Stock Market News and Morning Call

'Marketplace' Report: Farm Bill
The U.S. House takes up the farm bill Wednesday. Two-thirds of the massive bill would pay for the nation's nutrition programs, including food stamps. Most of the rest of the legislation would provide subsidies for farmers and conservation programs that protect the land.

Delphi Chief: Skills Key to U.S. Factory Turnaround
The economy shed 326,000 factory jobs in the past 12 months. Steve Miller, executive chairman of giant auto parts maker Delphi Corp., says improving worker skills is key to turning around the embattled U.S. manufacturing sector.

Congress Eyes Answers to Rising Gas Prices
The Senate votes to suspend oil shipments to the Strategic Petroleum Reserve for the rest of the year. A House vote is expected later Tuesday. The move could have a marginal impact on gas prices.

Marketplace Report: Economy Limits Relief
Economic problems may affect how much people are willing to donate to China and Myanmar. Nancy Marshall-Genzer talks with Alex Chadwick about aid to the earthquake and cyclone victims.

Good Times in Texas
High oil and natural gas prices are keeping Texas business humming along, despite economic problems elsewhere. Companies are hiring, real estate is selling and the state budget is on track for a huge surplus.

Inflation Calculation Leaves Out Food, Energy Prices
The government releases new inflation statistics Wednesday, and consumer prices are expected to rise. While the Federal Reserve does keep an eye on inflation, it usually doesn't take food and energy prices into account. David Wessel, economics editor at the Wall Street Journal, talks about the Fed data.

Lawmakers Press Bush to Tap Petroleum Reserve
When gas prices go up, Congress tries to do what it can to make them go back down. The Senate votes Tuesday on two measures. Proposals from Democrats and Republicans would stop the federal government's practice of adding 70,000 barrels of oil a day to the Strategic Petroleum Reserve.

U.S. Railroad Industry Thriving as Economy Slumps
The railroad freight industry is booming. Executives say higher fuel prices and a weak dollar are helping freight lines. Wick Moorman, CEO of Norfolk Southern, talks about how the industry can thrive despite an economic slump.

Young Workers Flee Midwestern States
Upper Midwestern states are in danger of losing a precious economic commodity: young people. Many are leaving for other parts of the country after finishing school. Without young, educated workers, there's little incentive for businesses to locate in economically hard-hit states.

'Marketplace' Report: Oil Industry Pushes Back
The gas and oil industry has begun a campaign to convince the public that rising energy prices are not the producers' fault. The American Petroleum Institute says government efforts to punish the industry with higher taxes or greater regulation would only make the situation worse.

Denver Drivers Learn How to Boost Fuel Economy
Around 400 Denver residents, including the city's mayor, are part of an experiment to see if drivers can be trained to drive "greener." A device in their cars will track whether they have bad driving habits that increase fuel consumption, thus contributing more to greenhouse gas emissions.

Soros: Financial Crisis Stems from 'Super-Bubble'
The current financial turmoil is "the most serious crisis of our lifetime," and its roots stretch back decades, George Soros says. The financier blames what he calls a "super-bubble" fueled by strange financial instruments and massive American debt held overseas.

W.Va. Demographics Favorable to Clinton
West Virginia holds its Democratic presidential primary on Tuesday. Recent polls show Hillary Clinton with a wide lead over Barack Obama. Anna Sale of West Virginia Public Broadcasting talks with Liane Hansen about the upcoming primary.

Economist Puts Economic Downturn in Perspective
Many Americans are uneasy about the country's current economic instability. Economist Adam Posen talks about the possible length and severity of the current economic downturn, which some are already calling a recession.

Global Pool of Money Got Too Hungry
NPR's Adam Davidson and This American Life's Alex Blumberg jointly report on how rising defaults on subprime mortgages in the U.S. became a global financial crisis. This American Life host Ira Glass talks with Michele Norris about this first ever collaboration.

A tale of two worlds

If emerging economies diverge from America's, monetary policy also needs to break free

POLICYMAKERS in Washington and London have been losing sleep over the risks of financial meltdown and recession. In sharp contrast, the biggest worry in Beijing, Moscow and other emerging-market capitals is rising inflation. China's inflation rate has jumped to 8.3% from 2.2% in early 2007; Russia's is running at 13.3% (see left-hand chart). HSBC forecasts that the average inflation rate in emerging economies will rise to 6.6% this year, its highest in ten years.

One reason is the surge in food and energy prices. Food accounts for a bigger slice of spending in poor countries than in rich ones, so rising grain and meat prices have a bigger impact on inflation. But this is only part of the story: core inflation rates are also creeping up, and lax monetary policies are to blame. ...

Map of misery

America may well be only halfway through the house-price bust

SOUNDING more like a cartographer than a central banker, Ben Bernanke this week showed off the Federal Reserve's latest gizmo for tracking America's property bust: a series of maps that colour-code price declines, foreclosures and other gauges of housing distress for every county in the country. The Fed chairman's goal was to show graphically that falling prices meant more foreclosures, and he went on to urge lenders to write down the principal on troubled loans where the house is worth less than the value of the mortgage. But the jazzy design of his maps?where hotter colours imply more trouble?also makes a starker point. The pain of America's housing bust varies enormously by region. Hardest hit have been the ?bubble states??California, Nevada and Florida, as well as parts of the industrial Midwest. The biggest uncertainty hanging over the economy is how red will things get.

