Eeyore's Important News and Views

Global recession has begun
LONDON (Reuters) - Yesterday’s bleak reports on the state of U.S and European manufacturing confirmed that a global recession has already begun.
The Institute of Supply Management (ISM)’s composite business activity indicator plunged for the second month to 38.9 - far below the 50-point threshold dividing expanding activity from a contraction, and the lowest level since September 1982 (see chart https://customers.reuters.com/d/graphics /US_ISM1108.gif).
The 11-point plunge in the index over the last three months (August-October) has been equaled on only four occasions since 1945 (1949-50, 1959-60, 1974 and 1980-81).
It dispels any remaining doubt that the United States has already entered recession - which the National Bureau of Economic Research (NBER) defines as “a significant decline in economic activity, spread across the economy, lasting more than a few months”.
The economy has been in trouble for more than a year. Manufacturing output peaked in July 2007 and had fallen 2.3 percent by August 2008 according to estimates published by the Federal Reserve. Private sector jobs peaked in November and were down 0.7 percent by August.
Repeat claims for unemployment insurance had risen almost 1 million over this period, and the number of people in desperate poverty receiving help under the federal government’s Aid to Families with Dependent Children (food stamp) program surged almost 2.5 million.
But until the last two months, problems had been largely confined to the motor manufacturing and construction sectors. While production of cars and light trucks declined 28 percent between July 2007 and August 2008, output of other durable items intended to last at three years or more actually rose, albeit by a marginal 0.4 percent.
Nonfarm businesses eliminated 815,000 positions on a net basis between November 2007 and August 2008. But most job losses were recorded in construction (-360,000) and motor manufacturing (-105,000) with fairly modest losses spread across the rest of the manufacturing and service industries (-349,000).
THE DOWNTURN SPREADS
In the last two months, however, the downturn has widened to the rest of the economy as growing financial turmoil and a darkening outlook have caused households and businesses to prepare for a long and deep slump by retrenching.
Retail sales have fallen in each of the last three months (July-September). But the Census Bureau measures sales in cash terms rather than by volume, so the headline numbers tend to be distorted by changes in the price of gasoline, as well as financing programs and deep discounting designed to shift auto inventories.
A better guide to the underlying strength of the consumer sector is “core sales” of items other than autos and gasoline. Core sales fell in both August and September, the largest cumulative decline since the immediate aftermath of the attacks on the World Trade Center and Pentagon, the first consecutive monthly decline in more than a decade.
Core sales have risen on average just -0.12 percent in each of the last 12 months. Since even core inflation has been running faster than this, sales volumes have been flat or falling for a year. But the pace of decline has accelerated sharply in recent weeks.
Slowing consumer spending and business investment is now working through to falling output. Manufacturing production slumped in September (-2.7 percent) and for the first time losses were concentrated outside motor manufacturing (-3.0 percent) as producers responded to falling orders by slashing output to prevent a build up of unsold inventory.
ISM reports that 46 percent of survey respondents reduced production and 40 percent cut employment last month. Even so, 52 per cent of manufacturers reported a fall in new orders and 50 percent reported shrinking order books.
The pace of job losses picked up sharply in September, with private-sector employers eliminating 168,000 positions (net basis) and most of the job cuts coming from industries other than construction and autos (-115,000). The market is braced for a further big fall in nonfarm employment when data for October is published on Friday.
The downturn is now spreading internationally. Purchasing surveys show declines in output, orders and employment in all three of the major eurozone economies last month. The European Commission has already accepted that the eurozone economy is in recession.
In the United Kingdom, with its construction and financial-services dependent economy, real gross domestic product fell 0.5 percent during Q3. Japan’s economy was already shrinking in Q2 and the slide looks set to intensify during Q3, with the purchasing index falling further and further into negative territory.
The main bright spot in an otherwise gloomy picture is continued growth in China and some of the other emerging economies of Asia and the Middle East. But even here, there are signs that export-led economies are slowing as the recession hits their main customer-base in North America and Western Europe.
INFLATION RETREATS
The other bright spot is a sharp reduction in inflationary pressure as the price of energy and other raw materials pulls back sharply from the summer’s highs. For the first time since October 2006, the ISM’s survey found more commodities declining in price (12) than rising (5) last month (see chart https://customers.reuters.com/d/graphics /ISM_CMD1108.gif). ISM reported widespread falls in the price of energy (diesel and natural gas), steel (stainless and cold-rolled coil), and base metals (aluminum, nickel, zinc and copper products).
Falling commodity prices will ease some upward pressure on manufacturing and transportation costs, and relieve the squeeze on margins. But it is unlikely to provide a substantial cushion for corporate cash flows amid a steep fall in demand, and further substantial reductions in output and employment appear inevitable in the next 3-6 months, intensifying the recessionary dynamic.
The swift turn in the business cycle has banished fears of inflation and enabled central banks to focus policy on supporting the banking system and restarting growth. The global rate cycle has clearly peaked, with rate reductions in the last month across the United States, Canada, Eurozone, United Kingdom, Japan, Switzerland, Australia, New Zealand and China.
But with the massive overhang of debt inherited from the boom years (especially in the United States and the Anglo-Saxon economies), bank balance sheets severely impaired, and extreme uncertainty about the outlook, demand for credit and lending activity looks set to remain weak, despite reductions in policy rates.
A broad-based recession has already begun across the advanced industrial economies which looks set to be the worst since 1980-81, if not 1945. Sharply falling demand for energy and other raw materials used in manufacturing and construction has already pushed most markets from oil and refined products to steel, copper, aluminum, nickel and ocean freight into surplus.
For the next 18 months, commodity markets will be shaped by an environment of weak demand and incipient surpluses
http://blogs.reuters.com/great-debate/2008/11/04/global-recession-has-begun/

