(Headlines - scroll down for full stories)
1. Fed's Poole: '50-50' on Rate Decision
2. Investing: 6 Reasons India Beats China
3. China to Backpedal on Trade Reforms?
4. AP: Developers Nix or Delay Condo Projects
1. Fed's Poole: '50-50' on Rate Decision
St. Louis Fed president William Poole today said that he isn't sure if the Fed
should raise rates or not at its upcoming meeting.
"I am still very much in the 50-50 camp in terms of the probabilities for the
August meeting, just as I was when I left the last meeting," said Poole to
reporters after a speech to the Southern Legislative Conference.
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"We had the revisions of GDP data that came out Friday, employment data, other
information, (which) probably lowers the outlook for economic growth going
forward," he said.
"On the other hand, the data that have come in relative to assessing inflation
pressures have tended to tilt in the direction of greater pressures than we had
previously thought. For example, downward revision to GDP indicates that almost
certainly the productivity numbers will be revised downward as well."
"Therefore I am still at 50-50," Reuters quotes Poole as saying.
While not a voting member this year, Poole makes a recommendation to the Board
of Governors before each rate decision.
"Obviously inflation is the Fed's primary responsibility in the sense that we
need to maintain a low rate of inflation on a long-run basis in order to
maximize employment and economic growth," Poole said.
"On the other hand, we have short-run effects on GDP from what we do, and we
need to be sure that we don't have a more draconian policy to deal with
inflation than we need to have. We need to do enough, but not more than is
necessary."
The nation's second-quarter gross domestic product, a measure of economic
growth, slowed to more than half of its first-quarter reading.
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2. Investing: 6 Reasons India Beats China
India could surpass China to become the pre-eminent bull market of this century,
according to a Forbes.com article by Carl Delfield, head of global advisory firm
Chartwell Partners.
He expects India to be a considerably better investment than China, and he
compares the two nations' history, commenting that they have shared a similar
past. Both "suffered through failed economic system for over 50 years. The
bureaucratic, socialistic state fostered weak growth by stifling
entrepreneurship and initiative. Famines, lack of investment and poverty were
the result," Delfield says.
However, he says, during the last decade, India broke away, making strides to
open its economy by drastically cutting import quotas and tariffs, overhauling
its banking system and building a $135 billion foreign exchange reserve.
Delfield provides six important reasons to back his assertion that India beats
China as an investment:
1. Unlike China, India is a functioning democracy.
Delfield says that China's authoritarian government - while it may be able to
implement political reform more quickly - will eventually encounter trouble due
to a lack of any democratic sensibility. "India's multi-party parliamentary
system with its obstructionist bureaucracy is far from ideal, but at least the
daily speed bumps on the road to market reform can be overcome," he says.
2. "India is a natural ally of the U.S."
Meanwhile, the China-U.S. relationship will always be tenuous at best. Plus,
many Indians speak English - which is an advantage both commercially and
politically, says Delfield.
3. Chinese government ownership will limit growth for state-owned companies.
"Foreign governments will be suspicious of their intentions and likely consider
them as an extension of the Chinese government. State ownership will also lead
to inefficiencies and an inability to hold on to top management talent."
4. With 100 companies and a market cap over $100 billion, India's capital
markets surpass those of China.
India has a more modern financial system and is fairly good at dispersing
capital, whereas "only 10% of bank credit in China goes to private companies,"
says Delfield.
5. India has a younger population than China.
With half of its people under age 25, India will enjoy less strain on its
national budget, according to the author. And the new generation can be expected
to force faster market reform. Meanwhile, "China's one-child policy has
backfired, leading to an aging population which will lead to manpower shortages
and tremendous pressure on its national budget. Twenty percent of Shanghai
residents are over 60 years old and by 2020, one-third of Shanghai's population
of 13.5 million will be over 60."
6. The Indian economy is more balanced and sustainable.
"Nearly two-thirds (64%) of its GDP is attributable to consumer spending and 50%
of its GDP comes from the service sector," according to the article. And India
is less reliant on foreign investment, exports and resources. Plus, while
poverty remains rampant there, the Indian middle class has actually quadrupled
over the last 20 years.
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3. China to Backpedal on Trade Reforms?
Due in large part to a WTO agreement that has provided reform guideposts
aimed at helping to lower market barriers, U.S. - Chinese trade relations are
positive overall, with China expected to leapfrog Japan as the third-largest
American export market this year.
But now the U.S. government is worried that once that five-year reform process
is completed, China may regress into a "policy drift" and "risk creating an
atmosphere where not only is the sense of reform fading a little bit, but there
is even potential for retrogression," according to Franklin L. Lavin, U.S.
undersecretary of commerce for international trade.
The fear is that China could take a protectionist stance. That after some
officials from the Asian nation commented that they might take steps to restrict
foreign investment and set technical requirements on products - a move that
could limit competition.
Speaking before the American Chamber of Commerce in Beijing today,
Undersecretary Lavin said that China's amazing economic growth over the last few
years could persuade Chinese officials that no further reform is necessary. He
pointed out that the Chinese economy has been largely cultivated by foreign
investment and that officials there must remember that.
