Thursday, June 14, 2007

China currency row heats up in US


Paulson said China could not technically be labelled a currency manipulator [Reuters]

The White House has rejected moves to cite China as a currency manipulator in the face of growing pressure from the US congress to file a trade case against Beijing on the issue. The refusal has sparked an angry backlash from members of congress, announcing they would introduce retaliatory legislation against China. Senators from both the Replican and Democrat parties, as well as several US business groups have accused China of keeping its currency, the yuan, artificially undervalued to make its exports unfairly cheap. US businesses say this means they cannot compete, wiping out American jobs. The White House has rejected moves to cite China as a currency manipulator in the face of growing pressure from the US congress to file a trade case against Beijing on the issue. The refusal has sparked an angry backlash from members of congress, announcing they would introduce retaliatory legislation against China. Senators from both the Replican and Democrat parties, as well as several US business groups have accused China of keeping its currency, the yuan, artificially undervalued to make its exports unfairly cheap. US businesses say this means they cannot compete, wiping out American jobs
Issuing the US treasury's biannual report on the subject, Henry Paulson, the treasury secretary, said the yuan was "undervalued" but that China did not meet the technical requirements to be labelled a currency manipulator. Nonetheless the report repeated accusations that China was moving too slowly to implement economic reforms to deal with the trade gap with the US and Paulson pledged to keep pushing Beijing on the issue.

Growing anger

Anger in congress has been growing as the US trade deficit with China has soared to an all-time high of $232.6bn. Some legislators say China undervalues the yuan by as much as 40 per cent to gain unfair trade advantages, costing thousands of American manufacturing jobs. Minutes after a Paulson's report, Democrats and Republicans alike announced they would introduce retaliatory legislation against China. One group of senators led by Democrat Charles Schumer and Republican Lindsey Graham unveiled a bill aimed at forcing China to speed up its yuan appreciation by giving the treasury department new tools to put pressure on Beijing. The bill, which does not mention China by name, would set up a schedule of escalating punitive measures leading to legal action at the World Trade Organisation and co-ordinated currency intervention by the US Federal Reserve and other central banks. It also changes the description of the infraction from currency manipulation to "fundamentally misaligned currency for priority action". Schumer said "the purpose of this legislation is to force change". Christopher Dodd, a Democrat and Senate Banking Committee chairman, and Richard Shelby, the top Republican on the panel, said on Wednesday they were introducing their own proposal that would direct the administration to pursue currency cases against countries before the IMF and the WTO.

Petition rejected

Meanwhile, US trade representative Susan Schwab announced on Wednesday that she was rejecting a bipartisan petition from members of the US House of Representatives asking the administration to bring a trade case against China before the WTO. Schwab noted that the Bush administration had brought four WTO cases against China in the past 15 months but did not feel a case on the currency issue would be appropriate. It marked the third time the administration had turned down requests for a currency case.

Barneys Could Be Sold to Dubai Firm (New York Times)

By ANDREW ROSS SORKIN and MICHAEL BARBARO

The Jones Apparel Group is close to an agreement to sell Barneys New York, the fashionable clothing retailer, for about $825 million to the investment arm of the Dubai government, people involved in the talks said yesterday.

Barneys, whose flagship store, adorned with bright red awnings, is a Madison Avenue landmark, has become a beacon of style and a trophy for suitors. The proposed deal with Istithmar, the investment arm of Dubai, is in the final stages and could come early next week, these people said. Still, these people cautioned that the talks could collapse.

Jones Apparel, a clothing conglomerate that owns Anne Klein, Jones New York and Nine West, called off an auction of the entire company last year but had been quietly shopping Barneys, which carries top designers, like Helmut Lang and Marc Jacobs, and lesser-known labels like Lutz & Patmos and Rag & Bone.

The store has dressed New York’s elite shoppers, visiting diplomats and Hollywood celebrities for decades, supplying them with $10,000 gowns, $5,000 suits and $200 T-shirts.

A spokesman for Jones Apparel declined to comment. A spokesman for Istithmar could not be reached. Shares of Jones Apparel rose 31 cents yesterday to $29.20 a share after a report of the talks in The New York Post.

The deal would be a landmark for Istithmar, which has been steadily buying prominent properties in New York, including the Mandarin Oriental hotel in the Time Warner Center, but which has never owned such an upscale retail brand before. It also suggests that the courtship of the retail industry by investors has not abated. In the last several years, financial firms rather than retail rivals have bought nearly a dozen chains, including Lord & Taylor, Toys “R” Us, Neiman Marcus, Michaels Stores and Sports Authority.

Barneys — long coveted by financial barons, competitors and private equity groups — has weathered a series of ownership changes. In 1999, after it emerged from bankruptcy, Barneys fell under the control of two creditors, Whippoorwill Associates and Bay Harbour Management, both investment firms. In 2004, Jones Apparel, a mid-priced clothing company, surprised Wall Street by buying the luxury chain.

Ever since, speculation has become rife that the chief executive of Jones Apparel, the former investment banker Peter Boneparth, was searching for a buyer, hoping to cash in on a red-hot luxury clothing market, which has bolstered sales at Barneys, Neiman Marcus and Saks Fifth Avenue.

