Chicago, IL – November 5, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Wal-Mart (WMT), Target (TGT), Claymore China Small Cap ETF (HAO), Coca-Cola (KO) and Aflac (AFL).

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Here are highlights from Wednesday’s AnalystBlog:

China Booming Again

The long-term key for China is to generate more consumer demand at home so it is not forever dependent on exports to fuel its growth. This is the mirror image of what the U.S. needs. We cannot forever run trade deficits, consuming more from the rest of the world than we produce.

It is the trade deficit that drives the expansion of U.S. debt held by China, not our fiscal deficit. Remember that point, it is an important one -- and one that the vast majority of talking heads on TV just don’t seem to get. Of course, each country’s exports are another country’s imports, and for every trade surplus, there must be an offsetting trade deficit somewhere else in the world.

So far it has been a pretty sweet deal for the U.S.: we get all the goods that fill the shelves of Wal-Mart (WMT) and Target (TGT), and they get little green pieces of paper. Recently those little green pieces of paper have been going down in value. How much longer does China want to send us real useful stuff in return for those pieces of paper (or, more accurately, little blips inside of computers)?

They have done so thus far because along with the paper, making that stuff they send abroad (actually, they export more to Europe than they do to the U.S.) creates jobs, and China needs jobs for social stability. However, so does the U.S., as our unemployment rate approaches 10%.

The deal is getting progressively less sweet for both sides as the dollars keep on piling up in Beijing. The solution over the long term is for China’s 1.3 billion people, the majority of whom still live in poverty, to start to consume more. If that can be accomplished, then Chinese society will be more stable, it will be able to maintain its employment levels and the U.S. might actually start to add a few jobs.

This would also greatly benefit the millions of smaller non-state-owned firms in China. The best way to play that trend is in the Claymore China Small Cap ETF (HAO), which has by far the largest exposure to the Chinese consumer of any of the China ETF’s. Buying individual stocks that are direct plays on the Chinese consumer is a risky proposition and is probably best left to those who can both read Mandarin and decipher financial statements written in it.

While China’s market has done well so far this year, so have most emerging markets. However, the economies of most emerging markets have not come close to matching the performance of the Chinese economy.

Underpinned by the strength in China, and rapidly growing inter region trade, the World Bank sees all of East Asia growing at a 6.7% rate in 2009, up from 5.3% growth seen back in April. Since Japan’s growth is likely to be rather sluggish (but also improving), that implies solid growth for the rest of the region. As the auto sales numbers yesterday showed, the Korean auto industry is not exactly hurting that much anymore.

In short, there are better places in the world to invest than in the U.S., and most U.S. investors are still far too heavily weighted towards domestic investments. However, you don’t just have to buy ADR’s or ETF’s to have international exposure. U.S. companies that get a high proportion of their sales from Asia will also probably benefit from the growth there. Coca-Cola (KO) would be a good example to take a well-known name. Aflac (AFL) is another, although for them the revenues come from Japan, not China.

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Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

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Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.

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Investors see Hungary becoming “significantly” less risky, allowing for further reductions in interest rates, central bank Deputy Governor Ferenc Karvalits said. “Over the past few months, international risk appetite has improved significantly, the risk assessment of the region and Hungary has stabilized, and this allows for further easing of monetary conditions,” Karvalits said in an interview on Kossuth Radio today.

The Magyar Nemzeti Bank lowered its benchmark interest rate by half a percentage point to 8 percent on Aug. 24 as it works to jolt the economy out of its worst recession in 18 years. The bank has shaved 1.5 points off the key rate since July as confidence rises in the first European Union nation to get a bailout. Hungary received 20 billion euros ($28.5 billion) in an emergency loan from the International Monetary Fund, the EU and the World Bank.

The country has a “good chance” to finance its budget deficit from the market and may not need the next installment of the IMF loan, Karvalits said. The forint weakened 0.3 percent against the euro and was trading at 268.82 at 7:48 a.m. in Budapest.

You see, one of the principal reason why Hungary is in such a mess is that as inflation shot up in the months leading up to the crisis Hungary chose to loosen its peg against the Euro. At the time, the rationale seemed wise albeit very bold. In an environment where investors were willing to take risk (i.e. hunting for yield) their objectives could be aligned with that of public authorities in the sense that the former got their yield whereas the latter got the nominal appreciation needed to keep inflation in check.

It did not work quite like that.

As the crisis hastened its grip on global markets and as its locus steadily moved to Eastern Europe the Hungarian Forint plummeted and lay bare the country's vulnerabilities in the context of balance sheet (on the liability) side denominated in Swiss Francs. The result was that Hungary crashed into a recession unable to tweak monetary policy downwards because of a fear that this would scythe the Forint and thus essentially bankrupt scores of households and companies. On the other, the government also had (and has) difficulties raising funds on international capital markets.

Now however things appear to have changed at least for a moment and Hungary's central seem poised to take advantage of the relatively benign market conditions to lower interest rates to support its ailing economy. The underlying idea is simple. If you believe that risk aversion is to stay low, the Forint should not be sensitive towards the lowering of nominal interest rates since after all the carry remains plentiful. In this way, my view is that Hungary's central bank is trying to claw back the control over monetary policy by locking in a lower interest rate for the Forint. The key question which we should be asking ourselves however is of course whether Hungary could actually be forced to raise rates further down the road to defend the Forint. Clearly, bets are being made inside Hungary at the moment that this is not the case.

