July 22, 2006
Boersen-Zeitung. Deutsche Bank setzt sich an die M & A-Spitze - Volumen im Inland steigt um 40 Prozent. The Moving Men are Working Hard in Germany Too.
An interesting article in today's (Saturday) edition of the Boersen-Zeitung reports that German M&A activity in the first half of 2006 was 40% higher than a year earlier, with Deutsche Bank knocking Goldman Sachs out of first place. You can read a summary of the article below or see the full article on the BZ website.
Deutsche Bank setzt sich an die M & A-Spitze - Volumen im Inland steigt um 40 ProzentGoldman Sachs bei abgeschlossenen Transaktionen im ersten Halbjahr auf Rang 2 vor Morgan Stanley
kb Frankfurt - Das Volumen von abgeschlossenen Mergers & Acquisitions, bei denen deutsche Unternehmen involviert sind, ist im ersten Halbjahr 2006 im Vergleich zum gleichen Vorjahreszeitraum weiter kräftig um fast 40 % auf 152 Mrd. Euro gestiegen. Dies überrascht insofern, als die Flut der angekündigten milliardenschweren Transaktionen noch nicht in den Daten enthalten ist. So lief das Übernahmeangebot von Bayer für Schering über den Stichtag 30. Juni hinaus, und auch die Übernahme von BOC durch Linde ist zu diesem Zeitpunkt noch nicht abgeschlossen, ganz zu schweigen von der geplanten Übernahme der spanischen Endesa durch Eon.
The same thing is happening all over the world, of course. As I will talk about tomorrow on Fox News and sunday on NBC's Wall Street Journal Report, the cost of moving capital from anywhere, to anywhere in the world has essentially gone to zero and is entirely invisible to governments. For historical reasons all the capital in the world is bottled up in the U.S., Western Europe, and Japan. All the people in the world are bottled up in China and India. All these regions are now connected by a sophisticated fiber-optic communications network that makes information about returns instantly available to investors around the world. Investors are doing the obvious thing--moving large amounts of their capital to Asia. It takes a lot of moving men to do the job.
That's what investment bankers, hedge fund managers, and mutual fund managers are, very high-priced moving men. There is an enormous amount of moving to do. We have more than $165 trillion of privately-owned assets in the U.S. alone (not counting the more than 700 million acres of land the Federal government owns.) the moving men are going to be making a lot of money for a long time.
JR
Posted by John Rutledge at 12:13 AM
July 21, 2006
Fox News Cost Of Freedom Mideast Turmoil Special live tomorrow, Saturday, 10AM-12 noon EDT
Special Live Coverage "Mideast Turmoil: The Cost Of Freedom" Saturday, July 22 10:00am - 12:00pm Eastern Time on the Fox News Channel
Host: Neil Cavuto
Tomorrow morning from 10AM until noon I will join Neil Cavuto and my friends at Fox News to reporting the breaking news in the Mideast to viewers, and put it in context with the Cost Of Freedom regulars -- the fallout for the stock market, oil prices, impact here at home, stock picks etc.
Topics include...
Mideast Turmoil: Iran’s War On U.S. Economy?
Turmoil in the Mideast lifts oil prices, which hurts the U.S. economy and makes Iran richer. Is Iran orchestrating an economic assault on the United States through Hezbollah?
Mideast Me$$: Proof U.N. Is A Waste Of Money?
Mideast & Hurricanes: Perfect Storm For $100 Oil?
Would the Stock Market Survive World War III?
Beating Our Enemies: Worth Paying $5 Gas? Would a huge spike in gasoline prices be worth it if it made us safer?
Please tune in to Fox News Channel and join us Saturday morning or I will personally ask the White House to tap your phone.
JR
Posted by John Rutledge at 11:19 PM
Taïwan et la Chine reliés par avion-cargo (Not All News is Bad News)
In case you thought that only bad things were happening today, here is a story I found in today's Le Figaro. The first direct cargo flight between China and Taiwan landed in Shanghai at midnight last night. Last month both governments bowed to the laws of practical economics and authorized a series of cargo flights this summer, in spite of their political disagreements.
