http://www.nytimes.com/2008/06/02/business/02trade.html?pagewanted=print
June 2, 2008
Industries Allied to Cap Carbon Differ on the Details
By JAD MOUAWAD
Some of the most powerful corporate leaders in America have been meeting regularly with leading environmental groups in a conference room in downtown Washington for over two years to work on proposals for a national policy to limit carbon emissions.
The discussions have often been tense. Pinned on a wall, a large handmade poster with Rolling Stones lyrics reminds everyone, “You can’t always get what you want.”
What unites these two groups — business executives from Duke Energy, the Ford Motor Company and ConocoPhillips, as well as heads of environmental organizations like the Natural Resources Defense Council — is a desire to deal with climate change. They have broken with much of corporate America to declare that it is time for the federal government to act and set mandatory limits on emissions.
What divides them is that dealing with climate change will almost certainly hurt some industries and enrich others. Billions of dollars are at stake. Depending on how the nation decides to tackle the problem, electricity bills in some states could rise 50 percent, and gasoline prices could go up 50 cents a gallon.
“It’s really now a battle over the economics,” said James E. Rogers, chief executive of Duke Energy, who has long advocated curbing carbon emissions. “The debate is not about the climate problem. Everybody could agree on the principles and still get the economics wrong.”
The Senate is to vote Monday to kick off a weeklong discussion on carbon limits. But the intense debates under way already illustrate just how hard it will be for Congress to satisfy conflicting business interests while coming up with a global-warming plan that works.
Opposition from corporate interests, including oil, gas and power companies, prompted the Bush administration to opt out of the Kyoto Protocol, a treaty that called on developed countries to limit their emissions.
But the political winds have shifted. All three presidential candidates have said they favor mandatory curbs on emissions, and the Democratic majority in Congress wants a strong climate policy. The Senate debate could help set parameters of future legislation, which many experts expect to see within two years.
Congress is considering a complicated approach that would set a limit, or cap, on emissions that would be reduced each year. It would also create emissions permits that large industrial companies, like oil refineries or power plants, would be required to use.
By putting a value on carbon dioxide, this cap-and-trade system would provide incentives for companies to reduce emissions. Experts say it could turn into one of the biggest markets in the world, estimated to be worth over $200 billion a year.
Thus far, climate policy has been slowly shaped by states like California and Massachusetts, with others following. The resulting patchwork of policies has created uncertainty for companies, some of which have recognized that federal system to limit carbon is ultimately unavoidable.
“If they are not at the table, they will not have a hand in the making of the regulation,” said Robert N. Stavins, director of the environmental economics program at Harvard University.
That recognition led to the Climate Action Partnership, the Washington group, in which corporate behemoths and environmental groups have been debating climate policy for over two years, sometimes meeting every week, in order to force the issue.
In January 2007, the eclectic group endorsed a bold national policy that called for reduction in carbon dioxide emissions of 60 percent to 80 percent by 2050, an aggressive target that is in line with recommendations from an international panel of scientists. But the group, which now has 33 members, has failed to reach consensus on a variety of issues, including how to allocate carbon permits and whether to include a price cap for carbon credits.
“They helped crystallize the concerns about climate,” said David G. Victor, the director of the energy and sustainable development program at Stanford University and an expert on climate policy who has been closely following the debates. “But the moment the coalition starts to focus on the details, it starts breaking apart. It’s a litmus test for the debate in the country.”
The sharpest battle lines have been drawn over the structure of a cap-and-trade system. This mostly centers on whether carbon allocations — or pollution permits, as some see them — should be granted to companies or auctioned off.
Under one proposal, Congress would give away about half the allowances to businesses like power plants and oil companies, but also to states and farmers, in order to give time for them to adapt to lower-carbon technologies. Over time, it would gradually sell the rest to the highest bidder, raising money for developing alternative energy sources.
The bill, sponsored by Senators Joseph I. Lieberman, an independent, and John W. Warner, a Republican, passed a crucial vote in a committee last December and will be debated on the Senate floor this week.
Under a similar emissions-trading system in Europe, carbon currently trades at around 26.45 euros a ton, or about $41. At that price, the value of the carbon credits would be about $220 billion in the first year alone.
The debate over who gets carbon credits is particularly intense in the power sector, which creates 40 percent of the nation’s carbon emissions.
Companies that rely on coal to generate power say that allowances should be free so that customers in the Midwest and the Great Plains, where coal is mostly used, are not disproportionately penalized. Coal accounts for half the nation’s power generation, and executives like Mr. Rogers of Duke say these customers should not have to bear the brunt of a national climate policy.
But not everyone wants to see allowances doled out free, especially among power producers that are less dependent on coal than Duke. Lewis Hay III, chairman of FPL Group, a Florida power company, says carbon emitters should have to pay for their emissions.
“There is just going to be a giant fight over the free allowances,” he said.
Oil companies are also unhappy with the Senate plan. Although the transportation sector represents around 35 percent of the nation’s carbon emissions, oil companies and refiners — which fuel that sector — would be granted just 4 percent of total allowances. That would force them to buy carbon credits, which would drive up the price of gasoline and diesel fuels.
