information Administration said U.S. inventories of commercial crude inventories rose by 6.7 million barrels.

Source: Global Investing Roundups Thursday, January 8th, 2009

• St. George Bank Ltd., Australia’s fifth-largest bank, yesterday (Monday) agreed to a revised $14.4 billion takeover offer from larger rival Westpac Banking Corp. (ADR: WPK). St. George shareholders will receive a special dividend of 23 cents per share, worth $133 million in total. Westpac is offered 1.31 of its shares for every share of St. George.

• Chile is doubling the amount private pension funds can invest abroad, The Associated Press said yesterday (Monday). The percentage pension funds are allowed to invest internationally will increase from 30% to 45% as of Oct. 1. The ratio will then be moved up to 50% on Dec. 1, 55% on April 1, 2009, and 60% on Aug. 3, of that year. The measure should help the funds’ to become more profitable and keep Chile’s peso from rising too much against the U.S. dollar.

• Trading on the London Stock Exchange was suspended for about seven hours yesterday (Monday), as the world’s third largest share market struggled with a systems failure. The LSE plans a series of system upgrades and is migrating Italian equities to its trading platform TradElect this month, according to Reuters.

• South Korea’s financial regulator yesterday (Monday) urged Korea Development Bank to be cautious in making any investment in Lehman Brothers Holdings Inc. (LEH) Korea Development Bank “should be very prudent in its approach to acquiring Lehman given the condition of financial markets at home and abroad and that it has not yet been privatized,” Jun Kwang-woo, told The Associated Press. Lehman could post losses of up to $4 billion for the third quarter, and may be looking to raise fresh capital to help offset the losses.

• A 2002 Chicago Tribune story, mistakenly reprinted on a Florida news website, sent shares of United Air Lines Inc. parent company UAL Corp. (UAUA) plunging to a new low of just one cent before trading was halted. The story detailed the airline’s Dec. 9, 2002 bankruptcy claim. “United has demanded a retraction from the Sun-Sentinel and is launching an investigation,” the Chicago-based carrier said in a statement, Bloomberg News reported.

• Consumer credit increased $4.6 billion in July to $2.59 trillion the Federal Reserve announced yesterday (Monday). The increase was about half of what was expected and a decline from June’s increase of $11 billion. Banks remain risk-adverse with tight credit-lending standards, while consumers are paring back on spending as the job market and economic outlook remain uncertain, Bloomberg News reported.

• Crude oil for October delivery increased yesterday (Monday) on the threat of Hurricane Ike in the Gulf of Mexico. Futures traded on NYMEX edged up 11 cents to settle at $106.34 a barrel after earlier trading between $104.70 and $109.89, Reuters reported. Gains were moderated by a strong greenback.

• Alberto-Culver Co. (ACV) announced yesterday (Monday) that it would purchase global rights to the Noxzema skin care brand from The Proctor & Gamble Co. (PG). Financial terms of the deal were not disclosed, but include Noxzema’s existing business in the United States, Canada and parts of Latin America, Reuters reported.

Source: Global Investing Roundups Monday, September 8th, 2008

Money Morning’s William Patalon III says dire warnings like this are becoming more frequent. And the slump in shares for Fannie Mae (FNM) and Freddie Mac (FRE) this week is generating more fear among investors.

William says the financial meltdown will keep the Fed from raising interest rates anytime soon. But at a time when inflation is accelerating, this will create more problems down the line…

The global financial crisis is set to get much worse, with a large U.S. bank failure likely in the next few months, former International Monetary Fund (IMF) Chief Economist Kenneth Rogoff has warned.

Speaking at a conference in Singapore, Rogoff, now an economics professor at Harvard University, said that despite hopes that the U.S. economy had turned the corner, the reality is that “the worst is to come.” And that includes the probable collapse of a “whopper” U.S. bank or investment bank, he said.

“We’re not just going to see mid-sized banks go under in the next few months,” said Rogoff, who held the IMF role between 2001 and 2004. “We’re going to see a whopper, we’re going to see a [failure of a] big one – one of the big investment banks or big banks.”

