Is International Accounting In Our Future?

Accountants: start learning a new set of rules! The Securities and Exchange Commission is moving toward using International Accounting Standards rather than U.S. GAAP.


On the front page of yesterday's (August 28, 2008) Wall Street Journal, Kara Scannell and Joanna Slater reported that the SEC has started the ball rolling to move publicly traded U.S. companies from GAAP to international standards.


They explained the timetable "The SEC's proposal would allow some large multinational companies to report earnings according to international accounting beginning in 2010. The SEC estimates at least 110 U.S. companies would qualify based on their market capitalization, among other factors. The agency also laid out a road map by which all U.S. companies would switch to International Financial Reporting Standards, or IFRS, beginning in 2014, at the expense of U.S. Generally Accepted Accounting Principles, the guiding light of accountants for decades."

Treasuries Fall After Auction, Faster-Than-Forecast GDP Growth

Treasuries Fall After Auction, Faster-Than-Forecast GDP Growth

By Dakin Campbell

Aug. 28 (Bloomberg) -- Treasuries fell after the U.S. sold $22 billion of debt and a government report showed gross domestic product grew faster than forecast, fueling speculation the Federal Reserve will raise interest rates.

U.S. government debt declined as the Standard & Poor's 500 Financials Index rose 3%, easing demand for the relative safety of the Treasury-backed debt. Traders reduced bets the Fed will remain on hold through the first quarter of next year.

``Today's data confirms our belief that bond yields are headed higher,'' said Ajay Rajadhyaksha, the head of fixed- income strategy at Barclays Capital in New York, one of 19 primary dealers that trade with the central bank. ``If you think about what the Fed seems to be banking on, it is that inflation will start moderating because the economy is weakening. The chances of that happening seem less likely.''

The yield on the five-year note rose 4 basis points, or 0.04 percentage point, to 3.05 percent at 2:17 p.m. in New York, after the government sold $22 billion of the maturity, according to BGCantor Market Data. The 3.375 percent security due in July 2013 fell 5/32, or $1.56 per $1,000 face amount, to 101 15/32. The yield on the two-year note advanced 3 basis points to 2.37 percent. Ten-year note yields were little changed at 3.78 percent.

The government's auction of five-year Treasury notes, the biggest sale of the maturity in more than five years, drew a yield of 3.129 percent, the lowest since March. The yield was higher than the 3.110 percent average forecast in a Bloomberg News survey of 10 bond-trading firms.

Weaker-Demand Signal

The bid-to-cover ratio, which gauges demand by comparing the number of bids with the amount of securities sold, fell to 2.14 from 2.46 at the last five-year auction, indicating weaker demand. Indirect bidders, a class of investors that includes foreign central banks, bought 29.8 percent of the amount sold, compared with an average of 25.2 percent this year.

The government sold a record $32 billion of two-year debt yesterday, drawing bids for 2.18 times the amount on offer.

``Today's results were weaker than the results of the two- year, which indicates some erosion in sentiment toward Treasuries between yesterday and today,'' said Tony Crescenzi, chief bond strategist at Miller Tabak & Co. in New York.

Futures contracts on the Chicago Board of Trade show a 32 percent chance the Fed will hold its 2 percent target rate for overnight lending between banks by at least a quarter-percentage point unchanged through the first quarter next year, down from 36 percent yesterday. Policy makers next meet Sept. 16.

`Grain of Salt'

Treasuries have returned 1.5 percent this month the largest one-month increase since January, according to Merrill Lynch & Co.'s U.S. Treasury Master Index. The gain came as the economy has shown signs of further softening and credit market turmoil. Yields on the 10-year note have fallen from a high of 4.17 percent reached on July 23, and are near a three-and-a-half month low.

The increase in yields today ``has to be taken with a grain of salt,'' said Francis Mustaro, who heads a group managing about $1 billion at J&W Seligman & Co. in New York. ``The trends are in place for stagnant growth and for improved inflation numbers.''

