A bizarre five days for all to remember

A bizarre five days for all to remember

By Michael Mackenzie and John Authers

Published: July 18 2008 19:45 | Last updated: July 18 2008 21:54

It was one of the most remarkable weeks in the history of financial markets. The US banking sector lost a quarter of its stock market value, then registered a 33 per cent gain. Rising oil prices spooked investors, then fell more than 12 per cent. Short-sellers, branded as the villains by politicians, were squeezed as never before.

Monday

Investors kicked the week off in a positive mood. Late on Sunday, the US Treasury had announced that it would backstop Fannie Mae and Freddie Mac, the two mortgage agencies, who either hold or guarantee $5,000bn of US home loans.

The S&P 500 initially rose as much as 1.1 per cent, the financials sector rallied 1.9 per cent. Shares in Fannie and Freddie rose 32 and 26.5 per cent respectively.

Then came a reversal amid second thoughts. Why was the Treasury resorting to such an action unless there was a serious problem? And what did this imply for the smaller regional banks which could not expect a government bail-out? The S&P closed down 0.9 per cent, the S&P financials fell 5 per cent to a five-year low, and the KBW index of commercial banks slumped 8.5 per cent to a 12-year nadir, while Fannie fell 5.1 per cent to $9.73 and Freddie lost 8.3 per cent to end at $7.11.

The failure of IndyMac Bank on Friday evening, the largest banking failure in a generation haunted the market and regional banks were hit hard by worried investors. Amid a flight to quality, the yield on the two-year Treasury note fell 12 basis points to 2.47 per cent. Credit held up better than stocks as the investment grade CDX index pushed 3bp wider at to 141bp.

The gyrations in stocks propelled equity volatility as measured by the VIX index to a high of 29.3, just shy of the psychological fear threshold of 30, last breached during the Bear Stearns crisis in March.

After trading down more than $2 a barrel at $142.49, the price of crude edged up 10 cents to $145.18 on Monday, close to its all-time record.The dollar mainly edged lower against its major rivals, although it held just above $1.59 against the euro.

Tuesday

The wildest roller-coaster ride of the week. Politicians intervened. Hank Paulson, the Treasury Secretary, and Christopher Cox, the chairman of the Securities and Exchange Commission, appeared with Ben Bernanke, chairman of the Federal Reserve before the Senate Banking Committee.

Mr Bernanke’s testimony painted a picture of an economy facing the twin threats of rising inflation and weaker growth. He said a “top priority” of the Fed was “helping the financial markets to return to more normal functioning”.

Investors responded by shifting expectations of a US rate hike from October to December.

That meant more heavy buying of bonds and the yield on the two-year Treasury plunged as much as 21bp to around 2.26 per cent.

Equities slumped as Mr Bernanke spoke, with the S&P falling 2.3 per cent and testing 1,200. Banking stocks suffered the harshest punishment. The S&P financials lost 5.7 per cent while the KBW was down as much as 7 per cent at one stage. But oil traders also responded to the Fed chairman’s bearish assessment and the price of crude oil plunged $9.26 to $135.92 a barrel before recovering a little.

This had a huge effect on other markets. The euro set a new high above $1.60 in early trade, but the dollar was able to recover once oil prices fell. Stocks lifted off their lows for the day. Then Mr Cox of the SEC announced an order halting naked short-selling – where shares are sold short without being borrowed first – in 17 Wall Street dealers and the two mortgage agencies.

Financial shares were briefly positive for the day, but the rally did not last. The S&P closed 1.1 per cent lower, while the S&P financials were 3 per cent lower and the KBW index fell 3.1 per cent. Shares in Fannie and Freddie endured another wild run. After they both fell by around 30 per cent, Fannie pared its loss to around 12 per cent, before it closed down 27.3 per cent at $7.07. Shares in Freddie pared a loss of 34 per cent to one of 10 per cent, before the stock closed 26 per cent lower at $5.26.Mr Paulson told the Banking Committee that he was requesting that Treasury be granted Congressional authority to lend to and purchase equity in Fannie and Freddie in unlimited amounts through the end of 2009.

Meanwhile, the Vix briefly traded above 30, a level not breached since Bear Stearns’ collapse.

The economic news was bad: retail sales rose less than forecast at 0.1 per cent in June, while sales excluding cars were up 0.8 per cent, while the producer price index surged 1.8 per cent in June for a 9.2 per cent gain over the past year, the largest annual rise since 1981. The core rate was contained at an annual rise of 3 per cent.

Wednesday

A further slide in oil prices, and a trio of better-than-expected earnings from regional banks, led by Wells Fargo, set the scene for a dramatic surge in stocks.

Many had been braced for a nasty surprise from Wells, which was heavily involved with home equity lines of credit. When the bank produced better results than expected, and boosted confidence by raising its dividend, it was rewarded with a 30 per cent rally. By the end of the day, Wells’ market capitalisation even exceeded that of Citi. Other financials rallied and by the end of the day traders were calling it “the biggest short-squeeze ever”.They had reached valuations so low as only to make sense if a banking collapse were imminent - now traders decided it was time to buy.

The financials index rallied 12.3 per cent and the KBW index jumped 17.3 per cent.

Fannie rallied 30.8 per cent to $9.25, while shares in Freddie jumped 29.9 per cent to close at $6.83

Crude oil fell to a low of $132 a barrel after a government report showed US supplies of oil had increased.

This helped overshadow terrible news on inflation: a 5 per cent rise in headline US CPI for the past year. The core rate rose 2.4 per cent over the year, still above the Fed’s ceiling of 2 per cent.

Thursday

The momentum continued, aided by more relatively healthy results from regional banks, and by another fall in the oil price, which closed below $130 a barrel, helped this time by a report showing higher natural gassupplies than expected. It had now fallen by 12.5 per cent since peaking ahead of the Bernanke testimony on Tuesday.