Rogoff’s comments – reported by Great Britain’s BBC News – coincide with Money Morning’s repeated predictions over the past year that the ongoing U.S. financial crisis would have real staying power. Just this week, in fact, Money Morning featured an exclusive interview with investing guru Jim Rogers, in which the well-known author and commentator said that Americans will be feeling the fallout from this crisis for years to come.

The end of this global financial crisis “is a long way away,” Rogers said. “In fact, it may not be in our lifetimes.”

Dire predictions like those made by Rogoff have been increasing in frequency. Back in June, analysts with the Royal Bank of Scotland Group PLC (ADR: RBS) warned clients to brace for a full-blown crash in the global stock-and-bond markets that would take place within 90 days, as the conflicting realities of slowing growth and rising inflation paralyzed the world’s major central banks. The result: “All the chickens will come home to roost,” the RBS analysts told Great Britain’s Daily Telegraph newspaper.

That report raced across the Internet, although it appeared at the time that European news organizations gave it much greater play than their U.S. counterparts.

The Fed’s Market Missteps

This week’s comments by Rogoff, the former IMF official, came as shares of Fannie Mae (FNM) and Freddie Mac (FRE) sank Monday on a report that the Bush administration wants to nationalize the two mortgage lenders.

In his speech in Singapore, Rogoff predicted that Fannie Mae and Freddie Mac would “probably” not exist in their present form in just a few short years, stating that “we have to see more consolidation in the financial sector before this is over.”

On Monday, shares of Fannie Mae fell more than 22%, or $1.76, to close at $6.15. Shares of Freddie Mac fell almost 25%, or $1.46, to $4.39. Fannie Mae’s shares were down another 1.63% yesterday (Tuesday), closing at $6.05, and Freddie Mac’s shares dropped by another 5.74%.

Shares in Freddie and Fannie plunged in July on investor fears that the two government-sponsored enterprises would run out of money to fund their businesses, which prompted the U.S. government to step in and take radical steps to avert a financial panic.

As mortgage guarantors that are there to pay up when homeowners default on their loans, the two firms have served as the financial backbone of the U.S. mortgage market: Virtually all U.S. mortgage lenders rely on the two to buy up mortgages in order to access the funds to lend to consumers.

With the onset of the subprime mortgage crisis – and the one-two punch of collapsing home values and soaring foreclosures – Fannie and Freddie’s finances have been savaged. That subprime crisis and ensuing global financial crisis has hammered the global credit markets and led U.S. Federal Reserve policymakers to slash the benchmark Federal Funds rate from 5.25% last September all the way down to 2% earlier this year.

But Rogoff has joined the growing list of critics who maintain that it was a major miscue for the U.S. central bank to cut interest rates as “dramatically” as it did. The reason: Cutting interest rates “is going to lead to a lot of inflation in the next few years in the United States,” Rogoff said.

But inflation may still not be the top worry over at the Fed.

On Friday, two top central bank officials predicted a weak second half for the U.S. economy, warning that strong U.S. growth may not return until 2010. Atlanta Federal Reserve Bank President Dennis P. Lockhart and Chicago Fed Bank President Charles L. Evans both said the U.S. central bank is in no hurry to start raising rates while the American economy is sputtering badly because of an ongoing global financial crisis, a sagging housing market and inflationary pressures caused by a yearlong run-up in food-and-energy prices.

In fact, Lockhart even said he wouldn’t rule out actually cutting interest rates if economic circumstances warranted – a remarkable admission at a time when the economic crisis is juxtaposed over rising inflationary pressures, and when most Fed-watchers expect the central bank’s next move to be an increase in interest rates.

A reduction in interest rates would jump-start U.S. growth. But there’s a good chance it would also re-start an escalation in energy and food prices – and a resumption of the bull market in overall commodity prices. Coupled with the ongoing downward spiral in the U.S. housing market, this could signal the return of stagflation for the first time since the 1970s.

There’s evidence this is already happening. Wholesale prices advanced at their steepest annual rate in 27 years last month, while monthly housing starts dropped to their lowest level in 17 years, two separate government reports said yesterday.