This is very interesting in a practical as well as a theoretical sense as I have discussed for example in this post about carry trade and global monetary policy. More recently, Edward Hugh mused on the same topic (more or less) invoking the idea of the (eternal) triangle of monetary policy in an open economy context.

In the case of the Central Europe "four", Poland and the Czech Republic opted for maintaining their grip on monetary policy, thus accepting the need for their currency to "freefloat" and move according to the ebbs and flows of market sentiment. As it turns out this decision has served them remarkably well, since the real appreciation in their currencies which accompanied the good times helped take some of the sting out of inflation, while their ability to rapidly reduce interest rates into the downturn has lead to currency depreciation, helping to sustain exports and avoid deflation related issues.

The other two countries (Hungary and Romania), to a greater or lesser degree prioritised currency stability, and as a result had to sacrifice a lot of control over monetary policy, in the process exposing themselves to the risk of much more violent swings in market sentiment when it comes to capital flows. Having been pushed by the logic of their currency decision towards tolerating higher inflation, they have seen the competitiveness of their home industries gradually undermined, and as a consequence found themselves pushed into large current account deficits for just as long the market was prepared to support them, and into sharp domestic contractions once they were no longer disposed so to do.

Edward's account here is important since it alerts us to the fact that it was only at the very end that e.g. Hungary opted for float because it was believed that it would make the inflation problem go away. At that point however, the structural imbalances and essentially damage were already embedded in the system of course. Nevertheless, it is unequivocally the fact that Hungary, at the moment, is attempting to benefit from the relative benign market conditions which means that risk aversion remains relatively subdued.

Elsewhere in Market Land ...

If our little trip to Hungary suggests that risk is on, if only a little bit and potentially in the case of Hungary news elsewhere suggest that the waters are more choppy. Of course, none of this is earth shattering by any means of the word, but since much, if not everything, seems to be revolving around China at the moment it seems worthwhile to dwell at recent news on how China are expected to "tweak" its hitherto lax lending policies to skim the worst of the mounting bubble (quote below from Bloomberg).

China’s banking regulators are “tweaking” lending policies to remove “froth” from the system while growth remains the top priority for policymakers, according to Royal Bank of Scotland Group Plc. The goal is to manage risk exposure among banks and asset quality by checking lending from going into A-shares traded on the mainland and properties, Wendy Liu, Hong Kong-based head of China research at RBS ABN Amro, said in a report dated yesterday.

(...)

The banking regulator sent draft rule changes to banks on Aug. 19 that would require lenders to deduct all existing holdings of subordinated and hybrid debt sold by other lenders from supplementary capital, said the people, who have seen the document and declined to be named as the matter is private. This may cut lending by as much as 700 billion yuan ($102 billion), China International Capital Corp. said Aug. 24.

Of course, the main bias of the Chinese stimulus program and thus the authorities' objective remain one of promoting growth through the expansion of domestic investment and, one would assume, consumption. As RBS ABN Amro's Wendy Liu is quoted of saying; "policymakers have a far greater tolerance for asset-price appreciation over the medium term than before". That sounds about right to me even if I am no sage, at all, on China.

What is interesting in the case of the recent news from China was also the following piece by Bloomberg whose headline (Yen Strengthens as China Policy Concern Spurs Demand for Safety) makes a direct link between policies in China and risk sentiment in the market and thus also the movement of the Yen and the USD (remembering of course the narrative that repatriation of profits may ultimately be the main driver of the Yen at the moment).

The yen rose for a third day against the euro in the longest stretch of gains since July on concern Chinese production curbs would slow economic recovery, fanning demand for the relative safety of Japan’s currency. The currency gained versus major counterparts including the pound on speculation Japan’s exporters are repatriating earnings to take advantage of a new tax law. A government report today may show a faster contraction in the U.S. economy than previously estimated.

“We have talks from China cutting back expanding, trying to sort out the balance sheet and prevent too much reckless lending,” said Peter Frank, a London-based currency strategist at Societe Generale SA. “But domestic factors, like capital repatriation, are driving yen’s strength right now.”

Whether there is a history to be made here is debatable, but one thing is certain. China seems to have decidedly taken center stage in the global market discourse. Finally and essentially as a small footnote, yours truly took notice of the fact that despite the decidedly positive sentiment in the core of Europe at the moment on the back of the Q2 GDP print and upbeat confidence readings in Germany, aggregate retail sales continued their steady decline.

Whether all this signifies that risk is "on" or "off" I will allow the reader to decide for themselves. Personally, I am still bearish, but it is difficult to deny that the relative calm and positive environment that has prevailed since spring seems rather strong. I would expect sentiment to change once we return to "normal" in Q4 once the elections in Germany and Japan have been resolved and, more importantly, once OECD stimulus packages start to wane. Most importantly however, there is the situation in Southern and Eastern Europe still loom as the most likely harbringers of, if you will, black swans in which case risk almost surely would be off.

