Investment guru Peter Lynch once advised ordinary folks to “invest in what you know.”
For many small investors, some of the companies they are most familiar with are the e-commerce and social media sites they use every day. Now some of these private Internet companies, such as Facebook, are expected to go public soon and will likely attract a rush of fans to their stocks.
But even if you feel like you know these companies well, there is a risk in investing in them. Competitors are constantly sprouting up, and it’s difficult to predict which ones have staying power. Some Internet companies have raked in millions in revenue but have yet to turn a profit.
And there’s so much hype about these companies now that you can count on paying a high price once they do start selling shares to the public. That would be fine if the stock keeps going up. But if the price falls back to Earth, it can take a while to recover your initial investment.
Early investors in Pandora Media Inc., an online music service that went public this month, are already underwater short term personal loans. The stock shot up to $26 per share during the first day of trading. Buyers’ remorse set in the next day, and the stock has been trading below its IPO of $16 ever since. It closed last week at $15.37 per share; on Monday, it rose just above $16 on an up day for the markets.
California-based Pandora has been around for about a decade but has never posted a profit. The fact that Pandora attracted investors anyway has added to the debate on whether we’re experiencing something similar to the dot-com bubble.
“It feels like we are partying like it’s 1999 again,” said James Angel, an associate finance professor at Georgetown University.
But Chuck Carlson, chief executive of Horizon Investment Services in Indiana, said the climate now isn’t as frenzied as it was before, when investors would throw money at any company whose name ended in “com.”
“It’s unfair to paint the whole group as a giant Internet bubble,” Carlson said. “Like any sector, there will be winners and losers.”
Small investors’ best bet at gaining a piece of these companies
OTTAWA—The Harper government will bring in back-to-work legislation Monday to end the postal strike and get mail moving again.
Declaring that the two sides have had “ample amount of time” to reach a settlement, Labour Minister Lisa Raitt said she would force an end to the Canada Post labour dispute if necessary.
The government was preparing to introduce the legislation Monday afternoon though it could take several days to become law.
The move sparked an angry reaction from New Democrats who accused the Conservatives of meddling in collective bargaining instant credit report.
It’s possible NDP MPs could delay a legislated end to the dispute.
Interim Liberal Leader Bob Rae accused the Conservatives of doing little to safeguard defined benefit pensions, one of the issues at the heart of the Canada Post dispute.
Credit card issuers promise that you won
Grupo Modelo SAB de CV, the Mexican brewer of Corona beer, will seek board support for a possible joint bid with Molson Coors Brewing Co. for Foster’s Group Ltd. at a meeting Monday in Mexico City, according to people with knowledge of the situation.
Such a proposal would need the backing of Anheuser-Busch InBev NV, which has nine seats on Modelo’s 19-person board and holds a 50 percent non-controlling stake. An offer would have to be at least $9 billion, or more than Foster’s current market value, said the people, who declined to be identified because the talks are private.
AB InBev is likely to tell Modelo at the meeting whether it will officially support or oppose a bid, said the people. The companies have discussed the idea, and AB InBev has raised concerns, including how the two companies would work together to manage a business based in Australia, one of the people said.
Jennifer Shelley, a spokeswoman for Modelo, declined to comment. Colin Wheeler, a spokesman for Denver-based Molson Coors, and Marianne Amssoms, a spokeswoman for Anheuser-Busch InBev, also declined to comment.
Molson Coors remains interested in pursuing a joint bid for Foster’s, said one of the people. If a joint Modelo-Molson Coors bid falls apart or is thwarted by AB InBev, then Modelo and Molson Coors also could pursue a bid on their own or with other partners, people said this month.
The brewers are working with banks including Bank of America Corp. and Deutsche Bank AG on lining up financing for a potential purchase, said the people, who declined to be identified because the matter is private. Melbourne-based Foster’s has a market value of about $9.3 billion.
Modelo is being advised by Bank of America and Greenhill & Co., and Molson Coors is working with Deutsche Bank, the people said.
