Randomly Noted

Bill Ford, executive chairman of Ford Motor Co., worries about traffic gridlock on a global basis.

Zhengrong Shi, chairman and chief executive of China’s Suntech Power Holdings, one of the world’s largest solar panel companies, wonders whether “perhaps there’s too much democracy” in the U.S., making it difficult for the nation to adopt a coherent and consistent industrial policy.

“There are no decisions being made,” he said. “It’s like in a company. Sometimes you hear all the voices. The CEO knows what the right decision is and sometimes they just want to bang the table and say, ‘Let’s do it.’”

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The most interesting phrase in the surprisingly combative speech delivered in Frankfurt by Federal Reserve Chairman Ben Bernanke is “incomplete adjustment.”

More fully, the overly polite but still stinging quote is this, from the text of his speech at a European Central Bank conference: “An important driver of the rapid capital inflows in some emerging markets is incomplete adjustment of exchange rates in these economies, which leads investors to anticipate additional returns arising from expexcted exchange rate appreciation.”

It’s all awfully important, but the back-and-forth between the Fed and its critics, domestic and international, of quantitative easing is starting to resmeble two children standing in front of a neighbor’s broken window.

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The problem for financial markets when it comes to North Korea is knowing when things have gone from bad to nuclear.

All too often we have witnessed an episode of barb-throwing between the North and South, accompanied by any number of threatening or retaliatory measures: Withdrawal of aid, testing of missiles, testing of nuclear weapons, border skirmishes and such.

Over the decades that Pyongyang and Seoul have remained in limbo from a war that never officially ended, one feels we’ve seen it all.

That makes this week’s events sound a bit like the boy who called wolf.

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The bailout package for Greece has not stemmed the bleeding in global markets, but for Asia the declines in currencies and stocks may soon lure investors back in.

What we are seeing is Asia and the U.S. catching a cold from Europe, as violence grows in Greece over the planned austerity measures and as ratings agencies sound warnings on the fiscal health of others in the region, including Spain and Portugal.

Just as an example, Hong Kong’s share market has fallen three days in a row, losing 3.7% over that period, while the Taiwan dollar Wednesday fell to its lowest level against the greenback since April 9. Thursday, the Nikkei is down more than 3.0% and South Korea’s Kospi has shed 2.3%, with the Korean won around six-week lows against the U.S. dollar.

The declines in Asia, which have included a widening in credit default swaps in an otherwise encouraging environment for the region’s companies and debt, come as investors react to the latest woes in the euro-zone.

The contagion though for now is peripheral; it’s just the end result of a fading global mood for risk. Strip that away, and what do you find?

Asian banks have minimal exposure to European debt–certainly that from Greece, Spain and Portugal. It seems prudence continues to win the day. Asian banks and their economies came through the recent U.S.-induced financial crisis in relatively good shape precisely because they had steered clear of subordinated debt products and repackaged debt generally.

Asian governments have also–some more so than others–worked to overcome the frailties in their banking and financial systems that were exposed so violently when the Asian financial crisis hit more than a decade ago. That’s left systems in much stronger shape, and central banks much better armed with foreign exchange reserves.

The region’s economies have also been faster and more convincing in their recovery over the past six to 12 months. Many challenges remain, none the least from how and when to exit the large spending measures put in place during the crisis, and how and when to tighten monetary policy (as inflation starts to rise), but if there’s one place that offers any sort of sanctuary right now, it would be Asia.

The region needs Europe and the U.S. to keep buying its products, but intra-regional trade has taken up some of the slack, particularly from China.

Sounder economic fundamentals and a stronger banking system mean Asian markets may soon appear more attractive to investors in currencies and stocks (and also the better Asian credits), even if the Greek wobbles continue. It would take a lot more than what we’re currently seeing to suggest we’re heading anew for some sort of global banking or debt crisis.
That may mean the declines start to slow over the coming week as value appears.

(This earlier ran on Dow Jones Newswires as a Money Talks column)

For all the talk about new world orders, new blocs, new spheres of influence and such we are yet to see the Group of 20 flex much muscle, or the BRICs (Brazil, Russia, India and China) manage to stay on message.

 This while European Union members wrestle publicly with how to deal with Greece–particularly how much money to hand over.

Governments still prioritize their individual needs over collective decision-making, and some groupings are proving a particularly fractious bunch.