At a time of sharply rising prices, oil executives say this is not the best way to reduce carbon emissions. Better, they argue, to raise fuel efficiency requirements directly or set up a low-carbon fuel standard.
The other big fight splitting corporations and environmental groups is whether to set a maximum price on carbon credits.
Many environmental groups oppose this, fearing it might jeopardize the ultimate goal, which is to reduce emissions. They say that if the price is artificially kept too low, companies would have fewer incentives to cut emissions.
But business groups say a ceiling would keep prices from skyrocketing. Some fear that higher energy costs would reduce companies’ ability to compete globally and could drive jobs to countries that do not limit carbon. John Engler, president of the National Association of Manufacturers, said the climate bill amounted to “economic disarmament.”
As the fight escalates, trade groups are planning ad campaigns to make their case against a climate policy. One ad, produced by the United States Chamber of Commerce, shows a man cooking breakfast over candles in a cold, darkened house, then jogging to work on empty highways, asking: “Is it really how Americans want to live?”
Setting a price for carbon will raise energy costs throughout the economy, experts said. The Environmental Protection Agency estimated recently that a cap-and-trade bill could reduce gross domestic product by 0.9 percent to 3.8 percent by 2050.
“The reality is that cutting emissions is going to cost money,” said Peter C. Fusaro, chairman of Global Change Associates, an energy and environmental consulting firm.
Tuesday, June 3, 2008
Troubled Oceans - 053108 NY Times
http://www.nytimes.com/2008/05/31/opinion/31sat1.html?pagewanted=print
May 31, 2008
Editorial
Troubled Oceans
Five years have elapsed since the Pew Oceans Commission’s seminal report urging prompt action to arrest the alarming decline of this country’s ocean resources. Four years have elapsed since a blue-ribbon presidential commission said much the same thing, urging special attention to problems like overfishing and the deterioration of coastal wetlands and estuaries. Despite an occasional burst of energy, however, the Bush administration and Congress have left much to be done. And time is running out.
As is true with many environmental issues — climate change comes immediately to mind — the states have done a better job. New York, New Jersey and Massachusetts have either passed legislation or established a regulatory structure to better manage their coastal waters (states control the first three miles, the federal government controls the rest until international waters begin 200 miles offshore). California, always at the leading edge, has begun setting up a network of fully protected zones where fish can flourish with minimal commercial intrusion.
These actions show that progress is possible and challenge the White House and Congress to do better.
President Bush has expressed interest in leaving a positive “blue legacy.” Last year, he created one of the biggest protected marine reserves in the world — 138,000 square miles of largely unspoiled reefs and shoals near Hawaii. He should create at least one and possibly more such reserves elsewhere in American waters before he leaves office — and should persuade other world leaders to do the same.
The president must also give teeth to the Magnuson-Stevens Act, the basic law governing fishing in federal waters. Congress reauthorized and strengthened the law in 2006, establishing more ambitious timetables for rebuilding depleted fish species and giving scientists greater say over how many fish can be taken from the sea. Everything depends on whether the National Marine Fisheries Service buttresses good law with strong rules and does not let the commercial fisherman hijack the process.
For its part, Congress must give ocean issues greater priority, in part by reorganizing the way the federal government deals with them. America’s waters are managed under 140 different laws spread across 20 different government agencies. A bill known as Oceans 21 seeks to bring order out of chaos and give ocean protection the prominence it deserves. The bill is slowly gaining traction in the House but could use a strong push from Senate Democrats and the White House.
Many experts believe that the biggest long-term threat to the oceans may be global warming, which could disrupt ocean chemistry in ways that cause havoc with the food chain. The science on this issue is still unclear, however, and in any case, global warming is best addressed in broad legislation like the climate change bill now before the Senate. In the meantime, there is much that Washington can do to strengthen the resilience of the ocean and its inhabitants so they can withstand whatever stresses the future may bring.
May 31, 2008
Editorial
Troubled Oceans
Five years have elapsed since the Pew Oceans Commission’s seminal report urging prompt action to arrest the alarming decline of this country’s ocean resources. Four years have elapsed since a blue-ribbon presidential commission said much the same thing, urging special attention to problems like overfishing and the deterioration of coastal wetlands and estuaries. Despite an occasional burst of energy, however, the Bush administration and Congress have left much to be done. And time is running out.
As is true with many environmental issues — climate change comes immediately to mind — the states have done a better job. New York, New Jersey and Massachusetts have either passed legislation or established a regulatory structure to better manage their coastal waters (states control the first three miles, the federal government controls the rest until international waters begin 200 miles offshore). California, always at the leading edge, has begun setting up a network of fully protected zones where fish can flourish with minimal commercial intrusion.
These actions show that progress is possible and challenge the White House and Congress to do better.
President Bush has expressed interest in leaving a positive “blue legacy.” Last year, he created one of the biggest protected marine reserves in the world — 138,000 square miles of largely unspoiled reefs and shoals near Hawaii. He should create at least one and possibly more such reserves elsewhere in American waters before he leaves office — and should persuade other world leaders to do the same.
