Sept. 22 (Bloomberg) -- That’s it, then. The global recession is over. At least that’s what Federal Reserve Chairman Ben Bernanke says.
Answering questions last week, the world’s most powerful central banker said the U.S. recession was “very likely over at this point.” Much the same story is being played out in the rest of the world, with the German, French and even U.K. economies gradually recovering from their own slumps.
And yet the biggest shock to the global financial system since the 1930s won’t just leave us with a legacy of lost output and higher unemployment. The recession will reshape the way we think about the economy for a generation. Over time, we will see that the credit crunch caused shifts of power and influence between industries, professions and countries.
So who are the winners and losers from the recession? Here are five places to start: Historians have triumphed over economists; hedge funds over bankers; Germany over Britain; the right over the left; and the frugal over the spendthrift.
One: Historians won out over economists. No single group of professionals took a worse battering during the economic slump than economists. Not even bankers. A science that has disappeared up a mathematical dead end couldn’t see the crisis coming, couldn’t explain it to anyone once it broke, and couldn’t come up with a way forward after it happened.
Lessons of History
Instead, people turned to lessons of history to make sense of it all. Niall Ferguson, a history professor at Harvard University in Cambridge, Massachusetts, is now listened to on economic issues. Likewise Nassim Taleb, a professor of risk engineering whose book “The Black Swan” dipped into the history of rare, high-impact events to describe how we didn’t see this storm brewing. At this rate, investment banks will be building small, dusty libraries in the basement, and filling them with in-house historians. It will be a long time before economists are listened to again.
Two: Hedge funds over bankers. If Lehman Brothers Holdings Inc. had a dollar for every time someone warned that hedge funds would bring the financial system to its knees, the bank wouldn’t have gone bust. While hedge funds took plenty of criticism, and are still facing calls or more regulation, the simple fact remains that they didn’t blow up the way many predicted. It was the mainstream banks that caused the crisis. That will influence regulators and investors for many years. Whatever people say now, it’s the banks that will face more scrutiny, not hedge funds. The result? The lightly regulated, cash-rich hedge funds will grow in importance, while the tightly controlled, capital- constrained banks stagnate.
Baseless Fears
Three: Germany over Britain. For much of the past decade, the fast-growing U.K. was gaining on Germany for the role of Europe’s most influential nation. Almost 20 years after reunification, fears of a resurgent Germany turned out to be baseless. It was Britain, with its financial center, that was emerging as the leading European nation. The credit crunch will throw that into reverse. The U.K. is condemned to a decade of struggling with a fiscal mess, while Germany should bounce back quickly from the recession with an export-led recovery.
Four: The right over the left. The credit crunch was probably the perfect moment for left-wing, anti-capitalist and anti-globalization movements to make their mark. After all, if this wasn’t a failure of capitalism, it is hard to imagine what might be. Vladimir Lenin would have led the overthrow of a dozen governments presented with an opportunity like this. But his heirs on the left failed to advance any cogent arguments. Nor did they develop any alternatives to free-market, finance-led capitalism. The plate was empty, but the anti-globalization movement failed to step up to it.
Running on Empty
The result? The left looks like it is running on empty tanks. Center-right parties will remain in power, as in Germany or France, or recapture it, as in Britain. And it will stay that way for a long time.
Five: Frugality over extravagance: The nub of the credit crunch was an attempt to load more and more debt onto people -- mainly in the U.S. and U.K. -- whose real wages were stagnant or growing very modestly. That will be thrown into reverse, and for the next decade, people will be paying down debt rather than accumulating it. House prices will be subdued as finance remains scarce, and household budgets will be tight. The result will be that companies will thrive if they offer value, drive down costs, and make themselves the lowest-cost supplier. Anything that smacks of luxury will suffer. Think about McDonald’s Corp. triumphing over Starbucks Corp. -- and then multiply that effect a thousand times over.
The Great Depression of the 1930s dominated the way people thought about the economy for the next 50 years. The great recession of 2008 and 2009 may not have such a long-lasting impact. But in those five ways, it will dominate policy for at least a decade.
(Matthew Lynn is a Bloomberg News columnist. The opinions expressed are his own.)
Tuesday, September 22, 2009
Did your company’s earnings grow through the recession?
Sept. 21 (Bloomberg) John Dorfman
No? Mine didn’t either.