Stocks are rising in midday trading after a gauge of consumer confidence unexpectedly jumped.
The Thomson Reuters/University of Michigan Consumer Sentiment index rose to 74.3 in May, above analysts’ estimates of 70. Concerns about higher gas prices and inflation knocked the gauge down to 69.8 in April.
Prices for gas have come down this month after hitting nearly $4 in April.
In a separate report, the government said personal income and spending rose 0 on line pay day loans.4 percent in April. However most of the increase was due to higher food and gas prices.
The Dow Jones industrial average is up 67 points, or 0.5 percent, to 12,470. The S&P 500 index is up 7 points, or 0.5 percent, to 1,332. The Nasdaq composite is up 15 points, or 0.5 percent, to 2,798.
Regulators on Friday shut down banks in Florida, Georgia and Michigan, a total of five closures that lifted the number of U.S. bank failures this year to 39.
The pace of closures has slowed, however, as the economy improves and banks work their way through piles of bad debt. By this time last year, regulators had closed 64 banks.
The Federal Deposit Insurance Corp. seized First National Bank of Central Florida, based in Winter Park, Fla., with $352 million in assets, and Cortez Community Bank of Brooksville, Fla., with $70.9 million in assets.
The agency also took over First Choice Community Bank of Dallas, Ga., with $308.5 million in assets; Park Avenue Bank, based in Valdosta, Ga., with $953.3 million in assets; and Community Central Bank in Mount Clemens, Mich., with $476.3 million in assets.
Miami-based Premier American Bank agreed to assume the assets and deposits of First National Bank of Central Florida and Cortez Community Bank. Bank of the Ozarks, based in Little Rock, Ark., is acquiring the assets and deposits of First Choice Community Bank and Park Avenue Bank. Talmer Bank & Trust, based in Troy, Mich., agreed to assume the assets and deposits of Community Central Bank.
In addition, the FDIC and Premier American Bank agreed to share losses on $270 million of First National Bank of Central Florida’s loans and other assets, and on $51.3 million of Cortez Community Bank’s assets.
The agency and Bank of the Ozarks are sharing losses on $260.7 million of First Choice Community Bank’s assets and $514.1 million of Park Avenue Bank’s assets. Talmer Bank & Trust is sharing with the FDIC $362.4 million of Community Central Bank’s assets.
The failure of First National Bank of Central Florida is expected to cost the deposit insurance fund $42.9 million. The failure of Cortez Community Bank is expected to cost $18.6 million; that of First Choice Community Bank $92.4 million; Park Avenue Bank, $306.1 million; and Community Central Bank, $183.2 million.
Florida and Georgia have been the hardest-hit states for bank failures. Twenty-nine banks were shuttered in Florida last year and 16 in Georgia. The four shutdowns in those states on Friday brought to four and 10 the number of bank failures in Florida and Georgia, respectively this year.
California and Illinois also have seen large numbers of bank failures.
In 2010, authorities seized 157 banks that succumbed to mounting soured loans and the hobbled economy. It was the most in a year since the savings-and-loan crisis two decades ago.
The FDIC has said that 2010 likely would mark the peak for bank failures.
There were 140 bank failures in 2009, costing the insurance fund about $36 billion. The failures last year cost around $21 billion, a lower price tag because the banks that failed in 2010 were smaller on average. Twenty-five banks failed in 2008, the year the financial crisis struck with force; only three were closed in 2007.
From 2008, the year the financial crisis struck, through 2010, bank failures cost the fund $76.8 billion. The deposit insurance fund fell into the red in 2009, and its deficit stood at $7.4 billion as of Dec. 31.
The FDIC expects the cost of resolving failed banks to total around $52 billion from 2010 through 2014.
Depositors’ money _ insured up to $250,000 per account _ is not at risk, with the FDIC backed by the government. That insurance cap was made permanent in the financial overhaul law enacted in July.
