October 29th, 2008
09:35 AM GMT
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KISHIKAWA, Japan - You have to look pretty carefully for the straight-out good news when it comes to the global economy.

Tama the cat, in her conductor's hat.
Tama the cat, in her conductor's hat.

We had to travel six hours outside of Tokyo to end of a country train line to find it. I should say find her, because to call Tama the cat an "it" might throw the town of Kishikawa into an outright upheaval.

Kishikawa is quite protective of Tama, for the little cat has singlehandedly boosted its local economy last year by more than $10 million. That is U.S. dollars, in case you're wondering.  Watch my report on Tama the cat

Tama's strange tale begins a little more than a year ago, when the Wakayama Railway heard about the friendly cat hanging out at its train stop.

The railway gave Tama the title of "Super Station Master" and built her a cushy home at the train stop. She got her own custom-made conductor's hat. The rail line started putting the cat in the hat on its posters. And a star was born.

Japan, whose official ambassador is Hello Kitty, went wild. Japanese television aired specials on the special cat. A day-in-the-life book and documentary quickly followed. The tourists started coming, traveling hours upon hours by train, carrying fistfuls of cash and buying up the town's new Tama merchandise with vigor.

Kishikawa is defying the odds: Seeing a boom in its local economy amid a national and global slowdown.

The town's Buddhist monk calls it an "accident of life" and suggests other small towns look inward to discover what's special about them.

But why did this happen in the first place? Are the Japanese that cat crazy? Perhaps, but the truth may be a little more complicated.

A businessman who took the day off work to travel hours to get a photo with Tama told me it's a chance to take a break from all the problems facing Japan. For just a few hours, he said, it's a chance to disconnect and enjoy a little town that's seeing unusual and unexpected success.

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October 28th, 2008
05:59 PM GMT
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When it comes to investing, timing is everything. It may be true for the music industry as well.After an eight year hiatus Australian rock bank AC/DC has exploded back onto the world stage. Their new album "Black Ice" has debuted at the top of the charts in 29 countries.

AC/DC are known for rocking recession.
AC/DC are known for rocking recession.

The band kicks off a world tour in Wilkes-Barre Pennsylvania this week. Not since their mega-hit "Back in Black" 28 years ago has the group enjoyed such success. Back then, many countries were mired in a recession. In hard times, it seems people need some hard rock.

I haven't had a chance to listen to the album yet, but the song list seems well-suited to a time of turmoil: "Anything Goes," "Smash N Grab", "Spoilin' for a Fight," "Money Made."

Interestingly, AC/DC is sticking by its policy of shunning Apple's iTunes. "Black Ice" is being sold exclusively through Walmart and on the band's Web site.

It is a risky move in this digital age, but it seems to be paying off. The album has sold almost 800,000 copies in the U.S. alone its first week.

The concert tickets are selling fast as well. The cheapest I saw for tonight's kick-off were over $90.

With all the worries about recession and consumer spending, it seems people are willing to pay for some escapism.

Is rock 'n' roll your idea of therapy? What is the soundtrack do you think best represents these uncertain times?

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October 27th, 2008
07:09 AM GMT
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LONDON, England - How long can this go on? We seem to be locked into a terrifying cycle: stocks suffer days of sell-offs, followed by a powerful bounce. But just as we start wondering whether this market slump will follow the same pattern as its ugly predecessors of 1987, 2001 and many others and hit bottom, the same pattern repeats itself.

Traders at the New York Stock Exchange, where share prices have fluctuated strongly during the past few weeks.
Traders at the New York Stock Exchange, where share prices have fluctuated strongly during the past few weeks.

It's three steps back, then one step forward – and over the past few months it's been repeated more times than I care to remember. To make matters worse, there never seems to be that much rhyme or reason to the selling or the buying. One day share markets worry themselves sick about global recession, then the next day all that is outweighed by some random piece of supposedly good news. A few hours later a renewed slide on stocks in another time zone has investors back in panic mode, and we're off to the races again.

