Bernanke sparks a bond sell-off with new inflation warning

http://latimesblogs.latimes.com/money_co/2008/06/tuesday-is-sett.html

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Los Angeles Times

8:49 PM, June 9, 2008

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Government bond yields have been on the rise in the U.S., Europe and Japan since mid-March as investors have become less fearful about a global economic slowdown — and more fearful of inflation, given soaring energy prices…

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http://www.economist.com/research/articlesBySubject/displaystory.cfm?subjectid=348876&story_id=11543672

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Too hot or too cold?

Investors are caught between the desire for growth and the fear of inflation

Fed cements stance against inflation, rate hike probable

http://www.usatoday.com/money/economy/2008-06-10-fed-inflation-concerns_N.htm

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By Alister Bull, Reuters

Updated document.write(niceDate(‘6/10/2008 3:44 PM’));6/10/2008 3:44 PM

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Top Federal Reserve officials Tuesday hammered home the U.S. central bank’s determination not to allow inflation to get out of control, making it more likely that interest rates will rise this year.

The remarks by two regional Fed presidents followed hard-line comments Monday from Fed Chairman Ben Bernanke that the central bank would “strongly resist” any deterioration in inflation expectations.

US Inflation: 3 big questions

http://money.cnn.com/2008/06/12/pf/inflation_questions.moneymag/index.htm?section=money_latest

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by Janice Revell, Money Magazine senior writer

Last Updated: June 13, 2008: 11:16 AM EDT

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Uncle Sam says the cost of living isn’t out of hand. Then why do you feel like you’re living hand to mouth?

Crude oil is trading at $135 a barrel. Global food prices are so high that they’ve triggered riots in some poor countries. No wonder many sharp-eyed market observers worry that the two-decade stretch of low inflation is coming to an end.

That’s hardly certain, but the risk is high enough and immediate enough that you need to confront some serious questions about today’s landscape. For most of us, those questions about inflation boil down to these three:

1. How bad is it right now?

2. How bad will it get?

3. How will it affect me?

Can the U.S. Bring Jobs Back from China?

http://www.businessweek.com/magazine/content/08_26/b4090038429655.htm?chan=top+news_top+news+index_top+story

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by Pete Engardio

June 19, 2008, 5:00PM EST

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Pricey oil is dulling the mainland’s edge in manufacturing. But American industry may not be ready to seize the opportunity

This would seem to be a good time for an American manufacturing renaissance. The economics of global trade are starting to tilt back in favor of the U.S. to a degree unseen in a generation. Since 2002 the dollar has plunged by 30% against major world currencies and is falling against the yuan. Wages in China are rising 10% to 15% a year. And spiking oil prices are driving up shipping rates. The cost of sending a 40-foot container from Shanghai to San Diego has soared by 150%, to $5,500, since 2000. If oil hits $200 a barrel, that could reach $10,000, projects Toronto financial-services firm CIBC World Markets.

Vietnam’s inflation

http://www.economist.com/finance/displaystory.cfm?story_id=11599015

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Flu symptoms

Is dangerous overheating contagious?

EVEN by the standards of Asia’s booms and busts, the turnaround in Vietnamese investors’ sentiment has been remarkable, veering from wild optimism a few months ago to deep pessimism today. Surging inflation—it is now over 25% year-on-year—has aggravated a slump in the Ho Chi Minh City stockmarket, previously one of Asia’s most bracing (see chart). From worrying about upward pressure on the dong, the authorities now fear a currency collapse. Some economists worry this could spill over to other Asian countries where inflation is also reaching alarming levels.

The central bank has announced a 2% devaluation, hoping to relieve the pressures on the currency. It also raised its base interest rate from 12% to 14%. The moves, however meek, briefly supported the stockmarket, which had fallen for 25 trading days in a row. But offshore trading in dong futures is pricing in a further devaluation of around 30% within a year.

It has been clear for months that Vietnam’s economy is overheating. The trade deficit from January to May was over $14 billion, about the same as for all of 2007. Like the stockmarket, property prices have tumbled, leading to fears about the country’s banks, which lent heavily for speculation in both assets. The government is already thought to be providing discreet liquidity support to a dozen small banks. For all these concerns, foreign investors still see Vietnam as “the next China”. It is the Vietnamese who are gloomy, and fears of hyperinflation run deep after some bruising encounters in the past.

