June 30th, 2008
07:19 AM GMT
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Anyone who has listened to me doing commentary on CNN or read these blogs knows I am bearish, and have been for a long time. It's been the right call, and I have no reason to feel any optimism now.

 

Stock markets which rallied sharply following the rescue of Bear Stearns in March, have stumbled badly again.

 

The belief that the worst of the credit crunch was over has been proven wrong. Banks continue to reel from their ill judged decisions, with predictions that the write downs from the sub-prime crisis could total $1.2 trillion, or about three times the current amount.

 

Oil prices as I write are now over $140 a barrel, and could rise as high as $170 a barrel in the coming months, according to Chakib Khelil, president of OPEC.

 

Add in high food prices and inflation has become a primary worry for investors.

 

The rise of inflation is a global phenomenon. Close to thrre billion consumers are now living with double digit rates of inflation, according to economist Joachim Fels of Morgan Stanley.

 

Fifty countries now have inflation running at more than 10 percent, accounting for 42 percent of the world's population and including six of the world's most populous countries.

 

How far central banks will go in terms of fighting inflation is unclear, but it's a big worry for investors.

 

Rising inflation comes at time when worries over growth now have some talking about the possibility of stagflation in major countries like the United States. Hopes of a second half rebound in the U.S. have now faded.

 

It's the worst of possible worlds for investors, and anyone who thinks the worst is over, better think again.

 

Tell me what you think.



June 28th, 2008
09:29 AM GMT
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NEW YORK – He has been inching out of the picture for years, but Friday Bill Gates officially left the company he founded and handed over the reigns to his university friend and current CEO, Steve Ballmer.It is an important day for the Microsoft community and potentially for anyone who owns Microsoft stock. As long as Gates was still involved there was hope that Microsoft could somehow regain some of its former magic and rapid growth. That now appears very unlikely.

Almost every tech watcher and analyst I have talked with say Microsoft can not catch the new technology powerhouse - Google. It is not just because Google is raking in the money. Analysts say the search giant's greatest advantage is its ability to attract the best and brightest young tech minds out there.

The next Bill Gates if you will. That type of genius is rare and not something that can be purchased. Right now, the next generation of young pioneers is flocking to Google (or as we may soon discover trying to launch their own companies from the garage). They are not submitting applications to Microsoft.

That is not to say that Microsoft is going to just die on the vine. The company has a huge amount of capital and talented employees. Analysts say if Microsoft forgets about trying to buy their way into search or digital music and just concentrates on what it does best - building operating systems - it can prosper. But few think they will be a disruptive force again. As technology companies mature they tend to lose their innovative edge and become more like utilities. Important and lucrative utilities, but utilities nonetheless.

As one tech watcher said to me, "no one is asking if IBM is going to catch Google." Soon we may not be using Microsoft in that sentence either.

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June 24th, 2008
09:28 AM GMT
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HONG KONG – Iron ore prices are rising fast and Chinese steelmakers have agreed to pay up. So why should you care?

Because that means chances are high everything you buy that is made of steel – like a new car – is set to get more expensive.

People worldwide are worried about the rising cost of commodities like oil, copper, and tin. And now Chinese firm Baosteel is willing to pay nearly double for iron ore from Anglo-Australian miner Rio Tinto in the industry's biggest ever annual rise. Analysts say it's a sign raw materials are scarce and demand is strong.

Iron ore is a key ingredient to make steel. So the fear now is that this deal will pump up steel prices worldwide at a time when pressure is mounting on central bankers, including those at the U.S. Federal Reserve, to keep inflation in check by tightening lending.

Some people worry about how raising interest rates in the United States could impact its slowing economy. There is also a fear that the higher price of steel will raise costs for manufacturers in China, costs that may have to be passed onto consumers as China sells its goods overseas. They also say the agreement shows how Chinese companies are gaining influence in world commodities markets as they pay top dollar to feed the country's economic expansion. 

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June 23rd, 2008
08:49 AM GMT
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LONDON, England – Never have so many come for so little. For many, the outcome of the Saudi oil gathering at Jeddah is a huge disappointment.The Saudis announced they would raise daily production by 200,000 barrels a day to 9.7 million barrels.

But let's put this in perspective. It's doesn't even make up for the 300,000 barrels of lost production suffered by Royal Dutch Shell and Chevron in the past week due to militant attacks in Nigeria.

