NorthEast

In the US, extravagance is a normal way of life. In China, it is a sin. Such contrasting consumer psyche between the two economies needs to be evened out before a sustained recovery of the post-bubble global economy can be achieved in the longer run, says Stephen Roach, chairman of Morgan Stanley Asia. In a talk given to the Asia Society Hong Kong Centre entitled “Pitfalls in a Post-Bubble World,” Roach warns that the pain of the global recession caused by the bursting of asset and credit bubbles has only just begun to take its toll on export-dependent Asian economies. “Obviously we’re in a global recession. It’s a severe one. But it is a unique one. It is a post-bubble recession brought about by the bursting of multiple-asset credit bubbles around the world. So do not go back to your economic history or your textbook to try to figure out how to calibrate this cycle.” “The cycle, itself prompted by the bursting of asset and credit bubbles, is very much intertwined w...

THE economic outlook looks grim over the next two years, says Blackrock head of asset allocation and economics Richard Urwin. But there are opportunities in the credit space, for instance, as clients seek yields higher than cash. And, Asia may yet see a recovery ahead of developed markets as monetary stimulus is likely to show benefits sooner. 'Easier monetary policies have the best chance of working probably in Asia where the financial system is under less pressure and the banking system is less leveraged. At some stage Asian equities could start to do better (than developed markets).' Earlier, Blackrock vice-chairman Bob Doll issued his predictions for 2009, markedly more muted than his predictions for 2008 which had been off the mark. The deterioration in markets and economies since the Lehman Brothers' failure has taken most strategists and analysts by surprise. Mr Urwin told journalists yesterday that the macro environment is 'very challenging' and while a reco...

AS unprecedented stress struck the core of the global financial system last year, it was clear to many observers that a worldwide recession was on the way. Citi analysts expect major industrial economies to contract well into 2009 as adjustments occur to raise the level of savings in these economies. And while the pace of contraction in global growth is expected to ease moving into the second half of the year, next year's expected economic recovery is forecast to be modest, with growth likely to remain below trends seen before the current crisis. From a market perspective, this backdrop suggests investors should continue to expect 2008-style volatility in the early part of this year. Looking further ahead, though, downside risks to economic growth are expected to dissipate as global fiscal stimulus efforts gather speed and de-leveraging pressures ease. When this happens, the extreme valuations in equity and credit markets seen today should provide attractive opportunities for inves...

(NEW YORK) THE collapse of the US housing market helped Bill Gross outperform 99 per cent of his fund-manager peers over the past five years. Now he's betting on securities that may benefit from rescue efforts in Washington. The 64-year-old co-chief investment officer at Pacific Investment Management Co is urging investors to anticipate which assets will benefit as the government struggles to boost the economy. Last week he recommended municipal bonds, inflation-protected Treasuries and debt the US government plans to buy. In the past six months, Mr Gross bought senior bank debt, agency mortgage securities and preferred shares in financial companies, all before the government did the same. Mr Gross, who keeps the attention of investors through a combination of performance, monthly commentaries and television appearances, navigated through the worst credit crisis since the Great Depression, said Lawrence Jones, a senior mutual fund analyst with Morningstar Inc. Mr Gross's US$128...

Happy Birthday to you, Xin Ning. From Mama & Daddy

A popular question [1] for economists lately has been what shape this recession will take. Will it be a “U,” a “V,” or maybe an “L”? Could we even find ourselves caught up in the roller coaster of a “W,” just when we think we’ve finally voted out that letter once and for all? What’s with the alphabet soup? This categorization is a kind of verbal shorthand for describing the shape of the ups and downs of the gross domestic product and the broader economy. It’s not an exact science, which is part of the reason there’s so much debate [2] about which type the United States is experiencing. There’s no governing body or think tank tasked with crunching the numbers and officially declaring a recession one letter or another. In general, V-shaped recessions are those that last for a few quarters, while the more unpleasant U-shaped recessions can drag on for up to a couple of years. It’s the difference between a head cold that clears your system in a week and a case of bronchitis that leaves y...

Since the start of 2007, the world's biggest banks, insurers and mortgage finance companies have collectively reported US$1.01 trillion of asset writedowns and credit losses and slashed 240,000 jobs - more than half of them in the US. Below is a timeline of the key events as the financial crisis unfolded. Compiled by CONRAD TAN February 2007: In an early sign of the trouble ahead, London-based banking giant HSBC warns on Feb 8 that provisions for losses on its US sub-prime mortgages could exceed analysts' estimates by 20 per cent, reaching almost US$11 billion. July 2007: Two hedge funds run by US investment bank Bear Stearns collapse on July 17 under the weight of losses from investments linked to US sub-prime mortgages, despite attempts by Bear in June to save them. August 2007: Bear Stearns co-president Warren Spector is ousted on Aug 5. On Aug 9, France's largest bank, BNP Paribas, halts redemptions on three funds heavily invested in sub-prime mortgage-related securitie...