The S&P rose a further 1.2 per cent and closed back above 1,250 for the first time in a week.

The financials gained another 6.5 per cent, while the KBW index rallied 9.4 per cent, now more than a third from its Tuesday low.Fannie rose a further 18.2 per cent to $10.93 and Freddie gained 22 per cent to close at $8.33.

The two-year Treasury yield rose 15bp to 2.56 per cent. The dollar rallied as much as 1.9 per cent against the yen to Y107.09, its close the prior Thursday.

Friday

On Friday, the tumult showed some signs of abating, as the markets opened with renewed weakness in stocks and a modest rise in bond yields. Oil fell further and closed out the week below $129 a barrel. The S&P eked out a modest gain with financials up 1.1 per cent. Merrill Lynch managed to rebound from a fall of 5.5 per cent after its earnings disappointed and closed up 0.6 per cent. Meanwhile, Citi’s results sparked a rally of nearly 8 per cent.

Shares in the agencies rallied sharply once more and Fannie gained 22.6 per cent to close at $13.40, while while Freddie rose 10.2 per cent to $9.18. That placed Fannie up 30.7 per cent for the week, with Freddie higher by 18.5 per cent. Both had more than doubled since their lows only three days before.

The selling in financials, and the long positions in oil, had been overdone, and by the end of the week the investors in those trades had been punished.

But after all the drama, Fannie and Freddie still looked like deeply troubled institutions: both stocks remain some 70 per cent lower for the year.

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Taipei bids to save US arms deal

By Kathrin Hille in Taipei

Published: July 18 2008 23:30 | Last updated: July 18 2008 23:30

Taiwan has abandoned a bid to buy 66 F-16 fighter jets from the US in an attempt to rescue a larger arms package before President George W. Bush leaves the White House, according to national security officials in Taipei.

The decision came as Admiral Timothy Keating, commander of the US Pacific command, confirmed this week for the first time that Washington had frozen arms sales to Taiwan – a drastic departure from the line the US has followed in the past seven years.

Adml Keating said tensions had eased in the Taiwan Strait, and the administration had concluded “that there is no pressing, compelling need for, at this moment, arms sales to Taiwan of the systems that we’re talking about”.

However, Taipei officials said they believed that the US had temporarily put off arms sales in order to secure Beijing’s co-operation in tackling trouble in Iran and North Korea. They claimed there was disagreement among Mr Bush’s national security staff and within the US State Department.

Taiwanese officials said they were in 11th-hour consultations with US counterparts to end Washington’s freeze. “We hope that once the Olympics are over and things are less politically sensitive for Beijing, things can start moving again. Otherwise it will be too late to get these sales back on track under the current administration,” said a senior Taiwan security official.

The official said Taipei was no longer pursuing a previous request to acquire the F-16s, worth $5bn (€3.2bn, £2.5bn),as there now seemed no chance of success. “We are concentrating on the more basic, less controversial stuff right now,” he said.

Three months after taking office in 2001, Mr Bush gave approval in principle for a $11bn package of diesel-electric submarines, anti-submarine aircraft, and Patriot surface-to-air missiles. But Taiwan’s legislature repeatedly failed to approve the necessary funds, despite lobbying from US officials who said the military balance in the Taiwan Strait was tilting in Beijing’s favour.

The nationalist Kuomintang party, which had blocked approval, won Taiwan’s presidency and strengthened its control of the legislature this year and resumed a quasi-diplomatic dialogue with Beijing that had long been suspended.

Taipei is now concerned that Washington may have created a precedent that could prove difficult to reverse since the Communist-ruled mainland has long demanded the US phase out its arms sales to the island.

Beijing officials said this week that the sale freeze had been adopted “in deference to China’s demand”, pointing to a 1982 joint communique under which the US pledged to reduce weapons sales to Taiwan gradually.

The Taipei security official said: “We are reminding the US of its obligations under the Taiwan Relations Act.” That US law requires Washington to help Taiwan secure sufficient capabilities to defend itself against Beijing, which claims sovereignty over the self-ruled island.

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US builders forced to sell off holdings

By Daniel Pimlott in New York

Published: July 18 2008 22:26 | Last updated: July 18 2008 22:26

For decades American builders have, in the words of the Joni Mitchell song, “paved paradise and put up a parking lot”. Now, a combination of the housing slump, the energy crisis and soaring prices for food is helping to keep the bulldozers at bay.

Demand for new homes on the outskirts of US towns has fallen spectacularly in the last three years, while foreclosures and speculative building have created a far greater supply of homes than there are buyers. At the same time, soaring fuel costs have made the long commute to work that much less attractive.

The result is that farmland close to cities that has often been the seedbed for new housing developments is becoming less valuable to builders, at the same time as farmers want more of it.

As residential opportunities drain away, builders are seeking ways to cut their losses. In areas on the outer edge of suburbs this can also mean looking to sell to farmers and farm investors.

Lakewood Homes, a small mid-western builder, sold 290 acres of land in the Chicago suburb of Newark at $9,650 (€6,086, £4,831)) an acre in April, nearly 40 per cent below the $15,865 an acre the company paid for the land in November 2005, to a local agricultural investor. Now instead of hundreds of new homes, the land will yield a range of crops including corn and soyabeans.

“Basically what happened was we bought it as future development land and sold it as farmland,” said Chris Shaxted, executive vice-president of the firm.

“From a holding standpoint and in this economy, it just made more sense to let it go.”

More and more land is expected to return to farmers, according to Jeff Waddell of Martin, Goodrich & Waddell, a big farm real estate and management company in Sycamore, Illinois.