Mustaro said he expects lower yields and ``wouldn't be surprised'' if Treasuries declined 25 or 30 basis points in the coming months.

Gross domestic product increased at a revised annual rate of 3.3 percent in the second quarter, from an advance rate of 1.9 percent in the first quarter, the Commerce Department said today in Washington. The median forecast in a Bloomberg News survey of 78 economists was for a rise of 2.7 percent.

Initial jobless claims decreased to 425,000 in the week ended Aug. 23 from a revised 435,000 the prior week, the Labor Department said, matching the forecast in a Bloomberg survey.

German Bunds

The difference in yields between U.S. 10-year government notes and similar-maturity German bunds, a benchmark for European debt, was 39 basis points, after widening yesterday to 41, the most since Aug. 1. Bunds fell yesterday after European Central Bank policy makers Axel Weber and Lucas Papademos said rates may have to rise as the economy recovers.

Demand for U.S. Treasuries may be buoyed because money managers need bonds to match monthly changes in the benchmark indexes they use to gauge performance, said Tsutomu Komiya, an investor in Tokyo at Daiwa Asset Management Co., a unit of Japan's second-largest brokerage.

New securities are added to bond market indexes each month. The Treasury issued 10- and 30-year debt in August.

``Demand from investors will increase'' as August comes to a close, said Komiya, who helps oversee the equivalent of $88.7 billion. Prices may decline in September, he said.

Agency Debt

Investors also may show a greater interest in Treasuries as they reduce their holdings of agency debt, notes sold by Fannie Mae, Freddie Mac and the Federal Home Loan Banks. The Bank of China sold $4.6 billion of agency or agency mortgage-backed debt in July and August, according to a note to clients written by Andrew Brenner, co-head of structured products and emerging markets at MF Global Ltd. in New York, which cited the bank. MF Global is the world's largest broker of exchange-traded futures and options contracts.

Fannie Mae Chief Executive Daniel Mudd replaced three top deputies to restore investor confidence after record losses and a 90 percent drop in the shares, the Washington-based company said in a statement yesterday.

To contact the reporter on this story: Dakin Campbell in New York at dcampbell27@bloomberg.net

Last Updated: August 28, 2008 14:22 EDT

Starbucks

Dan Henniger talks about the impact of Starbucks:

Inflation fears steer ECB away from rate cuts

Inflation fears steer ECB away from rate cuts

August 27 2008: Ralph Atkins writes in Frankfurt for The Financial Times:

European Central Bank policymakers signalled fresh alarm over the outlook for eurozone inflation on Wednesday even as German data indicated that headline inflation rates had fallen from record highs.

Comments by ECB governing council members suggested cuts in interest rates were far from being considered by the bank, despite the abrupt slowdown in eurozone growth.

Axel Weber, Germany’s Bundesbank president, warned that another increase in borrowing costs might be necessary when growth recovered.

Reflecting lower energy costs, Germany’s annual inflation rate dropped from 3.5 per cent in July to 3.3 per cent in August on a European harmonised basis, the country’s statistical office reported.

Economists forecast that eurozone figures, released on Friday, would show inflation across the 15-country region had also fallen, perhaps to 3.9 per cent or 3.8 per cent from the record 4 per cent in July.

But eurozone inflation still remains significantly higher than the ECB’s goal of an annual rate “below but close to” 2 per cent.

Lucas Papademos, ECB vice-president, warned in a speech in Buenos Aires that labour cost growth had accelerated and that inflation was likely to remain above the ECB’s target “for a considerable period of time before declining only gradually in the course of 2009”.

The ECB’s fear is that high inflation rates will become entrenched through “second-round effects” with slower growth having little dampening effect. The emergence of a wage-price spiral would “require a stronger degree of monetary tightening in order to achieve price stability”, Mr Papademos warned.

Earlier Jürgen Stark, an ECB executive board member, told a German newspaper that second-round effects had become “broad-based”. Heightening the ECB’s concerns, IG Metall, Germany’s powerful engineering trade union, has indicated it could demand a wage increase of up to 8 per cent in forthcoming wage negotiations.