There are some businesses that managed the trick, however. Last week I screened the 2,660 U.S. publicly traded stocks with a market value of $250 million or more. I looked for ones with these attributes: earnings growth of 10 percent or more in their latest quarter over the same period last year, a compound annual earnings growth rate of at least 10 percent in the past five years, a stock price less than 15 times per-share earnings and debt less than stockholders’ equity.
To my surprise, 71 companies, or about 3 percent of the total, passed all four tests. From those, I selected five to recommend.
One is much-scorned Bristol-Myers Squibb Co., a New York- based drugmaker with a market value of $45 billion.
Clearly, the big pharmaceutical companies no longer have the powerful earnings growth they did in decades past. Yet they are still very profitable. Bristol-Myers, for example, had an operating profit margin of 21 percent in 2008, a recession year.
I believe we are coming out of this nasty contraction. If we lapse back into one, though, drugmakers like Bristol-Myers are a good bet to sustain only moderate damage.
Since the end of 2000, Bristol-Myers’ stock price has dropped to about $23 from $70. Its revenue and earnings have grown modestly during that stretch. The company’s shares now command only 12 times earnings, compared with 37 times earnings in 2000.
Ride the Rails
Burlington Northern Santa Fe Corp., the largest U.S. railroad company by sales, has also rolled right through the recession. The Fort Worth, Texas, company posted a profit of $404 million in the second quarter, up from $350 million in the same period one year earlier. Earnings have been growing at about 28 percent a year for the past five years.
Berkshire Hathaway Inc., the multi-industry company controlled by Warren Buffett, owns almost 23 percent of Burlington’s shares. Give me that old-time religion: If it’s good enough for Buffett, it’s good enough for me.
Railroads are an energy-efficient way to move freight. That, I believe, will be increasingly significant in the next 10 years. That’s why Burlington Northern looks like a bargain to me at 14 times earnings.
Raytheon Co., the world’s largest missile maker, hasn’t had a decline in quarterly earnings (on a year-over-year basis) since the third quarter of 2004. Its annual earnings rose 23 percent last year, to $4.06 a share, and are estimated to rise to a record $4.78 this year.
Exaggerated Concerns
Why does the Waltham, Massachusetts, company sell for only 11 times earnings? Probably because investors anticipate U.S. withdrawal from Iraq, regard President Barack Obama as a defense dove and view a Democratic Congress as likely to hack defense spending. In my view the latter two points are exaggerated. The first is true, but Iraq is only one of many hot spots in the world.
Chief Executive Officer William Swanson was probably right when he said at a conference earlier this month that Raytheon is not totally dependent on the U.S. Department of Defense. The company’s emphasis on homeland security and cyber-security should give it some business with other federal agencies. And its small slice of revenue abroad is growing.
Humana Inc., based in Louisville, Kentucky, is the second- largest provider of health-care benefits backed by the U.S. Medicare program. The company experienced a slight slowdown in 2008, as earnings eased to $4.29 a share from $4.66. According to analysts, it is likely to bounce back this year to a record $6.14.
Humana Benefits
That’s pretty good, considering that we live in an era of tighter government budgets for health-care spending.
The stock seems quite cheap to me at seven times earnings and 0.2 times revenue. The low valuation, I believe, is based on investors’ fears about government interference and possible price controls in the health-care field.
It seems to me, however, that a major thrust of the Obama administration’s proposals is to increase the number of people with health-care coverage. That could actually be good for Humana.
Powell Industries Inc., based in Houston, makes equipment to transmit and control electricity. Its products are used mainly by energy companies, refineries and other large industrial customers.
In the fiscal year that ended Sept. 30, 2008, Powell had its best year yet, earning $26 million, or $2.26 a share, on revenue of $639 million. This fiscal year, analysts estimate the company will earn $3.21 a share. Powell’s balance sheet is almost debt-free, and the stock sells for 12 times earnings.
Disclosure note: Personally and for clients, I own shares in Powell Industries. For many clients I own Humana. I currently have no long or short positions in the other stocks discussed in this week’s column.
(John Dorfman, chairman of Thunderstorm Capital in Boston, is a columnist for Bloomberg News. The opinions expressed are his own. His firm or clients may own or trade securities discussed in this column.)
No? Mine didn’t either.
