Paulson signs out with hugs, laughs

Updated: 2008-12-06
By Wu Jiao and Li Xiaokun (China Daily)

US Treasury Secretary Henry Paulson (L) and Chinese Vice Premier Wang Qishan (R) trade agreements and shake hands at the Eco Partnership signing ceremony during the US China Strategic Economic Dialogue in Beijing December 4, 2008. [Agencies]

In his many years as the United States' top China hand, Henry Paulson captured the hearts, or at least the cameras, of the Chinese media.

Images of him hugging former vice-premier Wu Yi and fervently shaking hands with her successor Wang Qishan were just two among many that made the front pages of the nation's press.

On Friday, the 62-year-old Treasury secretary gave photographers one more opportunity, as he addressed the fifth Sino-US SED, his last time as head of the US delegation.

The former Wall Street banker, and member of the outgoing Bush administration, will step down next month.

In a farewell speech to his Chinese counterparts, Paulson said: "We all can be proud of what we have built through the SED.

Our countries will no doubt face challenges, but with the foundation of mutual respect, trust and candor fostered by the SED, I have no doubt we will come through them."

Clearly in high spirits, Paulson laughed heartily several times during his meeting with President Hu Jintao on Friday afternoon at the Great Hall of the People, providing plenty of his trademark photo opportunities.

Chinese President Hu Jintao (R) meets with United States Treasury Secretary Henry Paulson at the Great Hall of the People in Beijing, capital of China, Dec. 5, 2008. [Agencies]

The past five rounds of SED talks, all of which Paulson took part in, have tackled many difficult issues, including food safety, trade and the environment.

Wu Xiaoqiu, an economics professor at Beijing's Renmin University of China, said: "Dialogue and communication is the right way to solve problems between the two major economies."

While Paulson has been criticized by some US lawmakers for not pressing China on its currency, he once told reporters that it was the SED that prevented Congress from passing legislation that would have deepened tensions between the two countries.

The question now is who will continue Paulson's work.

Although New York Federal Reserve President Timothy Geithner, who assisted Paulson in the recent US bailout action, has been named as the next Treasury secretary, some experts wonder if the Treasury Department will continue to be a key agency in steering the bilateral relationship, or even if the SED will continue at all.

Lawrence Summers, the incoming director of the National Economic Council; Vice-President-Elect Joseph Biden Jr; and Senator Hillary Rodham Clinton, Obama's choice for secretary of state, are all expected to be major coordinators on China policy.

However, none of them has the China experience that Paulson brought with him from his tenure at Goldman Sachs.

Paulson demurred on the question of how the Obama administration will handle the SED and China relations.

On his departure from the Treasury, he said earlier that he expects China to continue to play a part in his life, although he drew the line at learning Mandarin. "I've got a very poor ear for languages," he said.

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Asian Stocks Fall This Week as Recession Deepens, Oil Plunges

By Chua Kong Ho

Dec. 6 (Bloomberg) -- Asian stocks fell this week as the deepening global recession slashed consumer demand, driving commodity prices lower and dragging down materials companies and oil drillers.

BHP Billiton Ltd., the world’s biggest mining company, dropped 16 percent after oil fell more than $100 a barrel from its record in July and copper prices slumped. Honda Motor Co. sank 21 percent as November U.S. sales plunged the most since 1981. Surfwear maker Billabong International Ltd. tumbled 25 percent in Sydney after cutting its earnings forecast as its U.S. customers deferred deliveries amid the economic contraction.

“The world is in recession and earnings will fall next year for most companies the world over, including Asia,” said Hugh Young, managing director at Aberdeen Asset Management Ltd. in Singapore, overseeing about $45 billion. “Asia is in pretty good shape for surviving, not in great shape for growing.”

The MSCI Asia Pacific Index fell 3.8 percent to 79.52 this week. Raw-materials producers had the biggest percentage decline among the 10 industry groups.

MSCI’s Asian index has plunged 50 percent in 2008 as global financial companies’ losses and writedowns from the collapse of the U.S. subprime-mortgage market neared $1 trillion. Shares on the MSCI gauge are now valued at 9.7 times trailing earnings after falling to as low as 8.2 times last month. That’s half the 19.5 times on Nov. 11 last year, when the measure hit a peak of 172.32. Prior to the current market turmoil, the price-earnings ratio never dropped below 10, according to Bloomberg data.