Market insiders point to several underlying factors, notably the aching uncertainty about where the credit crunch and the world's leading economies are heading. But they say that what is clearly adding to the volatility is a frenzied scramble by hedge funds to move out of stock markets and also to make money for their investors by whatever means they can dream up. The betting is that they are both creating a lot of the volatility and riding it at the same time.

To add to the craziness, we are seeing some violent swings on currencies, with the Japanese yen and to a lesser extent the dollar (given the relative security of US Treasury bonds) now the safe havens of choice amid the carnage of "global deleveraging".

With previous sell-offs, there seemed to be a clear end to the selling. It may have taken a while to come along, but in the end the bargain-hunters stepped in and there was a gradual return to normality, and then to sustained growth in share values.

So where are we now? When Warren Buffett said a couple of weeks back he thought Wall Street stocks were a buy, he may have been right about their current puny valuations, but not about whether those valuations could get even punier.

Speaking on Business International on Friday, Robert Parker, Deputy Chairman of Credit Suisse Asset Management, was a lot more cautious, predicting the return to a bull market would not come until the middle of 2009.

That would certainly be a few months before the predicted end to the current global slowdown, which most economists I speak to seem to think will only loosen its stranglehold at the far end of 2009.

What do you think? If so illustrious an investor as Warren Buffett thinks we're close to the bottom, should the rest of us pile into stocks in hopes of rather decent gains within a couple of years? Or has even he got it wrong? Watch what Tom Hougaard, chief markets analyst at City Index thinks of your opinions

October 26th, 2008
06:17 PM GMT
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LONDON, England - Grim reading in the Financial Times. Take the headlines this past weekend: "Dire data push anaemic forecasts down;" "Recession concerns trigger turmoil in equities;" "Uphill road back to economic growth;" "Endless calls to the business bereavement line;" "Homeowners forced to sell properties at loss" and "Oil cartel cuts output but price still falls."

Now I don't think the editors of the Financial Times, or any other of hundreds of media outlets are trying to talk the economy down.  I think they are reflecting the reality of what's happening in the real economy and markets.

But there are those who are blaming the media for making a bad situation worse. Take Chuck, here's what he had to say in response to my blog on market volatility:  "I really believe that the media needs to take some responsibility for the financial fiasco that we are going through. Not the bad loans, not the questionable securities; just for beating without let-up, the drumbeat of despair. The hype and hyperbole are incredible.

"Everyone seems to be trying to out-depress the other, as if there's a Pulitzer for a story of 100 words or less with the most gloom and doom. A constant barrage of cut-your-wrist headlines everywhere. Just look at your main Web page. Horrible but do you really need to keep pumping the bellows?" Chuck asks in conclusion.

I don't think the media is pumping the bellows. The bellows are broken, the money markets had frozen, credit remains tight, investors remain nervous, and the data in the economy remains almost uniformly bad.

Even the headline about "OPEC cuts production but oil price still falls" accurately reflected what happened. OPEC did announce production cuts and oil fell $3 that day on worries about a global recession and less demand.

Anyone who's read my blogs or listened to my on-air comments on CNN knows I've been bearish for a very long time, and I remain bearish. It will take considerably longer to unwind the massive damage done to the financial system. The global recession is gathering pace, not ebbing. I don't take joy in being bearish, I just tell it like I see it and so far, I've been proven right.

As for the media at large, a legitimate question is to ask why weren't more warning of an impending crisis. But even if they had, they would have been accused of being doomsayers. Even if warnings had been more frequent, it's unlikely people would have changed behavior. Few complain when markets and the economy are doing well.

Now that tough times are here, it's easy to blame the headlines, but you can't deny the underlying reality.

Tell me what you think.  Do you think the reporting is too negative or does it accurately reflect what's happening in the markets and real economy?

Do you think the media should be blamed for adding to the financial crisis?

Even if more in the media had warned of the impending crisis, do you think investors and the public would have taken it to heart?

Do you think your local media has been reporting responsibly on the current financial crisis?

October 24th, 2008
09:43 AM GMT
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TOKYO, Japan - American apple pies, English breakfast tea ... these items instantly recall images of their countries of origin.