So now, there'll be even a greater need for reasoned analysis. One addition to the discussion is a Symposium on China's impact on the global economy just published in Pacific Economic Review (August 2009). From my introductory chapter to the symposium:

Over the past decade, China's presence in the global economy has grown increasingly large. Along many dimensions, China is, rightly or wrongly, perceived to have an enormous impact. In the trade arena, China is now widely considered to be the world's workshop, displacing some traditional exporters of labour-intensive goods, even as its economy is ever more closely woven into the fabric of the increasingly fragmented chain of production....

The development of trade linkages has been accompanied by such rapid economic growth that the resulting demand for inputs has driven up commodity prices: at least that is the popular view. China has also become a large net saver in the world economy, as its current account has expanded in recent years. Figures 1 and 2 highlight these trends.

In this volume, our contributors examine several aspects of China’s economic interactions with the world economy. In so doing, they cast some light on the Chinese economy's prospects.

The contributors include Jeffrey A. Frankel (Harvard University); Steven Dunaway (Council on Foreign Relations), Lamin Leigh (IMF), Xiangming Li (IMF); Charles P. Thomas, Jaime Marquez, Sean Fahle (all Federal Reserve Board); Willem Thorbecke (George Mason University and RIETI), Hanjiang Zhang (University of Texas); Francois Lescaroux (GDF Suez), Valerie Mignon (University of Paris Ouest and CEPII); and Joshua Aizenman (UC Santa Cruz), Yothin Jinjarak (Nanyang Technological Institute). Also in the issue are two other China-related papers, by Michael Dooley (UC Santa Cruz), David Folkerts-Landau (Deutsche Bank), Peter Garber (Deutsche Bank); Yin-Wong Cheung (UC Santa Cruz), Xingwang Qian (SUNY Buffalo). Many of these contributors have had their research discussed on Econbrowser posts dealing with China.

The entire introduction is here, while the table of contents and articles are here. Below are the abstracts from the papers in the symposium.

New Estimation of China's Exchange Rate Regime (p 346-360)

Jeffrey A. Frankel

The present paper updates the question: what precisely is the exchange rate regime that China has put into place since 2005, when it announced a move away from the US dollar peg? Is it a basket anchor with the possibility of cumulatable daily appreciations, as was announced at the time? We apply to this question a new approach of estimating countries' de facto exchange rate regimes, a synthesis of two techniques. One is a technique that has been used in the past to estimate implicit de facto currency weights when the hypothesis is a basket peg with little flexibility. The second is a technique used to estimate the de facto degree of exchange rate flexibility when the hypothesis is an anchor to the US dollar or some other single major currency. Because the RMB and many other currencies today purportedly follow variants of band-basket-crawl, it is important to have available a technique that can cover both dimensions, inferring weights and inferring flexibility. The synthesis adds a variable representing 'exchange market pressure' to the currency basket equation, whereby the degree of flexibility is estimated at the same time as the currency weights. This approach reveals that by mid-2007, the RMB basket had switched a substantial part of the US dollar's weight onto the euro. The implication is that the appreciation of the RMB against the US dollar during this period was due to the appreciation of the euro against the dollar, not to any upward trend in the RMB relative to its basket.

Since the paper was written (late-2008), Frankel has observed that the Chinese have essentially reverted to a dollar peg.

How Robust Are Estimates of Equilibrium Real Exchange Rates: The Case of China (p 361-375)

Steven Dunaway, Lamin Leigh, Xiangming Li

Assessments of a country's real exchange rate relative to its 'equilibrium' value as suggested by 'fundamental' determinants have received increasing attention. Using China as an example, the present paper illustrates models commonly used to derive equilibrium real exchange rate estimates. The large variance in the estimates raises serious questions about the robustness of these results. The basic conclusion is that, at least for China, small changes in model specifications, explanatory variable definitions, and time periods used in estimation can lead to very substantial differences in equilibrium real exchange rate estimates. Therefore, such estimates should be treated with great caution.

In this article, the authors cover some of the same ground Cheung, Fujii and I surveyed, with largely the same conclusions, but different approaches.

Measures of International Relative Prices for China and the USA (p 376-397)

Charles P. Thomas, Jaime Marquez, Sean Fahle

In this paper we assemble a measure of international relative prices to gauge the average amount by which prices in China and the USA differ from the prices of their trading partners. Our estimated weighted average of relative prices for China and the USA are the first to use the significantly revised purchasing power parities embodied in the price data from the World Bank's World Development Indicators. Our analysis reveals several findings of interest. First, interactions between the structure of trade and the levels of relative prices are sufficiently important to induce divergences between the weighted average of relative prices and conventional real effective exchange-rate indexes. Second, revisions embodied in World Development Indicators price data generally lower the estimate of US international relative prices. Third, net exports are inversely related to the estimate of US international relative price, but, for China, the correlation is positive. Estimating this correlation for other countries reveals no systematic pattern related to the level of development alone. Fourth, unlike previous work, using our price measures we find that an increase in US prices relative to Chinese prices raises the share of China's exports to the USA. Finally, there is a distinct possibility of eliminating the long-standing differential in income elasticities of US trade in empirical applications.

