Market briefing --- Lori
Chart of the day - Tom (slow)
>> u.s. economic growth will downshift, say goldman sachs’ economists, but to the rescue, europe and finally japan, all in all, a more balanced global growth. time for a regular look at the “chart of the day” with bloomberg news editor-at-large tom keene. welcome.
>> we’re coming up to the end of the quarter, march 31 and different events. we talked about chairman bernanke’s speech last week and the fed meeting next week. i thought in the ebb of this week when it was quiet we’d take a long-term view. what a lot of economists are looking at is that the u.s. economy, the japanese economy, it’s a combination of all of them. i think of steve roach years ago at morgan stanley talking about the one-legged stool, the u.s. economy and many economists are saying finally things have changed. in this case, as you say, the u.s. economy maybe slows down in 2006 and the chinese economy continues forward. but the real news, again, the european economy may be surpassing expectations. goldman sachs saying the japanese economy and their recovery remains firm. the chart is one of the great stories of economics. 44 years of inflation-adjusted or deflation-adjusted g.d.p. in japan. you can see coming out of the 1960’s―remember, this is inflation-adjusted, 8%, 9% growth. this is china growth 40 years ago. then it comes down to a more normative level as japan moves into their golden years, the 1970’s and 1980’s and this is recession and with it that combination of slow economic growth and deflation but now up we go and goldman sachs even suggesting, in 2007, japan could grow faster than the u.s.
>> i want to get back to the stool analogy that stephen roach is talking about. how close are we to having a four-legged balanced stool worldwide?
>> the three legs are the three major g-3 economies, the u.s., japan and this grouping of europe into what’s called the euro economy.
>> are we wobbling still?
>> we’re wobbling still. that’s a very good question and a beautiful way of putting it. the u.s. is still the growth engine, 3%-plus growth. but the trend here and the rate of change is what’s important and what goldman sachs is saying is europe could surprise with better growth. and the japanese resurgence which we’ve seen in the past weeks, months and quarters, really seems to be taking hold. that’s very exciting. so it’s a three-legged stool and maybe you count china as a unique story as that fourth leg.
>> regarding japan, do economists watch growth or inflation more closely?
>> that’s an interesting question. i think it’s split. the bank of japan follows price and they’re very concerned that the deflation or total price decline we’ve seen stops, we get inflation and then inflation persists. that’s really all the bank of japan is looking at. but many other economists are looking at that growth part of the economy and you split it up from there, is japan’s growth coming from exports and from investment and construction or is it really coming from the japanese people from consumption and that’s where the jury’s out. we really don’t know in japan and even, say, in germany, is the consumption, the domestic economy, really finally coming on.
>> what’s the impact of a strong china on japan?
>> when you and i used to talk about this, it was soft landing/ hard landing. there’s been no landing. the chinese economy booms and all of the nations of the world benefit from that according to the vast majority of economists we talk to. but the adjacent or near nations, of course, really benefit and there’s no question from goldman sachs and i think of, say, lambert at r.b.k. in singapore, that china’s had a major help in moving japan into this area finally of recovery.
>> what’s the latest on when we might expect a rate increase in japan?
>> end of the year. jim o’neill at goldman sachs saying end of the year, earliest, even into 2007.
>> bloomberg news editor-at-large tom keene, thank you very much for joining us with today’s “chart of the day.” we will get you caught up on the latest world and national headlines and disney’s abc tv may be ready to jump into the thursday night battle for ratings supremacy. with dr. mcdreamy. we’ll explain next on “after the bell.”
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Listen Morgan Stanley -- Margaret (slow)
>> welcome back. a surprise for morgan stanley this morning. profit rose more than expected, up 17% as earnings climbed from selling merger advice and buying and selling stocks and fixed income securities. bloomberg’s margaret popper covers the brokers for us and joins us with more on the update for morgan.
>> morgan stanley was able to swallow a $395 million accounting charge and still boost profit. but gains lagged the other brokers in the first quarter. profit from continuing operation was $1.50 a share or 29 cents more than wall street analysts estimated. record rose 24% to a record $8.5 billion. the biggest revenue gain came from sales of merger advice, up 40% from a year ago. trading revenue rose 36% in both categories. the big surprise, discover credit card’s 14% increase. but c.e.o. john mack still couldn’t match competitors’ growth. m&a advice brought in half goldman’s total. stock underwriting revenue fell 2%. that business helped bolster stock trading where morgan stanley lagged goldman sachs, bear stearns and lehman in revenue gains. retail brokerage profit plunged 93% partly because brokers quit and last year’s one-time insurance gain showed up in the numbers. but investors like anton schutz say james gorman, the new head of the division, can turn it around.
>> morale has dramatically improved at this company and i think hiring gorman to work in retail is very important. they’ve had a runoff on brokers but a bigger percentage drop off in the number of brokers than the drop off in revenue so the people they’re keeping are better people. and i think once gorman has a chance to work with retail, i think that’s very, very important.
>> profit at morgan stanley’s asset management division fell 40% largely because of lower private equity revenue as the company exits that business. shares of morgan stanley rose about 2.5% today. back to you, lori.
>> margaret, before we let you go, morgan stanley had been talking about taking more risks. are they seeing that pay off in the trading business?
>> interestingly, they didn’t take more risks this quarter. their value at risk, the number you use to measure how much is at risk on average in a given day, fell from $96 million to $84 million. but what’s interesting is they took less risk and their trading improved.
>> what did they say about the retail brokerage unit?
>> there are definitely problems there. one analyst asked them, you know, your pretax profit margin is going in the wrong direction. it went to 8% from 15% a year ago. what are you doing about that? and david sidwell, the c.f.o. on the call, said, james gorman has been there five weeks, he’s the new guy in from merrill. it’s a place very much in transition. he’s already rearranged how the regions report in to him, he took over as head of national sales and put in two new guys from merrill to head a couple of the regions.
>> margaret popper, thanks so much for the update. meantime, c.e.o. john mack is taking more steps to meet his november pledge of doubling morgan stanley’s profit in five years. the firm said it would cut 50 to 60 equity research jobs in the europe and u.s. morgan stanley instead will spend more money on emerging markets , particularly in asia and eastern europe. the job reductions are set to take place this week and will