There are some businesses that managed the trick, however. Last week I screened the 2,660 U.S. publicly traded stocks with a market value of $250 million or more. I looked for ones with these attributes: earnings growth of 10 percent or more in their latest quarter over the same period last year, a compound annual earnings growth rate of at least 10 percent in the past five years, a stock price less than 15 times per-share earnings and debt less than stockholders’ equity.
To my surprise, 71 companies, or about 3 percent of the total, passed all four tests. From those, I selected five to recommend.
One is much-scorned Bristol-Myers Squibb Co., a New York- based drugmaker with a market value of $45 billion.
Clearly, the big pharmaceutical companies no longer have the powerful earnings growth they did in decades past. Yet they are still very profitable. Bristol-Myers, for example, had an operating profit margin of 21 percent in 2008, a recession year.
I believe we are coming out of this nasty contraction. If we lapse back into one, though, drugmakers like Bristol-Myers are a good bet to sustain only moderate damage.
Since the end of 2000, Bristol-Myers’ stock price has dropped to about $23 from $70. Its revenue and earnings have grown modestly during that stretch. The company’s shares now command only 12 times earnings, compared with 37 times earnings in 2000.
Ride the Rails
Burlington Northern Santa Fe Corp., the largest U.S. railroad company by sales, has also rolled right through the recession. The Fort Worth, Texas, company posted a profit of $404 million in the second quarter, up from $350 million in the same period one year earlier. Earnings have been growing at about 28 percent a year for the past five years.
Berkshire Hathaway Inc., the multi-industry company controlled by Warren Buffett, owns almost 23 percent of Burlington’s shares. Give me that old-time religion: If it’s good enough for Buffett, it’s good enough for me.
Railroads are an energy-efficient way to move freight. That, I believe, will be increasingly significant in the next 10 years. That’s why Burlington Northern looks like a bargain to me at 14 times earnings.
Raytheon Co., the world’s largest missile maker, hasn’t had a decline in quarterly earnings (on a year-over-year basis) since the third quarter of 2004. Its annual earnings rose 23 percent last year, to $4.06 a share, and are estimated to rise to a record $4.78 this year.
Exaggerated Concerns
Why does the Waltham, Massachusetts, company sell for only 11 times earnings? Probably because investors anticipate U.S. withdrawal from Iraq, regard President Barack Obama as a defense dove and view a Democratic Congress as likely to hack defense spending. In my view the latter two points are exaggerated. The first is true, but Iraq is only one of many hot spots in the world.
Chief Executive Officer William Swanson was probably right when he said at a conference earlier this month that Raytheon is not totally dependent on the U.S. Department of Defense. The company’s emphasis on homeland security and cyber-security should give it some business with other federal agencies. And its small slice of revenue abroad is growing.
Humana Inc., based in Louisville, Kentucky, is the second- largest provider of health-care benefits backed by the U.S. Medicare program. The company experienced a slight slowdown in 2008, as earnings eased to $4.29 a share from $4.66. According to analysts, it is likely to bounce back this year to a record $6.14.
Humana Benefits
That’s pretty good, considering that we live in an era of tighter government budgets for health-care spending.
The stock seems quite cheap to me at seven times earnings and 0.2 times revenue. The low valuation, I believe, is based on investors’ fears about government interference and possible price controls in the health-care field.
It seems to me, however, that a major thrust of the Obama administration’s proposals is to increase the number of people with health-care coverage. That could actually be good for Humana.
Powell Industries Inc., based in Houston, makes equipment to transmit and control electricity. Its products are used mainly by energy companies, refineries and other large industrial customers.
In the fiscal year that ended Sept. 30, 2008, Powell had its best year yet, earning $26 million, or $2.26 a share, on revenue of $639 million. This fiscal year, analysts estimate the company will earn $3.21 a share. Powell’s balance sheet is almost debt-free, and the stock sells for 12 times earnings.
Disclosure note: Personally and for clients, I own shares in Powell Industries. For many clients I own Humana. I currently have no long or short positions in the other stocks discussed in this week’s column.
(John Dorfman, chairman of Thunderstorm Capital in Boston, is a columnist for Bloomberg News. The opinions expressed are his own. His firm or clients may own or trade securities discussed in this column.)
Wednesday, September 16, 2009
Travel Channel attracts private-equity bids
By Jui Chakravorty Das and Megan Davies
NEW YORK (Reuters) – Private equity firms Kohlberg Kravis Roberts & Co, Thomas H. Lee Partners, and Providence Equity have submitted bids for Cox Enterprises' Travel Channel, a source familiar with the matter said.