The answer is not simple. For a start, it is hard to be sure just how much house prices have fallen. America has several house-price indices and they tell different stories. Widely cited, but least useful, are monthly figures showing median home prices produced by the National Association of Realtors (NAR). These indicate that median prices are down some 13% from their peak, but since these averages do not adjust for the mix of homes changing hands, which fluctuates from month to month, they are inevitably distorted. ...

Who needs credit?

Life can limp on without modern finance?but not forever

WHILE the ripples of America's subprime-mortgage crisis have spread far and wide, Latin America?a place long associated with financial disaster?has remained improbably calm. Banks have reported no unpleasant surprises. Brazil and Peru have been blessed with coveted investment-grade ratings. Surprisingly, perhaps the fleetest country of all has been Argentina. Since it emerged from the financial crisis of 2001-02, it has been one of the world's fastest-growing economies. It is expected to expand faster than most of its neighbours again this year. How has such a perennial economic miscreant proven so resilient to the credit crunch?

Quite simply, it barely has any credit. Back when its economy virtually collapsed, the country suffered a run on its banks, followed by a freeze on withdrawals, a massive currency devaluation, and the largest sovereign-debt default in history. As a result, bank lending to the private sector shrivelled, from 23.8% of GDP in 2000 to 10.8% in 2003. Since then, it has rebounded to a piddling 13%; by contrast, the ratio in Brazil was 36.5% in 2006. Almost all of these loans in Argentina are accessible only on a short-term basis. ...

Backing greens with greenbacks

It takes patience and guts to invest in the environment

AL GORE does not just make films about climate change. His fund-management firm, Generation Investment Management, has just raised $683m for a ?climate solutions? fund. The hope is that environmental principles and shrewd investing can produce strong profits.

But could the combination of soapbox movies and warm air form a bubble instead? Certainly, the valuations that have been attached to some green shares have brought back memories of the dotcom era. As yet, though, the sector has not created the household names, the Netscapes and the eBays, that were seen as ?must buys? for your average day trader. ...

Turning towards Mecca

Islamic banks join in the race for Africa

CHINA is not the only financial powerhouse with its hungry eye on Africa. Flush with oil wealth, the Gulf states, too, are spying profitable opportunities among the hundreds of millions of Muslims who live just a hop across the Red Sea. Africa's economies are growing fast, thanks in large part to the commodities boom. Although many people on the continent do not have a bank account, the banking systems in some countries are growing increasingly sophisticated. Bankers from the Gulf hope that the middle class, particularly in the Muslim north, will turn to Islamic finance, and that firms will raise money through Islamic bonds, known as sukuk. Moody's, a credit-rating agency, reckons that although Islamic finance was worth a puny $18 billion at the end of last year, its potential is close to $235 billion?about half what it estimates as the GDP of Africa's Muslim population.

So far, forays from the Gulf into Africa have been limited to a few countries. Sudan?where only sharia-compliant finance is allowed in the north?dominates, holding over half of Africa's Islamic-banking assets. A number of Gulf banks, familiar with the country's language and oil resources, have joined forces with Sudanese investors to open Islamic banks. Last year the first sukuk from Africa was issued by a Sudanese cement firm. Reportedly, the government also tapped the market in January?selling bonds to Gulf investors to sidestep American economic sanctions over the massacres in Darfur. ...

First ink, now blood

The West's financial centres run red

THE axe is now swinging with abandon. UBS unveiled yet another set of embarrassing quarterly results on May 6th and also announced 5,500 job losses, many of them at its investment-banking unit. The cull comes soon after similar carnage at Citigroup and Merrill Lynch, which also announced thousands of cuts last month.

That these three are issuing pink slips is no surprise: they have posted the biggest losses, and UBS, for one, has said it wants to scale back its investment-banking business. But others are also cutting. On May 5th Morgan Stanley said it planned to chop 1,500 jobs in the next few months. JPMorgan Chase and Royal Bank of Scotland are set to shed jobs at Bear Stearns and ABN AMRO's wholesale arm respectively. ...

When the safety net fails

How would Europe cope if a big bank collapsed in its midst?

WHEN Northern Rock ran into disaster last September, it was not only panicky British depositors who queued up to withdraw their savings from the stricken mortgage lender. In Dublin hundreds of Irish depositors did too. They were soothed only when Alistair Darling, Britain's chancellor of the exchequer, told them that in the case of Northern Rock, the deposit-insurance scheme applied on both sides of the border.

In the European Union (EU), the implications of that bank run have given a new urgency to efforts to harmonise the system of deposit insurance. EU banks have an automatic ?passport? to operate branches in other member states. But there is so little clarity about how foreign depositors would be treated in the event of a bank failure that regulators fear a cross-border panic could easily erupt. ...

Seeing red

How meddling has helped investors

A USEFUL indicator of the febrile state of China's stockmarkets for much of last year was the crowd that often packed the Shenyin & Wanguo broker in Shanghai's People's Square watching an electronic bulletin board lit up by the flashes of rapidly rising share prices. Appropriately in China, rising prices are signalled by the colour red, not black, and on April 24th the crowds were back again, after an absence of many months, watching a screen that was gloriously drenched in the colour of the revolution.

