Wednesday, October 31, 2007

Top 100 Companies in Muslim World

It is not surprising that some of the biggest companies in the Muslim world are found in the oil and gas industries. After all, Islamic countries sit on about two-thirds of the world's proven oil reserves, and oil prices are at all-time nominal highs.

What is surprising, however, is the diversity of businesses represented. I recently interviewed Rafi-uddin Shikoh, editor of DinarStandard, an online publication that tracks business in the Muslim world. His website lists all kinds of interesting information including top brands and top scientifically productive countries.

You can watch this MoneyMasters interview starting tomorrow (Thursday) morning.

Monday, October 29, 2007

Here & Now Interview

Oil prices are going through the roof, yet stocks are rising, too. Contrary to popular opinion, one has little to do with the other. Nonetheless, it is common to hear reporters blame a sell-off in stocks on rising energy prices. They often say things like "Stocks fell today because oil went up $2 a barrel." The truth, however, is that the two are not negatively correlated over the long term.

Yet rising commodity prices are a cause for worry. The two commodities that get much of the attention are oil and gold. Both are near all-time highs. Both may be telling us to expect higher inflation.

So far, gasoline prices have not budged much. Given the recent surge in oil prices, this is a bit surprising. It probably won't last. Either gasoline prices will rise, or oil prices will fall.

To hear more about the recent rise in oil, listen to my recent interview on Here & Now, a radio program broadcast out of Boston.

Thursday, October 25, 2007

Ian Bremmer on MoneyMasters Discusses Political Risk

China has the world's fastest growing major economy. It surged 11.5% in the third quarter. But China's economy still pales in size compared to the U.S. Even though China's population is more than four times larger than America's, it's economy is only about one-fifth as large. In fact, with a gross domestic product of more than $13 trillion, the U.S. economy is about four times larger than Japan's, which has the world's second-largest economy. The U.S. accounts for about one-fourth of total world GDP.

This is why an economic slowdown in the U.S. could have dire consequences for the entire planet. California's economy alone accounts for about 13% of U.S. GDP. California, of course, is literally on fire. According to the latest accounts, the wildfires are finally under control, but the damage to the economy has yet to be fully assessed. About a million people have been displaced and approximately 3,000 homes have been destroyed or damaged. I doubt, however, that even the home builders thought this was a good way to get rid of excess inventory.

Most forecasts for U.S. growth are still positive, but they are shrinking. It is becoming increasingly difficult for economists to argue that the U.S. will avoid an economic recession. Investors are still hoping the Fed will come to the rescue. In fact, stocks rallied yesterday on rumors that the Fed was about to cut the discount rate once again. I'm not betting on it. And I'm not betting on a Halloween rate cut either. I continue to expect poor returns for U.S. equities for the near future. While investing abroad may seem riskier, investors should keep a healthy exposure to foreign stocks. The lower correlations should provide diversification benefits.

For a more in depth discussion of some of the world's hot spots, watch Pricing Political Risk. It's a short interview with Ian Bremmer of the Eurasia Group, a leading political risk consultancy that caters to many of Wall Street's top investment banks and hedge funds.

Tuesday, October 16, 2007

Double Standards

China is extremely upset that the Dalai Lama will be awarded a Congressional Gold Medal. The White House is in favor of this award. It brushed aside China's objections. President Bush plans to attend the ceremony to honor one of the world's greatest spiritual leaders.

Turkey is extremely upset that the House Foreign Affairs Committee passed a resolution condemning the Armenian Genocide. The White House is almost as upset as the Turks. Before the vote, President Bush went on national television begging the committee not to vote on this non-binding resolution. Now that the resolution has passed, Bush is begging Speaker Nancy Pelosi to prevent it from reaching the floor of the House for a full vote.

Let me see if I've got this straight. The White House does not care how China feels, but it is bending over backwards to please Turkey. The White House is not arguing that the Armenians did not suffer a genocide. It just thinks that recognizing genocide is less important than hurting Turkey's feelings.

Armenians are being told that this is not a good time to vote on this measure. So when exactly is a good time? Armenians have been waiting for almost 100 years. Before the fall of Communism, they were told that Turkey was too important to upset because it bordered the Soviet Union. During the Clinton administration they were told that Turkey was too important to upset because it was a key ally that was friendly with Israel and supported our efforts in the Middle East. Now they are being told that Turkey is too important to upset because it borders Iraq.

To make its displeasure known, Turkey has threatened to invade Iraq and cut off U.S. supplies. Instead of reminding the Turks that we give them billions of dollars in foreign aid every year to buy their cooperation, the White House is begging Turkey for forgiveness. As for China, it couldn't care less.

Tuesday, October 09, 2007

A Shock to the Economic System

Today's release of the Fed's minutes from the Sept. 18 meeting gives us a better understanding of what the FOMC members were thinking when they decided to slash interest rates by 50 basis points.

For starters, the Fed "marked down" its estimate for fourth quarter GDP growth. It also "trimmed" its growth forecast for 2008. It raised its forecast for unemployment. And because business executives are growing cautious, the Fed now expects capital spending to be scaled back. Finally, the Fed trimmed expectations for both core and headline inflation.

All in all, the Fed was very concerned about the outlook for economic activity, and less concerned about inflation. The housing market deteriorated much faster and further than the Fed expected. The minutes said subprime mortgages are "essentially unavailable," that there is "little activity" in nonprime mortgages, and that borrowers of prime jumbo mortgages "faced higher rates and tighter lending standards."

But the Fed is not entirely ignoring inflation. It expressed concern about rising benefit costs and labor costs and said the weakening dollar had the potential to heighten inflation risks.

It appears that the Fed was hoping to shock the markets with a large one-time interest rate reduction. Given the strong rally in stocks ever since those cuts were made, it looks like the Fed succeeded. However, the remarks in the minutes of the Sept. 18 meeting also indicate that those who are expecting additional interest rate cuts are likely to be disappointed.

Friday, October 05, 2007

Can We Trust the Data?

Today's jobs report was certainly encouraging, but it raises an important question. Why does the government bother to release preliminary results if they are so unreliable?

The Bureau of Labor Statistics, which is responsible for tracking the data, said a month ago that August non-farm payrolls fell by 4,000. This spooked the markets. It convinced many economists that the economy was slowing much faster than they had anticipated. Most economists said the loss of jobs increased the probability of recession. It also put tremendous pressure on the Fed to cut interest rates. Because the jobs number was so weak, the Fed slashed both the fed funds rate and the discount rate by 50 basis points.

But today, the August figure was revised. It turns out that the economy did not lose 4,000 jobs after all. Instead, it actually created jobs. In fact, according to the most recent data, non-farm payrolls increased by 89,000 in August. Had the Fed known that, it may not have cut rates at all. In any case, it is now evident that the Fed went overboard.

Yet it must also be pointed out that even the 89,000 figure is not final. It will be revised one more time. We won't know until a month from now exactly how many jobs were created (or lost) in August.

In any case, today's data makes it much less likely that the Fed will lower rates again at its next meeting at the very end of this month. Given Chairman Bernanke's concerns about inflation, further rate cuts are highly unlikely.