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Jason Simpkins

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Fourth Quarter U.S. GDP Report is All Sizzle and No Steak

When the Roman poet Phaedrus cautioned that "things are not always what they seem; the first appearance deceives many," he could easily have been describing the latest report on the U.S. economy.

According to a report released Friday, U.S. gross domestic product (GDP) expanded at a 5.7% annual rate in the fourth quarter, exceeding most estimates. But many economists are skeptical that such growth is sustainable. In fact, many analysts say the numbers are downright misleading.

Roughly two thirds of the growth came from businesses restocking inventories. Efforts to rebuild inventories contributed 3.4 percentage points to GDP growth - the most in two decades. But there wasn't a lot of "sell-through." In fact, excluding the change in inventories, final sales increased at a 2.2% annual rate, a signal that the economy remained weak despite strong top-line numbers.

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Hot Stocks: Apple's iPad Picks Up Where Amazon's Kindle Left Off

When it unveiled the Kindle e-reader in late 2007, Inc. (Nasdaq: AMZN) created a whole new market for digital books, newspapers and magazines.

Now industry innovator Apple Inc. (Nasdaq: AAPL) is taking that market to an entirely new level.

After months of spirited speculation, Apple on Wednesday introduced a full-color e-reader that doubles as a netbook.

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Disastrous December Collapse Exposes False Start to Housing Market Rebound

Reports of a rebound in the U.S. housing market have proven premature - just as we warned.

Home sales surged 28% from September to November, giving hope to prognosticators who declared the housing crisis over. But as Money Morning Contributing Editor Martin Hutchinson pointed out in a Dec. 31 article, sales plunged sharply the month after the government's new homebuyers tax credit was originally set to expire.

Existing home sales plunged 17% to a 5.45 million annual rate in December, taking the wind out of a housing market that was just beginning to show signs of life. The decline in December sales was the biggest since the National Association of Realtors (NAR) began keeping records in 1968.

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China Outrunning the Global Recovery and Still Looking Ahead

Many investors are focusing on China's recent moves to curtail lending and cool its economic growth, but in doing so they're forgetting that the Chinese economy has withstood the financial crisis better than any other economy in the world. And it remains investors' best bet.

"When the financial crisis forced the neoliberal economic system into a dead end, the shortcomings of the capitalist system were exposed for all to see," read a Jan. 5 front page editorial in the People's Daily, the central government's official mouthpiece. "But a China that was pushed to a crossroads proved its 'national capabilities' in taking on a crisis by answering with the advantage of the socialist system with Chinese characteristics."

That statement is cavalier almost to the point of tastelessness but Beijing has earned those bragging rights. China's economy expanded by 10.7% year-over-year in the fourth quarter as most of the world continued to struggle with the aftermath of 2008's financial crisis. For the full year, the nation's gross domestic product (GDP) grew 8.7%.

That easily tops the government's 8% target and dwarfs the economic growth posted by other economies around the world.

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Number of the Day: With 13.6 Million Vehicles Sold Last Year, China Has Passed the U.S. as the World's Largest Auto Market

China dethroned the United States as the world's largest auto market in 2009 with 13.6 million vehicles sold. It's the first time since Henry Ford's assembly line created a mass market for cars and trucks last century that a country other than the United States led the world in auto sales.

China sold more cars than the United States every month last year, except for August when the popular "Cash-for-Clunkers" program bolstered U.S. sales. China's auto sales, which also were boosted by government incentives, nearly doubled in December, rising 92% from a year earlier to 1.41 million vehicles, the China Association of Automobile Manufacturers said yesterday (Monday).

Roughly 10.4 million light vehicles were sold in the United States in 2009 - the lowest total since 1982 and a 21% decline from 2008. That number doesn't include the sale of heavy commercial vehicles, whereas China's total does. However, just 500,000 heavy commercial vehicles were sold the United States last year, CSM Worldwide analyst Yale Zhang told The Wall Street Journal. That would still leave U.S. sales short of China's mark.