The president must also give teeth to the Magnuson-Stevens Act, the basic law governing fishing in federal waters. Congress reauthorized and strengthened the law in 2006, establishing more ambitious timetables for rebuilding depleted fish species and giving scientists greater say over how many fish can be taken from the sea. Everything depends on whether the National Marine Fisheries Service buttresses good law with strong rules and does not let the commercial fisherman hijack the process.
For its part, Congress must give ocean issues greater priority, in part by reorganizing the way the federal government deals with them. America’s waters are managed under 140 different laws spread across 20 different government agencies. A bill known as Oceans 21 seeks to bring order out of chaos and give ocean protection the prominence it deserves. The bill is slowly gaining traction in the House but could use a strong push from Senate Democrats and the White House.
Many experts believe that the biggest long-term threat to the oceans may be global warming, which could disrupt ocean chemistry in ways that cause havoc with the food chain. The science on this issue is still unclear, however, and in any case, global warming is best addressed in broad legislation like the climate change bill now before the Senate. In the meantime, there is much that Washington can do to strengthen the resilience of the ocean and its inhabitants so they can withstand whatever stresses the future may bring.
Hotels Struggle to Find the Right Eco-Message - 060308 NY Times
Just too ironic. RK
http://www.nytimes.com/2008/06/03/business/03road.html?pagewanted=print
June 3, 2008
On the Road
Hotels Struggle to Find the Right Eco-Message
By JOE SHARKEY
MARCO ISLAND, Fla.
I woke up in the middle of the night in a big hotel overlooking the beach and the Gulf of Mexico. My red message light was flashing.
Oh, no, I thought. Somebody had needed to reach me urgently, and I hadn’t heard the phone. I turned on the light, groped for the phone and tapped at the message button.
A recorded female voice said: “Good evening and welcome to the Marco Island Marriott Beach Resort. As a friendly reminder, it is turtle season in Southwest Florida.”
What? The message went on to say that baby sea turtles were hatching on the beach. “Please assist in the preservation of these hatchlings by closing your blackout curtains by 9 p.m.”
Blackout curtains? Before going to bed around midnight, I had turned off the lights and the air conditioner, and propped open my balcony door with a chair to let in the sea breeze — a good thing, right? But I hadn’t seen any light on the phone or heard anything before this about blackout curtains and hatchlings.
Sure, I wanted to save the little baby sea turtles! But it was 3 o’clock in the morning. I didn’t know what to do except go back to sleep.
The hotel experience, as all business travelers know, has become partly a lecture hall experience about saving the planet. Green marketing is big, especially in hotels, many of which have deftly combined real environmental concerns (more efficient energy use, a better awareness of one’s footprint in environmentally fragile areas) with clever marketing.
Here, the save the sea turtle campaign is accompanied by a promotional offer that the hotel calls its “Fertile Turtle Package aimed at couples looking to conceive” so that “lovebirds have the opportunity to watch the sea turtles hatch.”
Hotels that care about the environment often have a delicate balancing act. They want to offer guests the opportunity to stay, without guilt, in a pristine environment. Yet their very existence there is an intrusion. So a good option is to leave the message that drawing your room curtain helps keep the baby turtles from getting disoriented by artificial light on their fledgling crawl to the sea.
Who, then, would be so churlish as to point out that turtle protocols are actually enforced by law? Several hotels in nearby Naples, for example, were cited last year for violations that included failure to shield the beach from the glow of their lights during sea turtle nesting season, from May through October.
Whatever works, I say. In travel, where the footprint is often literal, every step toward sharper environmental awareness is important. And the hotel industry knows that guests are increasingly aware of that.
Last fall, Deloitte & Touche USA did a study of “green” attitudes by travelers and found that 41 percent said they actively consider environmental issues when choosing a hotel. Of those, 13 percent said they looked into a hotel’s environmental policies before booking.
“More and more business travelers, and especially the younger ones, are discussing these things,” said Adam F. Weissenberg, who heads the Deloitte USA hospitality division. “This is not a passing fad. And for the younger generation, this is huge stuff.”
Smart hotels are working out sensible approaches. Better communication between guest, management and employee, it seems to me, is a good way to start.
For example, no business traveler I know thinks that changing bed sheets every day is a necessary amenity. And most of us see no need to expend all that energy on laundering all those towels every day. But we and the industry have not yet worked out signals to indicate what we want.
After a short stay on Marco Island, I headed up the coast to Cape Coral, where I stayed at a Hampton Inn, a midprice Hilton brand. On the bed was a door hanger notice that solved one small communications problem simply: how to signal to guests that the hotel is happy to change the sheets every night, and how guests can clearly signal to the housekeeper that there really is no need today, thank you.
“If you would like your linens changed, place this hanger on your bathroom door and housekeeping will be sure to honor your request,” it said.
E-mail: jsharkey@nytimes.com
http://www.nytimes.com/2008/06/03/business/03road.html?pagewanted=print
June 3, 2008
On the Road
Hotels Struggle to Find the Right Eco-Message
By JOE SHARKEY
MARCO ISLAND, Fla.
