1 UK seen to need interest rate cut (Katie Allen in
The Guardian) Interest rates in the UK may have to be cut further from their
record low level, the Bank of England’s chief economist has warned, as he
highlighted signs that the global financial crisis is entering a third phase of
turmoil.
Andy Haldane cited evidence of a slowdown on the
domestic front and risks to the global economy from China, where an economic
downturn has coincided with a stock market rout that has sent shockwaves
through the world’s markets.
His view that the Bank may need to resort to even
more unconventional moves to protect the UK recovery puts Haldane at odds with
the Bank’s governor, Mark Carney, who has indicated that rates may rise from
0.5% early next year. The warning from a top Bank official over the UK’s
fragility is also unwelcome news for George Osborne as he seeks to emphasise
his stewardship of the economy following Jeremy Corbyn’s election as Labour
leader.
Haldane, one of nine policymakers who set interest
rates, was speaking a day after the US central bank decided to delay an
interest rate hike for the world’s biggest economy. The US rate-setters blamed
a more fragile global outlook in remarks that further rattled jittery financial
markets. The FTSE 100 fell more than 1% in the wake of the US decision.
Haldane warned the UK was not ready for higher
borrowing costs. “In my view, the balance of risks to UK growth, and to UK
inflation at the two-year horizon, is skewed squarely and significantly to the
downside,” he said. “Against that backdrop, the case for raising UK rates in the
current environment is, for me, some way from being made.” Given the range of
risks facing the economy, there is every chance the next rate move could be a
cut instead of an increase.
Added to that, Haldane highlighted challenges in
Britain. “While the UK’s recovery remains on track, there are straws in the
wind to suggest slowing growth into the second half of the year,” he said.
“Employment is softening, with a fall in employment in the second quarter and
surveys suggesting slowing growth rates.
2 Market bubble fears grow (Jamie Robertson on BBC) No
increase in interest rates - crack open the champagne - another month (or two
or three) of cheap money. There may well be a few investors breathing a sigh of
relief that the Federal Reserve has kept US interest rates on hold. But most
realise that the days of cheap money are coming to an end.
Only now are we beginning to look at the stock
market, blown up by cheap money over the last six years, and starting to
question the resilience of this quivering balloon. With rates close to zero the
stock market has been the first choice for anyone hungry for a decent return
since March 2009. And in their enthusiasm those investors may well have
inflated a bubble of alarming proportions.
One valuation, known as Cape, and which gained
popularity after the collapse of the dot.com boom in 2000, is flashing red and
sending shivers through the market. Cape stands for "cyclically adjusted
price to earnings" ratio. The price to earnings ratio (or PE) is the
relationship between the price of a share in the market, and the earnings of
the company to which it relates.
Prof Robert Shiller, the Nobel laureate economist
who popularised Cape, decided to use average earnings, adjusted for inflation,
over the last ten years. The historic average Cape for the S&P 500, the
broad US market index, is 16.6. Its rock bottom was just below 5 in the early
1920s. Last year Prof Shiller said that over 25, Cape was at "a level that
has been surpassed since 1881 in only three previous periods: the years
clustered around 1929, 1999 and 2007. Major market drops followed those
peaks".
Now, I know what you're thinking. Where are we now? 25.33.
Uh-oh... But before you grab the phone to your broker, it should be pointed out
that no-one, Prof Shiller included, sees Cape as a predictor of a crash. In
fact had you used Cape to time your investment for most of this century you
would have gone spectacularly wrong. For all that time Cape has been, with one
brief exception in mid-2009, above its long term average of 16.6, i.e. telling
you your returns were going to be below average.
The last quarter saw total earnings for companies in
the S&P 500 index down 2.1% on the same period last year. The third quarter
is likely to be worse, maybe 5.5% lower than last year. Now a lot of that is to
do with the energy sector getting knocked sideways by the low oil price, but
other sectors are hardly shining. The bottom line is that earnings are at their
weakest level in six years. That in itself (let alone confidence levels and the
Cape ratio) should make investors cautious. And interest rates haven't even
gone up yet.
3 ‘Cool clock’ boy shows best and worst of America
(Khaleej Times) Ahmed Mohammad is now a celebrity in the US. The little boy who
was handcuffed and suspended for bringing his homemade clock, which was
mistaken for a bomb by the school authorities, is now all smiles and has a tale
to tell. President Barack Obama has invited him to the White House to share
with him his invention, and similar invites are pouring in from Facebook CEO
Mark Zuckerberg, Google, the Massachusetts Institute of Technology and Nasa to
visit their facilities.
This episode is in need of being studied in an
objective manner. The psychological terror and abuse that Mohammad, 14-year-old
son of a Muslim immigrant from Sudan, suffered at the hands of his school
authorities is condemnable. The fact that he was handcuffed and Texas cops were
called in to arrest him is disgusting. All that he was carrying with him is his
clock invention that resembled a bomb!
This speaks high of not only the fear factor but
also the sense of otherness that has set in American society in the aftermath
of the 9/11 attacks. Call it Islamophobia or paranoia, minorities still face
the uphill task of proving their loyalty and patriotism when it comes to the
business of the state.
Obama, nonetheless, made the necessary
socio-political correction by tweeting in support of the student. The gesture
to invite the ninth-grader to take his clock to the White House is laudable,
and will go a long way in wooing minorities and other dispossessed sections of
the American society. This is like appreciating the nation's enterprise and
their zest to contribute to the development and prosperity of the state.
"We should inspire more kids like you to like
science...it's what makes America great," Obama tweeted. Similarly, the
Facebook chief was candid, as he said: "Having the skill and ambition to
build something cool should lead to applause, not arrest. The future belongs to
people like Ahmed. I'd love to meet you. Keep building."
While Mohammad will be a sought-after guest on the
Astronomy Night (September 19) - an event bringing together scientists,
engineers, astronauts, teachers and students on the lawns of the White House -
Obama has an opportunity to send across the message that none should be
discriminated on the basis of unreasoned prejudice.
No comments:
Post a Comment