Security breach of passport applications
State Department says most victims D.C.-area residents
Saturday, November 1, 2008
The State Department said Friday it has warned nearly 400 passport applicants of a security breach in its records system that may have left them open to identity theft.
The department has so far notified 383 people - most of them in the D.C. area - that their passport applications containing personal information, including Social Security numbers, may have been illegally accessed and used to open fraudulent credit card accounts, spokesman Sean McCormack said.
More may be notified as an investigation continues, he said, adding that most of those contacted had not been victimized by identity thieves but all were offered free credit monitoring for a year.
The department notified the 383 passport applicants of their potential vulnerability in August and early October while working with police in the District investigating a credit card and identity theft ring.
The Washington Times reported in April that a State Department employee who was not identified in documents filed in U.S. District Court was implicated in a credit-card fraud scheme after 24-year-old Leiutenant Quarles Harris Jr. told federal authorities he obtained "passport information from a co-conspirator who works for the U.S. Department of State."
The investigation began after police on March 25 pulled over Mr. Harris in Southeast on suspicion that the windows of his vehicle were tinted too darkly.
Upon questioning by agents from the U.S. Secret Service, U.S. Postal Service and State Department, Mr. Harris "admitted he obtained the passport information" from a State Department employee, court documents say.
Mr. Harris also said the fraud ring submitted credit-card applications using the names and "identifying information" of the persons listed on the passport applications, and that a Postal Service employee then would intercept the cards before they were delivered to residences.
Mr. McCormack declined to comment on how the man obtained the applications, but said at least one State Department worker had been reassigned and may face further disciplinary action pending completion of the investigation.
Mr. Harris was fatally shot in Northeast Washington in April. Police at the time said they had no information linking his shooting to his involvement in the passport case.
The breach came to light in March around the same time The Times first reported that three State Department contract employees were being investigated for improperly accessing the passport data of presidential candidates Sens. Barack Obama, John McCain and Hillary Rodham Clinton.
Mr. McCormack said the cases are not related.
http://www.washingtontimes.com/news/2008/nov/01/security-breach-threatens-passport-applicants/