The Effect of Exchange Rate Changes on China's Labour-intenstive manufacturing exports (p 398-409)

Willem Thorbecke, Hanjiang Zhang

Chinese policy-makers fear that an RMB appreciation will reduce low technology exports. We investigate this issue using data on China's exports to 30 countries. We find that an appreciation of the RMB would substantially reduce China's exports of clothing, furniture and footwear. We also find that an increase in foreign income, an increase in the Chinese capital stock, and an appreciation among China's competitors would raise China's exports. Because Europe is the second leading exporter of labour-intensive manufactures behind China, these results indicate that the appreciation of the euro relative to the RMB since 2001 has crowded out European exports.

These two articles provide different perspectives on the issue of how exchange rate changes impact Chinese trade flows. For recent discussion of this subject, see [7].

Measuring the Effects of Oil Prices on China's Economy: A Factor-Augmented Vector Autoregressive Approach (p 410-425)

Francois Lescaroux, Valerie Mignon

The aim of this paper is to investigate the impacts of oil prices on the Chinese economy. To this end, we rely on the factor-augmented vector autoregressive methodology, which allows us to evaluate the response of various macroeconomic variables to an oil price shock. Our results suggest that an oil price shock leads to: (i) a contemporaneous increase in consumer and producer price indexes, inducing a rise in interest rates; (ii) a delayed negative impact on GDP, investment and consumption; and (iii) a postponed increase in coal and power prices.

The USA As the 'Demander of Last Resort' and the Implications for China's Current Account(p 426-442)

Joshua Aizenman, Yothin Jinjarak

The present paper evaluates the current account patterns of 69 countries during 1981-2006. We identify an asymmetric effect of the USA as the 'demander of last resort': a 1% increase in the lagged US imports/GDP is associated with a 0.3% increase in current account surpluses of countries running surpluses, but results in insignificant changes in the current accounts of countries running deficits. The impact of US demand variables is larger on the current accounts of developing countries than that of OECD countries. We also contemplate China's current account over the next 6 years, and project a large drop in its current account/GDP surpluses.

Also related are the two other papers in the issue. The first is an update on the Bretton Woods II argument, by my former colleague, Mike Dooley and his coauthors:

Bretton Woods II Still Defines the International Monetary System (p 297-311)

Michael Dooley, David Folkerts-Landau, Peter Garber

In this paper we argue that net capital inflows to the USA did not cause the financial crisis that now engulfs the world economy. A crisis caused by such flows has been widely predicted but that crisis has not occurred. Indeed, the international monetary system still operates in the way described by the Bretton Woods II framework and is likely to continue to do so. Failure to properly identify the causes of the current crisis risks a rise in protectionism that could intensify and prolong the decline in economic activity around the world.

They focus, rightly, on "catastrophic failure of risk management", on the part of both private and public (my emphasis) sector agents. In other words, they are quite skeptical of what I called the "Blame it on Beijing" meme favored by the previous Administration (see Economic Report of the President, 2009) and many other observers.

The second is by another former colleague, Yin-Wong Cheung and his coauthor

Empirics of China's Outward Direct Investment (p 312-341)

Yin-Wong Cheung, Xingwang Qian

We investigate the empirical determinants of China's outward direct investment (ODI). It is found that China's investments in developed and developing countries are driven by different sets of factors. Subject to the differences between developed and developing countries, there is evidence that: (i) both market-seeking and resource-seeking motives drive China's ODI; (ii) Chinese exports to developing countries induce China's ODI; (iii) China's international reserves promote its ODI; and (iv) Chinese capital tends to agglomerate among developed economies but diversify among developing economies. Similar results are obtained using alternative ODI data. We do not find substantial evidence that China invests in African and oil-producing countries mainly for their natural resources.

Chinese outward FDI must be a hot topic. Another study, by a former colleague of mine from EOP days, Dan Rosen, has just published China's Changing Outbound Foreign Direct Investment Profile PB09-14 (with Thilo Hanemann).

By the way, a slightly older but still very relevant, compendium is the volume entitled China's Growing Role in World Trade, edited by Rob Feenstra and Shang-Jin Wei

Among the number of economic posts that are due today, investors are likely to take a cue from Federal Reserve's interest-rate policy announcement that is due at 2.15 ET.  Expectations are that the central bank will hold the interest rates steady.  Also, May new home sales report is due out after the start of trading.  Monday saw increased risk-aversion in the market after the World Bank's report and the Vix volatility measure jumped 11.4%. 

But as governments across the world have geared up to prevent a collapse of the financial system, and a full-blown depression has been avoided, investors will now look toward the Fed for guidance on its exit strategy, on any expansion of its $300 billion Treasury purchase plan, as well as its views on rising yields. A bullish view form the Fed would likely put equities back on track to resume its three-month rally.

Among S&P sector groupings, six recorded moderate declines yesterday, with utilities down 1.0%, consumer services off 0.7%, consumer goods off 0.3%, industrials and tech down 0.2%, and health care off 0.1%.  Basic material sector shares jumped 1.9% and oil and gas edged up 0.7%  Financials, taking a cue from FBR Capital's raised earnings projections and price target on Goldman Sachs (NYSE:GS), advanced 1.4%.

