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Words from the (Investment) Wise for the Week That Was (November 9 - 15, 2009): Part II

The Wall Street Journal: Banks hasten to adopt new loan rules
"Banks are moving quickly to restructure commercial mortgages under new US guidelines that are more forgiving of battered property values and can help banks avoid bigger losses.

"Citigroup Inc., regional bank Whitney Holding Corp. and other lenders around the country are planning to review loans now considered nonperforming to determine if they can be reclassified under the guidelines announced October 30 by bank, thrift and credit-union regulators, according to bank executives and people familiar with the matter. The moves could help the banks absorb fewer losses on troubled real-estate loans and preserve capital.

"'It's a positive all the way around,' said James Smith, chief credit officer for National Bank of South Carolina, a unit of Synovus Financial Corp.

"Matthew Anderson, partner at research firm Foresight Analytics, estimates that about two-thirds of the $800 billion in commercial real-estate loans held by banks that will mature between now and 2014 are underwater, meaning the loan amount exceeds the value of the property. The flexibility extended by regulators will apply to $110 billion to $130 billion of these loans, he said.

"The guidelines are controversial, with critics accusing the US government of prolonging the financial crisis by not forcing borrowers and lenders to confront inevitable problems.

"Regulators respond that they are being prudent, adding that a crackdown will occur at any banks misinterpreting last month's announcement as an opportunity for leniency."

Source: Lingling Wei and Peter Grant, The Wall Street Journal, November 12, 2009.

Reuters: Goldman Sachs boss says banks do "God's work"
"The chief executive of Goldman Sachs, which has attracted widespread media attention over the size of its staff bonuses, believes banks serve a social purpose and are doing 'God's work'.

"In an interview with London's Sunday Times newspaper, Lloyd Blankfein also said he believed big profits and bonuses at banks were a sign that the world economy was recovering.

"'We help companies to grow by helping them to raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. We have a social purpose,' he told the paper.

"The dominant Wall Street bank posted third-quarter earnings of $3 billion and plans to hand out more than $20 billion in year-end bonuses.

"Blankfein told the Sunday Times that the bank's compensation practices correlated with long-term performance.

"'Others made no money and still paid large bonuses. Some are not around anymore. I wonder why?'

"He added that he understood, however, that people were angry with bankers' actions: 'I know I could slit my wrists and people would cheer.'"

Source: Victoria Bryan, Reuters, November 8, 2009.

Financial Times: A lumpy ride for JGBs
"Government bond markets around the world are quite calm at the moment, but a sharp rise in Japanese government bond yields hints at what could be a lumpy ride to come. Jennifer Hughes, senior markets correspondent of the Financial mail, explains how the credibility of governments is key to keeping any bond market volatility to a minimum as large swathes of debt are offered to the market in the coming months."

Click here for the full article.

Source: Financial Times, November 10, 2009.

Bespoke: 2009 country stock market performance
"Below we highlight the year-to-date percentage change (local currency) for the major equity indices of 82 countries. So far this year, 71 of the 82 countries are in positive territory, and the average change of all countries is 33.27%. With a gain of 20.76%, the S&P 500 is 13 percentage points below the average, yet it's the second best G-7 performer behind Canada so far in 2009.

"The BRIC countries (Brazil, Russia, India, China) have been standouts this year. Russia is up the most out of all countries with a gain of 126.71%. Brazil, China, and India are all up more than 70%. Along with Russia, the Ukraine, Argentina, and Peru are up more than 100% year to date.

Eleven countries are down so far in 2009. Ghana is down the most at -48.26%, followed by Puerto Rico (-40.56%), Bermuda (-38.36%), and Costa Rica (-35.37%)."

Source: Bespoke, November 10, 2009.

Bespoke: S&P 500 breadth check-up
"Although the S&P 500 is within 1% of its closing high, breadth in this recent rally has been lagging. As of today [Tuesday], the cumulative A/D line for the S&P 500 since September 2008 is at 778, which is 571 below the highs from October. Given the fact that days where the S&P 500 has a 1% gain typically see a net A/D reading of about +300, it is likely that if we get a rally to new highs, it will not immediately be confirmed by breadth. Therefore, if the S&P 500 does manage to rally to a new closing high, investors with cash already on the sidelines may want to wait for breadth confirmation before putting any new funds to work."

