Business Daily from THE HINDU group of publications
Wednesday, May 13, 2009
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Business Daily from THE HINDU group of publications Wednesday, May 13, 2009 ePaper | Mobile/PDA Version | Audio | Blogs |
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Economy Money & Banking - Financial Markets Columns - Financial Scan Will private investment in distressed assets catalyse? S. Balakrishnan Has the tide started to turn? Some encouraging data have begun to come out of every leading economy — the US, Japan, Germany and the UK, not to speak of the rising giant — China. True, we are being warned not to uncork the champagne too soon. Rightly so. For, it is not as if there is a positive turn. Things are still getting worse, but more slowly than before. It is best exemplified in the US jobs report for April, released last Friday. Non-farm payroll fell 593,000, but significantly less than the figure of nearly 700,000 in the previous month and also below a higher forecast. This doesn’t mean the economy is not creating any new jobs. The reported figure is net of gains and losses in various sectors. But the fact remains that losses exceed gains. Meanwhile, the results of the bank stress tests were announced. Identified banks will need about $75 billion in additional capital in worst case scenarios for the economy and house prices. The requirement was less than expected and the stock market greeted the findings with enthusiasm. The US Fed Chairman, Mr Ben Bernanke’s take on the economy is sobering. He foresees an upturn in late 2009 but no early or easy return to high growth. More depressingly, Mr Bernanke thinks the job market will remain tepid for some time. That is a negative for consumer spending, which accounts for two-thirds of GDP. Business spending too is likely to be tempered because of the shroud of uncertainty still surrounding the housing sector, financial institutions, markets and growth prospects. The jump in stock prices is having its fallout in commodity prices, with oil especially pushing to close to $60 a barrel, disregarding the weak economic data. This is the problem when expectations drive markets, dampening growth and inhibiting necessary anti-cyclical monetary and fiscal policies. Contrary to academic assumptions (and popular perception), the market often sends wrong (sometimes terribly — witness the environmental and ecological damage caused by the uncontrolled consumption of natural resources) signals. Apart from government and central bank stimuluses, the best hope remains the stabilisation and recovery of asset prices. With bank balance sheets already considerably marked down and the Obama administration underwriting further losses through its ‘toxic’ asset programme, there could be attractive value for private investors in the fire sale prices now prevailing. Unfortunate but true. The gung ho global growth of recent years arose primarily from an asset price boom. While the US government does have its own stimulus package, it cannot but also rely on financial market players to do their bit and accelerate the revival process. US stress test: Relief for some banks Friedman vs Keynes Is the worst really over? More Stories on : Economy | Financial Markets | Employment | Financial Scan
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