According to the National Association of Realtors, existing home sales gave further evidence that housing may be stabilizing as falling prices, increased foreclosure activity and government tax breaks attracted buyers, sending sales 2.4% higher in May, though slightly lower than an expected 2.6% increase.

Investors this week are likely to take leads from data on housing, durable orders, and final GDP numbers for the first quarter.  Also, a change in FOMC directives is expected to have an impact on stock prices.  The World Bank's projection that the world economy will shrink by 2.9% is likely to drive sentiments this morning.  The bank had earlier forecast a 1.7% contraction. 

Among S&P sector groupings, all but one recorded declines during the week.  Basic materials stocks led the decliners with a 7.1% fall, followed by oil and gas, off 6.9%, and industrials, down 5.2%.  Only healthcare sector finished the week higher, with a 2% advance.  E*Trade Financial Corp (NASDAQ:ETFC) declined 36% to $1.26 after the online brokerage sold $478.5 million to shore up its capital base.  Oil prices went below $70, hurt by expectations of seasonal declines in US gasoline prices.  Exxon (NYSE:XOM) declined 3.7% to $71.05 and Freeport-McMoRan Copper & Gold Inc (NYSE:FCX) plunged 13% amid speculation that Chinese demand for copper is falling.

According to Thomson Reuters, second quarter earnings are likely to decline about 35% y/y, with declines likely to continue before a sharp 190% jump in the final quarter. The S&P forward-looking price-earnings multiple currently stands at about 15 times earnings, up from about 12 times in the first quarter, with the rise largely attributed to price gains rather than rising earnings numbers.

The two-day FOMC meeting, which starts on Tuesday, is unlikely to reveal a major policy shift and is likely to hold rates of 0-0.25% steady.  The week's planned $104 billion note auctions will also place pressure on yields, raising fears on inflation as well as a crushed recovery.

Chicago, IL - April 27, 2009 - Zacks Equity Research picks Teva Pharmaceuticals (TEVA) as Bull of the Day and Amgen, Inc. (AMGN) as Bear of the Day. In addition, the analysts at Zacks Equity Research discuss the latest on Wells Fargo (WFC), US Bancorp (USB) and SunTrust (STI).

Full analysis of all these stocks is available at: http://at.zacks.com/?id=2678

Bull of the Day

We are initiating coverage on Teva Pharmaceuticals (TEVA) with a Buy rating and a price target of $52. We are impressed with the company's strong performance in 2008 despite the global slowdown and are optimistic on growth prospects.

We expect Teva to continue posting strong revenues and earnings going forward thanks to new product launches, both generic and branded. We are also pleased to see Teva's progress with its branded and biogenerics pipeline. Biogenerics should help drive growth in the long-term.

Meanwhile, the recent acquisition of Barr Pharma should help Teva strengthen its position in the U.S. and expand its presence in Europe. We believe that the current share price represents an attractive entry point for long-term investors and recommend purchase up to the $52 level.

Bear of the Day

Results over the past few quarters demonstrate the challenging environment for Amgen, Inc. (AMGN) specifically with its key products, Aranesp and Enbrel. Management believes that the first quarter represents a trough with respect to product sales.

We struggle to see what re-accelerates Amgen's top-line in the second half of the year. Management's revenue guidance of $14.4 to $14.8 billion looks high to us, and seems to include significant inventory stocking on key product and/or a big upfront licensing deal for denosumab. We are hesitant to model either.

Amgen should be able to meet its EPS target of between $4.55 and $4.75, but with the top-line most likely staying weak, we struggle to see how the stock moves higher. We are advising investors to exit the stock. Our target is $40.

Recent Analysis from the Analyst Blog

World Meets on the Economy 

While we would view these meetings as positive for developing counties, both Dominique Strauss-Kahn [managing director of the International Monetary Fund (IMF)] and Robert Zoellick [the head of the IMF's sister organization, The World Bank] warned that the crisis is far from over. In addition, both believe the U.S. and Europe should allow developing countries an enhanced participation in the management of the World Bank.

In Ms. Strauss-Kahn's speech Thursday, she state that the IMF's governance should be reformed to permit a great influence from emerging markets and low-income countries. Currently, the IMF forecasts that the world economy could moderate by 1.3% this year, marking the first time a global decline would be registered since World War II.

At some point during his meetings with the G7 finance ministers today, Timothy Geithner, U.S. Treasury Secretary, should be outlining will outline the administration's efforts to clean up the U.S. banking system, in order to get the banks to lend again. If the efforts com to fruition, financial entities such as Wells Fargo (WFC), US Bancorp (USB) and SunTrust (STI) may be willing to open there coffers to borrowers.

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=2649.

About the Bull and Bear of the Day

Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

About the Analyst Blog

Updated throughout every trading day, the Analyst Blog provides analysis from Zacks Equity Research about the latest news and events impacting stocks and the financial markets.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today by visiting http://at.zacks.com/?id=2677.