I woke up in the middle of the night in a big hotel overlooking the beach and the Gulf of Mexico. My red message light was flashing.
Oh, no, I thought. Somebody had needed to reach me urgently, and I hadn’t heard the phone. I turned on the light, groped for the phone and tapped at the message button.
A recorded female voice said: “Good evening and welcome to the Marco Island Marriott Beach Resort. As a friendly reminder, it is turtle season in Southwest Florida.”
What? The message went on to say that baby sea turtles were hatching on the beach. “Please assist in the preservation of these hatchlings by closing your blackout curtains by 9 p.m.”
Blackout curtains? Before going to bed around midnight, I had turned off the lights and the air conditioner, and propped open my balcony door with a chair to let in the sea breeze — a good thing, right? But I hadn’t seen any light on the phone or heard anything before this about blackout curtains and hatchlings.
Sure, I wanted to save the little baby sea turtles! But it was 3 o’clock in the morning. I didn’t know what to do except go back to sleep.
The hotel experience, as all business travelers know, has become partly a lecture hall experience about saving the planet. Green marketing is big, especially in hotels, many of which have deftly combined real environmental concerns (more efficient energy use, a better awareness of one’s footprint in environmentally fragile areas) with clever marketing.
Here, the save the sea turtle campaign is accompanied by a promotional offer that the hotel calls its “Fertile Turtle Package aimed at couples looking to conceive” so that “lovebirds have the opportunity to watch the sea turtles hatch.”
Hotels that care about the environment often have a delicate balancing act. They want to offer guests the opportunity to stay, without guilt, in a pristine environment. Yet their very existence there is an intrusion. So a good option is to leave the message that drawing your room curtain helps keep the baby turtles from getting disoriented by artificial light on their fledgling crawl to the sea.
Who, then, would be so churlish as to point out that turtle protocols are actually enforced by law? Several hotels in nearby Naples, for example, were cited last year for violations that included failure to shield the beach from the glow of their lights during sea turtle nesting season, from May through October.
Whatever works, I say. In travel, where the footprint is often literal, every step toward sharper environmental awareness is important. And the hotel industry knows that guests are increasingly aware of that.
Last fall, Deloitte & Touche USA did a study of “green” attitudes by travelers and found that 41 percent said they actively consider environmental issues when choosing a hotel. Of those, 13 percent said they looked into a hotel’s environmental policies before booking.
“More and more business travelers, and especially the younger ones, are discussing these things,” said Adam F. Weissenberg, who heads the Deloitte USA hospitality division. “This is not a passing fad. And for the younger generation, this is huge stuff.”
Smart hotels are working out sensible approaches. Better communication between guest, management and employee, it seems to me, is a good way to start.
For example, no business traveler I know thinks that changing bed sheets every day is a necessary amenity. And most of us see no need to expend all that energy on laundering all those towels every day. But we and the industry have not yet worked out signals to indicate what we want.
After a short stay on Marco Island, I headed up the coast to Cape Coral, where I stayed at a Hampton Inn, a midprice Hilton brand. On the bed was a door hanger notice that solved one small communications problem simply: how to signal to guests that the hotel is happy to change the sheets every night, and how guests can clearly signal to the housekeeper that there really is no need today, thank you.
“If you would like your linens changed, place this hanger on your bathroom door and housekeeping will be sure to honor your request,” it said.
E-mail: jsharkey@nytimes.com
Downgrade of 3 Banks Revives Credit Fears - 060308 NY Times
http://www.nytimes.com/2008/06/03/business/03stox.html?pagewanted=print
June 3, 2008
Downgrade of 3 Banks Revives Credit Fears
By MICHAEL M. GRYNBAUM
Stocks markets dropped on Monday after three of Wall Street’s biggest banks were hit with a harsh ratings downgrade, sending the Dow Jones industrials down 134 points and leaving some investors worried about additional losses.
Shares of Lehman Brothers, Merrill Lynch and Morgan Stanley — marquee names in the investment banking world — sank after a major ratings agency, Standard & Poor’s, said it had lost some confidence in the banks’ ability to meet financial obligations.
Lehman shares fell 8.1 percent, Merrill dropped 3 percent, and Morgan Stanley declined 2.6 percent. Other banks, along with lenders and financial services firms, watched their stocks fall in tandem, dragging the Standard & Poor’s 500-stock index down about 1 percent for the day.
The discouraging news twinned with a shake-up at another bank, Wachovia, which ousted its chief executive, G. Kennedy Thompson, after a string of losses on mortgage-related assets. Wachovia’s stock dipped 1.7 percent, to $23.40.
Some analysts, though, said that they had been hearing about credit woes at investment banks for months.
“There are a number of investors out there who say, ‘Look, what did we just learn that we didn’t know before?’ ” said Brian Gendreau, a strategist at ING Investment Management in New York. “The fact that the market only went down 134 points suggests to me that a lot of the bad news was already anticipated.”
Russ Koesterich, who heads investment strategy at Barclays Global Investors in San Francisco, put it bluntly: “The reality was, there was no new news” on Monday.
