Short-term interest rates continue their downward trek.
The effort by major central banks to increase the supply of dollars globally to free-up credit continued to move rates in the right direction Thursday -- down -- as private banks were encouraged by the U.S. Federal Reserve's interest rate cut and $120 billion in new swap lines with emerging market central banks.
The London rate for three-month loans in dollars declined for the 14th consecutive day, dropping another 23 basis points to 3.19%. Rates also fell in Asia: the three-month rate for Hong Kong, the HIBOR, dropped 15 basis points to 3.39%.
Meanwhile, the London interbank overnight rate, or LIBOR, plunged another 41 basis points to 0.73% - - its lowest level since January 2001.
Short-term rates, including overnight rates, are key sources of cash for corporations and other large institutions, which use the cash to pay suppliers, make payroll, roll over debt etc. Hence, very high overnight and short-term rates will discourage corporations from conducting business, restricting commerce and slowing the economy, economists say.
A year ago, few in the currency market would have predicted this stunning reversal in the flow of capital.
Despite being the nation that's likely to bear the largest economic and fiscal costs -- including a huge increase in its budget deficit and national debt -- from the global financial crisis, institutional investors are turning to the U.S. dollar in a flight-to-safety that economists say shows few signs of ending soon. Investors flee to the dollar
That's right: you read correctly -- investors are turning to the dollar as a safe haven. Despite a decade of budget and trade deficits that drove the dollar to records lows. Despite an uncertain (at best) immediate economic outlook (the U.S. will be oh-so-fortunate to experience only a mild recession). Despite disagreement in the nation over the best way to pay for the many rescues / interventions needed to end the crisis. Despite the uncertainties presented by the upcoming U.S. Presidential / Congressional election. Despite its inadequate infrastructure and underdeveloped industrial base.
Despite all of the above, institutional investors abroad want: dollars. Money is flowing out of emerging markets and into the dollar -- so much that the major central banks may very well have to intervene repeatedly to support emerging market currencies to prevent further global financial system destabilization. Institutional investors are also flocking to Japan's yen, due to that country's relatively lower exposure to toxic assets.
"While watching the Olympics, I couldn't thinking about the investment opportunities of the various countries participating in the games," says exchange-traded fund expert Carl Delfeld.
Recognizing that this is not a "scientific" approach nor a primary basis for seriously determining one's asset allocation the editor of Around the World with ETFs speculates, "While it is admittedly a stretch, let's consider what an ETF porfolio of the top ten countries in the Beijing Olympics medal count would look like."
"I hope that while watching the Olympic games many investors were also reminded at how the world is changing and why they need a global portfolio to capture value and growth around the world.
"The U.S. did remarkably well across the board underscoring its role as the world's leading investment destination. China surged to win the most gold and reach the symbolic level of 100 medals.
"Quite an achievement that punctuates China's growing heft. With the Shanghai Composite down 55% this year, it has come down to earth and is interesting from a valuation perspective.
"Next comes Russia with a performance fueled by a strong Olympian tradition and petro dollars but perhaps a bit overshadowed by the Georgian fiasco. I will take a pass on this one even though it is off 36% since just May.
It has been widely anticipated that the EU would bring new antitrust charges against Intel (NASDAQ: INTC). The FTC and other US authorities are chasing the largest chip company in the world for similar reasons. South Korea has already fined Intel for anti-competitive behavior.
The theory behind the charges is that Intel induced PC companies and their retailers to use its chips and not those from rival AMD (NYSE: AMD). According to The Wall Street Journal, "The European Union launched new antitrust charges against Intel Corp., saying the chip giant paid rebates to a major retailer to encourage it not to carry computers using chips from smaller rival Advanced Micro Devices Inc ."
If the charges are true, it shows the extent to which a company of real size, like Intel, can be its own worst enemy. Microsoft (NASDAQ: MSFT) ran into similar problems a decade ago for being too aggressive killing off competition in the browser and media player markets.
The irony of Intel's legal bind is that it almost certainly did not need to pressure or give incentives to keep AMD in a distant second place. It had the balance sheet to keep margin pressure on AMD and the engineering prowess to offer better chips.