He appears to have done just that. Jones paid about $400 million, and is expected to sell it for more than twice that — a vindication, given that analysts questions the company’s value to Jones.

Barneys was founded by Barney Pressman in 1923 with money raised from the sale of his wife’s engagement ring. After it overexpanded, it filed for Chapter 11 in 1996.

Once the province of the ultra-rich, Barneys has become popularized in the last decade by its portrayal in shows like “Sex and the City,” whose main character, Carrie Bradshaw, treated it as a guilty pleasure.

Still, its Madison Avenue store attracts a who’s-who list of celebrities. Its restaurant, Fred’s, is a power-lunch spot for business executives and their wealthy spouses (Spotted there on a recent weekday: the “Today” show anchor Matt Lauer and Allen I. Questrom, the former chief executive of J. C. Penney).

Under Jones Apparel’s ownership, Barneys expanded into several cities, opening flagship stores in Boston and Dallas and its smaller, less expensive Co-Op formats in Houston; Troy, Mich.; Washington; and White Plains. Sales at Barneys stores open at least a year, a widely used measure in retailing, rose 10 percent, well above the industry average.

Goldman Quarterly Earnings Beat Estimates

NEW YORK, June 14 (Reuters) - Goldman Sachs Group reported higher quarterly profit on Thursday, beating estimates, on record investment banking fees and strong stock trading.

The world's largest investment bank by profit and market value said net earnings rose to $2.33 billion, or $4.93 a share, in the second quarter ended on May 25, from $2.29 billion, or $4.78 a share, a year earlier.

Analysts on average expected profit of $4.76 a share, according to Reuters Estimates. Goldman shares were down 2.8 percent in premarket trading.

Revenue rose to $10.2 billion from $10.1 billion. The analysts' average estimate was $10.1 billion.

The results come two days after rival Lehman Brothers Holdings Corp. reported a 27 percent jump in profit, trouncing expectations and sparking a rebound in brokerage stocks.

Goldman stock, which hit an all-time high of $233.94 at the end of May, rose 4 percent during the fiscal quarter, outperforming the 1.3 percent gain in the AMEX Securities Broker-Dealer Index but slightly lagging the S&P 500.

Bear Stearns Quarterly Results Fall

NEW YORK (Reuters) - Investment bank Bear Stearns said on Thursday quarterly earnings fell, hurt by a decline in bond trading revenues and a writedown.

Net income was $361.7 million, or $2.52 a share, compared with $539.3 million, or $3.72 a share a year earlier.

Excluding a $227 million, or 88 cents a share, non-cash charge related to the writedown of intangible assets, earnings fell to $3.40 a share.

Excluding one-time items, analysts on average had forecast earnings of $3.49 a share, according to Reuters Estimates.

Concerns about U.S. mortgage exposure have weighed on Bear Stearns' shares since February. Bear is one of the largest mortgage bond underwriters in the United States, and its business is much less diversified than many of its competitors.

Since mid-February, Bear Stearns' shares have fallen 10 percent, while the Amex Securities Broker-Dealer index has risen more than 3 percent.

World oil supplies are set to run out faster than expected, warn scientists (The Independent)

Scientists challenge major review of global reserves and warn that supplies will start to run out in four years' time
By Daniel Howden

Scientists have criticised a major review of the world's remaining oil reserves, warning that the end of oil is coming sooner than governments and oil companies are prepared to admit.

BP's Statistical Review of World Energy, published yesterday, appears to show that the world still has enough "proven" reserves to provide 40 years of consumption at current rates. The assessment, based on officially reported figures, has once again pushed back the estimate of when the world will run dry.

However, scientists led by the London-based Oil Depletion Analysis Centre, say that global production of oil is set to peak in the next four years before entering a steepening decline which will have massive consequences for the world economy and the way that we live our lives.

According to "peak oil" theory our consumption of oil will catch, then outstrip our discovery of new reserves and we will begin to deplete known reserves.

Colin Campbell, the head of the depletion centre, said: "It's quite a simple theory and one that any beer drinker understands. The glass starts full and ends empty and the faster you drink it the quicker it's gone."

Dr Campbell, is a former chief geologist and vice-president at a string of oil majors including BP, Shell, Fina, Exxon and ChevronTexaco. He explains that the peak of regular oil - the cheap and easy to extract stuff - has already come and gone in 2005. Even when you factor in the more difficult to extract heavy oil, deep sea reserves, polar regions and liquid taken from gas, the peak will come as soon as 2011, he says.

This scenario is flatly denied by BP, whose chief economist Peter Davies has dismissed the arguments of "peak oil" theorists.

"We don't believe there is an absolute resource constraint. When peak oil comes, it is just as likely to come from consumption peaking, perhaps because of climate change policies as from production peaking."

In recent years the once-considerable gap between demand and supply has narrowed. Last year that gap all but disappeared. The consequences of a shortfall would be immense. If consumption begins to exceed production by even the smallest amount, the price of oil could soar above $100 a barrel. A global recession would follow.