“There is so much product available, so much supply and such a need by owners to liquidate,” he said. He expects some residential land to sell for 75 or even 80 per cent discounts.

Hancock Agricultural Investment Group, one of the biggest institutional farmland owners in the US, recently bought land in California wine country from a builder liquidating his property at below market values, according to the fund’s president Jeff Conrad.

“People had inventory for future use and are liquidating these assets – they are more likely to do a deal and give you good purchase price,” Mr Conrad said. “Against that you have increasing demand for commodities across the board.”

While sales of new homes in May were down 62 per cent from their peak in 2005, corn prices have more than tripled over roughly the same time period.

The Westchester Group, the largest private investor in farmland in the US, has also recently pursued deals with homebuilders.

It is an unprecedented situation – since the second world war suburban sprawl has pushed ever outwards, as new towns have sprung up or expanded deep into the countryside at a seemingly unstoppable rate.

The American Farmland Trust, which campaigns to protect agricultural land, estimates that 1.1m acres are lost to development every year. But now that process has ground to a halt.

With homes lying empty in many outlying developments and weeds sprouting through the untended lawns of foreclosed homes, nature is retaking the suburbs.

Meanwhile, the depression in housing has come as farmland has experienced a remarkable boom in the last few years.

“One of the things we always say is that the best protective tool [against sprawl] is a profitable farmer,” says Jimmy Daukas, policy director of the AFT.

Land prices rose at an annual rate of 18.8 per cent over the four years to this March, compared with 1.43 per cent a year in the decade to the end of 2003, according to data from the National Council of Real Estate Investment Fiduciaries.

Prices have doubled or tripled in some areas. Some farmland in Bloomington and Champaign, Illinois, recently sold for $8,500 an acre, compared with a normal range of $4,800-$6,000 last autumn, according to Mike Morris, chief appraiser at First America Credit Services of America. As recently as three years ago, similar property was selling for $3,000.

Meanwhile, even some developers who do not need to sell are turning to their land for its farming income, seeking to minimise their losses from property.

California farmers report increasing requests from developers for them to farm plots that until recently were intended for single family homes, land which may have lain fallow for several years.

Brian Fedora, a farmer in the state, is overseeing 100 acres mostly consisting of walnut trees for a developer.

“It’s very promising to grow crops, so you are willing to take on a lot to make a bit more money,” he said in an interview from his tractor.

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Luxury market feels the pinch

By Bob Sherwood and Alistair Gray

Published: July 18 2008 22:33 | Last updated: July 18 2008 22:33

Inflation in luxury goods and services has dropped sharply in the past year, suggesting even the wealthy are feeling the effects of the downturn.

The Stonehage Affluent Luxury Living Index suggests inflation for a basket of expensive items including caviar, cigars, champagne, jewellery, watches, cars, art, hotels and even polo ponies has almost halved to 3.3 per cent in the year to April.

Its London index was running at 6 per cent in 2006-07, indicating the free-spending rich were being hit by higher than average inflation. But the figure is now more in line with the traditional Consumer Price Index which stands at 3.8 per cent.

Stonehage, the wealth management group which compiles the index, said even ultra-high net worth families appeared to be cutting their discretionary spending on luxury goods and services as the global economy slows.

Deflation was notable in some of the index’s items, including cars and watches.

A Panerai Luminor Submersible watch is now almost 17 per cent cheaper than last year at £4,500, and an Aston Martin DBS is down 15 per cent from £188,000 to £160,000.

John Selvadorai of Grange Aston Martin, a car dealer in Brentwood, Essex, said: “We’ve had to sharpen our pencil because we’ve had less people walking through the door.”

Customers “don’t want to be perceived to be spending the money when they’re having to lay people off or not pay people bonuses”.

Darren Street, sales manager at RSJ Sports Cars in Slough, Berkshire, which specialises in Porsches, said: “We get a lot of City customers and people who own their own businesses and I think everyone is affected.”

Property rental prices have also been flat compared with the previous five years which saw luxury rentals rise by 25 per cent.

Robby Hilkowitz, executive director of Stonehage, said: “At the top end, it is a money-oriented population that is well attuned to the markets and so they do tighten their belts even earlier than average consumers.”

However, items in limited supply continued to exhibit big price rises. A case of Lafite Rothschild 2000 wine was up 45 per cent to £13,415, while the global art price index was up 37.6 per cent.

Julian Downing, managing director of Suffolk-based Seckford Wines, which sells rare and fine vintages, said: “Definitely there has been a bit of pinch . . . The feelgood factor just isn’t there.”

LUXURY GOODS MAKERS SHRUG OFF DOWNTURN

Standing between the egg-shaped Alexander McQueen Empire Bag, retailing at £29,350, and the £43,000 one-off Steiff bear, made of cashmere and gold lamé, is a surprisingly relaxed Paul Kelly.

The credit crunch may be biting at the heels of some of Selfridges’ competitors, but it has yet to make its presence felt in Mr Kelly’s shopping halls.

The chief executive of the privately owned department store chain says the luxury market in London has remained immune to the downturn – for now.

“I honestly believe it is going to be a bumper Christmas,” says the chief executive as people mill around the chain’s press show. “Our philosophy is top people buy wonderful and unique things in difficult times.”

Over at Liberty, Walpole, the luxury trade organisation, is also hosting an event.

Mark Boddington, founder of Silverlining – which sells a limited number of its ultra-high-end bespoke furniture – says: “Our clients are only going to get richer.”

Meanwhile, Myla, the lingerie maker, says it is still enjoying underlying sales growth in the double digits and is planning on its biggest Christmas yet after opening its fifth standalone store in London this year.

The lower end of the luxury market, however, does appear to have begun feeling the pinch.