But, he acknowledged, the developments revived fears that the tight credit market, which has led to the virtual collapse of billions of dollars of assets, would continue to bedevil banks.
The S.& P. report cited a fragile outlook for financial markets as a cause for the ratings downgrade.
“Write-downs will likely continue to depress earnings,” the report said. S.& P. also said that banks had not sufficiently calculated the risk of some of their investments and that it expected banking revenues to decline.
In addition, the ratings agency imposed negative outlooks onto two other investment firms, Bank of America and JPMorgan Chase. Shares of JPMorgan dropped 2 percent, and Bank of America declined 1.3 percent.
The S.& P. 500 index closed at 1,385.67, down 14.7 points. The Dow settled at 12,503.82, down 1.1 percent, and the Nasdaq composite index fell 1.2 percent, to 2,491.53.
Crude oil prices rose to $127.76, up 41 cents, while the euro fell against the dollar. The benchmark 10-year Treasury note rose 26/32, to 99 10/32. Its yield, which moves in the opposite direction, fell to 3.96 percent, from 4.06 percent.
Following are the results of Monday’s Treasury auction of three- and six-month bills:
June 3, 2008
Downgrade of 3 Banks Revives Credit Fears
By MICHAEL M. GRYNBAUM
Stocks markets dropped on Monday after three of Wall Street’s biggest banks were hit with a harsh ratings downgrade, sending the Dow Jones industrials down 134 points and leaving some investors worried about additional losses.
Shares of Lehman Brothers, Merrill Lynch and Morgan Stanley — marquee names in the investment banking world — sank after a major ratings agency, Standard & Poor’s, said it had lost some confidence in the banks’ ability to meet financial obligations.
Lehman shares fell 8.1 percent, Merrill dropped 3 percent, and Morgan Stanley declined 2.6 percent. Other banks, along with lenders and financial services firms, watched their stocks fall in tandem, dragging the Standard & Poor’s 500-stock index down about 1 percent for the day.
The discouraging news twinned with a shake-up at another bank, Wachovia, which ousted its chief executive, G. Kennedy Thompson, after a string of losses on mortgage-related assets. Wachovia’s stock dipped 1.7 percent, to $23.40.
Some analysts, though, said that they had been hearing about credit woes at investment banks for months.
“There are a number of investors out there who say, ‘Look, what did we just learn that we didn’t know before?’ ” said Brian Gendreau, a strategist at ING Investment Management in New York. “The fact that the market only went down 134 points suggests to me that a lot of the bad news was already anticipated.”
Russ Koesterich, who heads investment strategy at Barclays Global Investors in San Francisco, put it bluntly: “The reality was, there was no new news” on Monday.
But, he acknowledged, the developments revived fears that the tight credit market, which has led to the virtual collapse of billions of dollars of assets, would continue to bedevil banks.
The S.& P. report cited a fragile outlook for financial markets as a cause for the ratings downgrade.
“Write-downs will likely continue to depress earnings,” the report said. S.& P. also said that banks had not sufficiently calculated the risk of some of their investments and that it expected banking revenues to decline.
In addition, the ratings agency imposed negative outlooks onto two other investment firms, Bank of America and JPMorgan Chase. Shares of JPMorgan dropped 2 percent, and Bank of America declined 1.3 percent.
The S.& P. 500 index closed at 1,385.67, down 14.7 points. The Dow settled at 12,503.82, down 1.1 percent, and the Nasdaq composite index fell 1.2 percent, to 2,491.53.
Crude oil prices rose to $127.76, up 41 cents, while the euro fell against the dollar. The benchmark 10-year Treasury note rose 26/32, to 99 10/32. Its yield, which moves in the opposite direction, fell to 3.96 percent, from 4.06 percent.
Following are the results of Monday’s Treasury auction of three- and six-month bills:
U.S. Manufacturing Slips as Inflation Gauge Surges - 060308
http://www.nytimes.com/2008/06/03/business/03econ.html?pagewanted=print
June 3, 2008
U.S. Manufacturing Slips as Inflation Gauge Surges
By REUTERS
United States manufacturing declined in May for the fourth consecutive month while inflation surged to the highest in four years, heightening fears of stagflation.
Combined with data on inflation, the manufacturing report fed concerns about rising prices in a weak economy, especially after the price of oil hit a record high last month above $135 a barrel.
The Institute for Supply Management said its index of national factory activity rose to 49.6 in May, from April’s 48.6. That was slightly above market expectations, but the index remained below the level of 50 that signals contraction.
“These are mildly contractionary readings on manufacturing activity, rather than outright recession signals, although they are accompanied by ugly readings on cost inflation pressures,” analysts at Bear Stearns said in a note to clients.
The institute report showed a worrying trend for inflation in the United States. Its index of prices paid jumped to 87.0 — the highest since April 2004 — from 84.5 in April.
This year’s manufacturing downturn is the worst since the February-to-June period in 2003, and comes as the deepest housing slump since the Depression has weakened the broader economy.
A separate report showed that construction spending fell less than expected in April. This added weight to the argument that the economy is weak but may not be in recession.
