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Japan's exports weakened in May, including shipments to its Asian trading partners, raising doubts about the region's ability to pull the rest of the world out of its slump.
From Bloomberg News:
Shipments abroad dropped 40.9% from a year earlier, more than April’s 39.1% decline, the Finance Ministry said Wednesday. The median estimate of economists surveyed was for a 39.3% decrease.
From a month earlier, exports fell 0.3%, the first deterioration since February.
Declines in shipments to Asia accelerated for the first time since January, damping hopes that demand from the region will spur a recovery in the world’s second-largest economy.
“Final demand just isn’t picking up and it’s still hard to expect a very strong economic recovery,” said Azusa Kato, an economist at BNP Paribas in Tokyo.
Shipments to China, Japan’s No. 1 trading partner, were down 29.7% in May from a year earlier, compared with a 25.8% year-over-year drop in April, according to the Finance Ministry's report. Exports to Asia overall were off 35.5%, versus a 33.4% decline in April.
Indian demand for Japanese goods was particularly weak, falling 50% in May compared with a 31.2% drop the previous month.
Japanese exports to the U.S. fell 45.4% from a year earlier, but that was a slight improvement compared with the 46.3% drop in April. Japan's imports of U.S. goods, however, shrank substantially. They were down 40.3% in May compared with a 29.3% decline in April.
Among other trading partners, demand for Japanese exports in Russia has virtually collapsed in recent months; shipments to Russia plummeted 88.3% in May from a year earlier.
-- Tom Petruno
General Electric Co. CEO Jeffrey Immelt had some things to say Tuesday about the New World Order for businesses in the aftermath of the economic and financial cataclysms of the last 18 months.
A few comments Immelt made at the International Economic Forum of the Americas in Montreal, as reported by Bloomberg News and Canada’s Financial Post:
-- "The government has moved in next door and it ain’t leaving. You could fight it if you want but society wants change. And government is not going away. . . . We are going to have to deal in a government-structured world."
 -- "Do I agree with President Obama on everything. No. Did he get elected without my vote? Yes. But he’s my president and we’ve got to be involved in the way change is going to take place -- or we really risk not having the voice of business broadly felt."
-- "My suspicion is that … taxes are going up, and [federal] spending is going to have to come down. This has to be addressed."
-- "As a company you have to invest now. You have to invest when things are darkest. I hope this is a V-shaped recovery. I hope this is like 1982. That’s not what I’m counting on. If you are hunkering down, you are going to get crushed. It’s time to hunker up."
-- "We are going to plant a lot of seeds in the resource-rich parts of the world because we just think the long-term tailwind on energy prices is only going up."
-- "I’ve been going to China for 25 years, my entire career with GE. I always leave with a headache. I always think, ‘How do we beat these guys in 30 years?’ And every year my headache gets bigger. This is the high-tech corridor of the world, China and India. They have more engineers than we have."
-- Tom Petruno
Photo: General Electric CEO Jeffrey Immelt in Montreal on Tuesday. Credit: Graham Hughes / Canadian Press
Heavy-equipment manufacturer Caterpillar Inc., which today reported its first quarterly loss in 16 years, says it prefers China’s economic-stimulus plan to President Obama’s.
From Bloomberg News:
"The infrastructure portion of the [U.S.] stimulus package was disappointing in that it was less aggressive than other countries and missed an opportunity to correct past underinvestment in U.S. infrastructure," Caterpillar said in an economic commentary with today’s first-quarter earnings report.
 CEO Jim Owens is a member of the president’s Economic Recovery Advisory Board. Obama visited the company’s Peoria, Ill., headquarters Feb. 12, the final day of his campaign to press for congressional passage.
"You can measure America’s bottom line by looking at Caterpillar’s bottom line," Obama said during the February visit. "What’s happening at this company tells us a larger story about what’s happening in the American economy."
Caterpillar said it lost $112 million, or 19 cents a share, in the first quarter, compared with a profit of $922 million, or $1.45 a share, a year earlier. Revenue was $9.2 billion last quarter, down 22% from a year earlier.
The company said it still expected to be profitable for the full year. It predicted earnings of about $1.25 a share, excluding severance expenses and other one-time costs. But the new estimate is half what the firm projected in January.
Cat's shares were up 91 cents to $31.40 at about 10 a.m. PDT, after diving 5.6% in Monday's broad market decline.