Arrogance and carelessness often go with being in first place. This time it appears that it has caught up to Intel.
Douglas A. McIntyre is an editor at 247wallst.com.
The U.S. government made the decision to offer tax rebates to help offset the economic slump. Based on recent unemployment figures, that may not be working.
Rising commodities and oil prices may be a more significant threat to consumers than the very modest growth in personal income.
That begs the issue of whether the U.S. is putting capital distributed to tax-payers in the right place. It may be that giving consumers subsidies to offset oil and gas prices is a much more effective way to keep the economy on track. And, that is what South Korea plans to do.
According to Bloomberg, the government in South Korea will put up about $10 billion "to help consumers and businesses cope with surging energy costs." These benefits will go mostly to those with modest incomes and small companies. Arguably, the rich and large corporations are better able to cope with high energy costs.
Estimates vary, but the U.S. economy is 10 to 15 times larger than South Korea's, so any similar program in the U.S. could cost $120 billion.
Not a ton of money to keep the skids greased.
Douglas A. McIntyre is an editor at 247wallst.com.
Many South Koreans made their feelings clear on Saturday: the United States can keep its beef.
The AP reported that a month of protests culminated in a rally Saturday night in Seoul during which many thousands of South Koreans protested the government's decision to import U.S. beef after a it had been shut out for most of the past four and half years.
South Korea was formerly the third-largest overseas market for U.S. beef, until the first case of mad cow disease in the United States back in 2003.
After sensational media reports sparked fears of mad cow disease, protests of the April agreement to reopen markets to U.S. beef began in earnest. Students, labor union members, and office workers filled the plaza in front of city hall. Protesters lit candles, waved placards and chanted slogans criticizing President Lee Myung-bak, but rally was largely peaceful.
Protesters suggest that President Lee was too quick to concede to U.S. demands in order to win favor with Washington and garner support in Congress for ratification of a separate free trade agreement.
President Lee's office had no comment on the rally, but earlier. President Lee went on national television to apologize for not sufficiently consulting with the public on the beef issue.
General Motors Corp. (NYSE: GM) wants to capture more market share for its imported passenger cars in South Korea. To do this, the automaker is considering launching its Chevrolet brand in that country after examining the results of a recent Korea-specific feasibility study.
GM, which already sells its Cadillac and Saab brands in South Korea, wants to make sure that rival Toyota Motor Corp. (NYSE: TM) doesn't get into South Korea with its extremely popular passenger cars and beat it in that market, much like it's doing in many national auto markets. Toyota is now public enemy number one for GM, and it's not getting any easier for the iconic U.S. auto brand. Although its latest quarter was somewhat disappointing, Toyota is still very much on top of its game.
Another motivation for GM is the fact that imported car sales in South Korea increased to 6.2% of all car sales in April of this year, up from 4.9% from a year ago. GM hopes that it can double its South Korea sales this year, which sounds like a pretty hefty goal. GM is facing some headwinds though: the big three Detroit automakers saw their first-quarter car sales in South Korea shrink to 11.7% of the market, down from 2004's 15% first quarter total.
American citizens and corporations, already stung by the more than 200% increase in oil and gasoline prices since 1999, most likely will be confronted with another energy shock in the months and quarters ahead: natural gas.
U.S. natural gas prices have risen an astounding 93% since August 2007 -- this despite a mild winter in much of the nation -- as rising demand from energy-hungry Asian buyers, such as South Korea and Japan, have forced up natural gas' price, The Wall Street Journal reported Friday. (Subscription required.)
Natural gas, which traded Friday morning in the United States at $10.22 per million BTUs, heats 50% of U.S. homes, generates 20% of the nation's electricity, and is intrinsic to making everything from fertilizer to plastic bags.
International natural gas demand rises
Further, with solid international demand, and a U.S. price that's roughly one-half the global price, many analysts argue U.S. natural gas prices are likely to increase substantially, moving forward. That would create another "core inflation" price accelerator to a U.S. economy already experiencing rising core/retail inflation from oil's enormous rise from $25 per barrel in 1999 to more than $110 today.
