(Headlines: scroll down for full stories)
1. Copper Demand Slows; Prices Plunge to Six-Month Low
2. Emerging Markets Up After Thailand Drops Decree
3. Does China Manipulate Its Currency? No, Says Bush
4. Expert: 20 percent of Subprime Mortgages To Foreclose
1. Copper Demand Slows; Prices Plunge to Six-Month Low
Copper prices fell to a six-month low today as demand wanes and supplies
increase for the metal. Copper cracked through the $3.00 mark, falling to $2.95
a pound in early morning trading in New York.
Copper is used in the pipes and wires in houses — about 400 pounds of copper
goes into every house — as well as in parts for autos, appliances, and other
items. So when those industries slow, so does the price of copper.
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The housing market has been spiraling downward for the past year with housing
starts falling 25 percent, applications for building permits plunging 32
percent, and new home sales behind 25 percent. And fewer new homes on the market
translate into fewer appliance sales. Plus, it's no secret that the auto
industry, particularly in the U.S., is suffering. All that adds up to falling
demand for copper.
In addition, yesterday's news of skyrocketing producer prices attacked the
general view that the Federal Reserve is ready to cut interest rates and
stimulate the economy. Instead, further rate increases may be in the cards. If
that happens, look for housing demand, and all consumer spending, to cool even
more.
"U.S. housing and autos are pushing these accumulating stocks and the market's
running out of excuses for higher prices fast," David Threlkeld, president of
Resolved Inc. in Scottsdale, Arizona, tells Bloomberg. "We are going to get a
collapse in prices."
On the supply side, China, the world's biggest copper consumer, is developing
its own copper mines. According to the London Metal Exchange, copper inventories
have surged 58 percent in the past two months to the highest level in two years.
And Merrill Lynch says copper mining output will increase 5.3 percent next year.
Editor's Note:
2. Emerging Markets Up After Thailand Drops Decree
Stocks of emerging markets rallied today after their biggest plunge in three
months following Thailand's decision to rescind its decree that foreign
investors would need to leave investments in the country for a minimum of a year
or face heavy tax consequences.
Thailand's decision shook the investing world's confidence in emerging market
stocks, triggering a tidal wave of selling throughout developing markets. The
country's foolish move yesterday prompted Indonesia, Malaysia, and the
Philippines to assure the markets that they wouldn't pull such a stunt.
Thailand's move to restrict trading puts into focus the risk investors take when
investing in developing nations with nascent financial markets and unstable
governments. Thailand, you'll recall, was the subject of a coup in September.
The Morgan Stanley Capital International Emerging Markets Index (MSCI) fell
1.6 percent yesterday, but gained 1.2 percent today. The MSCI emerging markets
index has seen incredible gains this year. It's up 25 percent year to date, and
returned double-digit gains in 2004 (25 percent) and 2005 (33 percent) as well.
So its appeal to foreign investors is obvious.
Thailand's announcement yesterday wiped out $23 billion in market value in its
SET Index, which plunged up to 19.5 percent in a single day. That was the
biggest slide in 16 years. However, the index has bounced back, gaining 11
percent in a day after the Thai government wisely changed its mind.
"It's positive for emerging markets because it shows governments in this asset
class are now quick to change unpopular decisions," Matthias Siller, who helps
oversee $6 billion in global emerging-market assets at Baring Investment Service
in London, tells Bloomberg. "That wouldn't have been the case 10 years ago."
Mark Mobius, who manages $30 billion in emerging-market stocks at Templeton
Asset Management agrees, "These countries are going to think twice" after seeing
the market's reaction yesterday. Mobius says Thailand's response "is positive.
It does indicate they are flexible and they are willing to admit errors and
change."
Mobius added that yesterday's crash in emerging-market stocks was an opportunity
to buy.
Editor's Note:
3. Does China Manipulate Its Currency? No, Says Bush
The Bush administration is once again contending that it can't cite China as a
currency manipulator although that view may be a tougher sell in Congress next
year.
Democrats who will be leading the committees in both houses for the first time
in 12 years challenged the administration's finding on Tuesday and pledged
hearings in the new Congress.
Sen. Christopher Dodd, D-Conn., who will head the Senate Banking Committee, said
he was "deeply disappointed" that the administration did not cite China, a step
that could eventually lead to trade sanctions.
Rep. Sander Levin, D-Mich., who will head up a Ways and Means trade
subcommittee, said the lack of action "underscores the need for congressional
oversight."
Both officials pledged to hold hearings early next year at which Treasury
Secretary Henry Paulson will be challenged to justify his decision.
The administration, in a congressionally required report, said Tuesday that
China would help its own economy by allowing more flexibility in its currency.
But the report found that China did not meet the "technical requirements for
designation" as a currency manipulator.
Such a designation could trigger negotiations that ultimately could lead to
trade sanctions if the World Trade Organization supported the U.S. position.