“Just in the last few weeks we can see it slightly fraying at the edges,” says Robert Ettinger of the eponymously named leather goods designer and manufacturer, whose wallets typically sell for about £120. “Up to that point I was very optimistic.”

Alistair Hughes, managing director of Savoir Beds, whose top-of-the-range models sell for £25,000, says business as a whole was holding up reasonably well. But he adds: “We are noticing it [the squeeze] at the bottom end, at £5,000.”

Guy Salter, deputy chairman of Walpole, does think luxury goods makers will have to work harder to secure custom. “If someone has got used to a certain level of quality, they are not going to buy stuff from Primark. But they are going to become much more careful about how they spend money. In recession, people will buy something, say a handbag, they can use for two or three seasons, so they will be looking for blue-chip brands.”

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Bush agrees withdrawal deal with Iraq

By Andrew Ward in Washington

Published: July 18 2008 20:09 | Last updated: July 18 2008 20:09

George W. Bush has agreed to commit the US to a “time horizon” for withdrawal of US combat troops from Iraq, marking a significant shift by a president who has long opposed setting target dates for ending the war.

The president struck the agreement with prime minister Nouri al-Maliki on Friday as part of negotiations over the long-term future of US forces in Iraq.

The White House insisted the goals would be subject to continued improvement in security conditions, in contrast to the Democrats’ call for a fixed timetable for withdrawal.

The Iraqi government had been pressing the Bush administration to commit to withdrawal dates as part of a proposed bilateral agreement to replace the United Nations mandate that currently authorises US operations in Iraq.

The White House said Mr Bush and Mr Maliki agreed that improving security conditions should allow for “a general time horizon” for the handover of cities and provinces to Iraqi control and further reductions in US troop levels.

No dates were agreed on Friday but the Iraqi government has proposed that all US troops should have left the country five years after Iraqi forces take leadership of national security – a precondition that could still be years away.

A spokesman denied the agreement represented a U-turn, arguing it was consistent with existing strategy to gradually hand control back to the Iraqis as security improved. “These are aspirational goals, not arbitrary timetables based on political expediency,” he said.

Barack Obama, the Democratic presidential candidate, has vowed to withdraw all combat forces from Iraq within 16 months of taking office, while John McCain, his Republican rival, has pledged to keep troops there indefinitely.

However, there is growing bipartisan consensus over the need to accelerate the troop drawdown in Iraq and increase troop numbers in Afghanistan, where violence is worsening.

Admiral Mike Mullen, chairman of the Joint Chiefs of Staff, said this week he expected to recommend further troop cuts this autumn, in addition to the roughly 20,000 who have already returned since numbers peaked at 170,000 last year. “I won’t go so far as to say that progress in Iraq… is irreversible,” he said. “But security is unquestionably and remarkably better.”

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LNG projects at risk?

Published: July 18 2008 08:59 | Last updated: July 18 2008 12:38

The law of unintended consequences or a lot of hot air? Gas producers in Australia are up in arms at the government’s proposed cap-and-trade carbon emissions scheme. If Canberra goes ahead as planned, it would threaten the viability of nearly $60bn worth of liquefied natural gas projects, says Woodside Petroleum.

As Australia’s second biggest oil and gas producer, Woodside is clearly talking its own book. But the company may have a point, as LNG might produce insufficient emissions to qualify for assistance. Under the Australian proposals, companies producing in excess of 1,500 tonnes of carbon dioxide/A$1m of revenue will be eligible for relief designed to protect emissions-intensive companies’ ability to compete globally. LNG producers could be too clean to claim protection but too dirty to be off the hook. Moreover, and unusually for a fuel, LNG gives off emissions at the point of production (liquefaction) as well as during combustion. What that means, in essence, is that Australia suffers part of the carbon dioxide hit while consuming countries – which include notorious pollution-belchers like China – benefit from cleaner fuel. Exporting that to Asia should count for something, since China and its ilk have only the most cursory obligations under the Kyoto Protocol.

The industry has a fair amount of ammunition under its belt. It is responsible for thousands of jobs and billions of dollars in tax revenues. But threats of upping sticks and scrapped projects may prove a little far-fetched; even at the early stages these are capital-intensive projects which would not be abandoned lightly. Australia’s resources and geopolitical stability make it an attractive location; hence the presence of international players like Shell and BG of the UK. Yet Canberra, already suffering inflationary pressures and keen to make up for its late arrival on the Kyoto register, will have limited appetite for a drawn-out tussle. The industry should be able to extract some concessions.

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Threat of ‘no-fun’ Olympics

By Mure Dickie, Geoff Dyer and Jamil Anderlini

Published: July 18 2008 20:47 | Last updated: July 18 2008 20:47

Just three weeks before the Beijing Olympics, concerns are growing that China’s sweeping security measures could end up sucking all the fun out of the world’s biggest sportsfest.

Pre-Olympic jitters are almost a tradition but a Chinese visa crackdown that has sent visitor numbers plunging, heightened security checks, dire warnings of terrorist attack and curbs on Beijing nightlife have led to some observers dubbing the 2008 Olympics the “no-fun Games”.

Michael Payne, the International Olympic Committee’s head of marketing for the two decades to 2004, said that in meetings with top Beijing organisers he has stressed a single word of advice: smile.

“The biggest challenge they have to face now is ensuring that the security doesn’t suffocate the festival,” Mr Payne said. “The Olympics are only special if there is a festival outside the venues.”

The atmosphere was less than festive this week at a checkpoint in Yanjiao on the outskirts of Beijing, one of hundreds thrown up around the capital where police with laptops and sniffer dogs halt traffic.

“I know they are working hard, but this really is overkill. We had been checked three times already before we arrived here,” said a bus driver from neighbouring Hebei Province.

