Forex Futures Forum Archive for 06/09/2005

Syd 23:46 GMT June 9, 2005 Reply   
Greenspan Signals Interest Rates Still To Rise
THE WALL STREET JOURNAL
Federal Reserve Chairman Alan Greenspan said the economy has left its soft spot behind and that companies' pricing power is more evident, suggesting more interest-rate increases are to come.

Mr. Greenspan also focused on new risks to the economic outlook, specifically high housing prices. In a report released yesterday, the Fed said the value of all U.S. housing climbed 15% in the first quarter from a year earlier, and mortgage debt rose 13%, both easily outstripping the 6% gain in after-tax income over the same period.

"The soft readings on the economy observed in the early spring" did not presage "a more-serious slowdown," Mr. Greenspan told Congress's Joint Economic Committee. Though there have been periods of weakness during the expansion, they are "backing and filling. . . . Instead of the economy going very smoothly forward it goes in little cycles. And hence, it's often misread as though we're about to tilt into a recession."

He said inflation was "contained," but cited risks: slowing productivity growth, which makes it more costly for firms to boost sales, and "evidence of increased pricing power."

The Fed has raised its target for the federal-funds rate, charged on overnight loans between banks, to 3% in eight quarter-point steps from 1% last June. Mr. Greenspan didn't address future rate moves, but quoted from the Fed's May 3 statement that interest rates would likely continue to rise at a "measured" pace. That has come to mean a quarter point per meeting. His commentary suggested that the Fed, contrary to recent speculation, probably will raise rates at least a few more times.

The Fed's job has been complicated by the unusual decline in long-term interest rates since last June, the opposite of what normally happens when the Fed is raising rates. Some analysts say the decline points to a coming slowdown in the economy. Mr. Greenspan does not reject that interpretation, but believes a likelier cause is the increased flow of capital across borders.

In that case, lower long-term rates could be delivering an extra boost to the economy, despite the Fed's efforts to tighten credit conditions. Is the decline "engendering inflationary forces? . . . That's something which we are focusing on very extensively," he told Rep. Jim Saxton, a New Jersey Republican. "The overall inflation rate does at this stage remain modest, but we will remain vigilant."

The most obvious result of the decline in long-term rates is to pull down mortgage rates and fuel home sales and prices. Mr. Greenspan said a nationwide "bubble" is unlikely, but there are "signs of froth in some local markets where home prices seem to have risen to unsustainable levels. . . . Speculative activity" may be a growing contributor.

Also fueling housing activity, he said, is the spread of interest-only loans and "exotic" adjustable-rate mortgages that let buyers minimize their down payments or delay repayment of principal. He said in the past the U.S. has experienced similar strains without outright declines in housing prices. While such an eventuality can't be ruled out now, it "likely would not have substantial macroeconomic implications" because banks have sold many of their mortgage loans and most homeowners have plenty of equity.

Yesterday, the Fed, in its quarterly "flow of funds" report, said that the value of all household real estate in the U.S. rose 2.7% in the first quarter from the fourth, to $17.7 trillion. At the same time, mortgage debt, including home-equity loans, rose 2.2%, to $7.7 trillion. As a share of disposable income, both rose to new records. Because housing values rose faster than mortgage debt, owners' equity in their homes rose after falling for several quarters, to 56.3% of the value of the homes, from 56.1%.

High housing prices and low savings are in part a result of the low interest rates the Fed implemented to cushion the economy from the collapsing stock and tech-spending bubble in 2001. Asked by Mr. Saxton if he still thinks that was the right policy, Mr. Greenspan said, "We knew . . . addressing the consequence of a very severe deflation of a bubble carried with it potential side effects. As best we can judge . . . the positive effects of the policy far exceeded the negative ones. And while it's too soon to judge the final conclusions of how all of this comes out, I think that given the same facts under the same conditions, we would have implemented the same policy."

kfar saba zp 09:26 GMT June 9, 2005 Reply   
jp, i miss the days when people took responsibility for their own actions - simple as that really. not sure if this avenue of behavior ever existed though in hindsight, could be that it was merely a wish for the culture instead of an actual deed.

Syd 06:19 GMT June 9, 2005 Reply   
Top Saudi: Arabia Has More Oil Than World Would Need




WASHINGTON (AP)--Saudi Arabia has plenty of oil -more than the world is likely to need -along with an increasing ability to refine crude oil into gasoline and other products before selling it overseas, a top Saudi official says.

"The world is more likely to run out of uses for oil than Saudi Arabia is going to run out of oil," Adel al-Jubeir, top foreign policy adviser for Saudi Arabia's de facto ruler Crown Prince Abdullah, said Wednesday.

In a wide-ranging interview with The Associated Press, Al-Jubeir said relations between his nation and the Bush administration were strong but "the environment in which the relationship operates ... still leaves a lot to be desired."

He denied his country has any nuclear weapons ambitions, despite international concerns about a Saudi request to lower international scrutiny of its lone nuclear reactor.

He said he was "bullish" about the Saudi economy, which although based on the country's vast oil reserves has also diversified to include a galloping stock market.

Al-Jubeir dismissed speculation, including in a recent book, that the country was hiding the true picture of its oil reserves and that it may have far less than publicly assumed. He said Saudi Arabia has proven reserves of 261 billion barrels, and with the arrival of newer technology could extract an additional 100 billion to 200 billion barrels.

"We will be producing oil for a very long time," al-Jubeir said.

Saudi Arabia now pumps 9.5 million barrels of oil daily, with the capacity to produce 11 million barrels a day. The country has pledged to increase daily production to 12.5 million barrels by 2009, and the nation's oil minister said last month the level of 12.5 million to 15 million barrels daily could be sustained for up to 50 years.

High oil prices benefit the Saudi economy in the short run, but al-Jubeir said his nation wants a stable price that won't hurt consumers so much that they reduce their energy demands.

The problem for both the Saudis and the United States is what happens after the oil is pumped.

"If we send more oil to the United States and you can't refine it, it's not going to become gasoline," al-Jubeir said. The United States has not built a refinery since the 1970s, and other markets have similarly outmoded or limited refining capacity. Environmental concerns and local opposition make it unlikely new U.S. refineries can be built quickly, even with the current gas price crunch.

Saudi Arabia has partly stepped into the breach, with new refineries being built inside the kingdom as well as in China and soon in India, al-Jubeir said.

The country has also invested in gasoline stations, part of a strategy of "going downstream" from oil production to distribution, al-Jubeir said.

"We continue to do it, and we have one of the largest refining and distribution systems in the world," he said.

Ordinary Saudis remain deeply distrustful of the United States in the aftermath of the Iraq invasion and revelations about mistreatment of Muslim prisoners at the Abu Ghraib prison in Iraq and a range of complaints about conditions at the U.S. military prison at Guantanamo Bay, Cuba, al-Jubeir said.

"Why do they hate you? They don't hate you, they just don't like your policies."

Al-Jubeir said the Saudi regime takes no umbrage at U.S. efforts to spread democracy in the Middle East. President Bush and Secretary of State Condoleezza Rice have made democratic expansion a centerpiece of Bush's second term foreign policy.

"We believe that the idea of spreading freedom and democracy is a noble one," but change must come on terms each country can accept, al-Jubeir said.