The immediate cause of the rally was put down to a minor reduction in a tax on trading, or stamp duty, from 0.3% to 0.1%. But many believed the euphoria stemmed more from a belief that the authorities were finally prepared to prop up share prices. Since the autumn, the benchmark Shanghai-A-share index had fallen by half before the tax was changed. ...

The fragility of perfection

When supply chains go wrong

ONLY connect. The words of the novelist E. M. Forster sum up globalisation. An international company may buy its software from California, send its data to India, purchase its electronic equipment from China and staff its canteen with workers from eastern Europe.

The theory dates back to the economist Adam Smith and the principle of specialisation. The productivity of a pin factory can be improved if production is broken down into its component parts. Similarly, companies (and countries) should specialise in fields where they have a comparative advantage. The revenues can be used to buy the other goods and services the company needs, at a cheaper cost than it could manage in-house. ...

Ben's bind

Disentangling the links between the Fed, the falling dollar and the soaring price of the world's commodities

THE spirit of St Augustine hovered over the Federal Reserve this week. ?Oh Lord, let us stop cutting interest rates, but not yet,? is pretty much what America's central bankers decided on April 30th. The Fed's governors cut their policy rate by another quarter-point, to 2%. But the accompanying statement gave a small hint that they may now pause.

There are plenty of reasons to stop cutting. Real interest rates are now firmly negative. Although the housing market continues to contract?the latest figures show sales falling, prices tumbling and the number of vacant homes soaring?the economy is limping rather than slumping. According to initial GDP estimates released on April 30th, output grew at an annualised rate of 0.6% in the first three months of the year?the same pace as in the previous quarter and faster than most people expected. The mix of growth was not good. Final sales fell while firms built up their stocks, which bodes ill for future output. But with tax-rebate cheques arriving in the mail, a dose of fiscal stimulus is imminent. ...

In a pickle

A monetary-policy conundrum familiar elsewhere, new to Japan

EVER since the deflationary era, the Bank of Japan (BoJ) has longed for the day when monetary policy could once again mirror that of the more ?normal? economies in the rest of the developed world. Now Japan's central bankers are learning to be careful what they wish for. They are beginning to experience exactly the same dilemma faced by their counterparts in America and Europe: how to set monetary policy when threatened with an American-led downturn on the one hand, and rises in the prices of commodities and food on the other.

The dilemma sharpened in late April when inflation figures were published. In March Japanese consumer prices (including energy and food) rose by 1.2% compared with a year earlier, the highest pace in a decade. The bulk of the rise came from energy, but food also loomed large. Spaghetti, which the Japanese love to eat with seaweed and cod's roe, has risen by over a quarter in the past year, and at the end of April hoarders cleared the nation's supermarket shelves of butter. With surveys showing that more than 80% of households feel inflation is rising, it is hard to argue that Japan any longer holds a deflationary mindset. Even ?core? inflation (that is, not counting energy or food) grew by 0.1%, the first increase since 1998. ...

Rank injustice

Are league tables to blame for the industry's ills?

EVEN Cluedo does not have this many suspects. The list of culprits for the woes afflicting banks includes bankers' pay, credit ratings, ill-prepared boards, sleepy supervisors, accounting regimes, flawed risk models and Alan Greenspan. Should league tables, which rank investment banks on their market share in businesses such as share underwriting, debt issuance and mergers and acquisitions (M&A), also be fingerprinted?

That league-table positions matter to the banks is not in doubt. Many have specialist teams devoted to supplying data to the firms that compile the rankings, and to challenging the positions of rivals. According to Nick Studer of Oliver Wyman, a consultancy, some have a dedicated sales team with the job of pushing banks up the table at the end of each quarter, often by agreeing to reduce fees. High league-table positions feature prominently in marketing pitches, to good effect: according to a study by Jack Bao at the Massachusetts Institute of Technology and Alex Edmans at the Wharton School, corporate clients rely principally on past market-share data to select their M&A advisers. ...

Riding high

Mexico's fast-growing banks appear unusually unaffected by the financial crisis north of the border

AFTER the 1994 peso crash, the risk of Mexico's difficulties spilling over into America was considered so great that the Clinton administration helped bail out its southern neighbour. In the first quarter of 2008, the boot was on the other foot, though the scale was entirely different. Now it was the turn of Banamex, one of Mexico's two largest banks, to help out Citigroup, its crisis-stricken parent. Banamex provided $453m of the $1.1 billion Citi earned in net income from its overseas operations between January and March (Citi lost $5.1 billion overall). You could almost hear Vikram Pandit, Citi's new chief, mutter ?Gracias, compadre.?

Yet Banamex was not even the best-performing of the Mexican banks. Of Mexico's five largest financial institutions (which control three-quarters of the market and also include Bancomer, Santander, HSBC and Banorte), it was the only one that did not show a big rise in year-on-year profits in the first quarter. The performance of the banks was impressive for two reasons. Firstly, Mexico has one of the most open banking systems in the world; two of its top five banks are Spanish-owned, one is American, one British, and only one is Mexican. Yet the crisis in global banking has barely ruffled it. Also, Mexico's economy is usually more exposed than almost any other to a slowdown in America. As Alejandro Valenzuela, boss of Banorte, delicately puts it: ?Decoupling is the wrong word, but there is now a certain shield.? ...