The checkpoints are part of a security operation thrown up around the Games by leaders who fear they could be marred by protests, sabotage by “hostile forces” or terrorist attack.

Some popular nightclubs have already been shut while fear of closure has prompted others to cancel events. Officials yesterday denied reports that bars had been told to close their doors to black people or Mongolians.

Official restrictions have put a dampener on some Games-related corporate and marketing activities. Paul French of retail consultancy Access Asia abandoned plans for one client’s Beijing marketing event because of curbs on outdoor parties. “It has also been difficult to arrange to have the athletes leave the Olympics village to attend events,” Mr French said. “The organisers do not seem to want them to leave until they have competed.”

Tom Pattinson, editor of English language entertainment listings magazine Time Out Beijing, said the prospects for Games-time nightlife looked “very dull”.

“All those athletes who want to let their hair down and get drunk for the first time in four years are going to have a hard time doing it,” he said.

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'Descendants' of Alexander help to boost Macedonian identity

By Neil MacDonald

Published: July 19 2008 03:00 | Last updated: July 19 2008 03:00

This morning, an unusual delegation from the Himalayan foothills bids a quiet farewell to the Republic of Macedonia.

Prince Ghazanfar Ali Khan, his wife Princess Rani Atiqa and their entourage claim descent from Alexander the Great's conquering army, which reached their Hunza tribal homeland in northern Pakistan 23 centuries ago.

The fair-skinned, blue-eyed Hunza people, whose own accounts trace their descent to Alexander's march-weary troops, are renowned for their longevity and their high literacy rate.

Officials initially rolled out the red carpet for the septuagenarian prince and his entourage, who have toured cultural and historical sites since arriving at Skopje's Alexander the Great airport on July 11. Nikola Gruevski, prime minister, met the delegation, while a Macedonian Orthodox archbishop blessed it.

Hunza folklore gave a shot in the arm to the ex-Yugoslav country of 2m - still embroiled, 18 years after independence, in a frustrating "name dispute" with Greece, whose northern province is also called Macedonia.

Greece has made sure Macedonia cannot join Nato without a compromise name change. The latest round of United Nations-led talks in New York produced no breakthrough.

Mr Gruevski, who won a landslide re-election victory in June, has raised the ante by this week demanding recognition for a Macedonian (Slav) ethnic minority in officially homogeneous Greece.

But Mr Gruevski's critics have dismissed the Hunza visit as shallow populism and after ridicule in local newspapers, the youth and sport agency cancelled the princely couple's planned appearance in Skopje's main square last night.

The visit's main organiser was Marina Dojcinovska, a Skopje-based travel journalist who made a film about the far-flung tribe of "Macedonians" in 2005.

"This is a very special occasion for all Macedonians," Ms Dojcinovska said.

In fact, citizens proved divided about how literally to take their ancient origins. Their Macedonian language is closest to Bulgarian and other South Slavic tongues - pointing to roots in the tribal migrations about a millennium after Alexander.

Ana Petruseva, country director for the Balkan Investigative Reporting Network, said of the Hunza visit: "Everyone who's a bit more educated is laughing at this."

The Hunza of today, who are mostly Muslim, had not heard of modern Macedonia until 12 years ago, when an expatriate Macedonian linguistics professor drew their attention to it.

Ilija Casule, an associate professor at Australia's Macquarie University, said he recognised common grammar and terms for body parts between the Hunza people's Burushaski and Indo-European languages.

But there are plenty who question just how robust the links are. Most linguists classify Burushaski as an "isolate" unrelated to other languages. DNA research has also debunked claims of genetic links between Macedonians and the Hunza.

"Macedonia's doing what other European countries did in the 19th century . . . elevating folk tales to official history," said Sam Vaknin, an Israeli economic adviser in Skopje. "This belated adolescence has been exacerbated by Greek insecurities bordering on sadism."

Greece plays the same game, funding cultural centres and schools for the Kalash, another set of Alexander claimants in Pakistan and Afghanistan. In the 1930s, scientists in Nazi Germany also combed the Himalayas in search of lost Aryan cousins.

Athens accuses Josip Broz Tito, the Yugoslav communist leader after the second world war, of "inventing" Macedonian ethnicity in the hopes of grabbing a piece of the Aegean coast.

Yet Skopje's popular identification with Alexander did not blossom until after the 1990s Yugoslav break-up, Macedonians argue.

Sensing threats on all sides, Macedonian patriots have become more stubborn on identity, calling themselves "Alexander's descendants" even though the ancient conqueror personally had no known children.

Aleksandar Dimiskovski, a business consultant in Skopje, says: "The [Hunza] visit provides affirmation of our ties to the former Macedonia of Alexander the Great. Approval from these people confirms that the legacy of ancient Macedonia belongs to the Republic of Macedonia, not just to Greece."

That is a view that remains very much in contention. Bulgaria refuses to recognise a separate Macedonian language. Serbia's church keeps Macedonians out of the worldwide Orthodox communion. And an ethnic Albanian minority of roughly 25 per cent challenges the young state's internal stability.

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BP counts cost of Russian dispute

By Ed Crooks in London and Catherine Belton in Moscow

Published: July 18 2008 20:29 | Last updated: July 18 2008 20:29

When Robert Dudley, TNK-BP’s chief executive, warned on Thursday that a legal action brought against him by 16 Russian employees would “tear the company apart”, he expressed BP shareholders’ greatest fears.

Mr Dudley later glossed his remark to explain he meant the dispute with the Alfa-Access-Renova group of Russian tycoons that are BP’s partners in TNK-BP would “destroy value, [not] the entire company”.

But the prospect of progressive decline in the 50:50 joint venture that provides a fifth of BP’s reserves and a quarter of its production is enough to make any investor nervous.