Already, there are signs that people are hoarding gold. Tim Condon, an economist at ING in Singapore, notes that although Vietnam imported 43 tonnes of gold in the first four months of this year, the precious metal is trading in Ho Chi Minh City at a big premium to the international price.

Meanwhile, the government is trying to curb currency speculation by restricting foreign-exchange booths from selling dollars. To reduce imports, it is said to be allowing the central bank to sell dollars only to businesses that have its approval for their foreign purchases (such as buying capital goods). This, however, may push others towards the black market or offshore, further undermining the credibility of the official exchange rate.

Despite the recent increases, real interest rates remain negative. Meanwhile, a daft law bans banks from pricing loans at more than 150% of the base rate and this has all but stopped lending. That, in turn, has increased the risk of a hard landing, says Dominique Dwor-Frecaut, an economist at ABN AMRO in Singapore: better to let the market set the price of credit.

To make matters worse, the government has stopped publishing timely figures on the banking system and foreign reserves. Word is that the reserves are not far short of the $23 billion-worth the country had in December, despite its efforts to shore up the currency. But the absence of official figures “makes people think the worst”, says Mr Condon.

Could Vietnam’s difficulties be a harbinger of trouble elsewhere in Asia? The optimists say no, arguing that inflation could peak later this year, the government’s measures could restore lending and imports to sensible levels and a moderate devaluation could relieve the pressure on the dong. Moreover, Vietnam’s current-account deficit—13% of GDP, according to the IMF—is one of the widest in Asia. Its currency problems are in a category of their own.

However, Vietnam serves as a timely reminder of how quickly inflation can get out of control, and the speed with which that can shatter confidence. Policymakers across Asia should be taking note.

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http://www.economist.com/finance/displaystory.cfm?story_id=10976054

The fall of Ho Chi Minh City

The bursting of Vietnam’s first stock market bubble

The $200 barrel of oil?

http://www.economist.com/research/articlesBySubject/displaystory.cfm?subjectid=7933596&story_id=11325132

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May 7th 2008
From Economist.com

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OIL briefly reached another record on Tuesday May 6th as West Texas Intermediate traded at over $122 a barrel for the first time. Ten years ago a barrel fetched around $15. The feeble dollar, soaring demand and supply constraints have all helped to push up prices by 25% in the past four months alone. And there is little sign of respite for worried governments and consumers. This week Goldman Sachs, a bank, predicted that oil could reach $200 a barrel before the end of the year.

FDI – where the money

http://www.economist.com/research/articlesBySubject/displaystory.cfm?subjectid=7933596&story_id=11565600

Foreign direct investment

Follow the money

China gets most foreign direct investment among developing countries, but its share is falling

DEVELOPING countries are attracting more foreign investment than ever before. Since 2000, FDI inflows have rocketed from $165.5 billion to an estimated $470.8 billion in 2007 says the World Bank. China draws the most, attracting $84 billion of investment last year. But this represented 18% of the total compared with 30% five years before. By contrast, Brazil and Turkey have seen their share increase. Investment has poured into Russia, mainly because of its energy boom, even despite increasing regulatory hurdles to foreign investors. Mexico is the fourth-biggest destination country, receiving $23.2 billion in FDI—the same as it gets in remittances.

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http://www.economist.com/markets/rankings/displaystory.cfm?story_id=9723875

Foreign direct investment inflows

Rivulets and riptides

The United States and the developed European Union are the main recipients of foreign direct investment

Emerging markets’ spendings to growth

http://www.economist.com/finance/displaystory.cfm?story_id=11488749

Economics focus

Building BRICs of growth

Jun 5th 2008

Record spending on infrastructure will help to sustain rapid growth in emerging economies

THE biggest investment boom in history is under way. Over half of the world’s infrastructure investment is now taking place in emerging economies, where sales of excavators have risen more than fivefold since 2000. In total, emerging economies are likely to spend an estimated $1.2 trillion on roads, railways, electricity, telecommunications and other projects this year, equivalent to 6% of their combined GDPs—twice the average infrastructure-investment ratio in developed economies. Largely as a result, total fixed investment in emerging economies could increase by a staggering 16% in real terms this year, according to HSBC, whereas in rich economies it is forecast to be flat. Such investment will help support economic growth this year as America’s economy stalls—and for many years to come…