The number of banks on the FDIC’s confidential “problem” list rose to 884 in the final quarter of last year from 860 three months earlier. The 884 troubled banks is the highest number since 1993, during the savings-and-loan crisis.
Rising oil prices and anticipation that China might tighten monetary policy yet again to combat inflation kept Asian stock markets in check on Monday.
Oil prices rose to near $113 a barrel after Libyan rebels in control of key oil producing areas in the OPEC nation said they won’t produce crude for at least a month as they repair fields damaged in fighting.
Japan’s Nikkei 225 index was slightly lower at 9,689.96, vacillating between positive and negative territory. Toyota Motor Corp., the world’s No. 1 auto producer, was down 0.5 percent after the company announced its car production in Japan plummeted nearly 63 percent in March.
Japan’s powerhouse auto industry has struggled to regain its footing since an earthquake on March 11. The quake spawned a huge tsunami that crashed into the country’s northeastern coast, home to a vast network of auto parts suppliers. Those smaller companies were wiped out, leaving Toyota and many other Japanese industry behemoths scrambling for alternatives.
Japan has now begun to turn its attention to reconstruction, with the government proposing last week a special $50 billion budget to help finance reconstruction efforts and plans to build 100,000 temporary homes for survivors.
That helped lift shares of companies expected to play a major role in the rebuilding effort. Mitsubishi Heavy Industries Ltd. rose 1.3 percent, and Nishimatsu Construction Co. Inc. was up 0.8 percent. Komatsu Ltd., one of the world’s leading equipment makers, was 0.3 percent higher.
Stock, bond and commodities markets were closed in the U.S. on Friday for the Easter holiday and many markets were also shut in Europe and Asia. Markets in Australia, New Zealand and Hong Kong remained closed Monday.
South Korea’s Kospi rose 0.7 percent to 2,213.28, with a Yonhap news report Monday showing the volume of cargo handled at South Korea seaports grew more than 7 percent during the first quarter of 2011, fueled by improving economic and trade conditions. Hyundai Heavy Industries Co., South Korea’s leading shipbuilder, rose 2.1 percent. Other transport shares were up, including Korean Air, by 3.7 percent.
On the downside, mainland China’s Shanghai Composite Index dropped 0 same day payday loans.7 percent to 2,989.55 and the smaller Shenzhen Composite Index was down 1.1 percent to 1,261.25.
News reports on Sunday quoted China’s national planning agency as saying inflation will be about 5 percent in the second quarter. Wang Ren, an analyst at Ping’an Securities, in Shenzhen said the estimate was not out of line with expectations. Still, inflation is regarded as a chief threat to the global economic recovery, and central banks were expected to use the means at their disposal to try to tame it. That could reduce liquidity that has been supporting share prices.
“What we can see over the next three months is that equity markets are probably going to trade sideways at best, and probably on the downside,” said Tey Tze Ming, a trader at Saxo Capital Markets in Singapore. “Inflation is going to play a very big role.” Central banks in emerging markets “will be forced to increase borrowing costs.”
China’s central bank has raised the reserve requirement ratio for commercial banks four times and benchmark interest rates twice since the beginning of this year to mop up excess liquidity.
Some investors stayed on the sidelines in anticipation of several key events later this week, including earnings reports of some major Japanese companies and the Federal Reserve meeting on April 26-27.
Benchmark crude for June delivery was up 32 cents at $112.61 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. Oil markets were closed Friday for the Easter holiday. The June contract last settled up 84 cents at $112.29 on Thursday.
OPEC-member Libya sits atop Africa’s largest proven oil reserves. But Libyan exports have largely disappeared from the international market since an uprising to oust Moammar Gadhafi began, helping drive oil prices to their highest levels in more than two years.
The dollar strengthened to 82.11 yen from 81.90 yen late Friday in New York. The euro rose to $1.4572 from $1.4550. It had risen to a 16-month high of $1.4648 during Thursday’s trading.