The contraction in the May supply management index was the fifth in six months, but the weak dollar has bolstered exports, helping to ease damage to the factory sector.
The index of new export orders rose to 59.5, up from April’s 57.5 and the highest since May 2004, when it was at 60.0.
Construction spending fell 0.4 percent in April on continued deterioration in the residential sector, but outside of home building, private spending rose for the third month in a row.
Economists polled by Reuters ahead of the Commerce Department’s report were expecting a 0.6 percent decrease in construction spending, after a 0.6 percent decrease in March that was first reported as a much bigger 1.1 percent decline.
The factory sector also struggled abroad. Manufacturing in the euro zone cooled more in May as output remained near a three-year low.
The RBS/NTC Eurozone Purchasing Managers Index for the manufacturing sector eased to 50.6 in May, down from April’s 50.7 but above the earlier estimate of 50.5, which was also the median number forecast by economists.
June 3, 2008
U.S. Manufacturing Slips as Inflation Gauge Surges
By REUTERS
United States manufacturing declined in May for the fourth consecutive month while inflation surged to the highest in four years, heightening fears of stagflation.
Combined with data on inflation, the manufacturing report fed concerns about rising prices in a weak economy, especially after the price of oil hit a record high last month above $135 a barrel.
The Institute for Supply Management said its index of national factory activity rose to 49.6 in May, from April’s 48.6. That was slightly above market expectations, but the index remained below the level of 50 that signals contraction.
“These are mildly contractionary readings on manufacturing activity, rather than outright recession signals, although they are accompanied by ugly readings on cost inflation pressures,” analysts at Bear Stearns said in a note to clients.
The institute report showed a worrying trend for inflation in the United States. Its index of prices paid jumped to 87.0 — the highest since April 2004 — from 84.5 in April.
This year’s manufacturing downturn is the worst since the February-to-June period in 2003, and comes as the deepest housing slump since the Depression has weakened the broader economy.
A separate report showed that construction spending fell less than expected in April. This added weight to the argument that the economy is weak but may not be in recession.
The contraction in the May supply management index was the fifth in six months, but the weak dollar has bolstered exports, helping to ease damage to the factory sector.
The index of new export orders rose to 59.5, up from April’s 57.5 and the highest since May 2004, when it was at 60.0.
Construction spending fell 0.4 percent in April on continued deterioration in the residential sector, but outside of home building, private spending rose for the third month in a row.
Economists polled by Reuters ahead of the Commerce Department’s report were expecting a 0.6 percent decrease in construction spending, after a 0.6 percent decrease in March that was first reported as a much bigger 1.1 percent decline.
The factory sector also struggled abroad. Manufacturing in the euro zone cooled more in May as output remained near a three-year low.
The RBS/NTC Eurozone Purchasing Managers Index for the manufacturing sector eased to 50.6 in May, down from April’s 50.7 but above the earlier estimate of 50.5, which was also the median number forecast by economists.
In Mideast, Paulson Offers Reassurances on Dollar - 060308 NY Times
http://www.nytimes.com/2008/06/03/business/03treasury.html?pagewanted=print
June 3, 2008
In Mideast, Paulson Offers Reassurances on Dollar
By REUTERS
ABU DHABI (Reuters) — Treasury Secretary Henry M. Paulson Jr. defended the dollar’s status as the world’s reserve currency and said on Monday that its recent decline was only a small factor behind a surge in oil prices.
“The U.S. dollar has been the world’s reserve currency since World War II and there is a good reason for that,” Mr. Paulson told a business group in the United Arab Emirates.
“The United States has the largest, most open economy in the world, and our capital markets are the deepest and most liquid.”
His comments marked a slight strengthening of his recent language on the dollar and could resonate with gulf oil producing states that are struggling with soaring inflation and might be re-evaluating their dollar currency pegs.
Mr. Paulson is on the final day of a four-day tour to Saudi Arabia, Qatar and the United Arab Emirates to discuss currency and economic issues with regional leaders and reassure them that the United States remains receptive to their investments.
In his remarks, he pledged to deal with problems in the American economy that have hurt the dollar’s value. “I am committed to promoting policies that enhance the underlying competitiveness of the U.S. economy and ensure that the dollar remains the world’s reserve currency,” he said.
He said these include advocating open investment and trade and working to stave off a recession and return capital markets to health. He said the dollar’s value would ultimately be reflected in strong long-term fundamentals, which “compare favorably to any advanced economy in the world.”
Mr. Paulson said speculation and dollar weakness were not to blame for soaring oil prices and the only way to relieve oil market pressure was to better balance supply and demand.
He called for more international investment in both oil production and alternative fuels, while “market distorting” fuel-price subsidies in many countries should be abandoned.
Mr. Paulson also said opening up the gulf economies to foreign investment and trade would make them more prosperous and stable.
“Remaining closed to investment will have the opposite effect, by inhibiting growth and magnifying domestic economic vulnerabilities,” he said.
June 3, 2008
In Mideast, Paulson Offers Reassurances on Dollar
By REUTERS
ABU DHABI (Reuters) — Treasury Secretary Henry M. Paulson Jr. defended the dollar’s status as the world’s reserve currency and said on Monday that its recent decline was only a small factor behind a surge in oil prices.