That means, noise aside, we are unlikely to witness a sea change shift from the U.S. as a central decision maker or the U.S. dollar as the main global currency, or a major change in the phrasing and nature of world trade agreements; we are likely to also see a fair amount of protectionism persist.

The weekend meetings in Washington DC of the World Bank, the International Monetary Fund, the G-20 plus the G-7 were a classic exercise in maintaining the status quo. Only last year everyone was talking about how the G-20 would soon supersede the G-7/G-8, especially given the growing influence of China among the pack of the stronger developing nations.

That had implications for all sorts of things in terms of the balance of power, from emerging-market nations’ ability to negotiate things like trade, to what sort of currency should be the world’s dominant medium of exchange.

China and India, et al, are emerging powers. They are gobbling up more of the world’s resources and playing a bigger role as well in global politics.

But why presume the “south” is any more of a united grouping than the “north”? Emerging market nations may be just that, but they don’t necessarily have a lot else in common. Grouping them together and saying they will have the same agenda on trade, currencies and monetary policy is ridiculous.

Countries will act together, but only up to a point. Unions look less solid when their individual interests may be put at greater risk. That’s true for the G-7, G-20, EU and BRICs alike.

Witness the comments from officials from India and Brazil in recent weeks along the lines that it wouldn’t be a bad thing if China allowed its currency to rise. Are we seeing a crack in the BRICs?

Witness the German Foreign Minister Guido Westerwelle reminding everyone on Sunday that his country is “not ready to write a blank check” for Greece, after Athens appealed for an E.U. and IMF bailout.

 
We all like to bang on about a new world financial order. In reality, any change will be slow and incremental. The U.S. (with its outsize influence on the IMF and World Bank) and its currency will be top dog for a while yet.

(This is a Money Talks column that first ran on Dow Jones Newswires earlier Wednesday)

Thailand is not the new Indonesia but the speed with which the country’s financial markets have calmed down over the recent political upheaval is encouraging.

Political ups and downs are nothing new for Thailand. Recent years have seen the ousting of former prime minister Thaksin Shinawatra, a military coup and frequent protests, and that’s kept investors away, leaving a hardy core of players.

The country’s been off the radar for many global fund managers for a while. Those who have been prepared to put money into Thailand in the first place know the risks involved and are prepared to take them.

That’s why we saw Thailand’s share market jump 5.4% Tuesday, while foreign investors were net buyers of THB1.38 billion worth of shares Monday, the first time they have been net buyers in five sessions. So far Wednesday, the index has slipped 0.2%.

The market had fallen 3.6% Monday last week, and–after a three-day market holiday–another 3.3% Friday, in response to the outbreak of violence between the armed forces and anti-government protesters known as Red Shirts, many of whom are allied with Thaksin.

Things have calmed since, though the protesters have pledged to continue their rally into May, and still demand Prime Minister Abhisit Vejjajiva dissolve parliament and call new elections.

But as players turn optimistic and markets look sharper (the U.S. dollar has fallen to a 23-month low against the baht, apparently leading to central bank intervention to try and curb the baht), the real question for Thailand going forward is longer-term money and whether funds that have previously skirted the country decide it’s time to park money there.

Bangkok must be looking at the investment renaissance that’s taking place in Indonesia with some envy.

Indonesia has not only managed to retain its core of investors, but also draw in fresh money from those who had previously given the country a miss. That’s in no small part due to the relative political stability in Indonesia these days, compared at least to Thailand and with elections coming up in the Philippines.

Thailand though is still some way from being a draw for funds that have avoided it in the past.

For that to happen there needs to be greater continuity in political leadership and for that leadership to put clear strategies in place to entice in foreign money for projects and development, not just markets, and for building domestic demand.

The current political uncertainty, as well as the tendency for Thai leadership in the past to make sudden and counterintuitive policy changes, will keep many funds out for some time yet.

China has posted reassuringly-solid gross domestic product figures for the first quarter, but the more interesting read comes from inflation.

GDP grew 11.9% on the year, a little higher than economists had expected but largely in line with the view the country’s impressive recovery has legs.

Indeed, the focus of late has turned more to potential bubbles and associated risks as growth picks up. That’s where Thursday’s inflation data for March come in.

The consumer price index rose 2.4%, slower than February’s 2.7% rise and below market expectations for a 2.6% increase. 