The Jeddah gathering had a huge build-up and came at a time when governments and consumers are feeling the double burden of record high oil prices and food prices. Some had hoped that Saudis would increase production by as much as 500,000 barrels a day.
The Saudis said they would expand production capacity, but that's in the future, not now.

The world is crying out for more oil. World oil demand is expected to rise by 800,000 barrels a day, according to the International Energy Agency.

So where does this leave all of us? With high oil prices continuing. As I've written prveviously, don't blame the speculators. What's going on in the oil market right now isn't a short-term problem but a structural shift, based on increased demand, and not enough production.

At close to $140 a barrel oil is trading at five times the average six years ago.

And there are predictions that it could even higher, possibly to $200 a barrels in less than two years.
Given the outcome of the Jeddah gathering, there's no reason to think those assumptions aren't corrrect.

The Saudis along with others attending the summit had to look like they are concerned. They touched on several issues surrounding the oil market, but with the exception of the Saudi production announcement, there's no real outcome.

Given how little the summit produced, it probably would have been better for everyone to stay home, at least that would have saved some jet fuel.

Tell me what you think.



June 20th, 2008
10:29 AM GMT
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LONDON, England – Anytime you read an article or get an explanation about why oil prices are rising, soaring demand from China is always on the list.Now the Chinese government is taking some of the subsidy consumers enjoy by raising retail prices on gasoline and diesel by at least 17 percent. It's the first rise in Chinese fuel prices in eight months. Oil prices fell nearly $5 a barrel on the news to just under $132 a barrel.

The market's reaction underscores the idea that it isn't speculators driving the price higher, but issues about fundamental demand. And the market thinks that the higher prices the Chinese will have to pay at the pump will lead to less demand.

But not everyone is buying the argument. Why? First of all, even though its a big hike, it may not be enough to discourage people from driving. Secondly, refiners who have to pay world prices for oil have been operating at losses because they haven't been able to pass on the true cost. Refiners have cut production. Now, that prices are higher production could actually rise, helping to meet demand where they have been shortages and rationing.

Even with the price announcement, what the Chinese pay for their petrol is still way below market prices. One estimate said that China would have to raise fuel prices by 60 percent to come into line with international levels.

Of course, China isn't the only country to subsidise fuel. Other nations, in Asia, the Middle East and parts of Latin America all help foot the fuel bill. These countries make up half the world's population and their increased oil needs is what is pushing up prices. In places like the United States, Japan, and Europe, demand is is either flat or contracting.

If all those developing countries did away with subsidies, then that would probably would lead to less demand. But polticians know that would also likely lead to widespread social unrest, which has happened in some parts of the world. It would also mean less growth and higher inflation.

So even though the Chinese have raised prices, they are still way below market prices - and until that changes, and changes elsewhere, expect oil prices to remain high.

Tell me what you think - should the Chinese have raised prices more? Should governments do away with subsidies altogether? Looking foward to hearing your thoughts.



June 19th, 2008
12:10 PM GMT
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LONDON, England – Though I've lived in London for 18 years, I had never been invited to the historic Mansion House speech of Britain's finance minister - or Chancellor of the Exchequer. It was well worth going last night given that it was the first speech by someone other than Gordon Brown, who had the job for nine years before he became prime minister last year.

And while the Mansion House speech is usually just a few brief words given before the great and the good of the City of London financial district, this time there was a lot to be said by the Chancellor Alistair Darling and maybe more importantly by the governor of the Bank of England, Mervyn King.

They talked about sub prime, Northern Rock and reforming the Bank of England so the country's inflation target is not the bank's only raison d'etre.

But, I'd rather write first about the pomp and circumstance of this very British of evenings.

It's a black tie affair and hosted by the Lord Mayor of London. You may know that the square mile, known as the City, has its own mayor, police force, courts, cathedral (St. Paul's) and is quite separate from Greater London, the City of Westminster (where the British government is based) and the Docklands area of East London where all those tall towers house American banks.

The Lord Mayor changes every year and likes to be considered at the unpaid CEO of the City. He (and it's always a he) has lived in the Mansion House since 1753 and Invites the chancellor and Bank of England governor to speak yearly.

What I didn't know was that the mayor has to be an alderman of a city ward and also a sheriff of London and he has to live in the famed court building, the Old Bailey before becoming mayor. I also didn't know, and still don't understand, why those gathered for the dinner have to greet the chancellor and governor with a slow clap on their arrival and departure (the kind that would be considered derisory at a sporting event).