Source: Bespoke, November 10, 2009.

Bespoke: Breadth not yet confirming new highs
"As we noted on Tuesday [article above], breadth as measured by the cumulative advance/decline line has not yet confirmed the market's recent rally to new highs. The same holds true for another breadth indicator that tracks the percentage of stocks trading above their 50-day moving averages. At prior highs during the current bull market, the percentage of stocks trading above their 50-days moved up to the 80%-90% mark. Currently, just 72% of stocks in the S&P 500 are trading above their 50-days, so less stocks have participated in the recent run-up.

"In the Financial sector, just 56% of stocks are currently above their 50-days, which is the weakest reading among all ten sectors. Consumer Staples currently has the highest reading at 83%, which is somewhat peculiar given that this sector usually only outperforms when the market is declining and not rising. Industrials and Health Care both have readings of 80% or better as well."

Source: Bespoke, November 12, 2009.

Bespoke: Midcaps lead the way in 2009
"As shown below, the S&P Midcap 400 has outperformed its large and smallcap brethren so far in 2009. The Smallcap 600 has been the worst performer with a gain of 15.4%, but it was down the most during the declines in the first quarter, so it has had to make up the most ground. The S&P 500 is up 20.77% year to date, while the Midcap 400 is up 29.17%."

Source: Bespoke, November 12, 2009.

Bespoke: Sector relative strength - technology & financials
"The charts below show the relative strength of the Financial and Technology sectors versus the S&P 500. In each chart, a rising line indicates that the sector is outperforming the S&P 500 while a declining line indicates underperformance. We have also included dots showing each time the Fed has left rates unchanged (blue dots). Believe it or not, the Fed hasn't made a change in interest rates in the last year.

"Given the fact that Technology and Financials are the most widely followed sectors in the market, any meaningful rally in equities will need to see both Financials and Technology participating. As shown in the charts, while Financials have stopped rolling over, they are hardly outperforming. Since the last Fed meeting on November 4, Financials have merely been performing in line with the S&P 500. Unlike Financials, Technology stocks have been outperforming the market over the last several weeks. Even here though, the sector has yet to make a new high in relative strength. If the S&P 500 is going to stage a meaningful break above the 1,100 level, we will need to see these two sectors leading the way."

Source: Bespoke, November 12, 2009.

Bespoke: Top line numbers not bad
"With everyone worried about the top line revenue numbers this earnings season, we've been tracking this data closely. As shown below, 59% of US companies have beaten revenue estimates this quarter, which is the highest reading over the last 5 earnings seasons. While it's not in the 70-80% range we saw during the last bull market, the direction of the revenue 'beat' rate is trending higher, which is a positive for the market."

Source: Bespoke, November 10, 2009.

MoneyNews: Prechter - 2008 crash just a warm-up
"Elliott Wave analyst Robert Prechter says the rally is over and predicts the start of 'another wave of the bear market', similar to the one investors experienced in 2008.

"'I don't think we've hit the V bottom yet,' Prechter told CNBC.

"Prechter, who predicted last March that the Dow would top 10,000, says investors don't need to be hurt in market downtrends.

"'Just make sure you have stepped aside in the safest possible cash equivalents in the safest possible institutions,' he advises.

"'My message is very easy,' Prechter says. 'You want to be as safe as possible. You might miss an upside, but you won't get hurt.'

"To achieve safety, Prechter advises investors to move their money into Treasury bills and make sure their banks are financially healthy.

"'You don't want to be in stocks, real estate, or commodities,' says Prechter, who believes the number of bank failures is going to increase next year.

"Stocks are still overvalued, but they won't be for long, according to Prechter. 'It's still too early, but there's a great buying opportunity coming,' he notes.

"Prechter is very bullish on the dollar, which he thinks is 'going to be up for a year or two' and bearish on gold."

Source: Julie Crawshaw, MoneyNews, November 9, 2009.