TNK-BP, seen as a strategic triumph when it was created in 2003, has turned into a trap. BP’s shares have under-performed its peers by 4 per cent since the dispute with AAR flared up in March.

At a time when in other respects BP appears to have been heading in the right direction, with new projects coming on stream and operational achievement improving, that performance is particularly disappointing.

So it is not surprising that there is talk among some investors that BP should just exit Russia by the least painful route it can find.

Stan Polovets, AAR’s chief executive, believes BP’s shareholders can be persuaded it is in their interests for BP to accept the changes to TNK-BP proposed by the Russian side, including the removal of Mr Dudley.

He met shareholders, including Blackrock and Fidelity, on a recent visit to London, to explain AAR’s position.

“Like any private equity investor that is not happy with a company’s performance and strategy, we want to make changes,” he said. “If our recommendations are accepted, they could lead to the creation of value for all shareholders.”

BP, of course, does not see it that way. If it accepts AAR’s recommendations, its influence over TNK-BP will be undermined. If it continues to resist, however, it is clear that the attacks on the value of the joint venture will keep coming.

There is little sign that TNK-BP’s performance has suffered. Indeed Alistair Graham, BP’s chief liaison with the joint venture, said 2008 had so far been its best year ever.

Production rose in the three months to June for a third successive quarter at a time when output in Russia’s oil industry as a whole has been falling.

BP argues, however, that if the dispute drags on, TNK-BP’s performance is bound to be affected, and the effects will show next year.

This is an important time for TNK-BP, with several big projects due to come on stream next year and in 2010.

Mr Graham said that the absence of some project managers who had already been forced out as a result of the dispute could have an impact on the efficiency of drilling projects and production growth.

AAR has also challenged TNK-BP’s capital spending programme, challenging its plan to invest about $4.4bn this year, and calling for a cut to $3.5bn.

Mr Graham said: “We want to increase capex to bring on new fields, but AAR have rejected that.”

Another person close to TNK-BP said that decision-making on future projects had ground to a halt”.

Many industry experts believe BP has been out-fought by the sharper and more aggressive Russian tycoons. Mikhail Fridman and his partners in AAR have deep pockets, and have no shareholders to keep happy. He has shown in the past he is prepared to settle in for a long fight.

But Tony Hayward, BP’s chief executive, is determined to battle on. Conceding would be a crushing defeat that is also likely to be costly for shareholders.

“Companies like BP are built to take on this kind of challenge,” says Jon Rigby, an analyst at UBS. “If it does walk away, it would be damaging to the reputation of the management and so to the value of the business.”

The struggle between BP and AAR continues, with the Russian authorities playing a central role. On Friday, Mr Dudley won a temporary reprieve from immigration officials who granted a him a 10-day visa just one day before he would have been forced to leave the country.

However, state labour inspectors kept up the pressure, transferring to court a case against him for alleged violations of employment laws, which could lead to his suspension.

With both sides entrenched and determined not to give ground, and still no sign the Kremlin is prepared to step in and resolve the dispute, shareholders can expect the turbulence to continue, for months and quite possibly even for years.

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Barclays and HBOS cash calls shunned

By Peter Thal Larsen, Chris Hughes and Dave Shellock

Published: July 18 2008 21:01 | Last updated: July 18 2008 22:56

Shareholders have shunned multi-billion-pound fundraisings by Barclays and HBOS as investors owning more than 80 per cent of each chose not to take up their rights to buy new shares.

Barclays said on Friday that shareholders accounting for just 19 per cent of the UK’s third-largest bank had decided to participate in the £4.5bn offering. People involved in HBOS’s £4bn rights issue, which closed on Friday morning, expect an even smaller percentage of investors to have taken up their rights. The bank is expected to announce the level of acceptances on Monday.

Both Barclays and HBOS are guaranteed the proceeds of their share offerings, which were underwritten by investment banks and investors. Nevertheless, the poor response is ignominious, particularly for HBOS, which has seen its shares plunge by more than 40 per cent since the bank announced its rights issue almost three months ago.

The decision to avoid the share issues comes after a rollercoaster few days for global banking stocks, which saw a sell-off in the first half of the week sharply reversed in the past two days, helped by better-than-expected quarterly results from Citigroup and JPMorgan Chase.

The bank rally helped the FTSE 100 record its first weekly advance since mid-May, ending a nine-week run of losses that marked the worst losing streak since May 2002. The benchmark UK index closed at the day’s high of 5,376.4, up 1.7 per cent from Thursday’s close and 1.9 per cent higher over the week.

The FTSE 350 banking sector surged 11 per cent over the week, making it one of the market’s best performing sectors in the five days although it is still down more than 27 per cent from the start of the year.

Shares in Barclays on Friday rose 29.75p, or more than 10 per cent, to close at 320.25p, above the 282p at which the bank’s share offer was priced. HBOS closed at 282p, up 13.75p, which is above the 275p rights issue price for the first time in almost two weeks but too late to affect the take-up of the rights issues.

If HBOS’s shares remain above 275p next week, Dresdner Kleinwort and Morgan Stanley, which underwrote the issue, have two days in which to attempt to place the unsold shares in the market. If they cannot sell the shares for more than 275p, the stock will be distributed among underwriters and sub-underwriters, exposing them to potential losses.

Most institutional shareholders in HBOS decided not to subscribe to the issue on Wednesday, when the shares closed 20.5p below the issue price. But many may now have to buy stock in the market to prevent their exposure from being diluted.

Barclays chose to place its shares with large investors who are expected to be long-term holders. As a result of the low takeup, the Qatar Investment Authority will become Barclays’ largest shareholder with a stake of about 6 per cent.