U.S. Recession

The U.S. entered a recession in December 2007, the National Bureau of Economic Research, a private, non-profit panel of economists that dates American business cycles, said Dec. 1. A government report said the number of Americans receiving jobless benefits in the week ended Nov. 22 jumped to the most since December 1982. A separate report showed orders at U.S. factories in October sank the most since July 2000.

Central banks worldwide stepped up efforts to arrest the economic slowdown. The European Central Bank cut its main refinancing rate by 75 basis points, the most in its 10-year history, while the Bank of England cut its benchmark rate to 2 percent, the lowest level since 1951. The Swedish and Danish central banks also lowered their key rates. The Bank of Korea said it would make a one-time interest payment on central bank reserves and buy more securities.

Japan’s Nikkei 225 Stock Average dropped 7 percent to 7,917.51. Australia’s S&P/ASX 200 Index retreated 6.8 percent. Most markets in Asia fell this week.

BHP declined 16 percent to A$26.15. Inpex Corp., Japan’s largest explorer, sank 14 percent to 529,000 yen. Woodside Petroleum Ltd., Australia’s second-biggest oil producer, retreated 16 percent to A$30.46.

Commodities Retreat

Crude oil has dropped from a peak of $147.27 on July 11 to $41.65 a barrel on the New York Mercantile Exchange. Oil prices may slide below $25 a barrel next year if the global recession spills over into China, Francisco Blanch, a London-based analyst at Merrill Lynch, said Dec. 4.

A measure of six metals traded on the London Metal Exchange, including copper and zinc, fell 14.8 percent this week.

“We’re in an environment where demand is coming off, and that’s putting commodities under pressure,” said Matt Riordan, who helps manage $3 billion at Paradise Investment Management in Sydney. “Things have been slowing down pretty sharply.”

Rio Tinto Group, the third-largest mining company, tumbled 31 percent to A$32, the biggest percentage decline on MSCI’s Asian gauge, on concern it may have difficulty refinancing debt due next year. The company plans to close its iron-ore mines in Western Australia for 12 days as part of an earlier decision to reduce output.

Vehicle Sales

Honda, Japan’s No. 2 automaker, fell 21 percent to 1,653 yen. The carmaker withdrew from Formula One racing, cutting at least 20 billion yen ($216 million) in costs, after its U.S. vehicle sales plunged 32 percent in November.

Toyota Motor Corp. dropped 12 percent to 2,650 yen. Bridgestone Corp., the world’s largest tiremaker, dropped 14 percent to 1,376 yen.

General Motors Corp. Chef Executive Rick Wagoner told lawmakers he would accept strict conditions for a U.S. loan to stay afloat, including a promise to return the money and file for bankruptcy if his company doesn’t fulfill the terms.

Sack Workers

“Regardless of whether the U.S. automakers go bankrupt or stay afloat, they’ll have to sack workers,” said Yoshinori Nagano, a senior strategist at Daiwa Asset Management Co., which manages about $96 billion in Tokyo. “Should the companies collapse, it may trigger a series of business failures and worsen an already weakened U.S. economy.”

Billabong declined 25 percent to A$7.94. The U.S. recession has accelerated a slowdown in demand for clothing and surfing accessories, causing earnings per share to fall in the six months ending December, the Gold Coast, Australia-based company said Dec 4.

Indonesia’s PT Bumi Resources, Asia’s biggest exporter of power-station coal, slumped 25 percent to 760 rupiah after the country’s stock exchange said the company should use internal funds to fund a repurchase of its shares, instead of selling debt.

To contact the reporter responsible for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net

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Brazilian Stocks Gain on Rate-Cut Speculation; Bolsa Rises

By Paulo Winterstein and Alexander Ragir

Dec. 5 (Bloomberg) -- Brazilian stocks staged a late-day rally, paring losses for the week, on speculation that slowing economic growth and easing inflation may give the central bank room to cut interest rates next year.