International leaders were gathering in London on Tuesday seeking to plot out an endgame for Moammar Gadhafi’s tottering regime and to strike agreement on plans for Libya’s future.
U.N. Secretary-General Ban Ki-Moon, U.S. Secretary of State Hillary Rodham Clinton, the Arab League and as many as 40 global foreign ministers were joining the talks _ seeking to ratchet up pressure on Gadhafi to quit.
Italy’s Foreign Minister Franco Frattini said several nations planned to table a joint deal aimed at swiftly ending the conflict, setting out proposals for a cease-fire, exile for Gadhafi and a framework for talks on Libya’s future between tribal leaders and opposition figures.
Britain and the United States signaled ahead of the talks that they could accept a plan under which Gadhafi quickly leaves Libya and in return escapes a war crimes trial, despite a previous insistence that he must face the International Criminal Court.
“There are some African countries that could offer him hospitality. I hope that the African Union can come up with a valid proposal,” Frattini said Monday.
African Union chairman Jean Ping will attend the talks at London’s Lancaster House alongside delegates who include Qatar’s emir Sheik Hamad bin Khalifa Al-Thani and foreign ministers from Morocco, the UAE, Jordan and Iraq.
Gadhafi “must understand that it would be a gesture of courage on his part to say `I am leaving’,” Frattini said.
Turkey, which has offered to attempt to mediate a permanent cease-fire, also said the talks would gauge international support for scenarios under which Gadhafi could retreat into exile.
Britain’s Foreign Secretary William Hague, who was hosting the summit, said Tuesday that _ while the U.K. hoped Gadhafi would face international justice _ it was down to Libyans to decide his fate.
“Of course where he goes, if he goes, is up to him and the people of Libya to determine and we will not necessarily be in control of that,” Hague told BBC radio.
International allies were “not going to choose Col. Gadhafi’s retirement home,” he added.
Hague and Clinton met Tuesday with Libyan opposition envoy Mahmoud Jibril _ who was holding talks in London, but not attending the main conference.
“We discussed the current political and humanitarian situation in Libya. We agreed on the absolute importance of protecting and safeguarding civilians in Libya,” Hague said following his talks with Jibril.
He said he had asked Jibril for his “assessment of the humanitarian needs in Libya and priorities for international assistance.”
A senior U.S. administration official said the U.S. would also soon send diplomat Chris Stevens to Benghazi to meet with rebel leaders.
In a joint statement, British Prime Minister David Cameron and French President Nicolas Sarkozy said Jibril’s Interim National Transitional Council could play a key role in deciding Libya’s future following Gadhafi’s potential ouster payday loans with no fax.
The leaders said that the transitional council and “civil society leaders, as well as all those prepared to join the process of transition to democracy,” should begin work to decide how Libya moves toward democratic elections. They said Gadhafi loyalists were facing a final chance to ditch support for the dictator and side with those seeking political reform.
Sarkozy and Cameron discussed the meeting late Monday in a video conference with President Barack Obama and German Chancellor Angela Merkel.
In a speech Monday night at the National Defense University at Fort McNair, Obama said the London talks would decide on what political effort would be needed _ alongside military action _ to increase pressure on Gadhafi.
“While our military mission is narrowly focused on saving lives, we continue to pursue the broader goal of a Libya that belongs not to a dictator, but to its people,” Obama said.
Libya’s deputy foreign minister Khaled Kaim told a news conference in Tripoli that foreign leaders had no right to attempt to impose a new political system on the country.
“Libya is an independent country with full sovereignty,” he told reporters. “The Libyan people are the only ones that have the right decide the country’s future, and planting division of Libya or imposing a foreign political system is not accepted.”
Kaim called on nations attending the London talks to agree on a peace deal.
“We call upon Obama and the Western leaders to be peacemakers not war mongers, and not to push Libyans towards a civil war and more death and destruction,” he said.