To some extent that’s a bit of a blip, and prices should remain pressured up by higher food and fuel costs. Authorities continue to warn about the need to be on guard against imported inflation pressures from rising commodity prices.

But the data may also give Beijing a bit more space to stick to targeted steps to curb liquidity and limit bubbles in sectors like real estate (which admittedly is a worry, with urban property prices growing at the fastest pace in close to five years in March and the State Council saying Thursday it will “resolutely curb” excessive property price rises), rather than doing something more broad and aggressive like raise interest rates.

Rates are a pretty blunt tool for a country needing to pull on the reins in some areas, while continuing to give other sectors a helping hand.

Indeed, Li Xiaochao, spokesman for the National Bureau of Statistics, said Thursday the CPI is basically stable. Economic growth that hasn’t yet ignited a major inflation fire is a good outcome for the first quarter.

It could be the People’s Bank of China can hold off on monetary tightening until the second half of the year.

The key question is how pre-emptive authorities want to be.

Hike rates in the next few months to keep inflation at bay, and it could slow the economy more than Beijing wants. Leave rates alone until late this year, in order to support the recovery, and inflation could become a real problem.

The solution probably lies somewhere in the middle.

Anyone living in Singapore has known for a while that the economy is coming back. Restaurants and bars are full, shopping centres are humming, and it’s harder to find an available taxi.
We had confirmation of that Wednesday with the release of first quarter gross domestic product data showing growth of 32.1% from the previous quarter in annualized, adjusted terms, after a 2.8% contraction in the fourth quarter of last year.

That’s the fastest growth since the data series began in 1975, and much better than economists expected (and perhaps the government, too–it has revised up its 2010 growth forecast to 7.0% to 9.0%, from 4.5% to 6.5%).
The data are good news for the rest of Asia. Singapore is first off the mark in releasing GDP for the region. It, like many of its neighbours, is a trade-dependent economy, relying heavily on its tech and pharma industries. Things are coming off a low base, but it does indicate real demand is there for Asia’s goods, especially from within the region itself.
Such readings are likely to reassure governments as they ponder how much, and how fast, to roll back some of the fiscal largesse that has been in the system for some time.
But quick growth also spells potential headaches. The Singapore data were so strong, they led the Monetary Authority of Singapore into an unprecedented double-barreled policy tightening.
The MAS shifted up its targeted trading band for the Singapore dollar and at the same time said it is now aiming for a “modest and gradual appreciation” of the currency–its main policy lever–against a basket of currencies. It previously had a neutral policy stance.
Other central banks in Asia, including India and Malaysia, have been moving also to tighten policy, while China is among those acting to mop up liquidity in targeted steps.
Things could become more complicated from here. Authorities in Asia ex-Japan are starting to grow more nervous about the inflation outlook. In Singapore, officials lifted their consumer price index growth forecast for this year to 2.5% to 3.5%, from 2.0% to 3.0% earlier.
Continuing to support growth while counteracting the effects of very loose liquidity and jumping pre-emptively on inflation will prove tricky. Authorities may not want to act too aggressively to tighten policy, but act too late and there will be even greater problems to fix down the road.

There’s also the ongoing question of China. It has been growing nicely and demand from that country has shielded many others from the worst effects of the global economic slowdown. But even officials there are warning against being too optimistic on the growth outlook going forward.

Neal Lipschutz is attending the World Economic Forum in Davos, Switzerland.

World Economic Forum officials are pleased with the increased participation this year of representatives of emerging economies in the group’s annual meeting getting under way in Davos, Switzerland.

Such emerging country attendance is said to be up significantly from a year ago.

It’s perhaps just one more sign of the shift in economic power and investment interest away from the U.S. and other large Western nations.

That notion of different short-term economic futures for the developed and developing (the very names of the categories are being called into question) markets was reinforced by bond manager Bill Gross of investment firm PIMCO.

In his monthly commentary, published today, Gross advised a globally minded investor to look for a “savings-oriented economy which should evolve into a consumer-focused economy.” China, India, Brazil “and more miniature-sized examples of each would be excellent examples,” he wrote.

As G7 nations and “their lookalikes” delever, they have given up the driver’s seat of the global economy, Gross said.

He saved perhaps his harshest language for the United Kingdom. He called the nation’s bonds “a must to avoid,” citing factors that have placed gilts “resting on a bed of nitroglycerine.”