Banco do Brasil SA, Latin America’s biggest government- controlled bank, jumped 7.9 percent, leading gains for financial companies as traders increased bets the benchmark rate will fall half a percentage point by January 2010. B2W Cia. Global do Varejo, Brazil’s largest online retailer, climbed the most on the Bovespa index on the prospect that lower rates will spur consumer spending. Vivo Participacoes SA rose for a second day as investors sold commodity producers and bought phone stocks.

“The good inflation signals takes away the possibility some economists were floating that there could be inflation with very low growth,” said Joao Pedro Brugger, chief equity portfolio manager at Leme Investimentos in Florianopolis, Brazil, which oversees about $35 million. “It gives space for the central bank to join other policy makers in aggressively cutting rates to stimulate the economy.”

The Bovespa rose 0.6 percent to 35,347.39, paring a weekly drop to 3.4 percent. The BM&FBovespa Small Cap index gained 1 percent. The BM&FBovespa MidLarge Cap index added 0.2 percent. Mexico’s Bolsa advanced 0.8 percent and Chile’s Ipsa increased 0.1 percent.

Inflation in Latin America’s biggest economy slowed to 0.36 percent in November, lower than the forecasts from all 40 economists in a Bloomberg survey. A separate report earlier this week showed industrial output growth slowed more than forecast in October, signaling the global slowdown is hitting Brazil harder and faster than economists predicted.

Yields Drop

The yield on Brazil’s overnight futures contract for January 2010 delivery fell 37 basis points, the sixth straight daily decline, to 13.33 percent. The rate is the lowest since April 17 and is 42 basis points, or 0.42 percentage point, below the central bank’s overnight rate.

Itau Corretora said today that with Brazil’s growth outlook worsening, its estimate of 13 percent for the benchmark lending rate was “too high.” Raymond James & Associates has forecast a half-percentage point cut to 13.25 percent next year. The next rate-setting policy meeting is scheduled for Dec. 9-10.

The European Central bank cut interest rates by three- quarters of a percentage point yesterday to contain the fallout from the financial crisis. Central banks in England, Sweden and Indonesia also lowered borrowing costs.

Banco do Brasil climbed 7.9 percent to 15.75 reais, the highest in a month.

B2W Varejo lead a rally in retailers, advancing 8.8 percent to 22.35 reais for the biggest gain since October.

Telephone Shares

Vivo, Brazil’s largest mobile-phone carrier, rose 6.6 percent to 31.85 reais.

“When commodities prices fall, as we see today, phone carriers’ shares become more attractive,” Alex Pardellas, analyst at Banif Investment Banking in Sao Paulo, said in an interview yesterday.

The Bovespa earlier dropped as much as 3.2 percent after metal prices tumbled and Banco Santander SA recommended avoiding flat-steel makers because of the “dreary” outlook for auto sales. Usinas Siderurgicas de Minas Gerais SA, Brazil’s second- biggest steelmaker, fell 1.8 percent to 22.20 reias.

Petroleo Brasileiro SA slid 2.4 percent to 18.16 reais as crude prices tumbled to the lowest in almost four years. Petrobras, as the state-controlled oil company is known, lost 9.5 percent for the week.

Mexico’s Bolsa index also reversed earlier declines, led by plastics maker Mexichem SAB after it said sales next year will rise by almost a third.

Mexichem, Latin America’s largest maker of plastic pipes, rose the most in the Bolsa index after it said its 2008 sales may reach 30.3 billion pesos ($2.2 billion), a 32 percent jump from last year. The shares gained 5.9 percent to 12.30 pesos.

Argentina’s Merval index increased 0.8 percent, Colombia’s IGBC index fell 1 percent and Peru’s Lima General index declined 2.7 percent.

To contact the reporter on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net; Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net.

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U.S. Stocks Jump as Hartford Surges on Boosted Profit Forecast

By Elizabeth Stanton

Dec. 5 (Bloomberg) -- U.S. stocks jumped, reversing an early slide, as Hartford Financial Services Group Inc. led a rally in insurers after increasing its profit forecast and saying it’s weathering the credit crisis.