An aberrant abacus

Coming to terms with China's untrustworthy economic numbers

AS CHINA'S importance in the global economy increases, investors are paying more attention to its economic numbers. Yet the country's official statistics are notoriously ropy. Some commentators accuse China's government of overstating GDP growth for political reasons, others complain that the official inflation rate is fraudulently low. So which data can you trust?

One reason to be suspicious of GDP figures is that China is always one of the first countries to report them, usually only two weeks after the end of each quarter. Most developed economies take between four and six weeks to produce them. ...

Bankers' trust

Why have banks been paying so much in the interbank market?

SINCE last August, some of the world's most powerful central bankers have battled with growing resourcefulness to restore the law of gravity to the market that banks use for short-term borrowing. As the credit crisis has deepened, the central banks have made more money available against a broader range of collateral for longer periods to a wider group of financial firms. By throwing money at the situation, they have aimed to lower the London Interbank-Offered Rate (LIBOR) that banks charge each other for anything up to three-month loans (it helps determine borrowing rates for firms and households, too). But the rate remains stubbornly high; it has jumped again recently on reports that the British Bankers Association, which sources quotes each day from a panel of banks, is investigating whether banks have been reporting lower rates than they are actually paying in order to appear healthier than they are.

Before the crisis broke, typically banks would provide unsecured three-month loans to each other at rates that were barely higher than their cost of borrowing from the central bank. But last August, the gap between LIBOR and the overnight indexed swap (OIS) rate (a gauge of expected central-bank rates over the same period) widened sharply in Europe and America (see left-hand chart). At times, the gap was almost as wide as during the Y2K fears at the turn of the century. According to a recent paper* published by the Bank for International Settlements, the higher risk premium reflected in the rise of LIBOR over the OIS rate responds to several factors, particularly credit and liquidity risk. The first points to the bigger chance that a bank will go bust over a three-month period than overnight. As for liquidity, a three-month loan can less readily be exchanged for cash than an overnight one and lenders require a reward for that risk. ...

On second thoughts

Is America's aggressive monetary easing about to end?

YET another big rate cut: until recently that is exactly what many investors were expecting of the Federal Reserve's next policymaking get-together on April 29th and 30th. After all, bold rate cuts have become the Fed's hallmark. Between late-January and mid-March, America's central bank slashed short-term interest rates by two percentage points, to 2.25%, as it staunchly sought to cushion America's economy from the fallout of the credit crunch. Earlier this month, Fed funds futures indicated that financial markets expected the trend to continue, with at least a quarter-point cut on April 30th and a 50% chance of a half-point move.

No longer. Expectations have shrivelled in recent days, and the price of Fed funds futures now imply that investors see no chance of a half-point cut and an almost 20% likelihood of no cut at all. The reassessment makes sense. Depending on how you measure inflation, real short-term interest rates are already around zero or negative. And although America's economy is still heading downhill, the Fed's calculus about the benefits and risks of even cheaper money is shifting fast. ...

Counting the costa

Spain's property boom is unwinding too fast for some banks

IN THE midst of a very modern financial crisis, it is easy to be wistful for a good old-fashioned approach to banking. Thanks in large part to stringent regulation, Spanish banks are rightly being applauded for the way they steered clear of toxic credit derivatives and shadowy off-balance-sheet exposures. However, they are finding it much harder to avoid Spain's cramping housing market.

The numbers are increasingly bleak. Completed house sales in Spain dropped by 27% in January compared with a year earlier. The most recent data show building permits for housing falling even more sharply. Housing starts are also plunging. ...

Swap shop

Why one part of the credit markets just keeps on growing

NOT all credit products are created equal. The credit-default swap (CDS) market is going from strength to strength, with outstanding volumes rising from an already staggering $34.4 trillion at the end of 2006 to $62.2 trillion at the end of last year. In contrast, issuance of collateralised-debt obligations (CDOs) has fallen dramatically. It was a paltry $11.7 billion in the first quarter, down from a record $186.5 billion in the same period the year before.

At first blush, this might seem surprising. After all, during the boom years for CDOs, the two products were closely intertwined. Traditional CDOs bundled bonds into portfolios and then split those portfolios into tranches, depending on investors' appetite for risk. Some investors wanted a higher return but were willing to take the first hit from bond defaults; other investors were more concerned about the safety of their capital and were willing to accept a lower return. ...

My bow is my bond

A wicked swindle exploits a soft spot in Japan's business culture

TRUST is the bedrock of business everywhere, but the sources from which it springs are different. In Japan, where reputation and relationships are considered precious, the informal cues are as important as the legalistic ones. Parties take their time discussing deals. Managers meet to exchange meishi?their all-important business cards (usually presented with two hands)?and bow respectfully. It helps to establish confidence.

So it was that when a handful of bankers from Lehman Brothers met executives of Marubeni, one of Japan's largest trading houses, at Marubeni's headquarters across from the Imperial Palace last autumn, they never suspected that they were actually being drawn into a massive fraud. The teams had met numerous times to discuss a bridge loan. Reams of paperwork were supplied. In a convoluted agreement, Lehman provided more than $350m in financing to a small firm with ties to Marubeni (and founded by a cousin of the empress of Japan); the trading house guaranteed repayment. ...