The ECB policymakers’ comments reinforced expectations that ECB interest rates would remain on hold at least until well into next year.

Unlike the US Federal Reserve – which has slashed US borrowing costs in the past year – the ECB sees its job as focused on controlling inflation rather than riding to the rescue of economic growth.

Eurozone wages and prices are also slower to adjust then in other economies, strengthening the case for a more cautious stance by the ECB.

At the same time, the ECB is sticking to its forecast that eurozone growth could pick up this year. Gross domestic product contracted by 0.2 per cent in the second quarter and activity would remain “subdued” in coming months but “gradually recover in the fourth quarter of this year and in the course of 2009”, Mr Papademos said.

The ECB raised its main interest rate to 4.25 per cent in July largely to underscore its determination to counter second-round effects.

Mr Weber at Germany’s Bundesbank told Bloomberg that discussion about lower eurozone rates was “premature”. He went on: “If the economic outlook brightens somewhat again towards the end of the year and next year, which I still expect, we’ll have to see if action is necessary.”

The Bundesbank president expected that ECB forecasts for eurozone growth, to be released after its interest-rate setting meeting next week, would be revised downwards slightly while its inflation forecasts might be “slightly higher”.

Copyright The Financial Times Limited 2008

Maybe Bernanke Should Learn Portuguese

Brazil's central bank has raised its policy rate to 13%. Our Fed has the federal funds rate at 2% or two hundred and sixty basis points below inflation. So who is following a Third World monetary policy? The home of Embraer or Boeing?

Henrique Meirelles is the head of the Banco Central do Brasil and he understands his job description.

Antonio Regalado and Joanna Slater relate in today's Wall Street Journal, "During one of Brazil's many past bouts of high inflation, Henrique Meirelles recalls, he and his maid had a deal. On payday, she didn't have to work. That way, she could rush to the store and spend her entire month's salary before it became worthless.

"Mr. Meirelles is now head of Brazil's central bank, and the country's inflationary past is a big reason why he now ranks as one of the world's toughest inflation fighters. Even as the global economy slows, the Banco Central do Brasil has acted more aggressively than many of the world's central banks against inflation, raising short-term interest rates to 13%. The bank is expected to raise rates again in September."

The whole article is quite interesting. My favorite quote comes when Senhor Meirelles explains there is little "room for leniency. When there is disequilibrium between supply and demand, he says, it will be corrected in one of two ways: higher prices or higher rates.

"'The big advantage of using the interest rate is that you have someone in the driver's seat. When inflation is taking care of it,' he says, 'no one is driving.'"

A Global Approach Is Needed to Beat Inflation

Adam Posen is an astute observer of international economics and the Peterson Institute for International Economics. His colleague, Arvind Subramanian, is a Senior Fellow. Here they give some sage advice to the worlds central bankers in a commentary on ft.com. The fed has set off a world wide inflation and I will take teamwork to defeat it.

A global approach is needed to beat inflation

By Adam Posen and Arvind Subramanian

The Financial Times: August 21 2008

The world’s top central bankers meeting in Jackson Hole this weekend should do more than bemoan their respective financial risks. They should hammer out a joint approach to reducing global inflation, centred on a common public commitment to tighter monetary policies. Moreover, with the European Central Bank and a few emerging market central banks (such as those of Brazil and India) having taken the lead, the spotlight should be on the US Federal Reserve and People’s Bank of China. They must participate in this effort, rather than try to free-ride – which would only delay and increase the cost of their own inevit­able tightening.

The view of many central bankers is that there are few if any gains from monetary policy co-ordination. This view profoundly misreads the present situation.

Economists Are Divided On Whether We are In a Recession

Your friendly blogger, Malcolm C. Harris, has been saying for some time that the U.S. economy has been in recession since some time last year. The profession is divided as we hear from Phil Izzo interviewed by the Wall Street Journal's Kelsey Hubbart:

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