Hartford, which tumbled 92 percent in 2008 before today, doubled and all 21 insurance companies in the Standard & Poor’s 500 Index advanced. Prudential Financial Inc. and MetLife Inc. climbed at least 22 percent as UBS AG said they may benefit from potential regulatory changes. The gains helped the market overcome a morning tumble spurred by government data showing the nation lost the most jobs in 34 years last month as the recession deepened.

“The bad news is out; people know the economy’s lousy,” said Barry James, president of James Investment Research in Xenia, Ohio, which oversees $2 billion. “The market is so oversold that we’re entering into what I’d call a bear-market rally.”

The S&P 500 rose 3.7 percent to 876.07 after retreating 3.2 percent earlier. All 10 industry groups advanced as the benchmark index for U.S. stocks pared losses in its fourth weekly retreat since October. The Russell 2000 Index of small U.S. companies climbed 4.9 percent to 461.09. The Dow Jones Industrial Average added 259.18 points, or 3.1 percent, to 8,635.42.

Rebound Extended

The S&P 500 extended its rebound from an 11-year low on Nov. 20 to 16 percent, gains driven in part by speculation the Federal Reserve will cut interest rates and Congress will pass another economic stimulus. Still, the benchmark index for U.S. equities is down 40 percent in 2008, headed for its worst year since 1931, after the collapse of the subprime mortgage market reduced average profits for five consecutive quarters.

The S&P 500 trimmed its weekly loss to 2.3 percent, while the Dow fell 2.2 percent and the Nasdaq Composite decreased 1.7 percent in the week.

Hartford jumped a record 102 percent to $14.59 and pared its yearly loss to 73 percent. The insurer raised its full-year operating profit forecast and said the capital outlook at its insurance subsidiaries is “strong.” The company’s operating businesses are “performing well, particularly in light of the challenging markets,” Chief Executive Officer Ramani Ayer said.

Insurance Rally

The S&P 500 Financials Index added 8.6 percent for the steepest advance among 10 industry groups, as insurance companies climbed 14 percent collectively. Prudential jumped 35 percent to $28.52. MetLife gained 22 percent to $30.76. Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. each climbed at least 4.1 percent.

Hartford, Prudential, MetLife, Lincoln National Corp. and money manager Ameriprise Financial Inc. would benefit if the National Association of Insurance Commissioners opts to relax capital requirements for managers of variable annuities, UBS’s Andrew Kligerman wrote in a report today. The association is likely to reach a decision by year-end and could announce one as early as Dec. 9, Kligerman said.

Annuities are retirement products that guarantee buyers income for life in return for an up-front payment.

Financial stocks in the S&P 500 last week traded for an average of 0.8 times book value, the lowest in at l3 years. Banks are posed for their worst annual drop on record and have plunged 66 percent since reaching an all-time high in February 2007.

SanDisk, Micron

SanDisk Corp. climbed 14 percent to $9.23. The world’s largest maker of memory cards used in digital cameras is poised to benefit from a reduction in the supply of so-called NAND semiconductors, American Technology Research said in upgrading the stock to “buy” from “neutral.”

AmTech analyst Dinesh Moorjani also upgraded Micron Technology Inc. to “buy,” citing falling supply. The largest U.S. memory chip maker gained 13 percent to $2.04, helping push an index of technology companies to the second-biggest advance in the S&P 500.

The market’s earlier retreat came after the Labor Department reported that the nation lost 533,000 jobs last month, 59 percent more than the average estimate in a Bloomberg survey. The decrease exceeded all 73 forecasts in the survey. The unemployment rate rose to 6.7 percent, the highest level since 1993.

“We’re looking at a pretty ugly economic outlook, but an awful lot of that is being reflected” in stock prices, Leo Grohowski, chief investment officer at Bank of New York Mellon Wealth Management, which oversees $158 billion, said on Bloomberg Television.

General Motors Corp. fell 0.7 percent to $4.08 after saying it will cut production at four North American plants next year. GM, the biggest U.S. automaker, and rivals Ford Motor Co. and Chrysler LLC are asking Congress for a combined $34 billion to stay afloat. Lawmakers are considering options such as providing automakers with enough aid to get them through next year’s first quarter on condition they make significant progress on restructuring their operations.

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net.

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