Many Americans do not realize the depth of the business and investment relationships that have developed between China and Taiwan. It is these ordinary business relationships that will one day resolve the political tensions between the two governments.
Here is a summary of the story:
Shanghaï, JULIE DESNÉ. Publié le 21 juillet 2006 Actualisé le 21 juillet 2006 : 11h46Pour la première fois depuis 1949, un vol direct par avion-cargo a été autorisé par les deux pays.
LE PREMIER avion-cargo reliant directement Taïwan et la Chine a atterri à Shanghaï hier à minuit passé. Obéissant aux règles du pragmatisme économique, Taïpeh et Pékin s'étaient mis d'accord le mois dernier pour autoriser une série de vols cargo cet été, malgré leur désaccord politique.
Le Boeing 747 affrété par China Airlines, première compagnie taïwanaise qui d'ordinaire ne vole pas au-dessus du territoire chinois, transportait 61 tonnes d'équipement électronique destiné à une usine de la compagnie Taiwan Semiconductor Manufacturing Co. (TSMC), premier fondeur mondial, dans la région de Shanghaï. D'ici au 10 août, d'autres vols devraient permettre à l'entreprise d'importer tous les équipements nécessaires à la construction de sa chaîne de production de puces 8 pouces. Mais si Zhang Guanhua, de l'Académie des sciences sociales, estime que « ce vol cargo est un pas vers des vols plus réguliers », aucun accord sur la question ne semble se profiler.
Depuis 1949 et la rupture consommée de l'île avec la Chine communiste, aucune liaison directe aérienne ni maritime ne relie les deux rives. Taïwan impose d'ordinaire un stop à Hongkong ou Macao. Seule exception à la règle : le Nouvel An chinois. Depuis trois ans, des vols de passagers sont rétablis pour permettre aux familles chinoises de se retrouver à l'occasion de la fête la plus célébrée de l'année.
You can find the whole article at the Le Figaro site.
JR
Posted by John Rutledge at 6:43 PM
July 20, 2006
Consumer Price Index June 2006
The Labor Department's Bureau of Labor Statistics released the June CPI report yesterday. You can download aPDF file of the report here, but I would suggest that you take a look at the absolutely delicious BLS website page where they let drill down to see you all the details.
BLS Summary: The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in June, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The June level of 202.9 (1982-84=100) was 4.3 percent higher than in June 2005.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) also increased 0.2 percent in June, prior to seasonal adjustment. The June level of 198.6 (1982-84=100) was 4.5 percent higher than in June 2005.
The Chained Consumer Price Index for All Urban Consumers (C-CPI-U) increased 0.3 percent in June on a not seasonally adjusted basis. The June level of 117.5 (December 1999=100) was 3.7 percent higher than in June 2005.
The June number (0.2%) was smaller than the previous two months but larger than the street expected. Small potatoes, however, which were totally drowned out by the positive impact of Gentle Ben's testimony to the Senate yesterday. The numbers that jump off the page, of course, are the energy prices, (Shocking!) which increased by 23.3% since June a year ago. If you take out volatile food and energy prices, the 'core rate' is just 2.2% over the past 12 months. Not so bad.
As you can see above, 2.2% is the same as we saw in both 2005 and 2004, and equal to the average of 1999-2005. What's happening, of course, is the U.S. economy is swallowing a massive increase in oil and commodity prices like a snake swallowing an egg. Once it passes through our gut, later this year, we will be back at just over 2% again. That's why I have been arguing that people are over-worrying the long-term inflation outlook. And that's why I believe the 10 year bond yield will still be about 5% at the end of the year.
Inflation will subside again for 2 reasons. The first is the extraordinary U.S. productivity growth driven by IT and communications investments. The second is slow demand growth. Prices cannot rise continuously for a long period without a sustained increase in demand. But the Fed has allowed the monetary base to grow just 4% over the past year--less than nominal GDP growth. Bank reserves have actually declined by 1% over the past year. Without sustained increased in reserves there will be no long-term inflation.