From Bloomberg:
The company attributed the lower forecast in part to uncertainty about stimulus plans and said the effect of U.S. measures would be "fairly limited."
Caterpillar said the U.S. may disburse as much as $70 billion this year for infrastructure building, about 6.5% of last year’s total construction spending.
"We do not expect this increase to offset steep declines in private construction spending," today’s statement said.
At the same time, the company said it did expect some benefit this year from China’s economic-stimulus package.
"China, with an economy one-third the size of the United States, is allocating over three times as much for infrastructure," Caterpillar said. "Initial results from this package look promising."
-- Tom Petruno
Photo: President Obama and Caterpillar CEO Jim Owens at a Cat plant in East Peoria, Ill., on Feb. 12. Credit: Charles Rex Arbogast / Associated Press
Upon further review, as they say in the NFL, Treasury Secretary Timothy F. Geithner has decided that China doesn’t manipulate its currency for trade purposes.
Not surprisingly, U.S. manufacturing groups aren’t happy with Geithner’s about-face.
From Bloomberg News:
In its first semiannual report on foreign-exchange policies since Geithner became secretary, the Treasury said that while the yuan remains "undervalued," no country "met the standards" for illegal currency manipulation during the period of the report, from July 2008 through December 2008.
 The conclusion clashes with Geithner’s Jan. 22 statement to a Senate panel that President Barack Obama "believes that China is manipulating its currency." Today’s shift may anger U.S. lawmakers, companies and trade unions who have sought measures to punish nations perceived to have undervalued exchange rates.
"Clearly the Treasury has made more of a political decision than an economic decision here," Republican Sen. Lindsey Graham of South Carolina said in a Bloomberg TV interview. "The truth is the Chinese manipulate their currency."
Everyone knows that China "manages" its currency. The government has allowed the yuan to slowly strengthen from 8.2 per dollar in 2005 to 6.8 now. U.S. manufacturing groups say China still is keeping the yuan too weak, which in turn keeps Chinese exports cheap for U.S. consumers.
But everyone also knows that the U.S. needs China to remain willing to hold record sums of U.S. Treasury debt, as federal borrowing soars. Labeling your chief creditor a "manipulator" would be a classic case of biting the hand that fills your coffers with cash.
Still, the 1,900-member U.S. Business and Industry Council condemned the administration’s flip-flop.
"This report breaks the major commitment candidate Obama made last year to fight Chinese exchange rate protectionism effectively by endorsing the strongest currency manipulation bill proposed in Congress," said Council Research Fellow Alan Tonelson."His decision not to cite China gives Beijing a green light to keep cheating America’s domestic manufacturers and their employees out of earnings and jobs."
The Alliance for American Manufacturing was gentler on the administration, saying the Treasury report was "perplexing."
But Alliance Executive Director Scott Paul was no less harsh than Tonelson on China, calling the nation’s currency policy "the most protectionist, trade-distorting and mercantilist practice by any of the G-20 nations. The U.S. should lead the way in ensuring that China honor the commitments it made to gain access to the U.S. market and the rules-based trading system."
-- Tom Petruno
Photo: Treasury Secretary Timothy F. Geithner. Credit: Jay Mallin / Bloomberg News
Lowly copper has a reputation for heralding economic turning points. So with the metal’s price up 57% this year, to a six-month high on Wednesday, some stock market bulls see copper as underpinning the case that the economy is bottoming.
But copper’s ascent could just be the result of some old-fashioned hoarding by China -- the one major government with loads of money to spend on something other than a banking-system rescue.
Near-term copper futures in New York rose to $2.20 a pound Wednesday, up from $2.11 on Tuesday and the highest since mid-October. The price has surged from $1.41 a pound at the end of 2008.
By contrast, raw materials prices overall, as measured by the Reuters/Jefferies CRB index of 19 commodities, are down slightly this year.
 "What’s happening in copper now is a reflection of the broader global economic story," Michael Cuggino, chief executive of Pacific Heights Asset Management, told Bloomberg News. "We’re still expecting to see long-term global growth that’s going to drive demand for copper and the other commodities."
But is the price of copper really a good early-warning signal for the rest of the economy? The historical evidence isn’t very convincing, as Guy Lerner points out on this post at the MarketOracle website.
And this time around, stockpiling by China -- rather than fundamental demand for the metal from a broad range of industrial users -- may be skewing the price.