London of course loves to call itself the financial capital of the world, which New York might dispute. But as the Lord Mayor's office likes to point out, London has a 42 percent share of global equity trading, 70 percent of the global trade in international bonds, and is easily the world's biggest in foreign exchange with about one third of that market. Then, greater London is home to a one third of the European HQ of the Fortune 500 companies.

The Lord Mayor also pointed out that one third of those working in London's financial services sector is foreign born (its now jokingly known as the seventh largest French city).

Governor King gave the last speech and made the most headlines. He started by saying he would loved to have been able to give his speech from last year and that things could scarcely be difference from a year ago. He warned about inflation, house prices, unemployment and that the bank was not afraid to raise interest rates to bring inflation down. Many analysts think he's talking tougher now hoping he doesn't have to raise rates later.

Here's hoping his Mansion House speech was enough for now.

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June 17th, 2008
07:16 AM GMT
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LONDON, England – If you think the price of oil can't go any higher, you could be disappointed. On Monday, oil shot up towards a $140 a barrel, a record, before settling the day at $134 a barrel.

Even word that Saudi Arabia would increase production wasn't enough to keep oil from ratcheting higher. And even though it ended well off its high of the day, we're still above $130 a barrel, with predictions it could hit $150 by year end, and eventually move to $200 a barrel.

Saudi Arabia has called a meeting for June 22 to help stabilize prices. But will that really make any difference. Barring some dramatic announcement, I'm skeptical. I'm in the camp that believes what's going on in the oil market isn't just the result of a weak dollar, or speculation. It's based on the belief that there is a structural shift going on, based on a need for increased oil as developing nations continue to grow their own economies, and not enough supply.

You can point the finger at speculators, as many do, but they aren't the problem. They just follow trends, they don't create them.

Even a CNN quickvote shows the public is skeptical that a production increase by the Saudis will ease prices. 43 percent said yes, 57 percent said No.

Oil producers have lost control over pricing. And while high prices are great for producers' revenues, they always worry that if the price gets too high, it could lead to a sharp slowdown in the global economy, hurting demand, and causing a sharp fall in the price of oil.

I don't think that's a worry for the oil producers right now. The bigger worry is their inability to keep prices from rising, and the political pressures that brings. That's what's triggering the upcoming meeting, the Saudis have to appear like they are doing something.

The problem is, the market has moved beyond their ability to control it.

Tell me what you think.



June 10th, 2008
10:44 AM GMT
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LONDON, England – Those fretting about a substantial downturn in the U.S. economy, need not worry. At least that's the way Ben Bernanke sees it.

Bernanke thinks the risk of a "substantial downturn" has receded in the past month. The Fed chairman thinks that past rate cuts, Federal tax rebates, and record exports will be enough to keep the economy from any a sharp nosedive.

He's not alone in his view. More than half of 48 private economists surveyed do not believe the U.S. economy is in or will enter a recession this year, that compares to 40 percent a month ago.

"The consensus now suggests the downturn in economic growth will be less steep than earlier feared, but the subsequent recovery to growth to its trend rate will take longer than hoped a few months ago," according to Blue Chip Economic Indicators.

Here's the breakdown. Third quarter growth at 1.5 percent, and fourth quarter at 1.2 percent. That's weaker growth than previously forecast, but still not a recession in their books.

But for 2009, the group of economists think U.S. growth will be 1.9 percent, that's the sixth month in a row that expectations have been ratcheted down.

As for inflation, they think it will average just 2.6 percent next year, compared to nearly 4 percent this year.

The group of economists also think the fed is done cutting interest rates which now stand at 2 percent, compared to 5.25 percent last September.

As to when the Fed raises interest rates, they think that won't happen until second quarter of next year.

These guys get paid for a living to make predictions about the economy and interest rates.

Even if they and Mr. Bernanke end up being right, and the U.S. avoids a substantial downturn, it won't feel like that to many Americans who are facing a fall in real wages, falling house prices, higher food bills, and record gasoline prices.

To them it feels like a recession, and in my book, that's all that matters.

Tell me what you think.



June 10th, 2008
07:45 AM GMT
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NEW YORK – Mark your calendars. On July 11, Apple's new 3G iPhone hits stores worldwide. (Well 22 countries at first, 70 by the end of the year.) If you believe the hype, this could be the device which really kicks open the door to Internet mobility.