You know that an economic issue has jumped the shark when the New York Times's op-editoraliste Maureen Dowd (MoDo) devotes her Sunday column to it. What's unleashed MoDo's moxie is how Sovereign Wealth Funds (SWFs) -- those government investment funds estimated to control between $2 trillion and $15 trillion -- are buying up chunks of the U.S. banking system.
The problem against which MoDo rails is that thanks to the policies of George W. Bush, the price of oil has quadrupled and the dollar has plummeted -- thus putting the U.S. at the mercy of those Arabian SWFs whose owners he groveled to this week to lower the price of oil. And while W. was grovelling, so were the CEOs of Citigroup Inc. (NYSE: C) and Merrill Lynch & Co. (NYSE: MER) -- seeking capital to shore up their Collateralized Debt Obligation (CDO)-tarnished balance sheets. MoDo is right that with Bush's $2.4 trillion worth of wars and $1.3 trillion worth of tax cuts, the U.S. has gone from being the world's creditor to its debtor.
But another New York Times article sheds more light on the phenomenon of foreign investment in the U.S. -- suggesting that with their $414 billion worth of 2007 purchases in the U.S., foreign investors, including SWFs, spent a record amount of money buying up the U.S. last year -- up 90% from 2006. The Times suggests that this foreign investment comes in different forms -- some of which are beneficial. How so?
Celebrating New Year's Eve, South Korea granted amnesty to 75 politicians and businessmen, including the former chairman of Daewoo Group, Kim Woo-choong.
Kim Woo-choong was sentenced by a Seoul appeals court on Friday November 3, 2006 to eight and a half years in prison. The founder and former chairman of collapsed conglomerate Daewoo, who was sentenced for embezzlement, accounting fraud, illegal financing and diverting funds out of the country, was pardoned under the presidential amnesty. For the others, South Korea reduced sentences or had suspended rights restored.
The end of Daewoo Group was the 1997-98 Asian financial crisis which came with massive debt for the company. During that crisis, South Korea's government was forced to accept a $58 billion International Monetary Fund bailout. Back during that period, Detroit-based General Motors Corp. (NYSE: GM) didn't miss the opportunity to buy a major stake in Daewoo Motor to create GM Daewoo in 2002.
The U.S. car market will probably total just above 16 million cars and light vehicles this year. And next year, a tight economy may take the figure down. GM (NYSE: GM) has about a quarter of the market, or 4 million units. With a shrinking market and competition from Japanese imports, holding that number may be hard.
But GM is doing well in China, where its is tied with Volkswagen for the No. 1 spot, and the U.S. car company's numbers get better in Latin America each year.
GM has another market which is rarely mentioned, but it is an example of how the firm is accelerating its investments and returns overseas in a bid to diversity geographically.
Microsoft (NASDAQ: MSFT), finally seeing the writing on the wall after losing in the European courts, decided today to withdraw its appeal [subscription required] of an antitrust ruling by the South Korea Fair Trade Commission, according to a report in the Wall Street Journal today. "It is important to note that Microsoft remains committed to Korea and continues to work closely with the FTC to ensure that Korean consumers benefit from vibrant competition in the IT industry," the company said in a statement. I bet that's how they really feel. I don't think Microsoft truly wants to help the competition, but they are being forced to do so by the antitrust regulators.
In February 2006, South Korea's FTC imposed a fine of 32.5 Korean ($35.4 million) against Microsoft for abuses related to its dominance in certain software, primarily its Windows operating system. Microsoft must provide two versions of Windows in Korea, one stripped of the Windows Media Player and Windows Messenger and the other carrying links to Web pages that allow consumers to download competing versions of such software. Microsoft appealed this decision in March 2006. This appeal was turned down in May 2006 by the FTC and it asked the antitrust regulator to review the fine. Today Microsoft dropped the appeal most likely because it realized it would lose.