“The U.S. dollar has been the world’s reserve currency since World War II and there is a good reason for that,” Mr. Paulson told a business group in the United Arab Emirates.
“The United States has the largest, most open economy in the world, and our capital markets are the deepest and most liquid.”
His comments marked a slight strengthening of his recent language on the dollar and could resonate with gulf oil producing states that are struggling with soaring inflation and might be re-evaluating their dollar currency pegs.
Mr. Paulson is on the final day of a four-day tour to Saudi Arabia, Qatar and the United Arab Emirates to discuss currency and economic issues with regional leaders and reassure them that the United States remains receptive to their investments.
In his remarks, he pledged to deal with problems in the American economy that have hurt the dollar’s value. “I am committed to promoting policies that enhance the underlying competitiveness of the U.S. economy and ensure that the dollar remains the world’s reserve currency,” he said.
He said these include advocating open investment and trade and working to stave off a recession and return capital markets to health. He said the dollar’s value would ultimately be reflected in strong long-term fundamentals, which “compare favorably to any advanced economy in the world.”
Mr. Paulson said speculation and dollar weakness were not to blame for soaring oil prices and the only way to relieve oil market pressure was to better balance supply and demand.
He called for more international investment in both oil production and alternative fuels, while “market distorting” fuel-price subsidies in many countries should be abandoned.
Mr. Paulson also said opening up the gulf economies to foreign investment and trade would make them more prosperous and stable.
“Remaining closed to investment will have the opposite effect, by inhibiting growth and magnifying domestic economic vulnerabilities,” he said.
Commodity Regulation to Toughen - NY Times 060308
http://www.nytimes.com/2008/06/03/business/03cftc.html?pagewanted=print
June 3, 2008
Commodity Regulation to Toughen
By DIANA B. HENRIQUES, NY Times
Regulators of the nation’s commodity markets will demand more information about investors to determine whether they are evading market limits on speculation and artificially driving up world food prices.
The regulatory agency, the Commodity Futures Trading Commission, also plans to initiate talks with bank regulators to ensure that adequate credit is available for the farm economy.
In addition, the commission intends to strengthen a program aimed at lowering the cost for farmers of hedging crop prices, which has grown more expensive with the increasing volatility in the markets, according to a draft of the proposals obtained by The New York Times. The commission is expected to announce the proposals Tuesday.
Finally, in an unusual departure from the secrecy that usually cloaks its enforcement actions, the commission will confirm that it is investigating the price spike that hit the cotton futures market in late February, a step demanded by cotton industry executives at a commission hearing on April 22.
The commodity futures markets play a key role in establishing worldwide prices for wheat, corn, soybeans and other foodstuffs, as well as energy products like crude oil and natural gas.
But in recent years, these markets have also become an attractive haven for investors seeking both profits from rising prices and protection against inflation and a withering dollar. As a result, billions of dollars have poured into the commodity futures market — from pension funds, endowments and a host of other institutional investors — through the new conduit of commodity index funds.
Billions more have come in from investment banks that are hedging the risk of complex bets, called swaps, that these same investors have made in the unregulated international swaps market, which dwarfs the regulated markets supervised by the C.F.T.C.
The commission has come under fire, most recently at a hearing on May 20 before the Senate Committee on Homeland Security and Governmental Affairs, for not doing enough to monitor the impact of these investors on markets that have such influence on family budgets nationwide.
The proposals are being presented as an initial, but not final, response to those concerns, which echoed complaints made at a C.F.T.C. hearing in April by farm industry officials. They believe this flood of new money from swaps and index funds is undermining confidence in the market’s role in setting prices and managing risk.
“The commission recognizes that — although no single solution exists — there are several steps it can take to improve oversight of the futures markets and bring greater transparency and scrutiny to the types of traders in the marketplace,” according to a draft statement introducing the plan.
Specifically, the commission will start requiring more information about index funds and, more significantly, about the clients on the other side of the unregulated swaps deals that are being hedged on the regulated futures exchanges.
The swaps market has traditionally be seen as off limits for federal commodity regulators, but the commission clearly is responding to Congressional concern that investors may be using swaps dealers to evade rules that limit the size of their speculative role in regulated markets.
Besides collecting more information about these new players, the commission is revising its monthly trading reports, starting in July, to present the expanded data in a way that will be clearer and more comprehensible to the public.
The commission is also putting the brakes on granting waivers that have exempted some commodity index funds from speculative limits, and is formally dropping proposed rule changes that would have extended a blanket exemption to all index funds.
In recent years, more than a dozen commodity index fund companies have been granted individual waivers, after successfully arguing that they were using the futures markets exclusively to hedge their obligations to the people who have invested in their index funds. But the commission now intends to “be cautious and guarded before granting additional exemptions in the area,” according to the draft proposal.
The proposal also outlines the commission’s plan to coordinate with the Farm Credit Administration and banking authorities, including the Federal Reserve Banks in Chicago and Kansas City, Mo., to help insure a reliable supply of credit to the farm economy.