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China is Doing Exactly What the United States Should be Doing – Looking Ahead

After boosting its economy with an $885 billion (2 trillion yuan) stimulus package, China is doing exactly what the United States should be doing - turning its attention toward inflation and excess lending.

The People's Bank of China (BOC) yesterday (Thursday) raised the interest rate on its three-month bills for the first time since Aug. 13. The central bank sold $8.8 billion (60 billion yuan) of three-month bills at a yield of 1.3684%. That's up from 1.3280% last week.

Also, the BOC this week drained a net $20.1 billion (137 billion yuan) from the money market through its open-market operations - its largest weekly fund withdrawal in nearly three months.

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Copenhagen Talks Getting Back on Track, but China May Not Climb Aboard

U.S. Secretary of State Hillary Clinton yesterday (Thursday) broke a major deadlock in negotiations at the United Nations Climate Change Conference (COP15) in Copenhagen, but China's aversion to transparency could keep a deal from being brokered.

For months developing countries have blamed the lack of a cohesive global response to climate change on the unwillingness of the world's richer nations to help finance green projects.

However, that all changed yesterday when Clinton said the United States would be willing to support a $100 billion fund to help emerging countries finance green energy initiatives.

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France and Britain Take the Lead on Executive Pay Restrictions

Executive pay has been a delicate issue in the United States where the Obama administration's "Pay Czar," Kenneth Feinberg, has been asked to keep bonuses for top financial managers disciplined without driving off top talent.

However, French President Nicolas Sarkozy and British Prime Minister Gordon Brown have been more blunt about exacting a toll on the financial firms that required taxpayer bailouts.

The United Kingdom on Wednesday announced plans to levy an immediate 50% tax on discretionary bonuses greater than 25,000 pounds, or about $40,000.   The U.K. Treasury estimates the tax will affect 20,000 bankers and bring in about 550 million pounds, or about $894,000,000. However, some bankers have suggested the tax would reap about 4 billion pounds, or $6.5 billion, if firms press ahead with large bonus payouts regardless of the tax, the Financial Times reported.

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Credit Trouble for Spain and Greece Spreads Fears of Sovereign Defaults

Standard & Poor's today (Wednesday) cut its credit outlook for Spain to "negative" from "stable," fanning concerns that sovereign defaults will spread throughout the global economy.

The dimmer outlook for Spain "reflects the risk of a downgrade within the next two years," S&P said.

It also increased fears among investors that the world could see a wave of global credit defaults. After the default of state-owned Dubai World forced investors to think twice about the recent rally in global stocks, Fitch Ratings Inc. on Tuesday cut Greece's credit rating to BBB+ from A-minus.

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New Stimulus Won't Save Japan From Deflation, Soaring Deficit

Japan today (Tuesday) unveiled an $80.6 billion (7.2 trillion yen) stimulus package to bolster the economy and promote employment. But a sharp drop in exports, declining prices and rising joblessness should continue to plague the world's second-largest economy.

Japan's stimulus package will put $39 billion (3.5 trillion yen) toward supporting regional growth. Some $9 billion (800 billion yen) will go to environmental programs and $6.8 billion (600 billion yen) will be used to promote job growth. Much of the remainder will be used to offer loan guarantees for small companies to ease a credit crunch.

Japan's third-quarter gross domestic product GDP rose at a 4.8% annual rate, after revised growth of 2.7% in the second quarter. But the nation's currency, which is hovering around a 14-year high against the dollar, is jeopardizing the recovery by making Japanese exports more expensive for other countries.

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Does the Bank of Japan Have Enough Juice to Overcome Nagging Deflation?

The Bank of Japan (BOJ) yesterday (Tuesday) took steps to preserve a fragile economic recovery by pumping more short-term funds into the nation's banking system. However, many analysts are worried that the central bank didn't do enough to put a ceiling on the yen, and prop up its ailing corporate sector.