About Zacks 

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks InvestmentResearch is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=4582.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Contact:Mark VickeryWeb Content Editor312-265-9380Visit: www.zacks.com

Strengthening our global financial institutions

17. Emerging markets and developing countries, which have been the engine of recent world growth, are also now facing challenges which are adding to the current downturn in the global economy. It is imperative for global confidence and economic recovery that capital continues to flow to them. This will require a substantial strengthening of the international financial institutions, particularly the IMF. We have therefore agreed today to make available an additional $850 billion of resources through the global financial institutions to support growth in emerging market and developing countries by helping to finance counter-cyclical spending, bank recapitalization, infrastructure, trade finance, balance of payments support, debt rollover, and social support. To this end:

It is in the interest of the developed countries like the U.S. that the developing countries continue to grow.  That means that they have to have access to capital, and we are committed to making sure that they have it.  Many of these countries are really hurting now, but they were a big positive factor in world growth before the crisis hit.  Getting them moving again will help everyone.

• we have agreed to increase the resources available to the IMF through immediate financing from members of $250 billion, subsequently incorporated into an expanded and more flexible New Arrangements to Borrow, increased by up to $500 billion, and to consider market borrowing if necessary; and we support a substantial increase in lending of at least $100 billion by the Multilateral Development Banks (MDBs), including to low income countries, and ensure that all MDBs, including have the appropriate capital.

These are very significant commitments, yes they are serious about helping out the emerging markets.

18. It is essential that these resources can be used effectively and flexibly to support growth. We welcome in this respect the progress made by the IMF with its new Flexible Credit Line (FCL) and its reformed lending and conditionality framework which will enable the IMF to ensure that its facilities address effectively the underlying causes of countries' balance of payments financing needs, particularly the withdrawal of external capital flows to the banking and corporate sectors. We support Mexico's decision to seek an FCL arrangement.

Honestly I am not that familiar with the intricacies of the FCL.  However, when a crisis hits, capital tends to flow away from developing markets in a flight to safety, and the IMF is attempting to offset this.

19. We have agreed to support a general SDR allocation which will inject $250 billion into the world economy and increase global liquidity, and urgent ratification of the Fourth Amendment.

More global liquidity would be a good thing.  I don't think they are referring to unreasonable searches and seizures here though.

20. In order for our financial institutions to help manage the crisis and prevent future crises we must strengthen their longer term relevance, effectiveness and legitimacy. So alongside the significant increase in resources agreed today we are determined to reform and modernize the international financial institutions to ensure they can assist members and shareholders effectively in the new challenges they face. We will reform their mandates, scope and governance to reflect changes in the world economy and the new challenges of globalization, and that emerging and developing economies, including the poorest, must have greater voice and representation. This must be accompanied by action to increase the credibility and accountability of the institutions through better strategic oversight and decision making. To this end:

Emerging market countries will have more say in how the IMF s run. My guess that the emerging market that ends up with the biggest increase in influence there is China.

• we commit to implementing the package of IMF quota and voice reforms agreed in April 2008 and call on the IMF to complete the next review of quotas by January 2011;

China we need you to give more to the IMF and you will have a bigger say.  To a lesser extent this is true for Saudi Arabia as well.

• we agree that, alongside this, consideration should be given to greater involvement of the Fund's Governors in providing strategic direction to the IMF and increasing its accountability;
• we commit to implementing the World Bank reforms agreed in October 2008. We look forward to further recommendations, at the next meetings, on voice and representation reforms on an accelerated time scale, to be agreed by the 2010 Spring Meetings;
• we agree that the heads and senior leadership of the international financial institutions should be appointed through an open, transparent, and merit-based selection process; and building on the current reviews of the IMF and World Bank we asked the Chairman, working with the G20 Finance Ministers, to consult widely in an inclusive process and report back to the next meeting with proposals for further reforms to improve the responsiveness and adaptability of the IFIs.

Accountability and transparency is good, even at the World Bank and the IMF.  Having competent people running them is important, rather than appointing a bunch of political hacks.

21. In addition to reforming our international financial institutions for the new challenges of globalization we agreed on the desirability of a new global consensus on the key values and principles that will promote sustainable economic activity. We support discussion on such a charter for sustainable economic activity with a view to further discussion at our next meeting. We take note of the work started in other fora in this regard and look forward to further discussion of this charter for sustainable economic activity.

Resisting protectionism and promoting global trade and investment

22. World trade growth has underpinned rising prosperity for half a century. But it is now falling for the first time in 25 years. Falling demand is exacerbated by growing protectionist pressures and a withdrawal of trade credit. Reinvigorating world trade and investment is essential for restoring global growth. We will not repeat the historic mistakes of protectionism of previous eras. To this end:

World trade is a good thing, and restricting it is bad.  The recent rapid decline in world trade is very troubling.

• we reaffirm the commitment made in Washington: to refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports. In addition we will rectify promptly any such measures. We extend this pledge to the end of 2010;

No repeat of the Smoot Hawley Tarriffs.

• we will minimize any negative impact on trade and investment of our domestic policy actions including fiscal policy and action in support of the financial sector. We will not retreat into financial protectionism, particularly measures that constrain worldwide capital flows, especially to developing countries;

No saying, we need to make loans here at home, sorry poor countries no loans for you.  No "buy domestic" rules for fiscal stimulus packages.