From a Financial Times of London report on March 22:
Read on »
China's stimulus program is getting money into the economy. Now the government may be wondering whether the cash infusion could be too much of a good thing.
From Bloomberg News:
China’s new lending surged more than sixfold from a year earlier to a record 1.89 trillion yuan ($277 billion) in March, adding to signs that growth in the world’s third-biggest economy is gathering pace.
M2, the broadest measure of money supply, grew 25.5%, the central bank said on its website today. That’s the fastest since Bloomberg began compiling data in 1998.
China’s banks, which are mostly state-owned, have already met the bulk of the government’s target of at least 5 trillion yuan of new loans this year. Lending may top that level by as much as 3 trillion yuan, according to JPMorgan Chase & Co.
 But some analysts, and government officials, are concerned about the risk inherent in this explosion of lending. One worry is that some of the money has just flowed directly into the stock market, via speculators.
The Shanghai stock market has been one of the world’s best performers this year, with a gain of 34.2%.
From Bloomberg:
"The central bank had to ensure it did enough to reflate the economy," said Kevin Lai, an economist with Daiwa Institute of Research in Hong Kong. "The question now is whether it has done more than is needed. Some of the money has gone to the property market, some to the stock market. It is not what the central bank wants to see.”
A concentration of loans in infrastructure projects is a potential hazard for banks, China Banking Regulatory Commission Vice Chairman Jiang Dingzhi wrote in the April 1 edition of China Finance, a magazine affiliated with the central bank. Unusual growth in discounted bills, which are used for working capital and dilute banks’ lending profits, "deserves high attention," Jiang said.
"The biggest dangers to China’s economy and financial system come from within, not from outside," Jiang Zhenghua, former vice chairman of China’s parliamentary standing committee, said at a financial conference in Beijing today. "The biggest of these hidden dangers is the degree of bad loans in China."
With the world starved for growth, the rest of us can only hope that China’s day of reckoning for the lending surge is a long way off.
-- Tom Petruno
Photo: An investor reacts in Shanghai Thursday as the stock market rebounds, after profit-taking hit on Wednesday. Credit: Eugene Hoshiko / Associated Press
Online game developer Changyou.com Ltd. picked a great day to launch its U.S. initial public stock offering.
Amid a broad market advance today, investors bid the company’s new shares as high as $23.93 from the IPO price of $16. The stock closed at $20.02 on Nasdaq, up 25%.
Changyou.com, which raised $60 million in the stock sale, is just the second IPO in U.S. markets this year. Wall Street’s meltdown in January and February caused most IPO hopefuls to shelve their plans.
 The only deal to be priced in the first quarter was from well-known infant-formula company Mead Johnson Nutrition, which was spun off from drug giant Bristol-Myers Squibb. Mead Johnson sold 30 million shares at $24 each on Feb. 10. The stock has gained 14% since then, to $27.35 today.
Changyou.com is a unit of Sohu.com Inc., which bills itself as China’s leading online media company. Of the 7.5 million shares issued in the IPO, half were from Changyou.com and half were from Sohu.com, which remains Changyou.com's controlling shareholder.
Changyou.com is a developer of so-called massively multi-player online role-playing games (MMORPGs).
I asked my Times colleague Alex Pham to explain MMORPGs. She writes:
The best-known example is World of Warcraft, developed by Irvine-based Blizzard Entertainment. Like other MMOs, World of Warcraft is an online game that can be played by millions of people simultaneously, pursuing fantasy-themed quests or explorations. More than 11.5 million people worldwide pay about $15 a month to play the game, giving Blizzard's owner, Vivendi, a highly stable and hugely profitable stream of revenue. While the game requires players to buy a packaged disc to begin playing, it's an attractive business because its online nature makes it piracy-proof -- only players who pay their monthly fees are allowed to play.
It's also a risky and highly competitive area of games. MMOs are expensive to build and even more costly to maintain (Blizzard employs more than 1,700 people to monitor the game and provide customer service). Dozens of publishers have attempted to launch MMOs over the years, only to see their sizable investments disappear. Examples include LucasArt's Star Wars Galaxies, The Matrix Online (based on the movie franchise), and The Sims Online, created by Electronic Arts.
In China, Changyou.com has a hit on its hands with a martial-arts game called Tian Long Ba Bu ("Novel of Eight Demigods"). The company reported net income of $108 million last year on sales of $202 million -- and 94% of those sales were derived from Tian Long Ba Bu. The company said the game had 1.8 million active paying accounts at year-end.