MoneyNews: Citi - Treasury yields could torpedo rally
"Rising Treasury bond yields may put an end to the global stock rally, says Yutaka Yoshino, chief technical analyst at Citigroup in Tokyo.

"Investors have been borrowing dollars at low interest rates to invest in stocks around the world - the so-called carry trade.

"But if 10-year bond yields, now about 3.50%, surpass 3.55, that would signal a rise in US interest rates, Yoshino tells Bloomberg.

"That in turn could stanch investors' desire for the carry trade.

"'If we pass that 3.55 level on the yield, we stop being in a rebound phase (from the October 1 low of 3.18%) and enter into a rising trend,' Yoshino said.

"'Inflation concerns are starting to creep in, and the Federal Reserve has no control over long-term interest rates.'

"US stocks could drop as much as 14%, with the Dow Jones Industrial Average hitting 8,600, and Japan's Nikkei 225 Stock Average may fall the same amount, he said.

"Yoshino's calculations come from the Japanese technical analysis method of 'ichimoku kinko', which utilizes wave patterns and repeating trends. Ichimoku kinko was devised by a Japanese journalist more than 70 years ago and resembles the Elliott Wave theory popularized by Robert Prechter."

Source: Dan Weil, MoneyNews, November 9, 2009.

MoneyNews: Siegel - stocks will rise, causing Fed hike
"Market guru and Wharton professor Jeremy Siegel says strong economic growth will keep pushing stocks higher and lead the Federal Reserve to raise interest rates in the first half of next year.

"Meanwhile, rising profits will send stocks up another 10% this year, he says.

"'I think there are a lot of legs to this bull market. Profits are coming in extremely well in the third quarter.'

"The booming economy, along with rising bond yields and a weak dollar, will push the Fed to hike rates in the first half of next year, Siegel maintains. That's earlier than most analysts expect.

"Fed officials 'are going to basically say we've got to increase that rate because of the strength in the economy and to preserve the bond market and the dollar', he says."

Source: Dan Weil, MoneyNews, November 11, 2009.

Bespoke: Stock market returns lost in translation
"One of the side effects of a weaker dollar is that the returns for foreign investors who invest in US assets are diminished. While the value of the asset may rise in dollar terms, if the dollar is losing value, the investor takes a hit when they convert their funds back into their domestic currency. For example, while the S&P 500 has risen 20.2% so far this year in US dollars, investors outside of the US have generally seen much less impressive returns.

"In the table below, we looked at the YTD returns of the S&P 500 for investors in various currencies. Of the currencies we looked at, the only one that has seen a benefit from the currency translation is the Argentinian peso. Returns have been diminished once fluctuations are taken into account for all other currencies. And of course some countries have been affected more than others. So far this year, Brazilian investors who bought the S&P 500 at the end of last year have lost nearly 12 reals for every 100 they invested on January 1."

Source: Bespoke, November 9, 2009.

Bespoke: International revenues making an impact
"When the dollar is in decline, companies that generate the bulk of their revenues overseas benefit as the weak dollar attracts purchases of US-made products by foreign companies and consumers. The most recent stock market rally/dollar decline this month has been led by companies that generate a big portion of their revenues outside of the US, which has been characteristic of the entire bull market as well.

"When breaking the S&P 500 into deciles (10 groups of 50 stocks) based on the amount of sales that companies generate overseas, the deciles of stocks with high international revenues have outperformed during the November rally, while the two deciles of stocks with very little or no international revenues have significantly underperformed."

Source: Bespoke, November 11, 2009.

Moneycontrol.com: Mobius on emerging markets
"In an interview with CNBC-TV18, Mark Mobius, Managing Director of Temptation Asset Management, spoke about his reading on the emerging markets (EMs) and his outlook."

Source: Moneycontrol.com, November 7, 2009.

The Wall Street Journal: World tries to buck up dollar
"Governments around the world stepped up efforts to stem the US dollar's slide, as officials grow increasingly concerned about the impact of the weak greenback on their nascent economic recoveries.