Jeremy Legget, like Dr Campbell, is a geologist-turned conservationist whose book Half Gone: Oil, Gas, Hot Air and the Global Energy Crisis brought " peak oil" theory to a wider audience. He compares industry and government reluctance to face up to the impending end of oil, to climate change denial.

"It reminds me of the way no one would listen for years to scientists warning about global warming," he says. "We were predicting things pretty much exactly as they have played out. Then as now we were wondering what it would take to get people to listen."

In 1999, Britain's oil reserves in the North Sea peaked, but for two years after this became apparent, Mr Leggert claims, it was heresy for anyone in official circles to say so. "Not meeting demand is not an option. In fact, it is an act of treason," he says.

One thing most oil analysts agree on is that depletion of oil fields follows a predictable bell curve. This has not changed since the Shell geologist M King Hubbert made a mathematical model in 1956 to predict what would happen to US petroleum production. The Hubbert Curveshows that at the beginning production from any oil field rises sharply, then reaches a plateau before falling into a terminal decline. His prediction that US production would peak in 1969 was ridiculed by those who claimed it could increase indefinitely. In the event it peaked in 1970 and has been in decline ever since.

In the 1970s Chris Skrebowski was a long-term planner for BP. Today he edits the Petroleum Review and is one of a growing number of industry insiders converting to peak theory. "I was extremely sceptical to start with," he now admits. "We have enough capacity coming online for the next two-and-a-half years. After that the situation deteriorates."

What no one, not even BP, disagrees with is that demand is surging. The rapid growth of China and India matched with the developed world's dependence on oil, mean that a lot more oil will have to come from somewhere. BP's review shows that world demand for oil has grown faster in the past five years than in the second half of the 1990s. Today we consume an average of 85 million barrels daily. According to the most conservative estimates from the International Energy Agency that figure will rise to 113 million barrels by 2030.

Two-thirds of the world's oil reserves lie in the Middle East and increasing demand will have to be met with massive increases in supply from this region.

BP's Statistical Review is the most widely used estimate of world oil reserves but as Dr Campbell points out it is only a summary of highly political estimates supplied by governments and oil companies.

As Dr Campbell explains: "When I was the boss of an oil company I would never tell the truth. It's not part of the game."

A survey of the four countries with the biggest reported reserves - Saudi Arabia, Iran, Iraq and Kuwait - reveals major concerns. In Kuwait last year, a journalist found documents suggesting the country's real reserves were half of what was reported. Iran this year became the first major oil producer to introduce oil rationing - an indication of the administration's view on which way oil reserves are going.

Sadad al-Huseini knows more about Saudi Arabia's oil reserves than perhaps anyone else. He retired as chief executive of the kingdom's oil corporation two years ago, and his view on how much Saudi production can be increased is sobering. "The problem is that you go from 79 million barrels a day in 2002 to 84.5 million in 2004. You're leaping by two to three million [barrels a day]" each year, he told The New York Times. "That's like a whole new Saudi Arabia every couple of years. It can't be done indefinitely."

The importance of black gold

* A reduction of as little as 10 to 15 per cent could cripple oil-dependent industrial economies. In the 1970s, a reduction of just 5 per cent caused a price increase of more than 400 per cent.

* Most farming equipment is either built in oil-powered plants or uses diesel as fuel. Nearly all pesticides and many fertilisers are made from oil.

* Most plastics, used in everything from computers and mobile phones to pipelines, clothing and carpets, are made from oil-based substances.

* Manufacturing requires huge amounts of fossil fuels. The construction of a single car in the US requires, on average, at least 20 barrels of oil.

* Most renewable energy equipment requires large amounts of oil to produce.

* Metal production - particularly aluminium - cosmetics, hair dye, ink and many common painkillers all rely on oil.

Alternative sources of power

Coal

There are still an estimated 909 billion tonnes of proven coal reserves worldwide, enough to last at least 155 years. But coal is a fossil fuel and a dirty energy source that will only add to global warming.

Natural gas

The natural gas fields in Siberia, Alaska and the Middle East should last 20 years longer than the world's oil reserves but, although cleaner than oil, natural gas is still a fossil fuel that emits pollutants. It is also expensive to extract and transport as it has to be liquefied.

Hydrogen fuel cells

Hydrogen fuel cells would provide us with a permanent, renewable, clean energy source as they combine hydrogen and oxygen chemically to produce electricity, water and heat. The difficulty, however, is that there isn't enough hydrogen to go round and the few clean ways of producing it are expensive.

Biofuels

Ethanol from corn and maize has become a popular alternative to oil. However, studies suggest ethanol production has a negative effect on energy investment and the environment because of the space required to grow what we need.

Renewable energy

Oil-dependent nations are turning to renewable energy sources such as hydroelectric, solar and wind power to provide an alternative to oil but the likelihood of renewable sources providing enough energy is slim.

Nuclear

Fears of the world's uranium supply running out have been allayed by improved reactors and the possibility of using thorium as a nuclear fuel. But an increase in the number of reactors across the globe would increase the chance of a disaster and the risk of dangerous substances getting into the hands of terrorists.