Although Changyou.com says it has three new games in the pipeline, it’s still reliant for now on its one big hit, and "we cannot guarantee how long TLBB will continue to sustain its current level of popularity," the company says in its prospectus for the IPO.
The Changyou.com IPO is the biggest U.S. offering by a Chinese company since Gushan Environmental Energy Ltd.’s $185-million deal in December 2007, according to Bloomberg News data.
-- Tom Petruno
Photo: From the game Tian Long Ba Bu. Credit: Changyou.com
On a day when the dollar had every right to rally given surprisingly upbeat U.S. economic data, Treasury Secretary Timothy F. Geithner briefly knocked the greenback for a loop.
From Bloomberg News: Geithner was initially asked at a Council on Foreign Relations event in New York about proposals from People’s Bank of China Gov. Zhou Xiaochuan for a new international reserve currency. Geithner said, “As I understand his proposal, it’s a proposal designed to increase the use of the International Monetary Fund’s ‘special drawing rights.’ And we’re actually quite open to that.”
Some currency traders suddenly choked, reading into Geithner’s comments that the U.S. was “open to” the idea of a new currency that might someday usurp the dollar’s role as the preeminent holding of governments and institutional investors worldwide.
 Within minutes of Geithner’s remarks, the dollar slid. The DXY index, which tracks the dollar’s value against six major currencies, fell 1.2% before stabilizing and creeping back up. The euro surged to $1.365 from $1.345.
From Bloomberg: Roger Altman, who worked with Geithner as deputy Treasury secretary in the Clinton administration, later asked Geithner whether he wanted to “clarify” his remarks.
"I’d like to ask one final question, in effect on behalf of the market,” said Altman, founder of Evercore Partners Inc. “Let me ask the question this way: Do you see any change over the foreseeable future in the basic role of the dollar as the world’s key reserve currency?”
Geithner responded by saying that “I think the dollar remains the world’s dominant reserve currency.”
Later, on CNBC, Geither reverted to the boilerplate line that Treasury secretaries have mouthed forever, which is that a “strong dollar” is in "America's interest." The DXY index ended the day just slightly lower than on Tuesday.
China's idea for a sort of "super currency" based on a basket of major currencies shows its ongoing concern about the money it has invested in U.S. securities amid record borrowing by Uncle Sam. If the greenback’s value were to collapse, it would take with it China's massive holdings of dollar-denominated assets, including Treasury bonds.
Unfortunately for the Chinese, it would be no snap to create a new global super currency, even if everyone thought it was a good idea.
As for using the IMF’s special drawing rights, currency strategist Marc Chandler at Brown Bros. Harriman & Co. notes that an SDR “is not money in the commonly used sense of a means of exchange or a store of value. It is primarily a unit of account" -- a way nations can settle up trade balance surpluses and deficits, for example.
In other words, there’s no danger anytime soon of the world’s wallets, bank and investment accounts being stuffed with SDRs rather than dollars.
But in their role as the U.S. Treasury's single biggest creditor, the Chinese have put America on notice: They're worried about their money, and they aren't going to be shy about telling us so.
-- Tom Petruno
Photo credit: Karen Bleier / AFP Getty Images
The Treasury bond market hiccuped early today after Chinese Premier Wen Jiabao expressed nervousness about the "safety" of U.S. debt.
But a modest rise in yields on long-term Treasury bonds quickly brought buyers back into the market, which has been remarkably resilient in recent weeks despite Uncle Sam's huge ongoing borrowing wave.
The 10-year T-note yield, which jumped as high as 2.97% this morning, ended the day at about 2.89%, flat with Thursday's closing yield. The 30-year T-bond edged up to 3.67% from 3.63% on Thursday. Yields on shorter-term Treasuries ended mostly lower for the day.
At a press briefing in Beijing today, Wen noted that China had "lent huge amounts of money to the United States," making China America's single biggest creditor.
 "To be honest, we are a little bit worried," Wen said. "We hope the United States honors its word and ensures the safety of Chinese assets."
What was his point? The Chinese may be legitimately worried about record U.S. borrowing this year to fund the Obama administration’s rescues of the economy and the financial system. Government stimulus spending is expected to be a key discussion point at this weekend’s meeting of finance ministers of the Group of 20 nations in London.