The London meeting _ which will also be attended by NATO secretary-general Anders Fogh Rasmussen _ was also expected to discuss disputes over the scope of NATO-led coalition airstrikes, and to more clearly define the extent of cooperation between Libya’s rebel groups and international military commanders.
Russian foreign minister Sergey Lavrov _ who will not attend the talks _ has said the international air campaign which began March 19 has breached the terms of the U.N. resolution which authorized the enforcement of a no-fly zone over Libya.
Cameron insisted that the coalition had not gone beyond its remit, but acknowledged the impact had been to force Gadhafi’s military into a retreat from a number of key towns.
“We should do everything we can to protect people and actually _ as a result _ that is actually driving back the Gadhafi regime,” Cameron said.
Sarkozy and Cameron said in their joint statement that the military action would end only when civilians were free from the threat of attack.
___
Hadeel al-Shalchi, in Tripoli, Bradley Klapper in London and Ciaran Giles in Madrid contributed to this report
Crows cawed overhead as tsunami survivors in devastated towns along Japan’s northeast coast buried their dead in makeshift graves en masse Wednesday as workers at Fukushima’s overheated nuclear plant struggled to cool down the crippled facility.
With supplies of fuel and ice dwindling, officials have abandoned cremation in favor of quick, simple burials in a show of pragmatism over tradition. Some are buried in bare plywood caskets and others in blue plastic tarps, with no time to build proper coffins. The bodies will be dug up and cremated once crematoriums catch up with the glut, officials assured the families.
In Higashimatsushima in Miyagi prefecture, about 200 miles (320 kilometers) northeast of Tokyo, soldiers lowered bare plywood coffins into the ground, saluting each casket, as families watched from a distance and helicopters occasionally clattered overhead.
Some relatives placed flowers on the graves. Most remained stoic, folding hands in prayer. Two young girls wept inconsolably, hugged tightly by their father.
“I hope their spirits will rest in peace here at this temporary place,” said Katsuko Oguni, 42, a relative of the dead.
In Fukushima, the struggle to stabilize the plant suffered another setback Wednesday after a spike in radiation levels forced officials to pull workers and suspend restoring power to the Unit 2 reactor, a Nuclear and Industrial Safety Agency official said in Tokyo.
The setback showed how tenuous the situation remains nearly two weeks after the March 11 earthquake and tsunami knocked out power to the Fukushima complex, allowing radiation leaks that have seeped into vegetables, raw milk, the water supply and even seawater.
Broccoli was added early Wednesday to a list of tainted vegetables that already includes spinach, canola and chrysanthemum greens.
The nuclear crisis has complicated the government’s response to the catastrophic earthquake and tsunami that swallowed up villages along the coast. The number of bodies collected stood at more than 9,400, with more than 14,700 people listed as missing. Those tallies may overlap.
Hundreds of thousands remain homeless. Schools, gymnasiums and other community buildings in the northeast are still packed with survivors, many of them elderly suffering after days without heat, medicine and hot meals.
In Fukushima, relief after the lights went on late Tuesday in the control room of Unit 3 made way hours later for concern over radiation levels in Unit 2, putting on hold plans to try restarting the plant’s crucial cooling system. The sprawling nuclear complex has six units.
In the first five days after the disasters struck, the Fukushima complex saw explosions and fires in four of the plant’s six reactors, and the leaking of radioactive steam into the air. Since then, progress continued intermittently as efforts to splash seawater on the reactors and rewire the complex were disrupted by rises in radiation, elevated pressure in reactors and overheated storage pools.
Missions to dump seawater into one storage pool holding spent nuclear fuel went well, and firefighters continue to spray water on spent fuel pools in two other units, NISA said. Temperature at a seventh, joint spent fuel pool have stabilized, they said Wednesday.
Two workers were slightly injured trying to restore electric cables, neither from radiation, Tokyo Electric Power Co. spokesman Kaoru Yoshida said Wednesday.
Tokyo Electric warned that time is needed to replace damaged equipment and vent any volatile gas to make sure the restored electricity does not spark an explosion.