Probably never be able to produce enough to make a difference, but it could lead to good stuff
Scientists discover Patagonian diesel that grows on trees
Alok Jha, green technology correspondent
The Guardian,
Tuesday November 4 2008
The 'myco-diesel' fungus Gliocladium roseum, which grows inside the ulmo tree in northern Patagonia
A tree fungus could provide green fuel that can be pumped directly into vehicle tanks, US scientists say. The organism, found in the Patagonian rainforest, naturally produces a mixture of chemicals that is remarkably similar to diesel.
"This is the only organism that has ever been shown to produce such an important combination of fuel substances," said Gary Strobel, a plant scientist from Montana State University, who led the work. "We were totally surprised to learn that it was making a plethora of hydrocarbons."
In principle, biofuels are attractive replacements for liquid fossil fuels used in transport that generate greenhouse gases. The European Union has set biofuel targets of 5.75% by 2010 and 10% by 2020. But critics say current biofuels scarcely reduce greenhouse gas emissions and cause food price rises and deforestation. Producing biofuels sustainably is now a target and this latest work has been greeted by experts as an encouraging step.
The fungus, called Gliocladium roseum and discovered growing inside the ulmo tree (Eucryphia cordifolia) in northern Patagonia, produces a range of hydrocarbon molecules that are virtually identical to the fuel-grade compounds in existing fossil fuels. Details of the concoction, which Strobel calls "mycodiesel", will be published in the November issue of the journal Microbiology. "The results were totally unexpected and very exciting and almost every hair on my arms stood on end," said Strobel.
Many simple organisms, such as algae, are known to make chemicals that are similar to the hydrocarbons present in transport fuel but, according to Strobel, none produce the explosive high energy density found in this fungus. Strobel said that the chemical mixture produced could be used in a modern diesel engine without any modification. Another advantage of the fungus is its ability to eat up cellulose, the compound that makes up much of the organic waste that is currently discarded, such as stalks and sawdust. Converting this plant waste into fuels is an important goal for the biofuel industry, which currently uses food crops such as corn.
"Fungi are very important but we often overlook these organisms," said Tariq Butt, a fungus expert at Swansea University. "The discovery and its potential applications are fantastic. However, more research is needed, as well as a pilot study to determine the costs and benefits." John Loughhead, executive director of the UK Energy Research Centre, also welcomed the "encouraging" discovery but noted it was at its earliest stage of development.
http://www.guardian.co.uk/environment/2008/nov/04/biofuel-plants-biochemistry-science

Appears Americans are not the only ones "hoarding"cash, but British also are doing it.
£50 notes in circulation 'up 20%'
Nick Buckles said people tended to use cash to budget in tough times
The number of £50 notes in circulation has increased by 20%, according to the chief executive of the world's biggest security transport company.
Nick Buckles, from G4S, told BBC Radio 4's Bottom Line that it appeared people were "hoarding cash at home".
He said cash in circulation tended to increase in "tougher times" as people shied away from credit.
UK payments body APACS said more use of £50 notes might reflect a lack of trust in the government's deposit protection.
In the event of a bank failure, the Financial Services Compensation Scheme will guarantee up to £50,000 deposited with an authorised bank.
APACS (the Association of Payment Clearing Services) said it could be that the rise in the number of £50 notes indicated that some people had exceeded that savings threshold.
But it said circulated cash often increased in the lead up to Christmas, and no sudden and unexpected variances from that trend had been officially recorded so far.
'Budgeting'
Mr Buckles said there was "some very different behaviour" happening as a result of the economic downturn. I guess the £50 note issue is people hoarding cash at home
Nick Buckles, G4S
"Cash payments are increasing all the time," he said.
"Although the retail take is going down, there's more switching onto cash payments, so our processing of cash is actually picking up in terms of volume.
"What we've seen over cycles before is that cash in circulation increases during tougher times.
"People use it as a means of budgeting. They don't like credit, so clearly there's more cash transactions, more ATM transactions.
"And I guess the £50 note issue is people hoarding cash at home."
Mr Buckles said European banks had issued about 30bn Euros in the first two weeks of October - the biggest jump in cash in circulation since 2004.
G4S was formed from the merger of Group 4 and Securicor. It handles the transportation of 90% of all bank notes.
http://news.bbc.co.uk/2/hi/business/7703642.stm

It is important not to be side tracted with all the election news, don't forget the Russian bear