With profits growing at 12-15% and a 5% bond yield, the stock market is far too cheap. It can't stay that way forever.
JR
Posted by John Rutledge at 5:10 PM | Comments (1)
BizRadio with Dan Frishberg tonight 5:30PM EDT
Dan and I will have a conversation abot the Fed, the economy, the Middle East, interest rates, and the stock market. Hope you get to hear the show.
JR
Posted by John Rutledge at 4:55 PM
Real Earnings, June 2006 - Good Month, Flatline Year
The June Real Earnings report, released yesterday by the Bureau of Labor Statistics, shows the economy is still growing but that workers are having a hard time keeping up with price increases. You can see the report by going to the BLS website or by downloading the PDF file.
Weekly earnings of $566.13 in June increased 0.8%, driven by a 0.5% increase in hourly pay ($16.70/hour) and a 0.3% increase in hours worked. Prices increased by just 0.2%, so real weekly earnings rose 0.6%. Pretty good month.
For the full year, however, it's a tougher story. The hourly pay for American workers was 3.9% higher in June than it was a year earlier, but the pay increase was more than offset by increased prices; real hourly pay fell 0.6& over the year. Weekly earnings were stronger due to the increase in hours worked, i.e., real growth. Weekly earnings in June were 4.5% higher than a year earlier, but only 0.1% better than inflation.
This contrast between profits growing 12-15% per year and at an all time high as a percent of GDP and flat real wages reflects the phenomenal change in global capital markets over the past 20 years. Capital owners can now move their capital anywhere in the world at almost no cost. Workers are stuck wherever they find themselves. The relative abundance of capital and scarcity of people in the U.S. compared with China and India means capital is migrating to places where it can earn higher returns. This is great for the stock market. But it is also the reason behind our increasingly contentious politics.
This story is not going to go away.
JR
Posted by John Rutledge at 4:28 PM
July 19, 2006
CNBC Squawk Box tomorrow (Thursday) 6-9AM EDT
I am going to guest host CNBC's Squawk Box tomorrow morning with Becky Quick and Joe Kernan. The show airs live from 6-9AM EDT. I am sure we will talk about the impact of Bernanke's testimony today on the stock market as well as the earnings reports coming out this week. So far, with about 20% of the companies making up the S&P 500 in the can, reported earnings are +20% over year ago numbers. With a 5% bond yield that makes stocks way too cheap. We will talk about which ones tomorrow. Hope you can tune in.
JR
Posted by Pamela Rutledge at 9:30 PM
CNBC Kudlow & Company tonight 5-6PM EDT
Tonight I will be joining Larry to talk about Fed policy and the impact of the terrible events in the middle east on the markets and the economy. Hope you can be there.
JR
Posted by Pamela Rutledge at 2:47 PM | Comments (1)
New Residential Construction in June 2006--Going Down!
The U.S. Census Bureau and the Department of Housing and Urban Development jointly announced the following new
residential construction statistics for June 2006:
BUILDING PERMITS
Privately-owned housing units authorized by building permits in June were at a seasonally adjusted annual rate of 1,862,000.
This is 4.3 percent (±1.0%) below the revised May rate of 1,946,000 and is 14.9 percent (±1.0%) below the June 2005
estimate of 2,188,000.
Single-family authorizations in June were at a rate of 1,395,000; this is 6.3 percent (±1.0%) below the May figure of
1,488,000. Authorizations of units in buildings with five units or more were at a rate of 397,000 in June.
HOUSING STARTS
Privately-owned housing starts in June were at a seasonally adjusted annual rate of 1,850,000. This is 5.3 percent (±6.6%)*
below the revised May estimate of 1,953,000 and is 11.0 percent (±5.6%) below the June 2005 rate of 2,078,000.
Single-family housing starts in June were at a rate of 1,486,000; this is 6.5 percent (±7.2%)* below the May figure of
1,590,000. The June rate for units in buildings with five units or more was 306,000.