"If we look at some of the discussions lately in China about the need for
[foreign direct investment] caps, or the utility of F.D.I. caps ...; that's a
worrisome trend," Lavin told the audience.
"Lavin says the government should step back and let the marketplace choose
standards. He says such political meddling could spark a backlash in Washington,
where the huge trade deficit with China has already led to calls for
protectionism measures against Chinese imports," according to Voice of America
news.
"The single best way of guarding against any political push to close markets in
the U.S. is to keep markets open in China," Lavin said. "The single best way of
taking the political steam out of that issue and deflecting protectionism is for
China to continue to open its markets."
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4. AP: Developers Nix or Delay Condo Projects
In a city cluttered with condominium construction, Old City 205 aspired to shine
as an ultramodern residence for the well-heeled with its zinc and glass facade,
loft-style homes and windows that span floor to ceiling.
Too bad no one will get to move in now: The $40 million project in
Philadelphia's Old City neighborhood won't break ground after the housing market
softened and increasingly picky buyers balked at its price tags from $400,000
for a studio to over $2 million for a three-bedroom penthouse.
Brown Hill Development, the company behind the project, noticed slower traffic
and decided it didn't want to be left with unsold units, said partner Greg Hill.
From coast to coast, developers are nixing or delaying condominium projects as
home sales decelerate, construction costs soar and lenders start to balk at
financing units that might not sell. What's making it worse is the glut of
high-priced condos and too few people who can afford them.
"We've gone through the biggest real estate boom in the last eight or nine
years and some of these projects haven't started yet. Do you think they're going
to start building now?" said real estate executive Allan Domb, dubbed
Philadelphia's "condo king."
In Las Vegas, projects nixed include high-profile developments such as Aqua
Blue, a $600 million, 825-unit luxury condominium-hotel resort that counted
Michael Jordan as an investor; the $3 billion, 4,400-unit Las Ramblas resort,
backed by George Clooney; and Ivana Las Vegas, a $700 million, 945-unit tower
named after Donald Trump's ex-wife.
Related Las Vegas, one of the two developers for Las Ramblas, had cited rising
construction costs and slowing sales for the cancellation.
In South Florida, canceled condo developments include 1390 Brickell Bay and ICE
in Miami, Fort Lauderdale's The Waves Las Olas, and Promenade in Palm Beach
County. WCI Communities Inc., a luxury home builder based in Bonita Spring,
Fla., said in June that new orders for its high-rise condominiums fell by 84
percent in the second quarter. The company will now go forward with only three
to five condo projects in 2006, down from as many as 15 to 17, mostly in
Florida.
With housing looking increasingly anemic, it's not surprising that developers
are bailing out.
Domb said he's gotten about half a dozen phone calls over the past four weeks
from developers asking if he would like to buy their properties.
In May, the volume of apartment-to-condo conversions plunged to $334 million
from $1.65 billion a year ago, said Gleb Nechayev, senior economist at Torto
Wheaton Research, a real estate research firm in Boston owned by CB Richard
Ellis. The all-time high was $4 billion, hit last September.
Builder confidence, as measured by the National Association of Home
Builders/Wells Fargo Housing Market Index, fell in June to its lowest level
since April 1995. Confidence took a hit due to rising mortgage rates, high home
prices and investors and speculators fleeing the market.
The index surveyed builders of single-family homes, where the sales decline
hasn't been as severe as for condos.
Jack McCabe, chief executive of McCabe Research and Consulting in Deerfield
Beach, Fla., said desperate developers with finished condos are offering plenty
of incentives in South Florida.
Freebies range from one year's free mortgage to the use of a yacht or upgraded
kitchen packages. McCabe thinks some developers might even sell units at cost if
condo sales continue to weaken.
McCabe considers the condo market, especially the luxury end, at risk of a
crash. Over the next few years, he sees prices falling by double-digit
percentages.
The luxury condo surplus is to blame. McCabe said about 25,000 condos are under
construction in Miami-Dade County, with two-thirds costing $700,000 or higher;
another 25,000 units have gotten building permits and 50,000 have been announced
for future construction.
McCabe said the median household income in the county qualifies local buyers for
a $225,000 home, so the luxury units are targeted mainly toward affluent,
out-of-state buyers.
Meanwhile, speculators have driven up prices by flipping units, he said. But
they're now leaving the market driving down demand and putting up for sale
properties they own, adding to the glut.
Aside from Miami, he said areas at risk include Boston, San Diego, Las Vegas,
Seattle, Chicago, Orlando, Fla., Washington, D.C., and Manhattan.
A big part of the problem is that many condo projects are priced high, in part
because developers have to recoup the high prices they paid for land. But most
buyers can't afford it.
"The sweet spot of the market is probably $250,000 to $700,000," Domb said.
"That's what the majority of the population can afford. Many condos are priced
higher. That's part of the problem."
Tell that to The Donald. Real estate mogul Donald Trump told The Associated
Press he's going ahead with his 45-story waterfront luxury high rise called
Trump Tower Philadelphia.
"It's doing fine," Trump said. "It's been intense. So many people want to
move there."
He added interest has been high for the project, which he said doesn't surprise
him because his name sells.
© 2006 Associated Press.
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