Russia to deploy short-range missiles near Poland November 6, 2008 - 1:13am
Russian President Dmitry Medvedev makes the address to the nation in Moscow's Kremlin on Wednesday, Nov. 5, 2008. Russian President Dmitry Medvedev has proposed extending the presidential term to six years from the current four. (AP Photo/ Mikhail Metzel)
By STEVE GUTTERMAN and VLADIMIR ISACHENKOV Associated Press Writers
MOSCOW (AP) - Russia will deploy short-range missiles near Poland to counter U.S. military plans in Eastern Europe, President Dmitry Medvedev warned Wednesday, setting a combative tone that clashed with global goodwill over Barack Obama's election.
In his first state of the nation speech, Medvedev blamed Washington for the war in Georgia and the world financial crisis and suggested it was up to Washington to mend badly damaged ties.
Medvedev also proposed increasing the Russian presidential term to six years from four _ a change that could deepen Western concern over democracy in Russia and play into the hands of his mentor, Prime Minister Vladimir Putin, who has not ruled out a return to the Kremlin.
Extending the presidential term could mean a possible 12 more years in the top office for the popular Putin.
Echoing Putin, who made criticism of Washington and the West a hallmark of his two-term, eight-year presidency, Medvedev used the speech in an ornate Kremlin reception hall to cast Russia as a nation threatened by encroaching American military might.
"From what we have seen in recent years _ the creation of a missile defense system, the encirclement of Russia with military bases, the relentless expansion of NATO _ we have gotten the clear impression that they are testing our strength," Medvedev said.
He signaled Moscow would not give in to Western calls to pull troops from Georgia's breakaway regions of Abkhazia and South Ossetia, or rescind its recognition of their independence following the August war.
"We will not retreat in the Caucasus," he said, winning one of many rounds of applause during the televised 85-minute address.
Talking tough, he fleshed out long-promised military measures in response to U.S. plans for missile defense facilities in Poland and the Czech Republic, former Soviet satellites now in NATO. The Kremlin claims the system is meant to weaken Russia, not defend against Iran, as Washington insists.
Medvedev said Iskander missiles would be deployed to Russia's western enclave of Kaliningrad, sandwiched between Poland and Lithuania, "to neutralize, if necessary, a missile defense system."
The Iskander has a range of about 280 kilometers (175 miles), which would allow it to reach targets in Poland but not in the Czech Republic _ but officials have said its range could be increased. Medvedev did not say whether the missiles would be fitted with nuclear warheads.
Russia will also deploy electronic jamming equipment, Medvedev said.
After the speech, the Kremlin announced Medvedev had congratulated Obama for winning the U.S. presidency, saying in a telegram he was "counting on a constructive dialogue with you on the basis of trust and taking each other's interests into account."
In Washington, State Department spokesman Sean McCormack emphasized that the planned missile defenses were not aimed at Russia.
"The steps that the Russian government announced today are disappointing," McCormack said. "But, again, this is not directed at them. Hopefully one day they'll realize that."
Medvedev appeared to be trying to improve Russia's bargaining position in potential talks with the Obama administration on missile defense. His wording suggested Russia would reverse the decision if the U.S. scraps its missile defense plans.
"Moscow isn't interested in confrontation, and if Obama makes some conciliatory gestures it will respond correspondingly," said Alexander Pikayev, an analyst at Moscow's Institute for World Economy and International Relations.
But independent military analyst Alexander Golts said Medvedev's "confrontational tone" could further harm relations with the United States, which plunged to a post-Cold War low over the war in Georgia.
"Russia itself is cutting off the route toward better ties," he said.
Regional leaders criticized Medvedev's missile warning. German Foreign Minister Frank-Walter Steinmeier said it was "certainly the wrong signal at the wrong time" and urged the U.S. and Russia to see change in the White House as an "opportunity for a new beginning."
Medvedev suggested the U.S. must make the first move to break the chill. The Kremlin hopes the incoming administration "will make a choice in favor of full-fledged relations with Russia," he said.
In addition to calling for a six-year presidential term, he said parliament's term should be extended to five years instead of four and its power over the executive branch increased.
Both changes could strengthen the hand of Putin, who can run for president again in 2012 and now heads the dominant United Russia party.
http://wtop.com/?nid=383&sid=1478423

Russian official says 6 killed in N. Ossetia blast November 6, 2008 - 7:17am
BY SERGEI VENYAVSKY Associated Press Writer
ROSTOV-ON-DON, Russia (AP) - Russia's Emergency Ministry says a roadside bomb blast has killed six people on a minibus in North Ossetia province.
A duty officer at the Emergency Ministry in the North Ossetia province says an improvised explosive device went off as the vehicle was passing through the center of the provincial capital, Vladikavkaz. He said it was unclear how many people were wounded.
The duty officer was not authorized to give his name.
North Ossetia borders war-scarred Chechnya as well as Georgia's breakaway South Ossetia region, the focus of a war in August between Russia and Georgia.
It has been the site of several bomb blasts since the start of Russia's wars against Chechen separatists over a decade ago.
http://wtop.com/?nid=105&sid=1512051