UK inflation woe 'set to worsen'
The UK's outlook for inflation has deteriorated in the past few months, the head of the Bank of England says.

Action to 'help family finances'
Prime Minister Gordon Brown has announced a series of plans that will affect people's finances, homes and work.

US inflation eases but food soars
US food prices jumped at the fastest pace for 18 years in April, figures show, but overall inflation eased.

UK jobless up by 14,000
UK unemployment rose by 14,000 to 1.61 million in the three months to March, official figures show.

US retail sales dip 0.2% in April
US retail sales fell 0.2% in April amid high fuel costs and slowing economic growth, official figures show.

Basic rate taxpayers to get ÂŁ120
The chancellor announces a change in tax allowances which means all basic rate taxpayers gain ÂŁ120 this year.

Shanghai shares fall after quake
China's main stock market falls - despite efforts to minimise economic disruption caused by the earthquake.

UK inflation jumps to 3% in April
UK consumer inflation hits 3% in April, its highest level in 13 months, on food and fuel costs, official figures show.

Oil hits new high on Iran fears
Oil prices hit a new high of $126.98 a barrel after a report that Iran was studying a plan to cut crude output.

No slowdown for China's shoppers
Chinese shoppers continue to spend in April, with retail sales rising at a record annual level of 22%.

Mortgage lending hits 33-year low
Mortgage lending to home buyers has hit its lowest level for 33 years, industry figures from the CML show.

House price falls 'are spreading'
The number of UK surveyors reporting falls in property prices has risen for the ninth month in a row, a report says.

UK producer inflation at record
UK factory gate prices and producers' input costs rose at a record pace in April, official figures show.

Second negative month for sales
UK retail sales fall for the second month in April, according to the British Retail Consortium.

Food prices drive China inflation
China's consumer price inflation nears a 12-year high in April, as the cost of food continues to take its toll.

Firms 'up prices as costs soar'
Manufacturers are raising prices as they face the strongest cost pressures in over 20 years, the CBI says.

Executive pay attacked as 'scandalous'
European Union senior economic policymakers condemned the awards because they come at a time when ordinary employees are under pressure to accept modest wage deals

Open skies negotiators check in for round two
The European Union and the US will lock horns in Slovenia in a renewed attempt to break down long-standing barriers to a full liberalisation of transatlantic aviation

Ex-UBS employee charged over US tax fraud
US authorities charged two bankers, including a former employee of UBS, with helping a US billionaire evade income taxes on about $200m of assets deposited in Swiss and Liechtenstein bank accounts

The great asset price controversy
Central banks must revisit their response to bubbles – and the possibility of using regulation, not monetary policy, to target them

US warns on moves to shun food trade
Gaddi Vasquez, the US representative to the UN's Food and Agriculture Organisation, said a 'return to [food] self-sufficiency could complicate an already difficult issue'

Keep hold of the basic rules of finance
History tells us that leverage in the system acts like a rubber band – the further you stretch it, the harder it snaps back, writes Roger Altman

Boards advised to improve disclosure
Asian companies need to ensure monitoring of related party transactions to reduce the risk that owners can profit at the expense of minority shareholders, the OECD said

Argentine provinces break ranks over farm strike
Provincial governors from Argentina's ruling Peronist party have begun breaking ranks with the government over the country's farm strike, threatening cracks in the coalition that has ruled the country since its 2001 economic crisis

Service sector mood hit by crunch
Confidence among European companies has tumbled this year as concerns grow that tighter credit conditions will hit corporate profits, according to a pan-European survey

Oil demand to weaken as prices soar
This month's 390,000 barrel a day revision was the fourth in a row, but the International Energy Agency warned there could be more to come as better data emerged

Global survey reveals pension fears
A survey of global attitudes towards retirement has revealed that most people do not expect their government to support them, and are concerned that they are financially underprepared for old age.

IMF points to inflationary threat in Gulf
Inflation is the most pressing problem facing the region, which is reaping the benefits of record oil revenues but does not have the tools available to cap rising prices

Is Larry Summers the canary in the mine?
Developing countries should take notice: the proposed remedies on globalisation are susceptible to protectionist misuse and point to shifting ground in the debate, write Devesh Kapur, Pratap Mehta and Arvind Subramanian

Nestlé cautious on high food prices
Senior executive says politicians are failing to show the necessary leadership to boost agricultural productivity, saying there has been insufficient investment in research

Coalition presses Congress over ethanol
The global food crisis is inspiring a broad new coalition on Capitol Hill seeking to change US policies on ethanol production

Stocks end higher as inflation concerns fade
Wall Street advanced Wednesday after a better-than-expected report on consumer prices tempered some of the market’s concerns about inflation.

Inflation eases despite food price jump
Inflation pressures eased a bit in April despite the biggest jump in food prices in 18 years.

Merrill Lynch: Tax rebate won't stem recession
The U.S. economy is in a recession and stimulus from a government tax rebate later this quarter will only temporarily stem a fall in consumer spending, a Merrill Lynch economist said on Wednesday.