“You’re going to get fires now as they energize equipment,” said Arnold Gundersen, the chief engineer at the U.S.-based environmental consulting company Fairewinds Associates. “It’s going to be a long slog.”
Radiation continues to leak from the site, though the main barriers appear intact, the U.S. Nuclear Regulatory Commission said.
The operator suspects some damage to an inner containment structure at Unit 2 as a result of an earlier explosion there. Also, spent fuel pools in damaged buildings could be releasing some radioactivity into the air.
“I think we have enough information to determine that there’s not large holes or excessive releases from those containments, but we continue to see radiation coming from the site … and the question is where exactly is that coming from,” nuclear safety expert James Lyons said at a briefing Tuesday by the International Atomic Energy Agency.
The Health Ministry ordered officials in the area of the stricken plant to increase monitoring of seawater and seafood after elevated levels of radioactive iodine and cesium were found in ocean water near the complex. Education Ministry official Shigeharu Kato said a research vessel had been dispatched to collect and analyze samples.
Doses detected so far are low and not a threat to human health unless the tainted products are consumed in abnormally excessive quantities, government officials and health experts said.
Radiation levels in the air in Tokyo have been well below the global average for naturally occurring background radiation.
The Bank of Japan’s reluctance to fund government borrowing is set to be tested by the economy’s need for stimulus in the aftermath of the March 11 earthquake.
Prime Minister Naoto Kan’s bill for clearing wreckage and rebuilding roads, housing and utilities is forecast at 5 trillion yen ($62 billion) or higher by Nomura Holdings Inc., Morgan Stanley and Barclays Capital. With debt issuance poised to rise, BOJ Governor Masaaki Shirakawa warned last week the bank must avoid underwriting debt to retain its credibility.
The BOJ’s reluctance is an echo of the European Central Bank’s initial decision to refrain from buying government bonds as the euro-region’s sovereign-debt crisis spread a year ago, before it agreed to do so in May. As the scale of the efforts needed to restart an economy already shrinking at the end of 2010 becomes clear, Shirakawa and his colleagues may step up.
“This is something the BOJ should have done even before the earthquake,” said Takeo Hoshi, an economics professor at the University of California, San Diego and author of “Corporate Financing and Governance in Japan: The Road to the Future,” winner of Nikkei’s 2002 prize for best economics book. “It’s even more important for the Bank of Japan to support the recovery” in the aftermath of the earthquake, he said.
Yen Impact
Additional monetary stimulus would help combat an appreciating yen, by increasing its supply. The nation’s currency climbed to a post-war high against the dollar on March 17, prompting Finance Minister Yoshihiko Noda the next day to request that the Group of Seven mount its first coordinated intervention in the foreign-exchange market since 2000.
The yen fell for a second day today, to 80.94 as of 10:30 a.m. in Singapore, compared with the high of 76.25 last week. The currency’s March 18 drop offered a fillip to equities, with the Nikkei 225 (NKY) Stock Average advancing 2.7 percent, limiting its loss since the temblor to 12 percent. The Tokyo market is closed today for a holiday.
“The need to counter yen strength amid deflation will oblige the Bank of Japan to monetize the fiscal deficits needed to fund reconstruction,” Prasenjit Basu, an economist at Daiwa Capital Markets in Singapore, wrote in a March 17 note.
Policy makers cut the main interest rate to a range of zero to 0.1 percent last year to help bring an end to prolonged deflation, leaving asset purchases at their main instrument.
Asset Purchases
Shirakawa and his fellow board members last week expanded a fund used to buy items including Japanese government bonds, known as JGBs, exchange-traded funds and real-estate investment trusts by 5 trillion yen, to 10 trillion yen. He told reporters that the BOJ by law cannot underwrite JGBs.
The BOJ kept a separate program of monthly JGB purchases at 1.8 trillion yen. The central bank, which can legally buy the bonds in the secondary market, has a rule of keeping its holdings at less than the value of banknotes outstanding. It also has a 3 trillion-yen venture-capital type facility designed to channel capital to growth industries.