For Japan, it's electronics. More specifically, Sony Corp. has defined Japanese electronics ingenuity to the global marketplace for decades. So it only makes sense that the Nikkei plunged 9.6 percent on a profit warning from Sony: That it would see a 59 percent earnings drop, year to year, this quarter.

Sony cited poor sales and a strong yen. A double whammy, if you will. Not only is there falling demand from consumers, but the strength of the yen has made business for exporters even more expensive. And the yen was strong versus the U.S. dollar, which plunged in trading into the 94 yen territory.

Inside a major Japanese company today (I'll refrain from naming the company as its earnings report is not out yet,) workers told me something's got to be done. They hoped Japan's government would take a more active role in loosening credit with its allies' financial markets.

But the sense they have is: "We'll believe it when we see it." Until then, they're expecting the bad news to keep coming for Japan's biggest corporations.

A marquee company showing such steep profit losses only confirms to the market what investors had been fearing - that we are in the midst of a true global slowdown affecting the bottom line of major companies.

Next week, Honda will release its earnings report. Analysts widely expect the news will not be good, as automakers see a worldwide softening in demand. Japan is bracing for yet another possible beating for another company, but also to its overall business psyche.

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October 20th, 2008
11:32 AM GMT
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OPPAMA, Japan – The town of Oppama is about as far away from Main Street, USA as you can get. Virtually nothing here resembles anything American, except for a lone McDonald's on the corner. But stop and talk to 78-year-old fish-shop owner Kohei Ishiwata and he'll wax poetic about the U.S. credit crunch.

Kohei Ishiwata waxes poetic about the U.S. credit crunch.
Kohei Ishiwata waxes poetic about the U.S. credit crunch.

"They made fake money out of thin air!" Ishiwata exclaims, inbetween slicing up thick chunks of fresh sushi.

Step next door to Yuji Fujita's vegetable shop and he'll teach you a thing or two about trickle down economics, Japan-style. "I hope the U.S. economy improves. They're a big influence for us," he says, his 20-month-old son sleeping in the corner of the grocery store that's been in the family for three generations.

The influence is everywhere on Oppama's main street, which relies on the robust appetite of Main Street, USA. Oppama is home to a major Nissan plant. It's the area's primary employer and every part of life here is connected to the automaker.

But automakers are taking a huge hit from the U.S. credit crunch and the global economic slowdown. U.S. consumers, the primary customers for Japan's auto industry, are buying fewer Japanese vehicles. Already inside the Nissan plant, workers tell us they're worried the ax could fall on their jobs at any moment.

But the Oppama businesses that live off the Nissan paychecks also worry about the secondary impact. Oppama fears it could pay in a general slowdown to its community's economy

The financial meltdown is undoubtedly a banking crisis and a market rollercoaster. But it's more than just tickers at the bottom of TV screens and money being moved around in central banks. It's a global problem being felt in neighborhoods around the world.

October 20th, 2008
10:03 AM GMT
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LONDON, England - By the close of trading last Friday, several major markets had gains for the week. But wow, what a ride!

The bank rescue plan announced by governments helped to restore some confidence, but it's clear investors remain incredibly nervous. The volatility has been eye popping, but investors hope to build on the gains.

For anyone invested in these markets, watching it has been a gut-wrenching experience. Let me give you some examples.

Here in Europe, the Dow Jones Stoxx 600 index surged 13 percent in the first two trading days of last week, and then posted its biggest two day fall since 1987. The United States saw a more than 900 point gain for the Dow on October 13 and two days later it crashed more than 700points.

On Friday the S&P 500 swung between losses and gains at least 28 times. It was tenth consecutive session when the S&P had swings of more than 5 percent between the low and the high of the day.

That's much higher than the average this year of 2.2 percent. Last year the daily swings between the high and low was just 1.2 percent and 0.8 percent in 2006, according to Bloomberg. The S&P is now heading for its most volatile October since 1929.

What is this volatility telling us? I think it reflects the incredible uncertainty about the financial health of a number of companies facing what seems to certain be a global recession, and lingering concerns about the banking sector and access to credit.