Gas prices continue to climb
Gas prices roared above $3.75 a gallon Wednesday, while oil prices fell as an Energy Department report painted a mixed picture of the nation’s petroleum reserves.

Freddie Mac loses $151 million

Mortgage finance company Freddie Mac's first quarter loss widened to $151 million as the U.S. housing market worsened, though the results were not as poor as expected.

Bernanke: Financial turmoil in markets easing

Turmoil in financial markets has eased somewhat, but the situation is still "far from normal," Federal Reserve Chairman Ben Bernanke said Tuesday.

Retail sales slip as consumers cut back
Consumers cut back on car-buying in April but boosted spending in a number of other areas, giving evidence of the economy’s staying power in spite of soaring gasoline prices.

Wal-Mart profit rises 6.9 percent
Wal-Mart Stores said first-quarter profits rose 6.9 percent, but issued a cautious outlook for the current quarter and warned that the economy will be a “critical factor” in 2008.

JPMorgan CEO: Recession is just beginning
JPMorgan Chase & Co.'s chief executive said Monday that while the crisis in the credit markets appears to be three-quarters over, he believes a U.S. recession is just beginning.

MBIA slides to huge loss on hefty charges
MBIA Inc. swung to a $2.41 billion loss during the first quarter as the bond insurer faced ongoing deterioration in the credit markets and recorded billions in write-downs.

Mother's Day spending may be down

Some moms may not be getting both chocolates and a bouquet for Mother's Day this year as consumers watch their spending.

Trade deficit narrowed sharply in March
The U.S. trade deficit narrowed sharply in March as demand for imports fell by the largest amount since the last recession was ending.

America’s most recession-proof cities

Nationally, home prices are falling, unemployment is on the rise and the economy is expected to grow slowly — or even contract — in the first half of the year.

Oil execs see $100-or-less cost by year’s end
Even as oil prices ascended to new highs of more than $124 a barrel this week, many oil and gas industry executives say they expect the price to fall significantly by year’s end, a new survey shows.

Retailers reporting mixed results for April
Consumers gave some of the nation’s retailers a little relief in April after months of dismal sales, gravitating toward discounters and wholesale clubs.

Weekly jobless claims post sharp decline
The number of newly laid off workers seeking unemployment benefits dropped much more than expected last week.

Data look mild, but feeling is gloomy
Is the U.S. in the early stages of a full-blown recession? Or is this a brief downturn before the economy gets up another head of steam later in the year?  By msnbc.com's John W. Schoen.

Slumping economy: It's a guy thing

According to the latest jobs data, American men are in recession, and American women are not.

Rising cost has some drivers easing off the gas

As other cars zipped by at 70 mph or more, Mike Papin and his wife, Joann, kept rolling along just below the 65 mph limit as they made their way from their winter home in Florida to a summer place in Vermont.

Paulson says worst of credit crisis may be over
Treasury Secretary Henry Paulson said Wednesday the worst of the credit crisis may have passed but acknowledged that rising gas prices will blunt the effect of 130 million economic stimulus checks. He ruled out a second stimulus package for now.

Consumer borrowing unexpectedly surges
Consumer borrowing rose in March at the fastest pace in four months, more than double the increase of the previous month.

Bush threatens housing-aid veto
President Bush threatened Wednesday to veto Democrats’ broad housing rescue package, saying it won’t help struggling homeowners.

Worker productivity rose in first quarter
Worker productivity rose by a better-than-expected amount in the first three months of the year while labor cost pressures eased.

Congress looking at steel pennies and nickels
Further evidence that times are tough: It now costs more than a penny to make a penny. And the cost of a nickel is more than 7 1/2 cents.

Analyst: $200 oil could happen this year
A Goldman Sachs analyst on Tuesday predicted that oil prices could reach $150 to $200 a barrel over the next 6 months to two years.

How Do High Small Business Corporate Tax Rates Hurt The Economy?
I tend to think of the deadweight loss associated with high tax rates being due to substitution effects. However, if you ask an MBA student about why taxes hurt...

The U.S. Government Subsidizes Every Type of Electricity
From the Wall Street Journal: Some clarity comes from the U.S. Energy Information Administration (EIA), an independent federal agency that tried to quantify government spending on energy production in 2007. The...

Sorry Greg Mankiw, EclectEcon and Environmental Econ Guys...
But I beat my goal, so $100 will not be going to the sources of your choice. Results under the cut: My goal: This is the week of truth. For the...

Economic Effect of Tariffs
I just finished teaching a 3-day all-day "boot camp" macroeconomics course to 60 MBA students. One topic that came up a few times was what would happen if NAFTA...

Corporate taxes, gas taxes, optimal rates...
This might be the least compelling argument against carbon taxes, but it is one that gets repeated ad nauseam. From Will Wilkinson: So in order to estimate the optimal pigouvian...

This Just In... Oil Prices Are Volatile
Every day when I open the paper there is an article like this: Some See Oil At $150 a Barrel This Year: Oil's seemingly unstoppable surge has led some analysts to...

Add the UK to the list of countries that don't listen to economists...
500+ Economists Endorse Marijuana Legalization Cannabis will be raised to a class B drug with a maximum five year jail term for users... H/t: Fark ...

Fine... You Win - Professor Moffatt, it is.
I have spent most of my adult life in academia and my best friend has spent most of his life in the military. Our work environments have, I believe,...