"Thailand, South Korea, Russia and the Philippines have been snapping up dollars this week in order to hold down the value of their currencies, traders said Wednesday, as the US currency wallowed near 15-month lows.

"In Latin America, Brazil's finance minister said the country's currency remained too strong, sparking speculation that the government would intensify recent efforts to curb the real's ascent. On Tuesday, Taiwan banned foreign investors from parking time deposits in the country in an effort to ease upward pressure on the local currency.

"The fresh buzz over the dollar's fall prompted Treasury Secretary Timothy Geithner, visiting Tokyo on Wednesday, to repeat the Obama administration's commitment to a strong dollar. Still, Washington hasn't taken any concrete steps to arrest the slide. The weaker dollar is actually benefiting the US as it struggles to come out of recession by helping keep US exports competitive.

"China is coming under new pressure from Pacific Rim countries to let its dollar-linked currency rise in value. On Wednesday, China's central bank made a nod to concerns about the declining dollar and yuan by issuing a rare change to the official language of its exchange-rate policy. The central bank said it would take major currency trends into account in setting policy, though it wasn't clear what impact that may have on the yuan's future value.

"The US wants to see a stronger yuan, though Washington has avoided explicit public pressure on China to abandon its policy of managing its currency. But in the jargon of finance ministers, Mr. Geithner has made clear that's what he thinks should happen. In an op-ed piece in Thursday's Wall Street Journal Asia, he emphasized the advantages of 'market oriented exchange rates in line with economic fundamentals'.

"Asian finance ministers, now gathered in Singapore for a meeting of the 21-member Asia-Pacific Economic Cooperation forum, are expected to raise their concerns about both the dollar's decline and the inflexibility of the Chinese yuan.

"The fear is two-fold. If currencies surge against the dollar, it damages the ability of countries in the region to compete in world markets, by making their exports more expensive. What's more, one of their major competitors - China - ties its currency to the dollar. As the yuan sinks in tandem with the dollar, China is able to keep its export prices low and price out competition.

"A concluding statement from the assembled APEC officials is expected to underline the importance of flexible exchange rates to sustainable global growth - generally viewed as code for a rise in the Chinese yuan. Such efforts are unlikely to bear fruit in the near term, which means these countries must act on their own to slow their currencies' rise."

Source: Joanna Slater, William Mallard and Bob Davis, The Wall Street Journal, November 12, 2009.

Financial Times: Tough times ahead for rouble
"The best of the rouble's recent rally seems to have passed - and the currency could drop as much as 15% against its trading basket next year, says Neil Shearing at Capital Economics.

"He notes that, since March, the rouble has risen by 15% against its dollar/euro basket, prompting Russia's central bank to switch from intervening to shore up the currency to stepping in to stem further appreciation.

"'The size of the rebound is perhaps surprising given the lingering fragilities in the Russian economy,' Mr Shearing says. 'The rally has been driven by developments on the current account side of the balance of payments and, more specifically, by the rebound in oil prices.'

"He notes that, in the past, any improvement to the trade surplus from rising oil prices was largely sterilised by the operations of the Oil Stabilisation Fund and had relatively little impact on the exchange rate.

"'But things seem to have changed - the authorities have not made any deposits into either the Reserve Fund or the National Welfare Fund since August and thus the rebound in oil exports has led to a rally in the currency - so the prospects for the rouble, for now, are inherently tied to moves in the oil price.

"'If our forecast for oil to fall to $50 a barrel by the end of 2010 proves correct, the rouble is likely to test the bottom band of its trading range against the dollar/euro basket.'"

Source: Neil Shearing, Financial Times, November 11, 2009.

David Fuller (Fullermoney): Gold bull market on track
"I would not expect gold's secular bull market to end until short-term interest rates are considerably higher.

"Even if this hypothesis is correct, it is impossible to know in advance the level of short-term rates which would cause gold's advance to reverse. My guess is that global rates will be rising behind an accelerating advance in the gold price, eventually leading to a spike peak for bullion.

