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Roubini fears second crisis Nouriel Roubini fears another crisis if U.S. house prices sink markedly again and mortgage defaults on prime loans pick up.
"If house prices are going to fall another 5 to 10 per cent, another 8 million households are going to be in negative equity," the New York University professor and co-founder and chairman of Roubini Global Economics, said today at a conference in Cape Town, according to Bloomberg news.
"We are going to have another nasty crisis. That's going to happen unless we do something about it. Forget about subprime, look at prime."
Mr. Roubini, renowned for having forecast the financial crisis, also painted a grim outlook for the U.S. economy, saying the recovery will be U-shaped.
"The next year is going to see a painful process of deleveraging, both in the private and public sector, lower consumption, lower spending, lower budget deficits, more savings, reduction of debt," he said. "That implies an anemic economic recovery."
Japan's prospects dimming Observers are taking an increasingly dimmer view of Japan's economy, summed up today by Mr. Roubini as an "accident waiting to happen."
"The economy has not done the structural reform needed even after 15 years of near depression and politically there is a total stalemate," Mr. Roubini said at the same conference in Cape Town.
Yesterday, BMO Nesbitt Burns deputy chief economist Douglas Porter warned Japan could be headed for at least a mild double-dip recession, citing the factthat industrial production has eroded for four consecutive months, declining at an annual pace of 7.5 per cent in the third quarter.
Japan could be headed for at least a mild double-dip recession, BMO Nesbitt Burns says. "While much of the global economic news has been upbeat in recent days, Japan provides a sobering counterweight," Mr. Porter said. "... Industrial output is a key driver for Japan's economy, and the [third-quarter]sag spells bad news indeed for GDP. We are looking for a 1-per-cent [annualized]drop, and the weak hand‐off for [the fourth quarter] points to no growth in the current quarter either."
Gross sees possible hit to dollar Bill Gross, who has made no secret of what he thinks about more quantitative easing from the Federal Reserve, says the U.S. dollar could be in for a mighty fall over the next few years if the central bank were to continue on that path.
The Fed is widely expected tomorrow to unveil details of a new round of quantitative easing, dubbed QE2, an attempt to drive down long-term interest rates by buying up Treasury paper given that short-term rates can't go any lower.
Some have questioned whether QE2 can have a meaningful impact, and whether is "debasing" its currency with such a move. Generally, the U.S. dollar has been weak but investors have buoyed stocks, counting on a hefty measure of stimulus from the Fed when it ends its two-day meeting with an announcement tomorrow afternoon.
This comes at a crucial time for the U.S. recovery, which not only is faltering but is heading into a period of expected gridlock among U.S. politicians after today's mid-term elections, Globe and Mail New York correspondent Joanna Slater reports.
"I think a 20-per-cent decline in the dollar is possible," Mr. Gross, the chief of PIMCO, told the Reuters news agency yesterday.
Last week on PIMCO's website, he likened QE2 to a Ponzi scheme, and warned of the consequences for bond investors.
"When a central bank prints trillions of dollars of checks, which is not necessarily what (a second round of quantitative easing) will do in terms of the amount, but if it gets into that territory - that is a debasement of the dollar in terms of the supply of dollars on a global basis," Mr. Gross told Reuters.
"... QE2 not only produces more dollars but it also lowers the yield that investors earn on them and makes foreigners, which is the key link to the currencies, it makes foreigners less willing to hold dollars in current form or at current prices."
The weaker U.S. dollar helped push the Canadian dollar higher again.
This is a key week for major central banks, Globe and Mail Washington correspondent Kevin Carmichael writes today. Not only did the Reserve Bank of Australia and the Reserve Bank of India raise rates today, but the European Central Bank and the Bank of Japan are set for policy decisions as well later in the week.
- Dollar breaches 99 cents
- 'Big Three' central bank meetings take centre stage
- U.S. economy likely to suffer more gridlock
- Another vote for change, this time for the anti-Obamas
- Australia central bank hikes key rate
Traders bet on higher Potash bid Options traders are betting on a higher bid for Potash Corp. of Saskatchewan , Bloomberg News reports today.
While it's not all signed, sealed and delivered yet, Investment Canada has tentatively decided that BHP Billiton Ltd.'s hostile bid for the western resource giant meets its "net benefit" test, after the Australian miner wrapped up negotiations with the federal agency on the weekend.
It's now in the Harper government's hands to decide on a deal that could trigger a fierce political battle with Premier Brad Wall.
Investors are betting on a higher takeover bid that would ultimately be approved by Ottawa. Investment Canada has not made a public pronouncement yet on the hostile takeover, and Industry Minister Tony Clement says no final decision has been made.
According to Bloomberg, options traders are upping the ante on bets that BHP or a potential rival suitor will top the $40-billion (U.S.) already on the table.
- Investment Canada favours takeover bid for Potash Corp.
- Business cools on foreign deals
- The anti-potash coalition: Undermining investment
- Read our complete coverage of the battle for control of Potash Corp.
Markets await GM details Investors are awaiting details, expected today from General Motors Co., of the auto maker's return to the markets after its bailout and stint in bankruptcy protection.
Reports suggest the born-again auto maker plans an initial public offering at between $26 (U.S.) and $29 a share. The U.S. government's stake would fall below 50%, while the interest held by the Canadian and Ontario governments would slip to 9.6 per cent from 11.7 per cent.
Reports also indicate GM will value the company at about $50-billion, and possibly as high as $60-billion, when it goes public again.
Talisman profit surges Higher commodity prices drove Talisman Energy Inc. profit sharply higher in the third quarter, a three-month period that chief executive officer John Manzoni described as "the start of a new phase" for the energy company.
"We are now delivering strong underlying production growth, we have increased production guidance for 2010, and I am very confident we can maintain this momentum of increasing profitability and production into next year," Mr. Manzoni said as the company posted profits of $121-million or 12 cents a share, compared to $30-million or 3 cents a year earlier.
The company also raised its full year production outlook in releasing results that UBS Securities Canada analyst George Toriola described as "staying the course."
Gulf costs hit BP profit Not that it's any surprise, but the costs of the massive oil spill in the Gulf of Mexico is to BP PLC continue to rise.
BP provided a new estimate on the cost today, pegging it at $40-billion (U.S.) for an increase of almost $8-billion. That hit BP's profit, though its performance minus those costs still beat analysts' expectations.
BP's profit fell in the third quarter to $1.79-billion from $5.34-billion.
Along with BP, several companies reported earnings today.
- BP raises spill cost as profit dives
- MasterCard profit jumps 15%
- Pfizer sales hit by stronger U.S. dollar
- Kellogg hurt by weak cereal sales
- Record gold prices boost Newmont
- Archer Daniels Midland profit drops
What you can and can't do in California The Terminator is at it again. The Los Angeles Times reports today that California Governor Arnold Schwarzenegger has decreed that debit cards issued to welfare recipients can't use the money for psychics, medical marijuana or other other shops that have been found to be "inconsistent" with the program's intent.
From today's Report on Business
- Saskatchewan goes fishing in Calgary's labour pool
- Rob Carrick: A safe way to juice up your GIC yields
- David Rosenberg: Don't count out a double dip just yet
And, read our Streetwise blog and Your Business section.