Anyone who has been following Asian markets knows that many of them are on fire. Just recently, South Korea passed massive economic deregulation policies that sent the country's market flying. As the Economist nicely portrayed it last week, South Korea remains very interesting for several reasons:
The country has a good location (between Japan and China)
It has a good airport
Its people are well-educated
Healthy banks
Record-setting stock market
Strong foreign-exchange reserves
Growing savings
However, what's most interesting is the fact that the stock market has reached record highs without the help of foreign investors, for the most part. This is significant because once more foreign investors begin realizing the tremendous potential of South Korea, I expect rather large sums of money to begin flowing into the country's economy -- a huge catalyst for further stock market appreciation.
As you can see from the iShares South Korea Fund (NYSE: EWY) (above), the American's primary entryway to the uspide in South Korea is also rallying.
We've all experienced unsatisfactory customer service at some point. Slow service from a bartender, inattentiveness in a clothing store, interminably futile telephone conversations with utilities companies. Some of us can quickly brush aside these transgressions; others might take comfort in writing a strongly-worded letter (or seven).
One Korean man, Kim (the lone name that has been released in the press), took a slightly more dramatic approach, barreling a friend's borrowed Mercedes S500 into the South Korean lobby of SK Telecom's (NYSE: SKM) offices. Consumerist.com quoted Kim as saying: "The Samsung Anycall call phone that I bought from a [SK Telecom] distributor . . . didn't work at all."
Before taking these drastic measures, the disgruntled consumer said he placed 16 calls to his carrier's customer service department and visited the head office twice. An employee suggested Kim simply replace his phone with a newer model because the old version was no longer available.
No word yet on the repercussions facing Kim (on the part of either Samsung or his friend from whom he borrowed the Mercedes.)
Periodically we hear mention of "Bullet Trains" being developed between large metropolitan areas. Last week I posted Serious Money: Freight Railroads - BNI, CSX, UNP & more and the first comment I received was about Bullet Trains. Not exactly on topic, but a hot topic nevertheless. That article was about investment ideas. Now to explore bigger ideas!
Bullet Trains are an ultra fast, ultra sleek, ultra modern way to get quickly and efficiently between major cities. Although utilized to great success in such countries as Japan and France, bullet trains apparently are too futuristic for the likes of the United States. They are always a part of some future plan, but always passed on as too expensive.
In California we have discussed high speed trains from Los Angeles to San Francisco, and from Los Angeles to Palmdale -- this one in hopes of moving some Los Angeles International Airport (LAX) traffic to the high desert. There is very high demand at LAX but the airport is congested, complicated, and hemmed in. A speedy, reliable transportation option between San Francisco and Los Angeles would be welcome by millions of residents.
High speed trains are under discussion or being planned for Australia, China, India, South Korea, Taiwan, and many other places. The Japanese and French, not surprisingly, are leading the way. The New York Times reported: French Train breaks rail speed record achieving speeds of 357 miles per hour. The report concludes that high speed trains have not caught on in the U.S. as they have in Europe, "where TGV travel is generally considered faster transportation than air travel for distances that the TGV can cover in less than three hours."
An obvious observation for anyone who's done any traveling. But sentiment tends to become official when the New York Times states it in print.
From what I have been able to find out The Florida Overland Express (FOX) is probably the furthest along, but, while the train will move fast - the development moves very slow. According to the website, Florida Governor Jeb Bush canceled this project in 1999. Once again the United States lags behind the rest of the developed (and developing) world when it comes to sensible solutions to environmental and social issues. So what else is new?
Sheldon Liber is the CEO of a small private investment company and the vice president for de.sign and research at an architecture & planning firm. Check out his other posts for BloggingStocks here.
A year ago, few in the currency market would have predicted this stunning reversal in the flow of capital. 
Many South Koreans made their feelings clear on Saturday: the United States can keep its beef.
General Motors Corp.
Celebrating New Year's Eve, South Korea 
We've all experienced unsatisfactory customer service at some point. Slow service from a bartender, inattentiveness in a clothing store, interminably futile telephone conversations with utilities companies. Some of us can quickly brush aside these transgressions; others might take comfort in writing a strongly-worded letter (or seven). 
Waiting for the other shoe to drop: The looming credit crisis
Closing Bell: Dow down 7.7%; GE, YHOO, MS fall, PGI, MNT soar
Bet on T&A with J&J (JNJ)