"Meanwhile, everything that gold is doing currently remains consistent with its earlier breakouts from large (approximately eighteen-month) trading ranges from September 2005 to May 2006 and September 2007 to March 2008. If this behavioural consistency continues, gold would reach at least $1,300 between March and May of next year.

"I previously mentioned that if gold maintained its consistency of the last three months, we could expect another ranging consolidation in a $40 to $45 range, commencing near $1,125. However given the post-India purchase excitement, it might accelerate. Whatever, a break in the progression of higher reaction lows evident on the daily chart would be required to question the medium-term uptrend.

"Fullermoney remains bullish of gold bullion and its sister precious metals. Tactically, we prefer to buy them on pullbacks within the medium-term trends. Precious metals mining shares are much more volatile and could do very well if the metals continue to perform, as we expect."

Source: David Fuller, Fullermoney, November 11, 2009.

Richard Russell (Dow Theory Letters): Gold in strong bull market
"As matters stand today, I'm confident of only one rising tide or bull market. Let's examine the whole picture. The world is suffering from over-production. In the space of a single decade, the population of the global economy has more than doubled. In our lifetime, we have seen China, India and most of Asia join the world economy. Initially, this was greeted as a great new source of purchasing power. I disagreed. I saw it as a great new source of supply. I was correct. China, India and Asia have produced a vast amount of goods, and as time goes on, this new competition has become increasingly more sophisticated and powerful.

"Three billion people (including their children) are willing to work for comparatively low wages, and they're willing to work without benefits: no medical, no Social Security, no 401Ks, no state or corporate saving plans or help.

"The net result is over-production and world deflation. Whatever the US can make, whether it's washing machines or women's panties or garden hoses, the Chinese and Indians can make cheaper. We're dealing with a world-wide deflationary tide.

"US politicians feel the pressure. A politician's first duty is to get re-elected. When the people are unhappy, politicians hear the people's complaints and hasten to give the people what they want. Making the voters happy is how the pols get re-elected.

"Ultimately, the pressure falls on the president and the party. The president, in turn, puts the pressure on the Federal Reserve. 'Make the voters happy' demands the president and the pols, and the Fed hastens to do what it does best. The Fed creates a torrent of money to offset the forces of deflation and it drops interest rates to zero. The problem is that the global forces of deflation are fundamental and powerful. The primary force of deflation is more powerful than the Fed and the rest of the world's central banks taken together.

"America's Fed Chairman, Ben Bernanke, is convinced that he knows the secret of avoiding hard times. The Fed can halt deflation and turn the picture into asset inflation. All it takes, thinks Bernanke, is zero interest rates and the creation of trillions of new dollars - and they will come, and they will spend. This is the path the Bernanke Fed has chosen. So far, it has not worked - they are not coming, and they are not spending. The Fed's strategy has not even succeeded in bringing down unemployment. Bernanke's solution - more of the same: 'Whatever it takes, and as long as it takes.'

"Thus, we have a strange and ironic situation. We have world deflation, and a Fed Chairman who believes he can manipulate the primary trend. Bernanke's strategy is leading to a weakening dollar. The more dollars that are created, the weaker the dollar. As the dollar's very status comes into question, wise and seasoned investors move to protect their wealth. They move to the time-honored 'safe haven': the one unit of wealth that cannot be destroyed in that it is not a liability of any government. And, of course, I'm talking about the one unit of wealth that is never questioned - gold.

"So it's the gold bull market that I trust and believe in. I think and I ponder - what can halt the gold bull market?

"The only thing that can halt the gold bull market is a complete reversal by the politicians and the Fed, and that would allow the US to sink into a state of deflation and depression. Unthinkable.

"If gold goes parabolic, we will be in the third speculative phase of the gold bull market. This will be the final phase in which gold 'blows its top'. No tree grows to the sky, and neither will gold."

Source: Richard Russell, Dow Theory Letters, November 9, 2009.

Bloomberg: Faber - gold price won't drop below $1,000 again
"Gold won't fall below $1,000 an ounce again after rising 27% this year to a record as central banks print money to help fund budget deficits, said Marc Faber, publisher of the Gloom, Boom & Doom report.