The private equity firms are bidding separately for the channel in an auction expected to fetch $600 million to $700 million, sources said. The people declined to be identified because the details of the auction have not been made public.
At least two of the private equity firms are in discussions with Discovery Communications for services such as selling advertising and network-carry fees should they win control of Travel Channel, the sources said.
Discovery Communications Chief Executive David Zaslav confirmed on Wednesday that his company had held talks about taking on a role "where we would do a number of services for a fee."
But "we won't be bidding on the Travel Channel as an equity holding," he added when asked about the possibility during a presentation at Goldman Sachs Communicopia media conference.
Cox, which is privately held, is selling a 65 percent stake in the channel. Goldman Sachs is handling the auction.
Two other media companies, Scripps Networks Interactive and News Corp, remain in the auction, one of the sources said. The source added that NBC Universal, owned by General Electric Co and Vivendi SA, had bid for the channel but has recently lost interest.
The Travel Channel is known for programs such as "Anthony Bourdain: No Reservations," in which author and chef Bourdain travels around the world to showcase local cuisines; and "Bizarre Foods with Andrew Zimmern," in which food columnist and dining critic Zimmern tries out unusual delicacies such as lamb eyeballs, squirrel brains and tiger pie from places such as Tanzania and Nicaragua.
Interest in the Travel Channel has been expected to be widespread among media companies, which have seen cable networks weather the recession better than other media businesses that have been deeply hurt by the pullback in advertising.
(Additional reporting by Paul Thomasch and Anupreeta Das; Writing by Paul Thomasch; Editing by Maureen Bavdek and Gunna Dickson)
NEW YORK (Reuters) – Private equity firms Kohlberg Kravis Roberts & Co, Thomas H. Lee Partners, and Providence Equity have submitted bids for Cox Enterprises' Travel Channel, a source familiar with the matter said.
The private equity firms are bidding separately for the channel in an auction expected to fetch $600 million to $700 million, sources said. The people declined to be identified because the details of the auction have not been made public.
At least two of the private equity firms are in discussions with Discovery Communications for services such as selling advertising and network-carry fees should they win control of Travel Channel, the sources said.
Discovery Communications Chief Executive David Zaslav confirmed on Wednesday that his company had held talks about taking on a role "where we would do a number of services for a fee."
But "we won't be bidding on the Travel Channel as an equity holding," he added when asked about the possibility during a presentation at Goldman Sachs Communicopia media conference.
Cox, which is privately held, is selling a 65 percent stake in the channel. Goldman Sachs is handling the auction.
Two other media companies, Scripps Networks Interactive and News Corp, remain in the auction, one of the sources said. The source added that NBC Universal, owned by General Electric Co and Vivendi SA, had bid for the channel but has recently lost interest.
The Travel Channel is known for programs such as "Anthony Bourdain: No Reservations," in which author and chef Bourdain travels around the world to showcase local cuisines; and "Bizarre Foods with Andrew Zimmern," in which food columnist and dining critic Zimmern tries out unusual delicacies such as lamb eyeballs, squirrel brains and tiger pie from places such as Tanzania and Nicaragua.
Interest in the Travel Channel has been expected to be widespread among media companies, which have seen cable networks weather the recession better than other media businesses that have been deeply hurt by the pullback in advertising.
(Additional reporting by Paul Thomasch and Anupreeta Das; Writing by Paul Thomasch; Editing by Maureen Bavdek and Gunna Dickson)
Sun Capital Fund Values Said to Rise 8.3% in Second Quarter
By Jason Kelly
Sept. 11 (Bloomberg) -- Sun Capital Partners Inc., a private-equity firm that manages more than $9 billion, told investors its funds rose 8.3 percent in the second quarter as financial markets began to rebound.
The value of Boca Raton, Florida-based Sun Capital’s fourth fund increased by $136.2 million, the firm told investors in a letter, according to a person who’d seen it and declined to be identified because the communication was private. The valuation includes investments the fund owned in the quarter and those sold off previously.
Private-equity firms are marking up the value of some investments as global markets rise and the world economy stabilizes. KKR Private Equity Investors LP, the publicly traded buyout fund of KKR & Co., said last month the value of its assets increased 14 percent in the second quarter.