In fact, the 1.2% monthly increase in wholesale prices was well above what economists had been anticipating. For the 12 months through July, wholesale prices advanced at a 9.8% annual clip. Prices haven’t increased that steeply since the deep recession of the early 1980s.

But there may be two opposing schools of thought forming inside the Federal Reserve. Federal Reserve Bank of Richmond President Jeffrey M. Lacker feels the policymaking Federal Open Market Committee (FOMC) might have to boost interest rates before signs of an economic recovery are actually confirmed, Bloomberg News reported yesterday (Tuesday).

“It is important to withdraw this monetary policy stimulus in a timely way,” Lacker said in a Bloomberg Television interview. “That may require us to withdraw before we are certain all of the weakness is behind us and before we are completely certain that financial markets are as tranquil as we would like to see.”

Central bank policymakers signaled two weeks ago that the U.S. financial crisis and the souring employment outlook would delay any increase in short-term interest rates. And those officials – including Lacker – ruled out any potential for rate reductions.

“I certainly don’t think the Federal Funds rate should be any lower, given where we are now,” Lacker said. `Monetary policy is very stimulative right now [and] we are still in a fairly risky situation” on the inflation front.

One last point is worth noting: While Lacker is a voting member of the FOMC, Evans and Lockhart don’t attain that authority until next year.

Source: Former IMF Economist Predicts “Whopper” U.S. Bank Failure, Says Global Financial Crisis Set to Get Much Worse

Bill Patalon in Money Morning says the games are a reminder that every investor needs a China strategy. Despite the country’s benchmark Shanghai exchange being in “double bear” territory, China’s economy is white hot right now, and it’s expected to grow by double digits this year.

The bottom line, says Bill, is that ignoring China is ignoring the world’s second-most-important economy – not a way to profit in the long term. Consider the following facts:

• In 2007, China contributed more to global growth than the United States – becoming the first country to do so since the Great-Depression-ridden 1930s.
• China last year took over the top spot as the world’s largest consumer, pushing past the United States as the biggest user of four of the five most basic energy, food, and industrial commodities, Newsweek reported.
• China’s manufacturing sector is now bigger than its U.S. counterpart, with an output value that eclipses the $2.7 trillion in annual production generated by U.S. factories – a capability that could ultimately also enable the Asian Grand Dragon to position itself as a military superpower.
• And China is now the world’s No. 2 market for automobiles and the No. 1 producer of ocean-going merchant ships.

And this is just the beginning.

During a January 2007 speech in Beijing, economist and former U.S. Treasury Secretary Lawrence H. “Larry” Summers pointed out that Europeans who lived through the Industrial Revolution saw their standards of living increase by about 50% during their average 40-year lifespan. When industrialization spread to the more-entrepreneurial United States, living standards of the beneficiaries improved by four to five times. But residents of Asia – and especially China – who live through the ongoing “Asian Miracle” will see their living standards improve a hundredfold during their lifetimes – or 10,000%.

The wealth created from all this growth during our lifetimes alone will be enormous. But it won’t happen overnight, and it won’t occur in a straight line. Just as we’ve seen here in the U.S. financial markets, there will be periods of political and economic strife that whipsaw the values of such assets as stocks, bonds and real estate. Long-term, however, the trend is for the value of these assets to increase – and at a much steeper rate than we’ll see in any other market in the world.

That’s particularly true at a time when the United States may well be facing a Japanese-style “Lost Decade.”

And that’s also why it’s crucial for every investor to have a China investment strategy.

But there won’t be much to report.

Although the Federal Reserve’s policymaking Federal Open Market Committee (FOMC) meets Wednesday, the group doesn’t have much room to maneuver: If the Fed cuts rates to stimulate growth, already troublesome inflation could escalate out of control. But if the FOMC raises rates to reign in inflation, the entire economy could drop into a deep-and-lingering recession.

To be sure, Fed policymakers are sure to engage in some spirited debate: The debates will include such topics as pricing pressures vs. slow growth and strong energy prices vs. the weak housing market. There will even be talk about extending the emergency-borrowing program, or about expanding oversight over financial-services firms.

But if Federal Reserve policymakers do much of anything more than just debate the issue – and try and take some kind of action, using interest rates as their weapon of choice – there’s almost certain to be a negative impact on the U.S. economy.