"'We will not see less than the $1,000 level again,' Faber said at a conference today in London. 'Central banks are all the same. They are printers. Gold is maybe cheaper today than in 2001, given the interest rates. You have to own physical gold.'

"China will keep buying resources including gold, he said.

"'Its demand for commodities will go up and up and up,' he added. 'Emerging economies will grow at the fastest pace.'"

Source: Zijing Wu, Bloomberg, November 11, 2009.

Bespoke: Gold compared to silver and platinum
"Gold has been the talk of the town recently, with everyone wondering if the current rally is a bubble waiting to pop or just the beginning of a run to much higher prices. While gold is getting the attention, its sister metals - silver and platinum - have actually been outperforming.

"Below we provide historical charts of the ratio between gold and silver and gold and platinum. When the line is rising, gold is outperforming, while gold is underperforming when the line is declining. As shown, late last year both silver and platinum lost big ground to gold, with platinum and gold even reaching parity at one point. During the metals rally this year, however, silver and platinum have actually done better than gold."

Source: Bespoke, November 11, 2009.

MarketWatch: Global energy agencies see world rebound in demand
"Two major agencies Tuesday forecast worldwide energy demand would soon rebound as the global economy recovers, and the US Energy Information Administration raised its forecast for oil prices, in part due to rising appetite in China.

"The EIA said it now expects global oil demand to increase next year by 1.26 million barrels per day, compared with a 1.1 million gain predicted in October, with developing countries the largest part of yearly growth. The EIA, which had bumped up its outlook for consumption last month, also raised its demand forecast for this year.

"'Sustained economic growth in China and other Asian countries is contributing to the beginnings of a rebound in world oil consumption,' the agency wrote in its monthly short-term energy outlook.

"As a result of this higher demand and the rise in oil prices since its last outlook, the US government agency lifted its price forecast.

"The price of West Texas Intermediate oil will average $77 a barrel during the period from October to March, the EIA predicted, up $7 a barrel from last month's forecast. By December 2010, it forecast monthly average oil prices will rise to $81 a barrel, assuming global economic conditions keep improving.

"Earlier Tuesday, the Paris-based International Energy Agency said global energy use will decline this year because of the global economic crisis, but it will soon resume an upward trend if government policies don't change.

"The IEA said world energy demand is projected to rise by 40% between now and 2030, reaching 16.8 billion tons of oil equivalent.

"Oil demand is expected to grow by 1% per year on average over the projection period, from 85 million barrels per day in 2008 to 105 million barrels a day in 2030, the IEA said.

"The Guardian newspaper quoted an unnamed IEA whistleblower as saying the market would struggle to produce even 90 million to 95 million barrels a day."

Source: Laura Mandaro and Polya Lesova, MarketWatch, November 10, 2009.

Financial Times: Copper barometer is broken
"The copper market is beginning to price in 'unrealistically high expectations for global economic activity', says Daniel Brebner, analyst at Deutsche Bank, who cautions that weaker prices could last well into mid-2010.

"Deutsche says that China's copper imports will be 'meaningfully lower' in 2010 compared with this year and that western world restocking will be modest at best, and largely complete by April.

"But despite the risk of a near-term correction, Deutsche says copper prices should rise 11% next year because of long-term structural constraints on supply and a continuation of investment flows into the market.

"'We view copper as one of the few commodity markets that has properties of true scarcity,' says Mr Brebner, who expects copper to average $5,731 a tonne in 2010 from $5,158 a tonne this year.

"Deutsche says that only a thin pipeline of quality copper projects will mature to full production in the next decade because of underinvestment in new mines and a lack of new development opportunities.

"Much of the growth in global copper output has come from a few very large mining operations - the 'Big 12' - but these are no longer contributing meaningfully to supply.

"'The problem for the market is that there are no obvious heirs to these ageing giants,' says Mr Brebner."

Source: Daniel Brebner, Financial Times, November 10, 2009.

Financial Times: Bank of England lifts forecasts for UK growth
"The Bank of England has sharply upgraded its forecasts for growth over the next two years but still expects any recovery in the UK economy to be slow and unstable because of how deeply output has fallen since early last year.