How Does the Value of the U.S. Dollar Impact Canadian Businesses?
With talk that Ontario will soon become a "have not" province there has been a great deal of discussion about what the high value of the Canadian dollar is doing...

Will I Lose $300 This Month?
This is the week of truth. For the seven days between May 1 and May 7, I need to have an average body fat percentage of under 18.23%. ...

A Tale Of Two Conflicts
Conflicts of interest in the bond rating business mirror conflicts a decade ago at Wall Street investment banks.

Consumer Prices Up 0.2% in April
The Labor Department reported the the biggest jump in food prices in 18 years.

Fed Chief: Financial Markets Still 'Far From Normal'
Federal Reserve Chairman Ben Bernanke said Tuesday that although turmoil in financial markets has eased somewhat, the situation is still "far from normal."

Stamp Prices Increase Today
Mailing a letter will cost you 1 cent more this week--the price of a first-class stamp rose 42 cents today.

Oil Prices Retreat From Record High
After closing near $126 a barrel last week, oil prices fell as the dollar gained strength.

Inflation on the Mind
Consumers already know gas and food prices have risen -- but by just how much? Wednesday's Consumer Price Index will tell all.

Trade Deficit Drops 5.6% in March
The Commerce Department reported the trade deficit narrowed to $58.2 billion in March.

Oil Surges Past $125 a Barrel
With driving season just around the corner, oil prices surged past $125

Consumers Return to the Mall
.for Now
Consumers returned to the mall giving some relief to retailers.

European Central Bank Holds Key Rate Steady
Following the British central bank's lead, the European Central bank held its interest rate at 4%

Housing rescue stokes partisan split
The momentum behind congressional efforts to let the government offer more aid to struggling homeowners has hit stiff resistance.

The Fed: Betting on a rate hike
There is a growing sense that the worst of the credit crunch may be behind us. And despite a tamer-than-expected reading for April, inflation is still very much a concern for many Americans.

How credit cards boost gas prices
Buying gasoline with a credit card could be hurting your local independent gas station owner - and you may have to pay for it.

Economic 'misery' more widespread
Americans are feeling a lot more economic pain than the government's official statistics would lead you to believe, according to a growing number of experts.

Jump in food prices biggest in 18 years
Consumers had to shell out more for goods, services and especially food in April, according to a government report released Wednesday, but the rise was lower than expected.

Wall Street needs new regulation - Schumer
Sen. Charles Schumer, D-N.Y., said Wednesday he believes the credit crisis may get worse and that regulatory failings helped fuel the problems rocking the economy.

Foreclosure filings hit record in April
U.S. foreclosure filings reached a record high in April, rising almost 65% over the previous year and putting municipalities at risk by cutting into the value of taxed property, according to a study released Wednesday.

Mortgage trouble? Congress' plan
Politicians in Washington are busy arguing about the financial and moral hazards of coming to the aid of troubled homeowners.

Tips on getting a summer job
Dear Annie: My 17-year-old son needs to get a job this summer to help save for college. He says he has been looking, and I believe him, but so far he's come up with nothing. I don't want to be a meddling mom, but I feel as if I should get involved at this point and try to help him, in no small part because the thought of his lounging on the sofa playing video games all summer makes me cringe. Do you and your readers have any suggestions? -Anxious in Attleboro

Gas hits 7th straight record high
Retail gas prices hit record highs for the seventh day in a row, auto group AAA's Web site showed Wednesday.

Inventory levels at 12-month low
Read full story for latest details.

High fares to cut into summer air travel
Fewer people will fly this summer, according the Air Transport Association, and those who do should expect higher fares and crowded flights.

Dollar strengthens, despite gloom
Read full story for latest details.

Retail Sales
June 12

Job Growth
June 6

Manufacturing (ISM)
June 2

Consumer Confidence
May 27

Inflation (CPI)
May 14

New Currency ETFs - Give Them Some Time
Roger Nusbaum submits:

You may have seen that WisdomTree launched its first batch of currency ETFs today.

WisdomTree and Dreyfus Team Up to Launch Currency ETFs
IndexUniverse submits:

By Matthew Hougan

Risk Appetite: Returning to the Markets?
Kathy Lien submits:

Since last Thursday, carry trades have performed very well. USD/JPY has risen over 250 pips and the Dow appears to be carving out a near term bottom. This has led some investors to wonder whether risk appetite has returned.

Subprime Skeletons Are Still In The Closet
Grace Cheng submits:

Freddie Mac (FRE) today reported a net loss of $151 million, or 66 cents a share, which was better than the 84 cent per share loss analysts had expected. Investors were happy with this, although in reality most of this was simply due to some new accounting rules which allowed Freddie to boost its earnings by around $1.3 billion. Freddie also said it would be raising $5.5 billion to help cushion any losses in its home loans. Considering that RealtyTrac, the online foreclosure site, reported it had seen a 65% increase in foreclosure notices compared to last year, lenders would need all the liquidity they can get.

Yield Implosion Muddies Currency Waters

Wednesday’s U.S. CPI data was a sight for sore eyes for investors amid a worsening background for fixed income trading around the world. Surging commodity prices, partially compounded by a weakening dollar but coupled with a rock-solid fundamental demand story, have conspired to deliver the threat of stagflation.