The data coming out this week will focus on the consumer as personal income/spending and consumer credit reveal just how active folks have been during these uncertain times. As the summer (of discontent) winds down, travelers may be able to get in a last minute trip or two as gas prices have declined over the past few weeks. And retailers are hoping to benefit from the “back to school” shopping crowd. And second-quarter earnings reports continue as consumer giant, The Procter & Gamble Co. (PG), and insurer American Insurance Group Inc. (AIG) headline the reporting companies.

The final question: Will there be any new surprises as the season comes to a close?

Market Matters

As earnings season plugs along, just as many questions and concerns about the strength of Corporate America remain unanswered as when Alcoa Inc. (AA) was first on the clock a few weeks back.

At mid-week last week, just over half of the Standard & Poor’s 500 Index companies had reported and the results actually looked halfway decent (relatively speaking, that is). About two-thirds of those companies announced earnings that exceeded expectations, while only 20% or so missed on analysts’ targets.

Financials dominated the “good” news companies, as four of the five leading banks bested Street estimates (though, that often meant lower losses instead of better profits). However, when the dust finally settles, the second quarter will represent the fourth-straight period of declining earnings as S&P companies are headed for a double-digit drop from last year.

Of course, the massive plunge among financials greatly contributed to the negative results. Looking forward, the eternal optimists remain confident that positive earnings will return for the second half of the year. These optimists even believe that the financials may lead the way as commercial banks and investment banks finally move beyond the period of “never-ending” write-downs. However, if such optimism does not come to fruition and annual earnings decline for the second full year in a row, Corporate America will have accomplished something not experienced in quite a while – not even during the bear market (and recession) of the early 2000s.

So, let’s review last week’s numbers. Energy companies benefited from the surge in oil and gas prices as Exxon-Mobil Corp. (XOM) posted the best quarter ever by a domestic company (though it still managed to fall short of Street expectations). Royal Dutch Shell PLC (RDS.A, RDS.B) and Chevron Corp. (CVX) reaped some strong results as well [For a related story on Exxon and Shell, please click here. For Money Morning‘s recent “Buy, Sell or Hold” feature on Chevron, please click here].

United States Steel Corp. (S) took advantage of the rise in commodity prices, while Verizon Communications Inc. (VZ) and Motorola Inc. (MOT) both recognized better-than-expected profits. On the downside, General Motors Corp. (GM) experienced its third-worst quarter ever. Tyson Foods Inc. (TSN) struggled as increased grain prices hindered chicken sales. Sony Corp. (ADR: SNE) was victimized by a decline in consumer spending. And one-time telecom-sector darling Alcatel-Lucent (ADR: ALU) reported another terrible quarter and said goodbye to both its chairman and its chief executive officers at the same time.

Shifting to the financial world (where there’s no rest for the weary), Merrill Lynch & Co. Inc. (MER) plans to write-down another $5.7 billion as it sells off much of its underwater mortgage portfolio and looks to raise another $8.5 billion through a common stock issuance. (Some analysts believe Citigroup Inc. (C) has another $8 billion in write-downs in it, as well). First National Bank of Nevada and First Heritage Bank joined IndyMac Bancorp Inc. (OTC: IDMC) as they were taken over by the Federal Deposit Insurance Corp. (FDIC).

Volatility emerged in the energy market as oil prices fell to their lowest level in two months and even declined in July by almost $16 a barrel from previous record highs. A late-week rally pushed prices higher, though the general trend may have shifted. Some untimely comments from the Organization of the Petroleum Exporting Countries (OPEC), and turmoil in Nigeria (not to mention Iran) threaten to shift that newly upbeat mood back into a negative one.

Gasoline fell below $3.90 a gallon after hitting a high of $4.11 at mid-month. Stocks experienced quite a bit of volatility as daily triple-digit price movements (up or down) seem to have become the norm. Weaker economic data (see below) helped end last week on a sour note, while bonds benefited from a flight-to-quality that sent the yield on the 10-year below 4% again. All in all, another ho-hum summer week (if +/- 200 daily price moves can be considered ho-hum).