Private-equity valuations fell an average of almost 16 percent industrywide in 2008, according to data compiled by London-based researcher Preqin Ltd. Buyout funds’ asset values fell an average of almost 20 percent, the data show.
Sun spokesman Richard Hurwitz declined to comment.
The Standard & Poor’s 500 Index has gained about 16 percent this year, and private-equity firms typically use comparable publicly traded companies to help gauge valuations. Rising earnings also boosted valuations and Sun told investors that profit, excluding some costs, at its companies rose about 29 percent in July versus July 2008.
Bankruptcy Filings
Sun specializes in distressed investments and has stakes in more than 200 companies, focusing on troubled consumer and retail concerns, according to its Web site. More than 10 of its companies have filed for bankruptcy since 2006, including auto- parts maker Mark IV Industries Inc.
The firm has tried to shore up other holdings. Kellwood Co., the closely held maker of Phat Farm clothing, in July completed a bond exchange that pushed debt maturities until 2014.
Sun negotiated with investors earlier this year to allow money from its fifth fund to be used to support companies in the fourth. In the letter, Sun said no companies in those two funds were “likely” or “possible to fail.”
The firm told investors it expects to sell one or two companies from the fifth fund by the end of the year.
Sept. 11 (Bloomberg) -- Sun Capital Partners Inc., a private-equity firm that manages more than $9 billion, told investors its funds rose 8.3 percent in the second quarter as financial markets began to rebound.
The value of Boca Raton, Florida-based Sun Capital’s fourth fund increased by $136.2 million, the firm told investors in a letter, according to a person who’d seen it and declined to be identified because the communication was private. The valuation includes investments the fund owned in the quarter and those sold off previously.
Private-equity firms are marking up the value of some investments as global markets rise and the world economy stabilizes. KKR Private Equity Investors LP, the publicly traded buyout fund of KKR & Co., said last month the value of its assets increased 14 percent in the second quarter.
Private-equity valuations fell an average of almost 16 percent industrywide in 2008, according to data compiled by London-based researcher Preqin Ltd. Buyout funds’ asset values fell an average of almost 20 percent, the data show.
Sun spokesman Richard Hurwitz declined to comment.
The Standard & Poor’s 500 Index has gained about 16 percent this year, and private-equity firms typically use comparable publicly traded companies to help gauge valuations. Rising earnings also boosted valuations and Sun told investors that profit, excluding some costs, at its companies rose about 29 percent in July versus July 2008.
Bankruptcy Filings
Sun specializes in distressed investments and has stakes in more than 200 companies, focusing on troubled consumer and retail concerns, according to its Web site. More than 10 of its companies have filed for bankruptcy since 2006, including auto- parts maker Mark IV Industries Inc.
The firm has tried to shore up other holdings. Kellwood Co., the closely held maker of Phat Farm clothing, in July completed a bond exchange that pushed debt maturities until 2014.
Sun negotiated with investors earlier this year to allow money from its fifth fund to be used to support companies in the fourth. In the letter, Sun said no companies in those two funds were “likely” or “possible to fail.”
The firm told investors it expects to sell one or two companies from the fifth fund by the end of the year.
Global Confidence Maintains Record High on Signs Recession Over
Sept. 16 (Bloomberg) -- Confidence in the world economy held at a record high in September after reports suggested the recession is over and officials said they won’t rush to withdraw stimulus, a Bloomberg survey of users on six continents showed.
The Bloomberg Professional Global Confidence Index rose to 58.54 this month from 58.12 in August. The index exceeded 50 for a second month, which means optimists outnumbered pessimists. Measures of confidence in France and Germany surged after their economies unexpectedly returned to growth last quarter.
The world is emerging from the deepest recession since the 1930s after more than $2 trillion of infrastructure projects, tax breaks and government spending, and interest rates near zero averted a spiral into another Great Depression. The pace of the rebound may be tempered by rising unemployment, which the White House predicts will surpass 10 percent next year in the U.S.
“Now we have to see if the increase in confidence is matched by actual growth,” said Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, and a survey participant. “The recovery is still fragile.”
The survey of more than 1,800 Bloomberg users was conducted between Sept. 7 and Sept. 11. Since the previous survey, President Barack Obama signaled the U.S. economy is expanding again and the European Central Bank raised its growth forecasts. Finance ministers from the Group of 20 also committed to continuing emergency measures to help strengthen the recovery.