Steve Jobs introduces the new iPhone 3G.
Steve Jobs introduces the new iPhone 3G.

For those of you who missed the highlights, the phone, which was unveiled at Apple's Worldwide Developers' Conference, will be thinner, faster, and perhaps most importantly cheaper. Two hundred dollars cheaper!

During the presentation in San Francisco, Jobs admitted the first generation iPhone was too expensive for some customers. He said that about half of the customers who wanted an iPhone but hadn't bought one said it was due to the high price. That has certainly been the case for me.

As a result, the new phones will sell for $199 dollars for an 8-gigabyte model, $299 for a 16-gigabyte model. (one note – in some cases the monthly service may be higher.)

Some say the price cut is a sign that iPhone sales have been disappointing. Maybe. But I give Apple credit for acknowledging it got it wrong and acting quickly to fix the problem.

The other major development is from the developers. Jobs and other Apple executives showed off some of the third-party applications that will be available in the iPhone software store on iTunes.

There was a blogging platform called Typepad, a friend finder social network called Loopt, medical apps, games ... to name just a few. Many of the demos were met with applause from the audience, according to the bloggers who were streaming live from the event.

The other major announcement is that the Apple is now taking direct aim at Blackberry's strangle-hold on the corporate market. The new iPhone will have push e-mail, contacts and calendars.

Jobs says 35 percent of Fortune 500 companies have participated in beta testing. This confirms what I blogged about a few weeks ago. Research firm, Yankee group and others have been saying that corporate IT departments are starting to take a serious look at Apple. If Apple is now reaching out to them and making inroads, this could be a lucrative new area for the company.

Interestingly, the reaction on Wall Street was very tepid. Apple's stock dropped 2 percent. Some are worried the cheaper price will hurt profitability. Others are skeptical that Apple can take on Blackberry.

I don't share their pessimism. Yes, there may be some who early iPhone buyers who may feel they overpaid now that the price has been slashed. And we have to see how all these new third-party applications actually work.

But the faster more powerful connection and the innovative programs being developed offer huge promise. I held off on buying one the first round, but at $199 my willpower is fading. Apple says it expects to sell 10 million this year. Are you biting?

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June 5th, 2008
11:42 AM GMT
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CALCUTTA, India – I am in Calcutta, India, the city I grew up in and still call home. It was supposed to have been a busy day for me. I had meetings set up, errands to run, host a play date for my son, have lunch with friends. Instead, I'll be at home all day. Today – and tomorrow.

Activists burn an effigy in Hyderabad against fuel price rises.
Activists burn an effigy in Hyderabad against fuel price rises.

It's not that I mind sitting at home all day. I am on holiday and more than happy to spend time with my parents, plod around the house and catch up with my cousins and niece who live down the road. That's as far as I can go on Thursday as well as Friday.

There's a two day bandh – a general strike called by the ruling Left Front on day one, and by the opposition parties the next day. That means cars aren't allowed on the road, schools are closed, shops are shut, no businesses will trade, some flights to and from the city have been canceled.

The bandh is West Bengal's answer to the hike in fuel prices. After putting it off for weeks, India's central government sharply raised fuel prices on Wednesday. An extra Rs 5 per liter for petrol (up around 11 percent,) Rs 3 for diesel, Rs 50 for a cylinder of cooking gas.

That's a steep rise. With global oil prices at record highs, the Indian government had to give in. As it is, fuel prices in India are heavily subsidised to ease the impact on the millions who live in poverty.

State-run oil marketing companies are hemorrhaging vast amounts of money – as much as a billion dollars a day, according to some reoports. Some folks say the price hike should have been even higher, to make the economics of $130 a barrel of oil work out. Thursday's price hike was inevitable.

Fine, I get all that. I understand why the government had to raise fuel prices and I understand why people are upset. So, protest. Hold a peaceful rally somewhere and make your point. Tell the government you are angry, make your demands. But a bandh?! How does it help to bring a heaving city to a grinding halt for two days?

Not only is it a massive headache for calcuttans, imagine the financial cost to the city of two lost working days.

It makes no sense.

For a state trying to woo investors, attract multinational companies and project an image of a forward thinking business hub – a bandh is a giant step backwards. How can those calling the bandh not get that?

Let me know what you think.

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