HOUSING COMPLETIONS
Privately-owned housing completions in June were at a seasonally adjusted annual rate of 2,017,000. This is 6.4 percent
(±9.4%)* above the revised May estimate of 1,896,000 and is 2.0 percent (±8.4%)* above the June 2005 rate of 1,977,000.
Single-family housing completions in June were at a rate of 1,738,000; this is 7.5 percent below the May figure of 1,616,000. The June rate for units in buildings with five units or more was 255,000.
The increase in mortgage rates is taking a bite out of both housing activity and home prices. Bsed on our estimates, the duration of the stream of services delivered by the US housing stock is more than 25 years. This means a one percentage point increase in mortage rates lowers the intrinsic value of hte housing stock by about 25%. Ouch!
JR
Posted by Pamela Rutledge at 10:44 AM | Comments (2)
July 18, 2006
Thoughts on Investing
There is so much hand-wringing going on by market watchers that I thought it would be a good idea to haul out a little common sense. Markets have been going down in recent months. I lost money too. But the world rarely ends. When people regain their senses I want to be in the market. Here are 5 things to keep in mind when you watch the news.
1. Don’t be distracted by the daily news. Investors are bombarded daily by a crisis du jour of confusing and conflicting news reports. The positive news on U.S. growth, productivity, and profits, is being drowned out by a tsunami of reports on oil prices, Iran, North Korea, Trade, immigration, inflation, and the Fed. Investors are confused, frightened, and sitting in cash. This is a reaction, not a strategy. The world is not going to end and we still need to educate our children and save enough to retire. This is when an investor needs the discipline to stay focused on long-term objectives, investment fundamentals, tax planning, and a long-term strategy for building family wealth.
2. Long-term investment fundaments are actually very strong. Productivity is rising and the U.S. economy is growing strongly. Profits and growing in double-digits and are at the highest percent of GDP ever recorded. Dividends are rising. The global economy is growing too, led by the reforms in China and India. Japan and Europe are growing too. Capital owners have more choices where to invest at attractive returns than ever before. The Fed and other central banks have shown that long-term inflation will be 1-2%. Bond yields are likely to remain near current 5% levels. Stocks are cheap at only 14 times next year’s earnings. These are great long-term fundamentals for equity markets.
3. Understand and manage risks but don’t let risk drive your investment strategy. Understand strategic risks. China’s growth has fundamentally changed world oil markets; high oil prices are here to stay. High oil prices have brought Iran, Russia, Venezuela and the Gulf back into the headlines. Iran and North Korea’s nuclear ambitions must and will be stopped. The Fed and other central banks have been aggressively raising short-term interest rates—more than 90 increases around the world to date. But tight oil and commodity markets have run their course and the Fed is almost finished tightening. The two big risks are getting caught holding last year’s winners—stocks driven by rising commodity prices—and being out of the market when people come to their senses and stock prices once again rise to reflect the value of the companies.
4. Investment strategy should focus on long-term returns. Defensive strategies—some extra cash, short (2-5 year) bond maturities, defensive sectors--are OK in the short-term. Long-term, focus on high quality U.S. companies with strong cash flow and rising dividends and on countries, sectors, and industries selling products and services to fast-growing Asia. I think U.S. stocks will produce 10%+ returns over the next 5 years, compared with 5% for bonds, 4% for cash, and 0% for real estate. Asian equity markets will produce 12-15% returns. Don’t chase hot commodity prices or Asian IPO’s.
5. Diversification and tax planning still matter. I like to use ETF’s (Exchange Traded Funds) to place small bets on countries, regions, sectors, or industries where policy or technology change has raised after-tax returns on capital relative to the market. I reserve company bets for (rare) situations where I believe I have an information advantage over the market. ETF’s have low expenses and provide at least some level of diversification against adverse company or manager events. Many investors are not aware of the tax liabilities they will face when they ultimately distribute their IRAs. Tax rates are more likely to rise than fall in future years, making tax planning very important.