U.S. Recession Over
The Federal Reserve last week said 11 of its 12 regional banks reported signs of a stable or improving economy in July and August. A measure of U.S. participants’ confidence in the world’s largest economy was unchanged at 47.3, the survey showed, after jumping from 29.5 the previous month.
Fed Chairman Ben S. Bernanke yesterday said the U.S. recession has probably ended even as he warned the expansion may not be strong enough to immediately bring down unemployment. Policy makers last month left the key interest rate between zero and 0.25 percent and said economic conditions mean the rate will stay “exceptionally low” for an “extended period.”
In Europe, where companies such as ASML Holding NV, the region’s largest maker of semiconductor equipment, are raising sales forecasts, officials have signaled they will keep stimulus measures to ensure the economy is back on a more stable footing.
Deterioration Potential
ECB President Jean-Claude Trichet this month said the euro region’s recovery from recession will be “bumpy.” He viewed current interest rates, at the lowest level since the ECB took charge of rate policy in 1999, as “appropriate.” The confidence gauge for western Europe rose to 43.2 from 41.1.
“Policy makers need to be careful not to withdraw support too quickly,” said Guy LeBas, chief economist at Janney Montgomery Scott LLC in Philadelphia. “There’s potential for conditions to deteriorate,” he added.
Sentiment dropped the most in Spain, where unemployment is approaching 20 percent, the highest level in Europe. Spain’s economy contracted for a fifth quarter in the three months to June, and inflation is slowing more sharply than in the euro region overall. Spain’s index fell to 14.5 from 24.7.
Confidence rose the most in the Latin American region this month, with its index advancing to 65.5 from 57.6 in August. Brazil, the region’s biggest economy, emerged from recession last quarter amid rising domestic demand, and its Bovespa stock index has doubled this year. Brazil’s confidence measure rose to 88.2 from 80.6, the survey showed.
Frontrunners
“Emerging markets in Asia and Latin America will continue to be the frontrunners of global economic growth,” said Tai Hui, head of Southeast Asian economic research at Standard Chartered Plc in Singapore. “Commodity prices are rising and that will help lift the economies.”
Sentiment fell in Japan, where elections last month resulted in a victory for the Democratic Party of Japan as it ousted the party that ruled the nation for all but 10 months since 1955. The gauge for Japan fell to 48.8 from 50, while that of Asia slipped to 73.6 from 74.2.
Bloomberg users were less optimistic on the outlook for their equity markets in the next six months amid concern gains may not be sustained. The global equity rally has added about $17.5 trillion to the value of stocks worldwide since this year’s low on March 9. Respondents in Japan and the U.S. expect shares to decline, while those in the U.K. and Brazil predict their markets will extend their advances.
“Stock markets have become extremely frothy, people think equity prices are a little ahead of the world economic recovery,” Rupkey of Bank of Tokyo-Mitsubishi UFJ said. “It’s a natural place to pause and take stock.”
Dollar Pessimism
The U.S. dollar may weaken further in the next six months against the world’s most actively traded currencies, with sentiment at an 18-month low. Gold prices exceeded $1,000 an ounce this month as the dollar declined, bolstering demand for the precious metal as an alternative investment. The dollar confidence index fell to 30.8 from 38.8 in August.
Users in Japan expect the yen to strengthen against the dollar, with the index rising to 62.1 from 50.3. Most respondents in western Europe are less optimistic on the euro’s appreciation against its U.S. counterpart.
Survey participants in Japan and some western European nations are also less confident short-term interest rates will rise in the next six months, the survey showed. The Australian central bank this month said it was seeking to avoid “prematurely tightening” monetary policy after leaving rates unchanged for a fifth meeting.
“It’s very sensible on the part of officials to keep policies loose, and it will probably stay that way for an extended period of time,” Hui of Standard Chartered said. “Any inflationary threat is still a long way away and economies need all the help they can get.”
The Bloomberg Professional Global Confidence Index rose to 58.54 this month from 58.12 in August. The index exceeded 50 for a second month, which means optimists outnumbered pessimists. Measures of confidence in France and Germany surged after their economies unexpectedly returned to growth last quarter.
The world is emerging from the deepest recession since the 1930s after more than $2 trillion of infrastructure projects, tax breaks and government spending, and interest rates near zero averted a spiral into another Great Depression. The pace of the rebound may be tempered by rising unemployment, which the White House predicts will surpass 10 percent next year in the U.S.
