Thursday, November 6, 2008

Roundup: November 6


Central Banks around the world coordinated a massive rate cut, with the ECB dropping its rate by 50 basis points, the SNB by 50 basis points, and the BOE by 150. Willem Buiter is pleased but a little flustered. Today's trading anyway marks the biggest two-day decline in US stock markets since the '87 crash.

Retail sales dropped to their lowest levels for October since 1969, even after numbers were buoyed by consumers switching to WalMart stores from more upmarket retailers. Numbers showed a 0.9% decline including Walmart, but, excluding Walmart, same-store sales dropped 4.6%. Sales of bonds backed by top-rated consumer credit card debt dropped to zero in October, from around $17bn in October 2007. Initial jobless claims dropped slightly, but continuing jobless claims rose 100k -- a terrible number, and unanticipated.

The auto industry meets today with House Speaker Nancy Pelosi to discuss options for further financial aid for the companies, after the Treasury just rejected their bid for a further bailout. Rules governing the $25bn in low-interest loans to support were rushed out by the DOE today so Detroit could access this financing as soon as possible. Worryingly, Toyota cut its profit forecasts by 60%.

News Corp and Allied Irish Bank warned on profits as UBS says it is considering legal action to claw back bonuses paid to executives during the boom years. RBS sold GBP3bn of bonds backed by the UK government today; Wells Fargo says it plans to sell at least $10bn of common stock to fund its purchase of Wachovia. Goldman Sachs has cut 3200 jobs (10% of its workforce). Brussels is investigating the German recapitalization of Commerzbank to determine if it is anti-competitive.

MiCEX again halted trading because of rapid price drops, its first stop in trading in several weeks.

Brad Setser predicts that the Chinese down-turn will be less severe than some other commentators have forecast, including his close collaborator Nouriel Roubini, arguing that much of China's growth was not export-driven. Of course, a small down-turn may be sufficient to destabilize the Communist Party, which is sitting on several potentially major fires related to land reform in rural China.

Philip Lane argues Iceland should aim to align its future with the European Union. It remains to be seen, of course, whether the EU will emerge from the economic crisis stronger -- or in shambles. A breakdown of EMU due to a Eurozone country experiencing extreme macroeconomic stress -- perhaps Ireland, Portugal, Greece, or Italy -- remains a distinct possibility. Yet with the EU stepping in to help facilitate bailouts for Europe's margins (Ukraine, Hungary, Iceland), existing EU members scheduled for EMU moving to speed the process of monetary integration (Poland), and some non-Eurozone members looking again at joining (Denmark), the balance so far looks in favor of European integration.

Yahoo CEO Jerry Yang has suggested that Microsoft make a new offer for the takeover of the company.

Calculated Risk has a brief discussion of NYC Mayor Bloomberg's new report on New York City commercial real estate.


A story is going around that Dimitri Medvedev may resign his office in 2009 to pave a way for the return of Vladimir Putin to the presidency, whose term will likely be extended from four to six years after yesterday's speech by Medvedev. However, it is likely that this story may have been planted as a way of gauging international reactions. Robert Amsterdam has a lovely piece of analysis of the situation in Nagorno-Karabakh, a region of conflict between Armenia and Azerbaijan. The EU has called for resumption of talks with Russia over a partnership agreement, despite Russia's refusal to remove all troops from South Ossetia. The EU had demanded the withdrawal of these troops as a precondition for the talks, and Poland and Lithuania, among others, are incensed.

Speculation over the possible composition of the Obama cabinet is brewing.


Global oil demand may fall in 2009 for the first time in 26 years, according to the EIA. However, the IEA forecasts an average price for crude of $100 from 2008-2015, as the threat of a global supply crunch enforced not by fundamental shortages but by a lack of investment looms.

Canada has been lobbying the Obama camp about the mitigation of environmental damages from the extraction of oil from Alberta tar sands.

We move closer, amid some controversy, toward the implementation of Individual Trading Quotas (ITQ), a sustainable fishery management tool discussed in Nature last month, along the entire federal Pacific Ocean fishery.

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