Bank regulators testified at the commission hearing in April that farm-belt banks were financially sound and could handle the credit demands of farmers and grain elevators trying to meet margin calls on their hedged positions in the futures markets.
But the commissioners are apparently not satisfied that this ability to lend is being matched by a willingness to lend and are trying to head off a credit crisis that could wipe out farmers and grain elevators before they can profit from higher crop prices at harvest.
The proposals also include steps to strengthen an existing alternative to futures contracts — an over-the-counter product called agricultural trade options that farmers grain-elevator operators could use to hedge crop prices. The existing product has not gained acceptance as a hedging tool, and the commission is directing its staff to find ways to make it more useful to hedgers and more visible to regulators.
Today’s initiative comes less than a week after the commission announced steps to expand its information and oversight of energy traders in the futures markets, and confirmed that it has been investigating possible manipulation of energy futures prices for six months.
June 3, 2008
Commodity Regulation to Toughen
By DIANA B. HENRIQUES, NY Times
Regulators of the nation’s commodity markets will demand more information about investors to determine whether they are evading market limits on speculation and artificially driving up world food prices.
The regulatory agency, the Commodity Futures Trading Commission, also plans to initiate talks with bank regulators to ensure that adequate credit is available for the farm economy.
In addition, the commission intends to strengthen a program aimed at lowering the cost for farmers of hedging crop prices, which has grown more expensive with the increasing volatility in the markets, according to a draft of the proposals obtained by The New York Times. The commission is expected to announce the proposals Tuesday.
Finally, in an unusual departure from the secrecy that usually cloaks its enforcement actions, the commission will confirm that it is investigating the price spike that hit the cotton futures market in late February, a step demanded by cotton industry executives at a commission hearing on April 22.
The commodity futures markets play a key role in establishing worldwide prices for wheat, corn, soybeans and other foodstuffs, as well as energy products like crude oil and natural gas.
But in recent years, these markets have also become an attractive haven for investors seeking both profits from rising prices and protection against inflation and a withering dollar. As a result, billions of dollars have poured into the commodity futures market — from pension funds, endowments and a host of other institutional investors — through the new conduit of commodity index funds.
Billions more have come in from investment banks that are hedging the risk of complex bets, called swaps, that these same investors have made in the unregulated international swaps market, which dwarfs the regulated markets supervised by the C.F.T.C.
The commission has come under fire, most recently at a hearing on May 20 before the Senate Committee on Homeland Security and Governmental Affairs, for not doing enough to monitor the impact of these investors on markets that have such influence on family budgets nationwide.
The proposals are being presented as an initial, but not final, response to those concerns, which echoed complaints made at a C.F.T.C. hearing in April by farm industry officials. They believe this flood of new money from swaps and index funds is undermining confidence in the market’s role in setting prices and managing risk.
“The commission recognizes that — although no single solution exists — there are several steps it can take to improve oversight of the futures markets and bring greater transparency and scrutiny to the types of traders in the marketplace,” according to a draft statement introducing the plan.
Specifically, the commission will start requiring more information about index funds and, more significantly, about the clients on the other side of the unregulated swaps deals that are being hedged on the regulated futures exchanges.
The swaps market has traditionally be seen as off limits for federal commodity regulators, but the commission clearly is responding to Congressional concern that investors may be using swaps dealers to evade rules that limit the size of their speculative role in regulated markets.
Besides collecting more information about these new players, the commission is revising its monthly trading reports, starting in July, to present the expanded data in a way that will be clearer and more comprehensible to the public.
The commission is also putting the brakes on granting waivers that have exempted some commodity index funds from speculative limits, and is formally dropping proposed rule changes that would have extended a blanket exemption to all index funds.
In recent years, more than a dozen commodity index fund companies have been granted individual waivers, after successfully arguing that they were using the futures markets exclusively to hedge their obligations to the people who have invested in their index funds. But the commission now intends to “be cautious and guarded before granting additional exemptions in the area,” according to the draft proposal.
The proposal also outlines the commission’s plan to coordinate with the Farm Credit Administration and banking authorities, including the Federal Reserve Banks in Chicago and Kansas City, Mo., to help insure a reliable supply of credit to the farm economy.
Bank regulators testified at the commission hearing in April that farm-belt banks were financially sound and could handle the credit demands of farmers and grain elevators trying to meet margin calls on their hedged positions in the futures markets.
But the commissioners are apparently not satisfied that this ability to lend is being matched by a willingness to lend and are trying to head off a credit crisis that could wipe out farmers and grain elevators before they can profit from higher crop prices at harvest.
The proposals also include steps to strengthen an existing alternative to futures contracts — an over-the-counter product called agricultural trade options that farmers grain-elevator operators could use to hedge crop prices. The existing product has not gained acceptance as a hedging tool, and the commission is directing its staff to find ways to make it more useful to hedgers and more visible to regulators.
Today’s initiative comes less than a week after the commission announced steps to expand its information and oversight of energy traders in the futures markets, and confirmed that it has been investigating possible manipulation of energy futures prices for six months.
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