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Old 07-27-2009, 02:38 PM   #1
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Default Wall St pares losses, led by financials

Reuters - The S&P 500 index briefly turned positive on Monday while the Dow industrials and Nasdaq pared losses, as strong gains in the financial and homebuilding sectors offset caution over disappointing corporate results.




Wall St pares losses, led by financials
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Old 07-27-2009, 10:53 PM   #2
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Don't bet the farm on a soon-to-be recovery...

GDP: Don't believe the hype
July 27, 2009: Even if the government reports a surprise boost to second quarter GDP, few economists are predicting a massive recovery just yet.
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This question seemed unthinkable to ask just a few months ago, but here goes: Did the economy actually grow during the past three months? A few brave economists actually think it did. But we'll find out for certain on Friday when the government unveils its first take on gross domestic product (GDP) for the second quarter. Still, even the average forecast is for a drop of just 1.5%, significantly better than the previous two quarters. GDP plunged 6% in the fourth quarter of 2008 and 5.5% in this year's first quarter.

"The pace of decline has slowed way down and we are seeing signs of stability. I expect a negative number in the second quarter but maybe zero growth or better for the third quarter," said Chris Probyn, chief economist with State Street Global Advisors in Boston. Probyn argues that the recent improvement in home sales, consumer spending and exports is evidence that the recession may soon be nearing an end. Zach Pandl, an economist with Nomura Securities in New York, also thinks that the second quarter GDP report will reflect a stabilization in the economy and early stages of a recovery.

"The big story in terms of the second quarter is that contraction is getting close to zero. I wouldn't rule out a positive number," Pandl said. He said the primary reasons that the economy is getting closer to actually resuming growth are that businesses are finally showing a greater degree of confidence that the worst may be over. Pandl expects a smaller decline in business investment during the quarter as well as a slower level of inventory reduction as companies begin to realize that economic conditions are slowly returning to normal after last fall's credit crunch paralyzed the financial markets.

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China's hidden debt problem
July 27, 2009: Despite robust growth, the world's third largest economy is potentially deeper in debt than originally thought.
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On the surface, China presents a fiscal study in contrast with the United States, keeping a remarkably low ceiling on debt even as it spends its way out of the financial crisis. But when Chinese leaders meet their U.S. counterparts this week, they should pause for reflection before venting any criticism, because hidden liabilities mean China's books are uglier -- potentially much uglier -- than at first sight.

Thanks to successive years of fast economic growth and even faster government revenue growth, the official debt-to-GDP ratio was 17.7% at the end of last year, far lower than almost any other major economy. The trouble is that excludes local government borrowing, the current surge in loans backstopped by Beijing and bad assets cleared from the banking system but still floating about.

When all are thrown into the pot, analysts estimate that China's debt may be closer to 60% of GDP, putting it in virtually the same league as the United States, which was at 70% at the end of 2008 before it launched its massive economic stimulus program. To be sure, Washington is now set on a path of exploding debt that Beijing will largely avoid. The United States budgeted for a federal deficit of 12.9% of GDP this year, whereas China is aiming for just 2.9%.

But China's finances are deteriorating more quickly than the government expected, fueling a rise in the stock of both explicit and disguised debt that will constrict its wriggle room. "It is serious because, one, much of it is hidden and, two, local governments are currently doubling down on their bets," said Stephen Green, economist at Standard Chartered Bank in Shanghai. "As with all fiscal deficits, it limits space for further stimulus."

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