“There are too many uncertainties yet” for the central bank to decide whether and how it will add stimulus, said Chiwoong Lee, a senior economist at Goldman Sachs Group Inc. in Tokyo. Should it take additional steps, they could range from increasing asset purchases to boosting the venture-capital program by defining companies that invest in the devastated northeast as fresh sources of growth, he said.
Power Critical
The key determinant for the magnitude of the hit to Japan’s economy will be the duration of power outages, which threaten to disrupt production, according to Lee.
Yesterday, the government said efforts to stabilize the Fukushima Dai-Ichi nuclear plant, crippled from the tsunami after the magnitude-9 temblor and discharging radiation, had some success, while a quick resolution is unlikely.
Tokyo Electric Power Co., owner of the 40-year-old power plant, has imposed rolling blackouts extending to Tokyo.
Stringer’s Optimism
Sony Chairman Howard Stringer said that recovery efforts may jump-start the country’s lagging economy as the country uses savings to rebuild. Japan last year fell behind China as the world’s second-largest economy, and the legacy of a burst asset bubble and financial crisis in the late 1990s has left it with persistent deflation and a record debt load.
Noda said last week that the government will compile a supplementary budget to pay for the recovery, which it will take beyond the end of the month to complete.
Barclays Capital analysts estimated the reconstruction budget at 5 trillion yen to 7 trillion yen in a March 18 research note. Nomura assumed 6 trillion yen in new spending during the fiscal year starting April 1. Morgan Stanley economist Takehiro Sato predicted “10 trillion yen or so,” noting it will take time to gauge the scope of what’s needed.
Tax Cuts
Japan is considering tax cuts to help companies damaged by the disaster, including refunding corporate taxes and not levying fixed-asset taxes from companies and individuals who are unable to rebuild factories and homes, the Nikkei newspaper reported today, without saying where it got the information.
World Bank staff today said in a report that it may take five years for Japan to rebuild, citing private estimates of damage from the disaster at $122 billion to $235 billion.
With Japan’s public debt already at about twice the size of its GDP, Moody’s Investors Service said last week that the disaster may push forward Japan’s “tipping point” for investors to lose confidence in the nation’s credit quality.
“The unsustainable sovereign debt position suggests that the BOJ will have to bear a bigger funding burden,” BNP Paribas SA strategists wrote in a March 18 note.
The financial crisis of 2007-2009 and Europe’s sovereign- debt turmoil that began in 2009 have pressed central bankers into uncharted territory. The Federal Reserve accumulated assets such as junk-rated debt as it sought to forestall a depression. More recently, the Fed pursued a $600 billion initiative to buy Treasuries in its effort to bring down the unemployment rate.
ECB’s Reversal
As the Greek debt crisis threatened to spread in May 2010, ECB President Jean-Claude Trichet oversaw a policy meeting where he said the bank hadn’t discussed the option of buying government bonds. He instead called for “decisive actions by governments” to curb borrowing. Days later, the ECB said it would intervene to buy sovereign debt.
The BOJ, too, may want Kan’s government to spell out how it will pay for additional spending and provide assurance that debt will be reined in over time, some analysts said.
“The government spent a lot and sold a lot of bonds after the Lehman shock occurred, and Japan greatly stepped back from the fiscal rehabilitation,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. “The BOJ is basically reluctant to rush in expanding its balance sheet.”
Deflation Continues
At the same time, a lack of inflationary pressure undermines the argument that BOJ debt purchases run the risk of spurring inflation. A government report this week is forecast to show consumer prices, excluding fresh food, fell 0.3 percent in February from a year before.
“Eventually what’s going to happen is the Bank of Japan has to be a buyer of last resort for JGBs,” said Julian Jessop, an economist at Capital Economics Ltd. in London. “The economic recovery will be more muted so the Bank of Japan will be forced to do more.”
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