Chinese markets continue to implode. The still booming Chinese economy is now home to the imploding Chinese stockmarket. For the second time in three weeks, the market is heading for a weekly loss of more than 10% — and it’s down 37% so far this year. Like Australia, the Chinese Government is worried about inflation and the Central Bank this week ordered banks to lift their reserve deposits to a record 16%, which set off a surge of selling on the stockmarkets. This week saw China’s first quarter growth remain solid — the economy grew at more than 10%, down from 11.9% in 2007 — and inflation fell marginally in March, but at 8.4% it is still well above the Government target of around 4%. There’s an awful lot riding on the health of economies like China and India. Their continuing growth, and that of Brazil, Russia and smaller economies like Indonesia and Turkey, is seen as the difference between a sluggish global economy and a slowing global economy next year. — Glenn Dyer
FBI gunning for subprime fraudsters. The subprime mortgage crisis is starting to look more and more like a re-run of the Enron and WorldCom scandals. In a speech overnight, the head of the FBI, Robert Mueller, revealed an expanded number of criminal investigations that may extend into hedge funds and private equity groups:
We are investigating more than 1,300 individual mortgage fraud matters. Perhaps more importantly, we have identified 19 corporate fraud matters related to the subprime lending crisis—cases that may have a substantial impact on the marketplace.
We are targeting accounting fraud, insider trading, and deceptive sales practices. These investigations may well lead to other instances of fraud, from investment banks and private equity firms to hedge funds.
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This is on top of 33 separate investigations that the Securities and Exchange Commission says they have running into aspects of the subprime mess. — Glenn Dyer
UK housing slump bites. While the US housing slump gathers the headlines, things appear even worse across the Atlantic. Yesterday Bloomberg reported the story of ill-fated UK property investor, Richard Lee. Lee spent £5.3 million acquiring twenty rental properties across the UK. Amazingly, Lee only used £150,000 of his own savings and financed the rest. Sadly for Lee, a slumping UK property market has meant that the assets are only worth 60 percent of what they cost and have now been repossessed. According London-based Savills, house prices in the UK tripled between 1997 and 2007, while “the buy-to-rent market” increased 19-fold, so there could be a lot more to fall. — Adam Schwab
MacBank model pronounced dead. It was Crikey founder Stephen Mayne who first nick-named Macquarie Bank the Millionaire Factory back in April 1997. Now even The Economist have used it in this hard-hitting feature on the bank. Macquarie doesn’t enjoy all this global attention, but it will probably be more worried after its biggest backer, JP Morgan banking analysts Brian Johnson, declared the listed fund model “dead” in an update this week. New CEO Nicholas Moore will really have his work cut out if all those fees from the funds disappear.
And most embarrassing moment of the week. Reuters quoting the wrong share price for its new owners, Thomson Reuters (formed from the Canadian-based Thomson’s takeover of Reuters), in London. Unfortunately, bitter rivals Bloomberg got it right — as the FT reports:
Soon after Niall FitzGerald, deputy chairman, and Devin Wenig, head of the new Thomson Reuters Markets division, opened the session at the London Stock Exchange, Reuters terminals showed the stock trading at a double-digit discount to the £18.26 opening price.
Traders with Bloomberg terminals, however, were less panicked as Thomson Reuters’ rival had calculated the opening price at £17.20.
By the end of London trading, both agreed the closing price was £15.60 but one showed a fall of 14.6 per cent and another drop of 9.3 per cent. Thomson Reuters was forced to admit that its own screens were showing the wrong opening price.
The discrepancy was caused when the former Reuters “corporate actions group”, which calculates adjustments for dividend payments and stock splits, chose to base the group’s starting value on the former Thomson share price rather than the old Reuters price.