JR
Posted by Pamela Rutledge at 4:58 PM | Comments (1)
June Producer Price Index
7/18/2006 - U.S. producer prices increased by 0.5% in June. This followed advances of 0.2% in May and 0.9% in April. Core inflation rose 0.2%. Higher energy and food prices accounted for most of the gain in June in the producer price index for finished goods. Energy prices increased 0.7% in June, as wholesale gasoline prices rose 6.3%. Natural gas and residential electricity prices fell. Food prices rose 1.4%, the most since October 2004. Read the full government report at the Bureau of Labor Statistics website or you can download the PDF file here.
Posted by John Rutledge at 4:00 PM | Comments (1)
July Builder Confidence, Still Falling
7/18/2006 – Increasing interest rate concerns and housing affordability caused builder confidence for new single-family homes to drop to 39, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). This is down from a high of 72 in June last year and is the lowest in 15 years. In July, all three components of the home builders' index fell. Current sales index fell to 43 from 47, the expected sales index dropped to 46 from 51, and the traffic of potential buyers index fell to 27 from 29. Builders in the west, who have been the most optimistic as measured by the HMI, recorded the biggest drop, from 60 in June to 51 in July. The release is available at NAHB’s website.
JR
Posted by John Rutledge at 3:00 PM
July 17, 2006
June Industrial Production and Capacity Utilization
7/17/2006 - U.S. industrial output rose 0.8% in June and was 4.5% higher than it’s year-ago level. The June increase was lifted by strong output at factories, mines and utilities. Capacity utilization rose to 82.4%, the highest level in six years. June’s rate was 2.1% above its level in June 2005 and 1.4% above its 1972-2005 average. Manufacturing and utility output each rose 0.7% in June, while the output of mines rose 1.2%. Production of consumer goods increased 0.8%. Production of business equipment increased 0.7%. Production of industrial supplies increased 0.6%. Read the full government report at the Federal Reserve Board website.
Posted by John Rutledge at 7:30 PM
July 14, 2006
Forbes on Fox Tomorrow Morning
Tomorrow morning I will join the Forbes on Fox crew on the Fox News Channel. We will discuss the role of outsiders in provoking this week's violence in the Middle East and talk about the impact of a higher minimum wage on young, untrained workers. Hope you get a chance to see the show.
JR
Posted by John Rutledge at 6:39 PM
Fox News - It's Your World with Neil Cavuto 4 pm EST
I will be joining Neil Cavuto tonight to talk about global pressures on oil prices, including the current crises in the Middle East. Hope you can see the show
JR
Posted by John Rutledge at 1:17 PM
July 12, 2006
May Trade Deficit
7/12/2006 - The U.S. trade deficit increased by 0.8% in May to $63.8 billion with imports rising more than exports. Exports increased 2.4% to $118.7 billion, the biggest percentage gain since December 2004. Petroleum imports contributed a 1.8% increase ($182.5 billion) to the rise in imports. The non-petroleum deficit declined to $43.2 billion, its lowest level in nine months. The deficit in April was revised insignificantly to $63.3 billion. The report is available at the U.S. Census Bureau website.
Underneath the energy data there is a strong export story building. Asia needs American capital goods.
JR
Posted by John Rutledge at 7:33 PM
New Research Paper on Net Worth and Savings Rates
A new research paper by Vladimir Klyuev and Paul Mills, of the IMF, measures the imact of rising net worth on American savings rates. Their paper, Working Paper No. 06/162: Is Housing Wealth an 'ATM'? The Relationship Between Household Wealth, Home Equity Withdrawal, and Saving Rates, concludes that increased household net worth from housing and equity gains may have an impact of about 20 cents per dollar, a significant portion of the decline in US savings rates that everyone is worrying about. This confirms the lesson that I learned 30 years ago: balance sheets always trump GDP accounts in driving economic and financial change.
Perhaps the sky is not falling after all.
JR
Posted by John Rutledge at 3:19 PM | Comments (1)
Today is 2006 Cost of Government Day
You can breath a (small) sigh of relief. For the rest of the year you will be working for your family and yourself. That's because from January 1 until midnight last night you were working solely to pay for the cost of government. Go ahead, take the rest of the day off--you have earned it.