• we will notify promptly the WTO of any such measures and we call on the WTO, together with other international bodies, within their respective mandates, to monitor and report publicly on our adherence to these undertakings on a quarterly basis;

Since we know we can not be trusted on our own to stand up to the domestic political pressures that will call for protectionist steps, we want the WTO to call us out on it if we do start to go down the protectionist route

• we will take, at the same time, whatever steps we can to promote and facilitate trade and investment; and

We will actively work to promote trade.  Everyone does this for exports, the rub will be if imports are also facilitated.

• we will ensure availability of at least $250 billion over the next two years to support trade finance through our export credit and investment agencies and through the MDBs. We also ask our regulators to make use of available flexibility in capital requirements for trade finance.

MDB's are the multinational development banks, the smaller regional versions of the World Bank/IMF.  This puts an actual number, and a fairly aggressive one on the support for these institutions.  This is a very worthwhile move.

23. We remain committed to reaching an ambitious and balanced conclusion to the Doha Development Round, which is urgently needed. This could boost the global economy by at least $150 billion per annum. To achieve this we are committed to building on the progress already made, including with regard to modalities.

Let's get the stalled world trade talks back on track.  Serious differences remain though between developed and developing economies, most notably in the area of agricultural subsidies.

24. We will give renewed focus and political attention to this critical issue in the coming period and will use our continuing work and all international meetings that are relevant to drive progress.

Let's keep on meeting

Ensuring a fair and sustainable recovery for all

25. We are determined not only to restore growth but to lay the foundation for a fair and sustainable world economy. We recognize that the current crisis has a disproportionate impact on the vulnerable in the poorest countries and recognize our collective responsibility to mitigate the social impact of the crisis to minimize long-lasting damage to global potential. To this end:

If you think we are hurting, poor countries are really taking it on the chin, and we caused the problems not them, we should help them out.

• we reaffirm our historic commitment to meeting the Millennium Development Goals and to achieving our respective ODA pledges, including commitments on Aid for Trade, debt relief, and the Gleneagles commitments, especially to sub-Saharan Africa;

A historic commitment that so far has mostly gone unfulfilled, particularly from the U.S.  You think it  will be easier to increase aid now that the world is in recession than it was when the world was growing?  Nice boilerplate though.

• the actions and decisions we have taken today will provide $50 billion to support social protection, boost trade and safeguard development in low income countries, as part of the significant increase in crisis support for these and other developing countries and emerging markets;

A nice start, about one Citibank bail out for the whole world combined.

• we are making available resources for social protection for the poorest countries, including through investing in long-term food security and through voluntary bilateral contributions to the World Bank's Vulnerability Framework, including the Infrastructure Crisis Facility, and the Rapid Social Response Fund;

It will be interesting to see how many of these bilateral contributions actually come through

• we have committed, consistent with the new income model, that additional resources from agreed sales of IMF gold will be used, together with surplus income, to provide $6 billion additional concessional and flexible finance for the poorest countries over the next 2 to 3 years. We call on the IMF to come forward with concrete proposals at the Spring Meetings;

A small but useful step

• we have agreed to review the flexibility of the Debt Sustainability Framework and call on the IMF and World Bank to report to the IMFC and Development Committee at the Annual Meetings; and we call on the UN, working with other global institutions, to establish an effective mechanism to monitor the impact of the crisis on the poorest and most vulnerable.

We want the IMF, World Bank and UN to write a bunch of reports that no one will read.

26. We recognize the human dimension to the crisis. We commit to support those affected by the crisis by creating employment opportunities and through income support measures. We will build a fair and family-friendly labor market for both women and men. We therefore welcome the reports of the London Jobs Conference and the Rome Social Summit and the key principles they proposed. We will support employment by stimulating growth, investing in education and training, and through active labor market policies, focusing on the most vulnerable. We call upon the ILO, working with other relevant organizations, to assess the actions taken and those required for the future.

Some nice boilerplate about making sure that labor markets are open to both sexes, the meaning of these statements are most likely open to significant amounts of interpretation and will not be all that binding.

27. We agreed to make the best possible use of investment funded by fiscal stimulus programmes towards the goal of building a resilient, sustainable, and green recovery. We will make the transition towards clean, innovative, resource efficient, low carbon technologies and infrastructure. We encourage the MDBs to contribute fully to the achievement of this objective. We will identify and work together on further measures to build sustainable economies.

This is an endorsement of Obama's efforts to use fiscal stimulus to create green jobs and actually do something about greenhouse gases.  Most of the other developed economies are ahead of us in this regard, so not very controversial, it might have been a year ago, but not now.

28. We reaffirm our commitment to address the threat of irreversible climate change, based on the principle of common but differentiated responsibilities, and to reach agreement at the UN Climate Change conference in Copenhagen in December 2009.

Global warming should be addressed but we will take that up at the "Kyoto II" meeting in Copenhagen later this year.  "Common but differentiated responsibilities" means that there is a lot of disagreement about which countries have to do what and they wanted to paper over the differences for now.

Delivering our commitments

29. We have committed ourselves to work together with urgency and determination to translate these words into action. We agreed to meet again before the end of this year to review progress on our commitments.