The Fed Finds Religion
Macro Man submits: Has the Federal Reserve found religion? Yesterday's verbal barrage from a host of Fed speakers, both voters and non-voters, suggested that the FOMC has started to notice that the cost of living is going up. A lot. It is probably through that prism that yesterday's strong US retail sales report should be viewed; it is hard to credit that spending growth has encompassed much beyond basic necessities. Such a conclusion, at least, is the least that can be reached on the basis of a chart posted on The Big Picture yesterday.

Now, central banks are in a tough spot here. One might (and indeed, Macro Man would) argue that the Fed has found religion after the inflationary horse has already bolted. Still, perhaps it's better to see straight late than never; less clear is what to do about it. An obvious starting point is to quit inviting financial markets to shag the dollar, and it is through that prism that the Treasury's recent volte face should be viewed. It seems as if US officials have connected the dots and realized that the dollar down bubble might have at least a little to do with import prices rising 15.4%, and moreover that this imported inflation is being passed through domestically.

The Bank of England is in a similar boat. The macro data has deteriorated markedly; today saw the first rise in unemployment claims in more than eighteen months; meanwhile, the news from the housing market remains nothing short of execrable. Yet inflation remains persistently high; for an inflation targeting central banks, this makes aggressive easing on the back of weak activity data difficult, unless one assumes an endogenous disinflationary impact from lower growth.

And throughout the history of inflation targeting, that's been a reasonable assumption. Yet one could plausibly argue that for the first time since the 1970's, global inflation is largely exogenous for most countries, a product of the three axioms and prior underinvestment. In such a case, it's unclear that high rates will do much to ease headline inflation. On the other hand, tight policy can, on the margin help prevent the second round effects that helped to endogenize the external inflationary shocks of the 1970's.

Macro Man is starting to wonder if we're aren't seeing the beginning of the end of inflation targeting as we know it, much as the 1980's spelled the doom for monetarists. Targeting inflation is great in a world an endogenously-generated price rises when core and headline converge over time; in a world of exogenous inflation pressure and divergent core and headline, focusing on one inflation measure is likely to generate suboptimal policy.

Macro Man wonders if we won't move towards a a world where central banks begin to target nominal GDP growth, rather than simply inflation. In a world of exogenous inflation, high frequency tradeoffs between growth and inflation are, to a degree, out of the central bank's control; if those shocks feed through into domestic prices, this will be reflected in nominal output growth.

What's interesting is to look at a chart of nominal GDP growth in the US and three other inflation-targeting central banks. In New Zealand, nominal GDP growth is just north of 8% y/y...close to the level of the RBNZ's OCR. In the Eurozone, nominal GDP growth is just over 4% y/y....again, close to the ECB's refi rate.

Interestingly, nominal GDP growth in both the UK and US are well above the respective central bank policy rates. Small wonder, then, that the dollar and sterling are two of the three worst performing G10 currencies this year (the third, the Canadian dollar, also has a central bank policy rate well below the level of nominal GDP growth.)

So if central banks do find a new religion, it looks like the conversion may be easier for some than for others.

(And yes, I know that trailing y/y nominal GDP growth rates are not optimal policy targets; in an actual nominal GDP target regime, forward-looking indicators would be used.)
Complete Story »

Seeking Equity-Like Returns, Outside of Equities
Roger Nusbaum submits:

This chart is the U.S. dollar versus the Norwegian krone for the last year. The chart shows the trend of dollar weakness in krone terms.

Pay Attention to Retail Sales and Import Prices
James Picerno submits:

The Census Bureau reported that retail sales slipped a bit last month. However, much of the decline came from the auto and related industries. Given the soft economic backdrop of late, it's no wonder that consumers are reluctant to buy cars, which for most folks are the largest purchase after a house. Otherwise, this was a surprisingly good report, given the dominance of plus signs elsewhere in the column of monthly changes among the broad categories of retail sales. Excluding motor vehicles and parts, retail sales overall rose 0.5% last month.

Dollar Rallies on Retail Sales, Euro Words
Grace Cheng submits:

Using harsh words to make people do what you wish them to do doesn’t always work, and if it doesn’t, you could try to nudge in a positive way, saying that it would be nice if they do as you say. This gentler form of persuasion seems to be working right now, coming from Euro Group chairman and Luxembourg Finance Minister Jean-Claude Juncker, coinciding with the change in market sentiment towards the US dollar in the forex markets.

Except for Autos, Retail Sales Beat Guidance
Kathy Lien submits:

Even though retail sales decreased 0.2 percent last month, the US dollar skyrocketed on the report because excluding autos, sales actually increased 0.5 percent.

U.S. Monetary Policy: Defending the Status Quo
John M. Mason submits:

Defenders of the current economic policy of the Bush administration are now surfacing. Apparently, enough concern has been raised to cause a need to defend the status quo. There are two arguments for not changing policy at the present time. First, there is the argument that the value of the dollar has bottomed out along with signs that there could be an upturn. The second argument is that the United States is still too important in the world for the dollar to have to play by the same rules as all other nations. We will present these two defenses in turn.

Stronger Dollar, Waning Demand Should Cause Gas Prices to