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投資協定早期締結、ウズベクと一致　ウランを安定確保

　【タシケント＝森本学】額賀福志郎財務相は18日、ウズベキスタンを訪問し、首都タシケント市内でカリモフ大統領と会談した。世界的な原子力発電の広がりで需要拡大が見込まれるウランを安定的に確保するため、鉱山の新規開発が期待される同国と投資協定の締結や資源開発で連携を深めることで一致した。

　会談ではカリモフ大統領が「日本は信頼できるパートナーだ」と強調し、日本企業による国内の資源開発への投資に期待を表明。民間投資にかかわる許認可制度などを緩和する政府間の投資協定の早期締結を目指すことで合意した。

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輸入小麦、10月も値上げ　政府、８月決定

　政府が国内製粉会社に売り渡す輸入小麦の価格が、10月は2割前後の引き上げとなる公算が大きくなった。小麦の国際価格の高騰が続いているためで、8月に正式決定する。小麦価格は毎年、4月と10月に改定するが、引き上げは昨年4月以降、4回連続となる。

　これまでの引き上げではパンやめん類の値上げが相次いでおり、製粉各社が小麦粉価格の再引き上げに踏み切るのは確実な情勢。めんやパンといった小麦粉を原料とするメーカーも再値上げする可能性が高い。

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ガソリン卸値　新日石、市場連動で決定　10月から週ごとに改定

　石油元売り最大手の新日本石油は10月からガソリンなど石油製品の卸値の決め方を現在のコスト積み上げ型から市況連動型に変更する。透明性の高い市場価格を基準に価格を自動的に決めることで、交渉の手間を省く。さらに現在の月ごとの価格改定を週ごとに改める。新方式が導入されると店頭価格はより頻繁に変わるとともに、需要低迷期には値下がりしやすくなりそうだ。

　新しい値決め方式はまず、新日石の顧客である石油販売会社が指標として東京工業品取引所の先物価格か、大手調査会社が公表しているスポット（業者間転売）価格のいずれかを選ぶ。1週間の平均価格に運賃などの諸経費を加えて翌週分の卸値とする。規模の大小を問わず、基本的に一律の卸値となる。

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鹿島や大成、鋼材高で建設手法転換　鉄骨から鉄筋コンクリに

　大手建設会社が鋼材価格の高騰に対応した建設手法の転換に乗り出した。鉄骨を使う建設構造から鉄筋コンクリート（ＲＣ）への転換で耐震性などを維持しつつ鋼材使用量を大幅に減らす戦略。鹿島が今後、倉庫建設での顧客提案を鉄骨造からＲＣ造に全面的に切り替える方針を打ち出したほか、大成建設などはＲＣ造の超高層ビル建設を始める。これにより5―10％の工事費削減をめざし、事業採算の改善を狙う。

　鉄鉱石などの資源高騰を背景に、建物の柱などに使う鉄骨材料となるＨ形鋼の価格は年初から5割上昇。これに伴い鉄骨造のオフィスビルは工事費全体が約 4％、鋼材コストの比率が高い倉庫の場合は工事費が8％以上も増加した。工事費高騰が建設需要低迷に拍車をかける形ともなっており、建設各社は鋼材使用量が少なくなるＲＣ造への転換でコスト構造を抜本的に変える狙いだ。

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医療用医薬、主力品を海外に　武田やエーザイ

　製薬大手各社が医療用医薬品の海外販売を相次ぎ強化する。武田薬品工業はフランスで抗がん剤の新製品を発売し、エーザイは東南アジア10カ国で糖尿病治療薬の製造販売の承認を申請する。医療用医薬品は各社とも国内向けが中心だが、2010年前後から、主力薬の特許切れで収益性が低下する見通し。競合品の少ない国を狙って既存の主力薬を売り出し、収益基盤を広げる狙い。

　武田薬品は前立腺がん治療薬「リュープロレリン（日本名リュープリン）」の新製品の製造販売承認をフランスで取得し、発売準備に入った。投与から6カ月間は効果が持続する製品で、既存の1カ月や3カ月タイプの製品に追加し、品ぞろえを強化、患者の利便性を高める。

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三洋、欧州向け太陽電池拡大　ハンガリー生産３倍

　三洋電機は欧州で太陽電池事業を拡大する。ハンガリーの組み立て工場の年間生産能力を約3倍に引き上げ、国内拠点でも欧州向けに供給体制を強化する。欧州ではドイツなど主要国政府による導入支援策で太陽電池の需要増が続いている。シャープが欧州電力2位のエネルと提携して太陽光発電所づくりに乗り出すなど、国内大手は欧州市場を成長戦略の中核に位置づけ始めた。

　生産能力を増強したのは生産子会社の三洋ハンガリー（ドログ市）で、日本から輸出した中核部品を太陽電池パネルに組み立てている。数十億円を投じて新棟を建設、今春に本格稼働を始めた。生産効率の高い最新鋭ラインの導入で年間5万5000キロワットだった生産能力を最大で同14万5000キロワットに引き上げた。

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橋下知事：人件費など削減幅１８億円圧縮　大阪府予算案

　大阪府の橋下徹知事は１９日、０８年度本格予算案について、職員人件費と私学助成の削減額を一般財源ベースで計１８億円（事業費ベースで２０億円）縮小すると表明した。職員の基本給は、部長級を除く一般職の減額率を０．５ポイントずつ引き下げ、３．５～１１．５％とした。私学助成では、幼稚園の経常費助成の削減幅を５％から２．５％に圧縮。財源確保のための府債の追加発行はせず、小幅な修正にとどまった。

　修正を反映させた予算案は、２３日の臨時議会最終日に採決される。自民、公明の両会派が修正内容を評価しており、可決される見通し。財政再建プログラム案で来年度からの実施を予定している授業料軽減助成の削減も、補助対象となる世帯の年収上限を５４０万円から６８０万円に引き上げるなどの修正をした。