The new report, which had been delayed for two months, was released four days
after a Cabinet delegation led by Paulson concluded high-level talks in Beijing
aimed at resolving the root causes of America's huge and growing trade deficit
with China, an imbalance on track to surpass last year's $202 billion record.
Sens. Charles Schumer, D-N.Y., and Lindsey Graham, R-S.C., attacked the report
for what they called "technical and legalistic dodges to avoid saying what
everyone knows to be true — the Chinese manipulate their currency."
The two senators said in a joint statement that China needs to be pressed "to
play by the rules" of international trade by putting an end to currency
manipulation.
American manufacturers contend that China is artificially depressing the value
of the Chinese yuan by as much as 40 percent to make Chinese goods cheaper for
American consumers while making U.S. products more expensive in China.
Schumer and Graham were the lead sponsors of legislation that would have imposed
27.5 percent penalty tariffs on all Chinese imports if China did not allow its
currency to rise in value.
Sen. Max Baucus, who will head the Senate Finance Committee when Congress
returns in January, said he believed the requirement for a currency report to
Congress every six months was no longer the right approach to take with China.
He has pushed legislation that would offer milder sanctions against countries
with "misaligned" currencies, a designation that would carry less of a rebuke
than being branded a currency manipulator.
Critics charge that China is pursuing predatory trade practices that have
contributed to record U.S. deficits and the loss of nearly 3 million American
manufacturing jobs since President Bush took office.
While the Bush administration in the past has hinted that it was getting close
to naming China as a currency manipulator, the new report took a more muted tone
in its criticism. That's in keeping with Paulson's efforts to lessen outward
pressure on Chinese officials in hopes of producing better results.
When Treasury released a report on Chinese currency practices in May,
then-Treasury Secretary John Snow held a news conference to say the
administration was "extremely dissatisfied with the slow and disappointing pace"
of currency reform in China. But the Treasury held no public briefing with the
release of the report Tuesday, and Paulson made no comments.
Frank Vargo, vice president for international trade at the National Association
of Manufacturers, said Paulson, an experienced China hand from his days at
Goldman Sachs, is betting his less confrontational approach will bring better
results.
"Part of Paulson's strategy is to tone down the external pressure and get the
Chinese to understand that they need to act in their own interests," Vargo said.
Vargo said he believed Congress will delay any new sanctions legislation for up
to six months to see whether China will move.
© 2006 Associated Press.
Editor's Note:
4. Expert: 20 percent of Subprime Mortgages To Foreclose
Foreclosures of subprime mortgages are expected to rise sharply in coming
months, with nearly one in five subprime borrowers at risk, a consumer advocacy
group said in a new report.
The Center for Responsible Lending, which is headquartered in Durham, N.C., said
late Tuesday that some 2.2 million subprime home loans made in recent years
already have failed or will end in foreclosure.
"These foreclosures will cost homeowners as much as $164 billion," the report
said.
It also said that more than 19 percent — or nearly one in five — subprime
mortgages originated in the past two years will end in foreclosure.
The center developed the projections after studying the default rates on 6
million subprime mortgages written between 1998 and 2004.
Subprime mortgages generally are written for families that have weak or
blemished credit histories, and they typically carry higher interest rates than
prime mortgages. Foreclosure occurs when a family fails to maintain payments on
its mortgage and the lender moves to repossess the property that was used to
secure the mortgage.
Mike Fratantoni, senior economist with the Mortgage Bankers Association, a trade
group for the real estate finance industry based in Washington, D.C., said that
the center's projections appeared "overly pessimistic."
He said that the study used a "very gloomy home price forecast," which assumes
borrowers won't be able to sell their homes for enough money to pay off their
loans. And, he said, the study "also assumes that borrowers who become
delinquent won't be able to refinance or sell."
He noted that many buyers faced with foreclosure work it out, either by coming
up with the money to pay the arrears or agreeing to a "workout" with the lender
or by selling the house and paying off the mortgage.
The Mortgage Bankers Association most recent foreclosure data indicated that
1.05 percent of mortgage loans were in foreclosure, with the rate jumping to
3.86 percent for subprime mortgages.
The center in its study pointed out that losing a home had a huge financial
impact on a family.
"The loss of home equity is significant because, for most families, the value of
this ownership is their greatest financial asset," the study said.
It said that the situation was worth watching more closely because an increasing
number of the mortgages written in America are in the subprime market.
The study added, "Our data show that cities in California, Nevada, New Jersey,
New York and Michigan as well as the greater Washington, D.C., area can expect a
high rate of subprime foreclosures."
The center called for making sure all borrowers have the means to repay their
loans; ensuring that brokers, lenders and appraisers abide by prudent
underwriting practices; and setting up programs to help borrowers who are in
danger of losing their homes.
© 2006 Associated Press.
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