My friends at Americans for Tax Reform keep a running tally on how many days each year it takes the average American worker to earn enough gross income to pay for his or her share of total federal, state, and local government spending and regulatory costs for the year. ATR's report, July 12, 2006 Cost of Government Day, shows the average American worked 193 days this year to pay for all levels of government.
As Grover Norquist points out in his National Review Online op-ed today, that's 9.5 days more than you had to work in 2000. The problem is that although tax receipts are surging, spending is rising at an even faster rate.
Runaway spending, not the budget deficit, is the real fiscal crisis.
JR
Posted by John Rutledge at 3:05 PM
CNBC Kudlow Tonight 5-6PM EDT
Larry is doing the show from Washington DC tonight. I will join him to discuss Fed policy, the economy, interest rates, and the stock market. Hope you can see the show.
JR
Posted by John Rutledge at 12:55 PM
French Head-Butt Apple Too
Take a look at Tom Hazlett's Op-Ed in today's Financial Times, Antitrust regulators must listen to reason. Tom is professor of law and economics at George Mason University, where he is director of the Information Economy Project of the National Center for Technology and Law. Eighteen months ago, Tom, Deborah Hewitt, Colman Bazelon and I wrote the U.S. Chamber of Commerce study on telecom reform. You can find an executive summary at the Chamber's site as well.
In the op-ed, Tom takes the French government to task for passing legislation that could force Apple’s iTunes to play on devices other than Apple’s iPods.
There is also a nationalist undercurrent to the legislation. You may remember that last summer the EU concluded that Yoghurt is a "strategic industry" when they blocked the Danone acquisition.
European regulators are increasingly pointing their revved-up antitrust sceptre at US firms. In a forthcoming paper in the Economic Journal, Nihat Aktas, Eric de Bodt and Richard Roll show that EU authorities tend to block mergers where competition to European firms, as revealed by stock market movements, is most likely. The iPod presents an inviting target.
This story, along with today's EU announcement that Microsoft will pay a huge fine, amounts to an invitation to U.S. capital owners to leave the premises. Every government retains the right to shoot themselves, and their citizens, in the foot. They should not be surprised, however, that Europe is the slowest-growing region in the world.
JR
Posted by John Rutledge at 10:19 AM
July 11, 2006
New Book on Net Neutrality
My friends Tom Lenard and Randy May have released a new book on Net Neutrality controversy that everyone interested in technology and communications, as well as in overall US competitiveness, should read. The book is titled Net Neutrality or Net Neutering : Should Broadband Internet Services Be Regulated.
Based on a series of essays from a recent conference on the subject, Lenard and May expose the fact that altghough recent op-eds freely use high-sounding terms like freedom, the intent of companies seeking to impose new regulations on communications networks is much more mundane. They would like the government to impose price controls on their distribution providers. The result would be to deter investments in new high-speed networks we need to raise US productivity and incomes.
I testified on June 13 at Senate Commerce Committee hearings on the subject on behalf of the U.S. Chamber of Commerce. Should you have trouble sleeping some night I suggest that you read my testimony or if you really can't sleep watch the entire hearings.
JR
Posted by John Rutledge at 4:42 AM | Comments (1) | TrackBack
New Chinese Language site
China launches portal on Chinese learning - Telecom Asia
China launches portal on Chinese learning
Jul 10, 2006
Telecom Asia Daily
(Xinhua via NewsEdge) China launched a Web site, www.linese.com, to offer learning courses of Mandarin Chinese online to meet the surging demand of Chinese learning around the world.
Sponsored by China's National Office for Teaching Chinese as a Foreign Language (NOCFL), the Web site aims to offer online learning, training, volunteer help, search services and various learning resources.
If users log onto the Web site, they enter a virtual community sets in a traditional Beijing residential courtyard where registered users can communicate with each other and learn Chinese through the specially designed games.
Statistics from the Ministry of Education show more than 30 million people worldwide are learning Chinese and more than 2,500 universities in 100 countries and regions offer Chinese courses.
Jul 10, 2006
Telecom Asia Daily
Posted by John Rutledge at 3:57 AM | Comments (4)