　人件費については、基本給カットの圧縮のほか、一般嘱託員と非常勤講師の雇用単価の減額を撤回するなどし、削減額を約１６億円縮小した。幼稚園経常費助成は、削減幅の圧縮で約２億円の修正になるという。修正の財源は、当初の予算案で見込んだ単年度黒字１４億円を充て、財政調整基金から約４億円を繰り入れる。前年度からの繰り越しを含めた赤字額は、３６億円から５０億円に増加する。

　当初の予算案に盛り込まれた人件費削減案は、一般職の基本給４～１６％、退職手当５％の削減が主な柱。３４５億円の削減効果を見込んだが、府議会では自民、公明の両与党を含む主要４会派が「人材の確保に影響が出る」と橋下知事に再検討を求めていた。

　私学経常費助成は当初、幼稚園５％▽小・中学校２５％▽高校・専修学校１０％の削減幅を設定し、３０億円の効果を算定。幼稚園については、改革プロジェクトチーム試案の１０％から引き下げた経緯があるが、公立幼稚園が近隣にない地域が多い中、公立との負担格差の拡大を懸念する声が強まっていた。小・中学校と高校は修正を見送った。

　また、女性総合センター（ドーンセンター）を運営する男女共同参画推進財団は、自立化の時期を１年延期し１０年度からとした。

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たばこ：１箱２００円上げも　自民税調が大幅増税検討

　自民党税制調査会（津島雄二会長）は１８日、０９年度税制改正でたばこ税を大幅に引き上げる方向で検討に入った。景気低迷で法人税収が落ち込む一方、消費税の早期増税も困難な中、「税収確保には欧米に比べ税率が低いたばこ税増税が不可避」（幹部）と判断した。１本当たり５円以上の大幅増税となる可能性が高く、１本当たり１０円引き上げ、現在１箱（２０本）３００円のたばこを５００円にする案も浮上している。

　各種試算によると、現在３００円のたばこ１箱の価格を５００円にした場合、禁煙者が増えて販売量は減るが、国と地方を合わせた税収は約２．２兆円（０８年度見通し）から約１．５兆円程度増える見込み。増税が実現すれば、０９年度から予定されている基礎年金の国庫負担率引き上げの財源（年間で２．３兆円）の一部に充てることも可能になる。

　たばこ税増税をめぐっては、消費税増税に慎重な自民党の中川秀直元幹事長が民主党など野党議員も参加する超党派の議員連盟を結成、「たばこ１箱１０００円」も視野に入れて増税を求めている。自民税調や財務省も「増税は避けられない」との立場だが、１０００円にすれば喫煙者が急減し逆に税収が大幅に減少しかねない面もあることから、「１箱５００円までが上限」との見方が大勢だ。

　これに対し、日本たばこ産業（ＪＴ）や小売店、葉タバコ栽培農家は「たばこ業界が壊滅的な打撃を受ける」と増税に猛反発している。自民税調は増税への理解を得るため、税収増の一部を葉タバコ農家への支援に回すことなども検討する方針だが、実際の増税幅をめぐる調整は年末まで続く可能性が高い。

　たばこ税は０３年と０６年にも１本当たり１円、１箱当たり２０円引き上げられている。

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ロシア：新指導要領に「当惑と遺憾」　北方領土記述で批判

　【モスクワ大木俊治】ロシア外務省は１８日、日本の新学習指導要領の解説書で北方領土について「ロシアに不法に占拠されている」と記述されたことについて、「当惑と遺憾」を表す声明を出した。

　声明は、日本側の姿勢が「２国間の協力発展にも国境問題自体の解決にも寄与しない」と指摘。日本政府はロシアとの交渉で協調姿勢を見せながら、国内向けには正反対の姿勢を崩していないと非難している。

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British finance minister paints bleak picture of economy
AFP
AFP - 1 hour 30 minutes ago

LONDON (AFP) - Britain's economic downturn is worse than previously thought and there is no extra money available for public spending, Chancellor of the Exchequer Alistair Darling said in an interview published Saturday.
(Advertisement)

Darling also told The Times newspaper that taxpayers were at the limit of what they were willing to pay, a day after official data showed a record deficit in Britain's public finances, and reports that the government might bend its budget rules.

"At Christmas most people remained hopeful there would be an improvement by the autumn," he said.

"Most people would now say it's far more profound. It's affecting every economy and everybody. I can't say how long it will last."

He added: "We are going through a very, very difficult time."

Darling said that the economic picture was "at the bottom end of my range" set out in his annual budget in March.

On public spending, the finance minister said he has been "very clear with my colleagues that there is no point them writing in saying, 'Can we have some more money?' because the reply is already on its way and it's a very short reply."

"I told them at the last meeting of Cabinet they've got to manage within the money they've got."

The Office for National Statistics said on Friday that public sector debt at the end of June was at 38.3 percent of GDP, but increased to 44.2 percent when the impact of nationalised mortgage lender Northern Rock is included.

Public finances were at a record deficit of 15.5 billion pounds in June compared with the same time last year, well over market expectations of a 12.3-billion-pound deficit.

The Financial Times, meanwhile, reported that finance ministry officials were working on plans to revise the rules to allow for increased borrowing without raising taxes amid the current economic downturn.

One of the fiscal rules sets a government borrowing limit of 40 percent of national income.

In The Times interview, Darling played down the report and reiterated comments made Friday that the Treasury constantly reviews its fiscal rules.

He noted, however, that while voters will "pay their fair share ... you can't push that."

"My judgment is that there are a lot of people in this country who feel they work hard, they make their contribution and they're feeling squeezed."