Central Banks in Retreat

One by one, the world’s central banks are backing away from their earlier resolve to fight what many saw as a growing threat from accelerating inflation in the face of the strongest global economic growth in years. First the Federal Reserve cut its discount rate, which only left investors baying for more. Then the Bank of Japan abandoned plans to raise its give-away rates, followed yesterday by the European Central Bank which let the markets know they should no longer assume a rate increase next month was in the cards. Now a much smaller player, the Bank of Canada, but one with fresh, first-hand experience of how the global credit crunch can bring the money markets to their knees, has followed suit.

The world economy is now two months into a credit squeeze whose distinguishing characteristic, more than most, has been the palpable uncertainty of who is going to pay the price for the undeniable credit excesses of recent years. Central bankers may well be wise to hold their fire until they see just how severe the damage will be. Yet while it’s easy to conjure up scenarios leading to a global slowdown or even slump, that hasn’t happened yet—and may well not. That raises a nagging question: What if the bankers were right that the biggest economic risk is accelerating inflation?

Source: Globe and Mail (Toronto)

Stocks Fall as Slowdown Fears Take Center Stage

Shares fell in Asia and were down in morning European trading, US stock index futures declined, indicating Wall Street will open lower. With investors still uncertain just how much the global credit squeeze will dampen growth, caution prevailed.

Source: Bloomberg

Fat Buy-Out Profits May Soon Be But a Memory

Not so long ago, private equity firms were the new kings of Wall Street, courted by companies eager to sell out for a rich premium and bankers so anxious to lend them billions in return for juicy fees that they all but abandoned commonsensical risk protection. The credit crunch has changed all that, if only for a time. With new leveraged financing deals almost impossible to arrange, and existing agreements coming under severe strain, the buyout business is bracing for a period of plummeting returns not seen since the early 1990s.

Source: Bloomberg

Nasdaq’s LSE Stake May Draw Lots of Interest, Few Offers

The main attraction in owning a 30% stake in the parent of the London Stock Exchange was always that it provided a strong base from which to mount a bid for the whole company. But as current owner Nasdaq discovered after failingh twice in buyout offers, the exchange’s management is determined to stay independent. As a consequence, the New York-based exchange may be lucky just to get its money back despite numerous expressions of interest in the shares.

Source: Wall Street Journal

Singapore Airlines Eyes China Expansion

Asia’s most profitable airline will unveil plans with state-owned parent Temasek to buy as much as 24% of China Eastern Airlines, one of the mainland’s big three carriers. Money-losing China Eastern needs capital to shore up its finances and technical and managerial help in managing its breakneck expansion, both of which well-run SAL can provide. The move will pit Singapore head-to-head against Hong Kong-based Cathay Pacific, which has an extensive route network into China and cross-shareholdings with Air China, the mainland’s principal international carrier.

Source: Wall Street Journal

China to Tighten Control on Foreign Investment

New legislation on the verge of passage will formally provide for a national security review of foreign acquisitions of companies in sensitive sectors, not unlike similar restrictions in the US. Though foreign investors are dismayed at the development, it doesn’t really change reality so much as codify it, since there was never any serious doubt that Beijing could block any deal it saw fit.

Source: New York Times

Macau Wants to be More Than a Daytripper’s Haven

Today’s opening of the Venetian Macau, the world’s second-largest building and the anchor for a giant gambling-tourism complex, marks a milestone in this South China-coast city’s bid to become a full-fledged holiday and convention center like Las Vegas rather than just a haven for hardcore gamblers from Hong Kong and the mainland./< /p>

Source: New York Times

Equipment Shortages Threaten Wind Power’s Expansion

The biggest impediments to the widespread adoption of alternative energy sources have always been their cost when compared to conventional fuels and the difficulty in gaining enough scale to really matter. With oil prices seemingly firmly implanted in the $70 range, the former is less of a problem. But as wind power enthusiasts are discovering, it’s tough to turn a fledgling industry into a powerhouse overnight.

Source: Star-Ledger (Newark,. N.J.)