As I mentioned in my last blog, I don't know if the worst is over for the markets. Opinion remains divided on that.

The economic data remains terrible, and that isn't going to change anytime soon. The question is how much bad economic news is already discounted by investors. The debate over that is adding to market volatility.

Tell me what you think. Do you agree the volatility is going to continue? What's that volatility telling us? How long do you think the volatility could last? Do you have the stomach to buy into these volatile markets?

October 18th, 2008
02:06 PM GMT
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LONDON, England – What do you do once your house has burnt down? Rebuild it the same as before? Or think hard about why it burnt down - and make sure it is a lot less likely to do the same again?

There seems to be a feeling among many of the world's leaders that once we have stemmed the present financial crisis, we should work out how to stop such a firestorm ever recurring.

The argument goes that this means redesigning the global financial architecture that has served since 1944, when an international agreement at Bretton Woods, New Hampshire, set up the International Monetary Fund and its sister institution, the World Bank.

Already sketching away on his drawing-board is the UK Prime Minister Gordon Brown - no doubt feeling himself to be the man of the moment after seeing his nationalization-by-another-name model for bank rescues being widely adopted, even by the Bush administration.

At its summit in Brussels, the European Union endorsed his approach and gave its blessing to this weekend's visit to Washington by the French President and EU Council President Nicolas Sarkozy and the European Commission President Jose Manuel Barroso. (It must have taken at least two strong men to hold Brown back from jumping aboard the plane alongside them.)

It is of course hard to disagree with the prime minister when he calls for a global "early warning system." That is about as controversial as motherhood and apple pie; of course we all support them. But the reality is that many authoritative voices warned of the dangers of spiralling personal and mortgage debt in the U.S., UK and elsewhere, but they were broadly ignored.

With all due respect and the luxury of hindsight, what is the point of going to great trouble to build a new early warning system when you have a history of ignoring the crescendo of early warnings of disaster - and when you allowed the problem to progress to the point of catastrophe?

The other question is one I raised on "Business International" a couple of days ago with Geoffrey Wood, Professor Economics at London's Cass Business School: what caused the fire in the first place? Was it the system that was at fault, I asked him, or was it reckless misuse of the system that got us into this mess?

Wood told me that both were at fault, but that rebuilding the so-called financial architecture was "neither necessary nor helpful."

So what did go wrong?

In Wood's view, the regulators failed. So on Friday's "Business International" I turned to Chris Rexworthy, a former manager at the UK's Financial Services Authority. He conceded the point, while pointing to the difficulties of supervising a highly complex industry with a small body of enthusiastic, intelligent but ultimately inexperienced and probably underpaid regulators.

Another important strand of Gordon Brown's argument is the need for globalized regulation in an of rapid globalisation. Again, that seems hard to dispute - but unless national regulators are up to the job, how would that work any better? Would the establishment of a supranational regulatory body really bring real benefits, or just tie up the world's best financial brains in years of haggling over its shape, size, scope and powers?

So before we embark on that process, gushingly referred to as "a new Bretton Woods," let us ask what part those 64-year-old institutions themselves have played in all of this? The fact is, the International Monetary Fund has been on the sidelines, with Managing Director Dominique Strauss-Kahn railing furiously about the intensity of the flames engulfing the financial house, while lacking water and a hose with which to douse them.

In fairness, the IMF has dealt admirably with what it was set up to do: deal with national governments whose financial payments got into scrapes. Its involvement in helping Ukraine is a fine example.

But what the fund was never designed to do was deal with a problem that originated within the commercial banking system. So it can hardly be blamed for the turmoil that swirls around us now, or for being left as more of an advisor than a rescuer. It was also never intended to save us from what we now recognise as the inevitability of the business cycle.

It is only human to seek a scapegoat, and a large well-heeled international organization like the IMF might do nicely. But ultimately, we need to address the real root of the banks' woes: those famous "toxic subprime assets" - the result of fancy financial footwork which took advantage to minimal regulation and lumped ill-advised mortgage lending in with perfectly sound loans and then marketed them as "investment grade."