If investors begin to balk at Treasury debt, forcing yields up dramatically, that would devalue China's holdings of older fixed-rate Treasuries.
Wen also may have been warning the U.S. against badgering China on the issue of its currency’s value against the dollar. China has resisted allowing its currency to appreciate quickly against the greenback, for fear of driving up prices of Chinese exports for U.S. buyers.
"I think it’s a lot of political posturing for currency purposes," said John Spinello, a market strategist at brokerage Jefferies & Co. in New York.
Despite Wen’s jitters, the Treasury market still is basking in the glow of surprisingly strong investor demand this week as the government sold $18 billion in new 10-year T-notes and $11 billion in 30-year T-bonds Wednesday and Thursday, respectively.
A wild card that continues to buoy the market is the possibility of the Federal Reserve stepping in to buy Treasury bonds for its own account. The Fed has said in recent months that it was considering the move as a way to push long-term interest rates lower, to help the economy. Fed policymakers are expected to provide an update on their thinking when they meet Wednesday.
The Bank of England last week said it would begin buying British government bonds -- and the market reaction was dramatic: The yield on 10-year British bonds has plunged to 2.94%, down from 3.64% on March 4.
With that kind of response, bond traders are reluctant to sell Treasuries now, figuring the Fed could work some of the same magic if it decides to jump into the market, said Lou Crandall, chief economist at bond research firm Wrightson ICAP in Jersey City, N.J.
-- Tom Petruno
Photo: Chinese Premier Wen Jiabao. Credit: Diego Azubel / European Pressphoto Agency
Wall Street has seemed wholly unimpressed with U.S. economic stimulus plans. But the idea of China spending more money lit up markets today.
Investors, or at least traders, snapped up commodities and stocks worldwide on expectations that China will announce new steps to reenergize its economy.
Crude oil futures jumped $3.73 to $45.38 a barrel, the highest closing price in five weeks. Copper futures shot up to nearly a four-month high. Grain prices also rallied.
The Reuters/Jefferies CRB index of 19 major commodities rose 3.8%, its biggest one-day gain since Dec. 31.
From Bloomberg News: "There are signs of optimism about the economy after weeks of very bleak news," said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Mass.
"China is key," said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis. "They are talking about doing the right things to boost growth. An additional stimulus program will be good for commodities such as oil and copper."
 Yet as my colleague Don Lee reported from Shanghai today, China's next stimulus program is "likely to focus on increasing spending for healthcare and basic needs as opposed to infrastructure projects" that dominated the first spending package announced in November.
In the markets, the bears may just be getting fearful of betting on another big drop with prices already so depressed. The CRB index had closed at a 6 1/2-year low Monday. In the stock market, U.S. blue-chip indexes fell to 12-year lows this week.
Veteran money manager Steve Leuthold of Leuthold Group in Minneapolis had been telling clients earlier this year that he expected the U.S. market to hold above its 2008 lows reached Nov. 20.
He was wrong, but he's still bullish, Leuthold said in a Bloomberg TV interview today.
"These comparisons people make with the Great Depression are totally out of touch with reality, and pretty stupid," he told Bloomberg. "We’ve been in much worse, much more panicked and more scary situations in the U.S."
For today, at least, buyers ruled for most of the trading session on Wall Street. Stocks were broadly higher, with the Dow Jones industrial average rising 149.82 points, or 2.2%, to 6,875.84. Energy stocks and other commodity-related issues led the way.
Still, the market couldn’t hold on to its highs for the session. The Dow had been up as much as 252 points, or 3.7%, before a wave of selling hit in the final half hour.
There was no such second-guessing in China today, where stock markets resumed their 2009 rally. The Shanghai composite index jumped 6.1% to 2,198.11, closing just under its high for the day.
The Shanghai market had been up 31% for the year through Feb. 16, before profit-takers swarmed. With today’s advance the year-to-date gain is 20.7% -- which still ranks Shanghai shares as the world’s best performers this year, by far.
-- Tom Petruno
Photo: Oil traders at the New York Mercantile Exchange today. Credit: Jonathan Fickies / Bloomberg News
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Tom Petruno
Tom Petruno has been chronicling financial markets' highs and lows since 1979, and has been the Times' financial columnist since 1990. He writes on markets, corporate finance and the economy, and how it all ties in to individual investors' portfolios.
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