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To: Jim Willie CB who wrote (4961)	6/23/2003 9:10:50 AM
From: 4figureau	Read Replies (2) \| Respond to of 5423

Is China Scrapping Dollar Peg? Not So Fast: William Pesek Jr. June 23 (Bloomberg) -- Markets are buzzing about China's currency policy, and some of the world's biggest investment banks are feeding the frenzy. Citigroup Inc., Deutsche Bank AG and UBS AG last week joined Goldman Sachs Group Inc. in predicting China will scrap its 8.277 peg with the U.S. dollar within a year. It's possible, but the odds don't favor a change that soon. Speculation reached a fever pitch last week after U.S. Treasury Secretary John Snow said China is considering a shift to a more flexible exchange rate. While Beijing says no timetable has been set, traders figured Snow knew something they didn't. Contracts that gauge traders' estimates of the yuan's value a year from now have traded feverishly ever since. The rationale is that China, the world's most dynamic economy, can afford to relax its peg because a weaker U.S. dollar has lowered the yuan and boosted exports. Beijing may see it as a goodwill gesture to head off trade friction. Manufacturers around the globe worry China's currency is giving it an unfair advantage. Besides, Beijing should seriously consider freeing the yuan. If China trusted markets to set the yuan's value, perhaps markets would have more confidence in its stewardship. The government talks a great deal about free-markets approaches toward its economy. Here's a way to act on that talk. Change and Uncertainty Let's not get ahead of ourselves, though. If there are two taboos in the Chinese political psyche, they are change and uncertainty. Freeing the yuan would mean embracing both at the same time. It's hard to see such drastic change occurring until the current crop of Chinese leaders settles in. They've only been in power a few months. On top of that, SARS continues to hover over Asia's second biggest economy. It will take time to discern how much damage severe acute respiratory syndrome is doing. It may take even longer to see how much Beijing's poor handling of the crisis damaged investors' trust in the government. All this would be uncertainty enough, but China has other problems. Its banking system is harboring a bad-loan problem that could be worse than Japan's. Corporate governance concerns are casting a dark cloud over the economy. China's cheap land and labor costs may be attracting lots of foreign direct investment, but institutional investors aren't rushing there. Before China is in a position to handle the economic and political uncertainties brought on by a flexible exchange rate, its underlying financial system must be sound. It also would help if China had more developed and liquid bond markets that could smooth out the transition from a pegged yuan to a freer one. WTO Commitments Trade liberalization, meantime, is likely to toss millions more out of work. China's commitments under the World Trade Organization will destabilize many sectors of the economy, possibly leading to social unrest. Rising exports and increased investment will be necessary to create jobs and maintain stability. ``Until the domestic financial problems are fixed, revaluation and full currency convertibility will not be a priority for China's new leaders,'' says Qu Hongbin, senior economist at HBSC Holdings Plc in Hong Kong. Instead, he thinks movement in that direction will be ``glacial.'' It seems more logical for Beijing to scrap Hong Kong's currency peg first. Hong Kong is being strangled by an overvalued currency; its 7.8 per U.S. dollar peg is intensifying the deflation chipping away at the island's real estate and asset markets. While many argue the Hong Kong peg is the source of its stability, it's also one of its biggest problems. Since Hong Kong has a first-world banking system, why not unlock its currency first? Bejing's Decision Hong Kong's role in all this is one of the biggest imponderables. Its currency is overvalued, while China's is considered undervalued. If the yuan is set free, or Beijing adopts some kind of managed currency band, traders may begin attacking Hong Kong's peg. That's what speculators did in 1998 during the Asian crisis. Then markets figured Hong Kong would have to abandon its peg; it didn't. Yet the decision is Beijing's. China resumed control of Hong Kong in 1997, and any move to un-peg the currency will be made as much on political grounds as economic ones. If economic concerns were paramount, Hong Kong's peg would've gone five years ago. Ditto for its yuan policy, one that may not change as soon as thought. ``I attach a zero percent probability that there will be a change in the exchange rate regime in China this year,'' says Stephen Jen, chief currency analyst at Morgan Stanley & Co. in London. ``In 2004, however, provided that the U.S. economy does start to recover, there is a meaningful risk, but still one that is less than 50 percent, that Beijing introduces some flexibility in the yuan.'' quote.bloomberg.com

To: Jim Willie CB who wrote (4961)	6/23/2003 9:14:27 AM
From: 4figureau	Read Replies (1) \| Respond to of 5423

Home Foreclosures Hit Record High Reuters Friday, June 20, 2003; 2:48 PM By Richard Leong NEW YORK (Reuters) - U.S. mortgages in foreclosure climbed to a record high in the first three months of 2003 as job losses and personal bankruptcies forced more people out of their homes, a mortgage industry group said on Friday. Home loans in the process of foreclosure climbed to 1.2 percent of all mortgages in the first quarter, beating the previous high of 1.18 percent set in the fourth quarter of 2002, the Mortgage Bankers Association of America said. Mortgages entering the foreclosure process rose in the quarter to 0.37 percent from 0.35 percent in the fourth quarter. The percentage of all loans for one- to four-unit homes that were delinquent -- at least 30 days overdue -- slipped to 4.52 from 4.53 in the fourth quarter. The housing market has been a pillar of strength for the sluggish U.S. economy. Ultra-low interest rates have fueled record home sales and an unprecedented mortgage refinancing boom that has freed up billions of dollars in cash for consumers to pay down debt, save or spend. While benefiting from the lowest borrowing costs in more than four decades, Americans have been straining to meet their mortgage payments and credit card bills. In fact, the first-quarter increase in foreclosures was driven by the rise in foreclosed home loans owed by homeowners with blemished or "subprime" credit histories, Mortgage Bankers Association chief economist Doug Duncan said in a conference call on its latest loan study. Until the economy improves and companies hire again, more Americans will default on their debt, economists say, and if defaults gain and the increase in home values slows, this will hamper economic growth. "It will be more difficult to work out trouble loans," Duncan said. Economists and the financial markets have been hopeful that the economy will pick up steam in the second half of the year, boosted by money from refinancings, the latest round of tax cuts and an anticipated rate cut by the Federal Reserve. If economic growth accelerates in the second half, Duncan said the average rate on 30-year mortgages, held by most U.S. homeowners, would rise to 5.5 percent at the end of the year from the current 5 percent. Duncan expects the Fed to lower short-term rates by a quarter point at its meeting next week. MIDWEST HIT Foreclosure rates rose in the Northeast, the North Central region and the South, but held steady in the West. In the first quarter, more homeowners fell behind on their mortgage payments in the South and North Central region, while fewer in the Northeast and West were late on their payments. Foreclosures and mortgage delinquencies in the Midwest were higher than the national average in the first quarter due to heavy job losses in the manufacturing sector, Duncan said. Among the 50 states, Indiana posted the highest foreclosure rate, at 0.68 percent, and Mississippi had the highest delinquency rate, at 6.73 percent. At the other end of the spectrum, New Hampshire had the fewest home loans in foreclosure, at 0.17 percent, and South Dakota had the lowest percentage of homeowners behind on their mortgage payments, at 2.26 percent. washingtonpost.com