Whose job was it to spot the dangers they posed and nail them? The answer must in future surely be national regulators and governments, aware of the global dimension and unafraid to turn to other nations for help and a common approach.

New Hampshire is an attractive place at this time of the year, when the autumn colors turn the hills red, orange and yellow, and especially appealing to officials and investors beaten black-and-blue by slumping markets.

But before we head off to revisit Bretton Woods, let us be clear what really went wrong, who was responsible, and whether we really need completely revamped financial architecture - or a well-constructed new wing to the house.

What do you think?

October 17th, 2008
06:07 PM GMT
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Famed investor Warren Buffett says it's time to go shopping.

Warren Buffett says buy but is it good advice for everyone?
Warren Buffett says buy but is it good advice for everyone?

In an editorial in Friday's New York Times, Buffett says, "...fears regarding the long-term prosperity of the nation's many sound companies makes no sense."

The Oracle of Omaha, as he is known, went to great pains to insist he is not calling the bottom for U.S. stocks. "I haven't the faintest idea whether stocks will be higher or lower a month - or a year - from now."

But he clearly feels the environment of fear has created great opportunities. "A simple rule dictates my buying: Be fearful when people are greedy and be greedy when people are fearful."

Easier said than done!

This week alone, the Dow Jones Industrial Average rose 933 points Monday. On Tuesday, the market ended down 76 points Tuesday, after swinging 700 points intraday. On Wednesday blue chips tumbled 733 points. On Thursday, the Dow fell 400 before turning around and ultimately rallying over 400. Watch Bob Parker of Credit Suisse discuss your respsonses to this week's Business 360 blog question

These moves used to happen once every couple of decades. Now they are every day occurrences. The volatility has unnerved even the most seasoned investors.

Should you follow Buffett's advice and jump in?

Experts say that depends on two things; your age and your current exposure to stocks. If you are young, Lakshman Achuthan of Economic Cycle Research Institute says Buffett's advice is sound.

He thinks it is a good time to start nibbling at companies that have good management and are leaders in their business.

If you are nearing retirement and might need the money in a year or two, Achuthan thinks it may not be a good idea.

Buffett is a long-term investor not - as he himself points out - a market timer.

Stocks may well go down before they ultimately recover. Also, Buffett can afford to take some risk now, because he has been sitting in cash.

He has not been hurt by the staggering decline stock market of the last two months. If you have lost 20-40 percent of the value of your investments, you may not want to risk losing even more.

Why would Buffet show his hand? Some may think he is talking up his position, but that doesn't really fit with his personality.

Analysts I talked with say it is likely he is doing so out of a sense of concern.

He knows investors are "un-moored" as one put it. Individual investors are confused and looking for guidance. The professional money managers are looking at computer models that don't go back far enough to work in these markets.

Buffett has the benefit of experience and a tremendous track record.

Do you agree with Buffett's call? Do U.S. stocks look like a good buy or do you feel investing in Wall Street is a dangerous game?

October 14th, 2008
12:10 PM GMT
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LONDON, England – Britain's Prime Minister Gordon Brown blames city bankers for the "age of irresponsibility" that ultimately led to the global financial crisis. While announcing the effective nationalisation of three big British banks he attacked the "excessive risk taking" of some financial institutions.

One thing is clear: the age of 'easy credit' is over. Banks, we're told, will be tightening their loan criteria.

Fearing that this new financial landscape could leave ordinary people unable to secure loans and mortgages, the UK government says that the newly nationalised banks will be required to restore lending to 2007 levels.

The opposition argues that this will lead to a return to the record lending levels we saw before the credit crunch began to bite, and that people will once again be able to rack up more debt than they can afford to repay.

Not so says finance minister Alistair Darling, who insists he "does not want a return to the irresponsible problems of the past."

So why did I return home last night to find a mailshot from my bank containing credit card checks at an "attractive interest rate" (almost double the rate available this time last year), which I am free to use for "unexpected bills, home repairs or even a holiday?" And why has my credit limit increased?

I'm confused!

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Filed under: BusinessFinancial markets

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