“Now we have to see if the increase in confidence is matched by actual growth,” said Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, and a survey participant. “The recovery is still fragile.”
The survey of more than 1,800 Bloomberg users was conducted between Sept. 7 and Sept. 11. Since the previous survey, President Barack Obama signaled the U.S. economy is expanding again and the European Central Bank raised its growth forecasts. Finance ministers from the Group of 20 also committed to continuing emergency measures to help strengthen the recovery.
U.S. Recession Over
The Federal Reserve last week said 11 of its 12 regional banks reported signs of a stable or improving economy in July and August. A measure of U.S. participants’ confidence in the world’s largest economy was unchanged at 47.3, the survey showed, after jumping from 29.5 the previous month.
Fed Chairman Ben S. Bernanke yesterday said the U.S. recession has probably ended even as he warned the expansion may not be strong enough to immediately bring down unemployment. Policy makers last month left the key interest rate between zero and 0.25 percent and said economic conditions mean the rate will stay “exceptionally low” for an “extended period.”
In Europe, where companies such as ASML Holding NV, the region’s largest maker of semiconductor equipment, are raising sales forecasts, officials have signaled they will keep stimulus measures to ensure the economy is back on a more stable footing.
Deterioration Potential
ECB President Jean-Claude Trichet this month said the euro region’s recovery from recession will be “bumpy.” He viewed current interest rates, at the lowest level since the ECB took charge of rate policy in 1999, as “appropriate.” The confidence gauge for western Europe rose to 43.2 from 41.1.
“Policy makers need to be careful not to withdraw support too quickly,” said Guy LeBas, chief economist at Janney Montgomery Scott LLC in Philadelphia. “There’s potential for conditions to deteriorate,” he added.
Sentiment dropped the most in Spain, where unemployment is approaching 20 percent, the highest level in Europe. Spain’s economy contracted for a fifth quarter in the three months to June, and inflation is slowing more sharply than in the euro region overall. Spain’s index fell to 14.5 from 24.7.
Confidence rose the most in the Latin American region this month, with its index advancing to 65.5 from 57.6 in August. Brazil, the region’s biggest economy, emerged from recession last quarter amid rising domestic demand, and its Bovespa stock index has doubled this year. Brazil’s confidence measure rose to 88.2 from 80.6, the survey showed.
Frontrunners
“Emerging markets in Asia and Latin America will continue to be the frontrunners of global economic growth,” said Tai Hui, head of Southeast Asian economic research at Standard Chartered Plc in Singapore. “Commodity prices are rising and that will help lift the economies.”
Sentiment fell in Japan, where elections last month resulted in a victory for the Democratic Party of Japan as it ousted the party that ruled the nation for all but 10 months since 1955. The gauge for Japan fell to 48.8 from 50, while that of Asia slipped to 73.6 from 74.2.
Bloomberg users were less optimistic on the outlook for their equity markets in the next six months amid concern gains may not be sustained. The global equity rally has added about $17.5 trillion to the value of stocks worldwide since this year’s low on March 9. Respondents in Japan and the U.S. expect shares to decline, while those in the U.K. and Brazil predict their markets will extend their advances.
“Stock markets have become extremely frothy, people think equity prices are a little ahead of the world economic recovery,” Rupkey of Bank of Tokyo-Mitsubishi UFJ said. “It’s a natural place to pause and take stock.”
Dollar Pessimism
The U.S. dollar may weaken further in the next six months against the world’s most actively traded currencies, with sentiment at an 18-month low. Gold prices exceeded $1,000 an ounce this month as the dollar declined, bolstering demand for the precious metal as an alternative investment. The dollar confidence index fell to 30.8 from 38.8 in August.
Users in Japan expect the yen to strengthen against the dollar, with the index rising to 62.1 from 50.3. Most respondents in western Europe are less optimistic on the euro’s appreciation against its U.S. counterpart.
Survey participants in Japan and some western European nations are also less confident short-term interest rates will rise in the next six months, the survey showed. The Australian central bank this month said it was seeking to avoid “prematurely tightening” monetary policy after leaving rates unchanged for a fifth meeting.
“It’s very sensible on the part of officials to keep policies loose, and it will probably stay that way for an extended period of time,” Hui of Standard Chartered said. “Any inflationary threat is still a long way away and economies need all the help they can get.”
Subscribe to:
Posts (Atom)
Posts