"Mervyn King, the Bank governor, said Britain was 'facing a prolonged period of balance sheet adjustment' as households, businesses and government rein in spending to levels they can afford, a trend that will limit inflationary pressures.

"The Bank forecast growth rates of 2.1% for 2010 and 4% for 2011 in its quarterly inflation report, much higher than the outlook of private sector economists and the Treasury's predictions.

"The Bank's latest estimate for growth is a big upward revision from its own forecasts in August, of 1.9% and 3% for 2010 and 2011 respectively.

"However, Mr King said that gross domestic product had fallen so far that even relatively rapid rates of growth would leave total output well below where it would have been had the recession never happened.

"'Small movements in quarterly growth rates will not alter the extent of the challenges now facing the economy, such is the scale of the fall in output over the past 18 months," he said. 'We have ... only just started along the road to recovery.'"

Source: Daniel Pimlott, Financial Times, November 11, 2009.

Financial Times: China recovery accelerates in October
"China's economic recovery accelerated in October with industrial output increasing at the fastest rate since March of last year while retail sales also grew strongly.

"However, the Chinese central bank said that the rate of new lending declined last month, a possible indication that the government is beginning to slow the aggressive monetary stimulus it has injected into the economy this year.

"Exports and imports were also weaker than expected last month.

"China has rebounded faster and more strongly than any other major economy from the global financial crisis and economists believe the government will meet its target of 8% growth in gross domestic product this year.

"There have been increasing warnings that China could face bubbles in asset prices and even high inflation, however, as a result of this year's huge stimulus measures.

"The State Council said in late October that monetary policy would remain 'appropriately loose' for the time being, but added that it was also now monitoring inflationary pressures.

"The National Bureau of Statistics said that industrial production rose 16.1% from the same month a year before, up from a rate of 13.9% in the year to September. Power generation was 17.1% higher over the same month last year, the fifth month in a row of increases.

"Retail sales gained 16.2% over a year earlier, accelerating from a 15.5% increase the month before, while fixed asset investment increased 33.1% year-on-year.

"The central bank said that Rmb253 billion ($37 billion) of new local currency loans were issued in October, down from Rmb516.7 billion last month and well below the rapid rate of the first few months of the year.

"But economists cautioned against reading too much into the drop in bank loans, as lending is usually weak in the fourth quarter. 'Policy has already been modestly tightened with credit growth slowing sharply in the second half,' said Ben Simpfendorfer, economist at RBS in Hong Kong. The October figures could 'imply some tightening', he added."

Source: Geoff Dyer, Financial Times, November 11, 2009.

The Wall Street Journal: Goldman Sachs's Fred Hu on China's recovery
"WSJ's Jason Dean speaks to Dr. Fred Hu, managing director of Goldman Sachs Group, about the biggest challenge in China's recovery, at the China Financial Markets conference. He also discusses what China needs to do to sustain its growth."

Source: The Wall Street Journal, November 9, 2009.

Financial Times: China pledges $10 billion in loans to Africa
"Wen Jiabao, China's premier, has pledged $10 billion in new low-cost loans to Africa over the next three years and defended China's engagement against accusations it is 'plundering' the continent's oil and minerals.

"Mr Wen's pledge at a China-Africa summit in Egypt on Sunday came as he urged the US to keep its deficit at an 'appropriate size' to ensure the 'basic stability' of the dollar.

"China is the biggest holder of US government debt and Mr Wen was reinforcing comments he made in March when he expressed concern that Washington's deficit would erode the value of its US dollar assets.

"The loan pledge was double a commitment made in 2006 and came during a summit at which delegates from both sides stressed their ties go beyond the Chinese acquisition of raw materials.

"Mr Wen told a press conference: 'There have been allegations for a long time that China has come to Africa to plunder its resources and practice neo-colonialism. This allegation in my view is totally untenable.'

"Trade between China and Africa jumped 45% to $107 billion in 2008, a tenfold increase since 2000, and the new loans are likely to sustain the expansion."

Source: Barney Jopson, Financial Times, November 8, 2009.

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