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Japan’s gross domestic product (GDP) achieved the first growth in five quarters in the Q-2, indicating that the world’s second largest economy has climbed out of recession. According to a preliminary report released by the cabinet office Monday, the Japanese economy grew by an annualized 3.7% in real terms in the April-June period, the first rise since the Q-3 Y 2008 when Japan, along with the 15-nation Euro-zone, sank into its first recession in seven years as the global financial crisis took a heavy toll on the world’s second largest economy and curbed demand for its exports.. The expansion in GDP, which was lifted by consumer and government spending, came following a revised annualized 11.7% plunge in the previous quarter and a revised 13.1% dive in the October-December quarter of 2008. On a quarter-on-quarter basis, the economy rose 0.9% in the Q-2, said the office in a preliminary report. Meanwhile, consumer spending was up 0.8%quarter-on-quarter in real terms while corporate capital spending dipped 4.3 percent, according to the report. Public investment jumped 8.1% , pushed by the government’s fiscal stimulus packages to fight the recession, compared with a 9.5% fall in housing investment.

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Only one week after the US$ hit its lowest level for 10 months, the main talking point in FX markets is whether the US currency is about to strengthen. The change of sentiment has been sparked by last week’s US payrolls report, which saw far fewer job losses in July than expected. This strengthened the view that the US is past the worst of its recession and that its economic recovery could precede that of Europe and Japan. Some traders are hesitant to call an end to the trend of US$ weakness, given that the currency’s rebound has been based on its reaction to a single piece of economic data, but if the US$ does continue to rise, it would mark a very significant development given the pattern of trading that has tended to characterize the currency markets since the onset of the financial crisis. This has seen the US$ benefit from haven demand when equities, and hence risk appetite, have fallen. In contrast, the US$ has lost ground when stocks and investor confidence have risen as investors abandon the relative safety of the US currency in search of higher returns elsewhere.

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Since the World’s credit markets seized up on September 8, 2009 many corporations are either cutting costs, waiting for government bailout money, or preparing for bankruptcy, as banks are reluctant to lend to all but the most credit worthy and then at unconventionally high interest rates.

In the center of the storm lies the US, UK and EU financial industry where it all started.
The US Federal Deposit Insurance Corporation said last week that the nation’s banks and thrifts lost US$32.1B in the Q-4 Y 2008, the first quarterly deficit in 18 yrs, compared with the US$575MM profit in Q-4 Y 2007. The industry’s net income for Y 2008 plunged from US$16.1B to US$10.2 B for the period.

In the US eighteen federally insured banks have failed so far this year. Last year the number was 25, more than the total number of the previous five years, and up from only three in 2007.
Shares of Citigroup Inc., once the most powerful U.S. bank, have fallen below 1 dollar this month. Pummeled by the financial crisis, the group has lost more than 98 % of its value from its peak in October 2007, and is down more than 95 % from a year ago.

The American International Group (AIG), covered almost daily in www.stockpreacher.com’s Stock Talk, reported this month that it lost US$ 61.7B in Q-4 Y 2009, the largest corporate loss in history. AIG has benefited since from more than US$170B in federal rescue funds with more likely needed and to come.

HSBC Holdings PLC, the largest bank in Europe, early this month reported a 70% drop in its Y 2008 profit and said it would cut 6,100 jobs as it closes its consumer loan business in the United States. It also announced that it would cut its dividend and not pay bonuses to top executives.

In the US, the DJIA sank below 6,800 on March 3, its lowest close since May 1997, losing more than 50% from its highest level in October 2007. Since then the S&P 500 has staged a 19.8% rally off of its lows in the same frame.

On March 23 when the markets were surprised by the US government’s latest plan on clearing bad bank assets and a larger-than-expected rise in existing home sales, the three main indexes all surged more than 6.5% on the day.

Some Economists suggest that financial crisis has yet to bottom out, and the real economy continues to slip as the global economic situation deteriorates.

Therefore, stimulus spending, market confidence, financial regulation and free trade will be key issues at the G20 summit of the World’s leading developing and developed economies next week in London.

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Chinese President Hu Jintao said here Saturday that the current international financial crisis, despite its severe impact on China’s economy, also means an opportunity for the country.

China should take the opportunity to change its development pattern and realize structural adjustment so as to maintain a steady and relatively fast economic growth, Hu said when joining a panel discussion with deputies of the National People’s Congress (NPC) from south China’s Guangdong Province.

“Challenge and opportunity always come together. Under certain conditions, one could be transformed into the other,” Hu said. Hu went on to say that China should make full use of its advantages to break the bottlenecks of development.

He also called for efforts to promptly and creatively implement the policies and plans of the central government to create conditions for solid and rapid development in the future. In face of impacts of global financial crisis, China should seek both a temporary solution and a permanent cure, and make efforts to upgrade its industry and improve competitiveness of Chinese enterprises, said Wu, chairman of the NPC Standing Committee.

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Warren Buffett conceded that his holding company, Berkshire Hathaway, turned in its worst performance on record as the financial crisis drew the world’s economy into a deepening recession, and gave investors little reason to believe a turnaround is imminent.

In his annual letter to Berkshire shareholders, Mr. Buffett recounted how frozen credit markets dovetailed with tumbling home and stock prices to imperil many of the world’s biggest banks and produce “a paralyzing fear that engulfed the country.” “By yearend,” he wrote, “investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game.”The billionaire also urged his legions of followers to remember that the stock market usually rises; the Standard & Poor’s 500 Index has produced annual increases in 75% of the past 44 years, and may do so again even if the downturn persists. “We’re certain, for example, that the economy will be in shambles throughout Y 2009, and, for that matter, probably well beyond.

But that conclusion does not tell us whether the stock market will rise or fall,” he wrote. Regardless, Mr. Buffett wrote, Berkshire will stick with a strategy that has produced an annual compounded growth in book value of 20.3%: maintaining its “Gibraltar-like” financial strength, improving the competitive position of its existing businesses and making new acquisitions that bolster earnings.

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The financial crisis will be harder to end than the Great Depression and may force banks to be nationalized, “Black Swan” author Nassim Nicholas Taleb said. A more complex financial system makes the current problems, which cut global stock market value by 55% to US$28T since October 2007, worse than the contraction in the 1930s, Taleb said in a Bloomberg Television interview today.

Bonuses paid on Wall Street encouraged risk taking with no regard for losses, he added. Rare and unforeseen events are known as “Black Swans,” after Taleb’s 2007 book, “The Black Swan: The Impact of the Highly Improbable.” The financial crisis isn’t one, he said. “The “black swan” for me would be for us to emerge out of this unscathed and return to normalcy,” Taleb said.

Compared with the Great Depression, this crisis is “very different, and it requires much more drastic action.” Taleb’s book was published in May 2007, about three months before the credit crunch led banks to announce write downs and credit losses that now total more than US$1T

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