Japan's central bank said it would make available $115 billion (10 trillion yen) in three-year loans at 0.1% interest. The announcement was made after the BOJ held an extraordinary monetary policy meeting, which was called to "discuss monetary control matters based on recent economic and financial developments," namely the rise of the yen and growing deflation that poses a threat to its nascent economic recovery.

Japan's third-quarter gross domestic product (GDP) rose at a 4.8% annual rate, after revised growth of 2.7% in the second quarter. But the nation's currency, which last week hit a 14-year high against the dollar, is jeopardizing the recovery by making Japanese exports more expensive for other countries.

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Emerging Markets Consider Capital Controls to Combat "Hot Money" Inflows

Concerned with accelerating inflows of so-called "hot money," more emerging market nations are considering new capital controls to keep their currencies from appreciating and prevent asset bubbles from becoming a problem.

Loose monetary policy in the United States and Europe has flooded fast-growing Asian economies where Western investors are seeking higher yields. India, Taiwan, South Korea, Hong Kong, and Indonesia are among the regions investigating options to combat the rapid inflows of foreign capital that are driving up stock prices, and threatening their export sectors by forcing their currencies to appreciate.

"With interest rates exceptionally low and with abundant liquidity around the world, Hong Kong faces the potential risk next year that asset prices may go up sharply and become increasingly disconnected from economic fundamentals," the Hong Kong Monetary Authority said on its Web site.

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OECD More Than Doubles 2010 Forecast, as China Leads the World Out of the Recession

The Organization for Economic Cooperation and Development (OECD) more than doubled its 2010 forecast for developed nations, saying that strong growth in Asia – particularly China – would help pull the “more feeble” West out of its financial malaise.

After predicting in June that the combined economy of its 30 member nations would grow 0.7% in 2010, the OECD raised its forecast for developed economies to grow 1.9% next year and 2.5% in 2011. Economic output will contract by 3.5% this year, the Paris-based organization said today.

We now have the numbers that support a recovery in motion,” Jorgen Elmeskov, the OECD's acting chief economist, told Bloomberg News. “It's still a slow recovery because of considerable headwinds from the need to adjust the balance sheets of households, enterprises and financial sectors.” The OECD cautioned that the recovery is still fragile in developed nations, while pointing to China as the main catalyst for a global rebound.

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Why Gold Will Reach a Record $2,000 in 2010

Gold has surged 60% in the past 12months and it’s not letting up. The “yellow metal” is continuing that scorching surge into the last part of the year, establishing new highs on a near-daily basis. In fact, gold established yet another record price yesterday (Wednesday) when it peaked at $1,153.40 an ounce on the New York Mercantile Exchange (NYMEX).
<br And the records are going to keep on coming.

With the U.S. dollar in a freefall and global gold demand rising, analysts say the precious metal will likely continue its bullish trend through at least the first half of 2010. It could rise as high as $2,000 an ounce, which would represent a 73% gain from current record levels.

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SEC Filing Shows Buffett Played It Safe Ahead of His Burlington Northern Buyout

Having gone “all in” on a U.S. economic recovery with his $44 billion acquisition of Burlington Northern Santa Fe Corp. (NYSE: BNI), Warren Buffett showed a less aggressive stance in Berkshire Hathaway Inc.'s (NYSE: BRK.A, BRK.B) Nov. 16 filing with the Securities and Exchange Commission (SEC).

Buffett trimmed Berkshire's holdings in riskier businesses that have uncertain futures, such as newspapers, healthcare companies, and credit ratings agencies in favor of more stable long-term picks such as Wal-Mart Stores Inc. (NYSE: WMT) and ExxonMobil Corp. (NYSE: XOM).

The 13-F filing showed that as of Sept. 30 Berkshire had increased its Wal-Mart holdings by almost 90% over the summer, adding 18 million shares worth nearly $1 billion.

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