NEWS AT A GLANCE
The great recession firewall of China
Japan, Canada, and several major European economies are teetering on the edge of recession, and the best hope for avoiding a global recession lies with booming countries like China. A global recession, which doesn’t require a contraction in global GDP, would be much longer and more serious than just a slowdown, so economists are paying close attention. A slowdown is bad enough—the financial crisis has already trimmed $10 trillion from world equity market capitalization. Stephen Roach of Morgan Stanley sees a 1-in-3 chance of a global recession, which he defines as less than 2.5 percent GDP growth. The risk would be higher, he says, but for the “relative strong growth, albeit reduced growth, out of developing economies like China.” (Reuters)
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Merrill’s British $29 billion tax trick
Merrill Lynch booked $29 billion in losses, mostly from U.S. subprime mortgages and collateralized debt obligations, at its London-based subsidiary, likely freeing it from paying U.K. taxes for decades to come. Based on a corporate tax rate of 28 percent, Merrill stands to save as much as $8 billion. It was able to do this because it shuttled almost all of its global CDO activities through its Merrill Lynch International unit. (Financial Times, free registration) But London isn’t alone. New York taxpayers are shouldering much of the burden for banks’ massive losses, with several firms seeking refunds from prepaid taxes. “It will be a number of years before Wall Street starts paying taxes again,” said Mayor Michael Bloomberg. (Bloomberg)
Kohl’s looks up, Nordstrom down
Midprice retailer Kohl’s raised its full-year profit forecast after reporting a better-than-expected 12 percent drop in quarterly profit, to $236 million. At the same time, high-end department store Nordstrom cut its fiscal-year forecast after posting a 21 percent drop in profit, to $143 million. Kohl’s—like Gap Inc.—benefited from tight inventories, while Nordstrom, like Macy’s, was hurt by discounts and a department stores slump. But the forecasts were also indicative of a consumer shift to lower-priced retailers. (MarketWatch) The Labor Department said yesterday that consumer prices rose 5.6 percent in July, versus July 2007, while the inflation-adjusted average wage dropped 3.1 percent. (Los Angeles Times)
Homebuilding, Amish-style
There are now about 600 Amish contractors or subcontractors working in at least 12 states, which is a sizable jump from a decade ago. The Amish builders, who specialize in a timber-frame construction method that avoids using nails, frequently build houses faster, of higher craftsmanship, and at lower cost than other contractors. But there are downsides—the Amish generally aren’t allowed to own phones, cars, computers, or insurance. Those are inconveniences, not least because they can make finding Amish builders a challenge. “I have a lead on a Mennonite now,” says Jim Zik, who couldn’t secure an Amish contractor. “They are allowed to drive and have phones, so it should be easier.” (The Wall Street Journal)