We mean what we say (would you really expect them to say that they don't plan on turning these words into action).  We will see how much of the above actually happens.  In any case, it was fun getting together folks, let's do it again sometime soon.

1. We, the Leaders of the Group of Twenty, met in London on 2 April 2009.

2. We face the greatest challenge to the world economy in modern times; a crisis which has deepened since we last met, which affects the lives of women, men, and children in every country, and which all countries must join together to resolve. A global crisis requires a global solution.

Things stink all over due to this mess, and it has gotten worse lately.

3. We start from the belief that prosperity is indivisible; that growth, to be sustained, has to be shared; and that our global plan for recovery must have at its heart the needs and jobs of hard-working families, not just in developed countries but in emerging markets and the poorest countries of the world too; and must reflect the interests, not just of today's population, but of future generations too. We believe that the only sure foundation for sustainable globalization and rising prosperity for all is an open world economy based on market principles, effective regulation, and strong global institutions.

It would be nice if everybody could grow and get richer.  Lets not forget about the poor countries that have been hurt even more than the rich countries by this crisis, even though it was not their fault.  However, we will not fundamentally alter the overall global economic system.

4. We have today therefore pledged to do whatever is necessary to:

• restore confidence, growth, and jobs;
• repair the financial system to restore lending;
• strengthen financial regulation to rebuild trust;
• fund and reform our international financial institutions to overcome this crisis and prevent future ones; promote global trade and investment and reject protectionism, to underpin prosperity; and
• build an inclusive, green, and sustainable recovery.

By acting together to fulfill these pledges we will bring the world economy out of recession and prevent a crisis like this from recurring in the future.

Nice set of goals.  However, what is meant by do "what ever is necessary" to repair the financial system.  Calls for stronger regulation of markets are good and very much needed.  The international financial institutions they are referring to here are the World Bank, the IMF and their regional counterparts.

5. The agreements we have reached today, to treble resources available to the IMF to $750 billion, to support a new SDR allocation of $250 billion, to support at least $100 billion of additional lending by the MDBs, to ensure $250 billion of support for trade finance, and to use the additional resources from agreed IMF gold sales for concessional finance for the poorest countries, constitute an additional $1.1 trillion programme of support to restore credit, growth and jobs in the world economy. Together with the measures we have each taken nationally, this constitutes a global plan for recovery on an unprecedented scale.

This is a major increase in support for the IMF and is a very useful step.  It actually means that the calls to help out the poor countries that are suffering from this are not just platitudes, but that the major countries of the world are actually prepared to help.

Restoring growth and jobs

6. We are undertaking an unprecedented and concerted fiscal expansion, which will save or create millions of jobs which would otherwise have been destroyed, and that will, by the end of next year, amount to $5 trillion, raise output by 4 per cent, and accelerate the transition to a green economy. We are committed to deliver the scale of sustained fiscal effort necessary to restore growth.

I will note that the vast bulk of that $5 trillion is coming from a handful of countries, most notably the U.S. and China, with honorable mentions to Japan and the U.K. Continental Europe is effectively trying to free ride off the increased aggregate demand from the countries that are actively stimulating their economies. I would however read this clause as an endorsement of the Obama Strategy.

7. Our central banks have also taken exceptional action. Interest rates have been cut aggressively in most countries, and our central banks have pledged to maintain expansionary policies for as long as needed and to use the full range of monetary policy instruments, including unconventional instruments, consistent with price stability.

A pat on the back for the central bankers.  This is an explicit endorsement of the use of Quantitative Easing (central banks buying long term government bonds and effectively printing money) which is being implemented by the Fed and the Bank of England.  I would also see this as a call for the European Central Bank (ECB) help out a bit more.

8. Our actions to restore growth cannot be effective until we restore domestic lending and international capital flows. We have provided significant and comprehensive support to our banking systems to provide liquidity, recapitalize financial institutions, and address decisively the problem of impaired assets. We are committed to take all necessary actions to restore the normal flow of credit through the financial system and ensure the soundness of systemically important institutions, implementing our policies in line with the agreed G20 framework for restoring lending and repairing the financial sector.

We have thrown lots of money at the banks to keep the system afloat and are prepared to continue throwing money at the banks.

9. Taken together, these actions will constitute the largest fiscal and monetary stimulus and the most comprehensive support programme for the financial sector in modern times. Acting together strengthens the impact and the exceptional policy actions announced so far must be implemented without delay. Today, we have further agreed over $1 trillion of additional resources for the world economy through our international financial institutions and trade finance.

Yes, it has been a lot of money we have thrown at the banks.  So far we have been helping out private commercial banks.  However given the scale of this problem we also need to significantly increase the resources of the IMF and World Bank (mostly IMF).

10. Last month the IMF estimated that world growth in real terms would resume and rise to over 2 percent by the end of 2010. We are confident that the actions we have agreed today, and our unshakeable commitment to work together to restore growth and jobs, while preserving long-term fiscal sustainability, will accelerate the return to trend growth. We commit today to taking whatever action is necessary to secure that outcome, and we call on the IMF to assess regularly the actions taken and the global actions required.

The sun will come out tomorrow.  We think this plan will work, but perhaps the IMF can give some progress reports from time to time.

11. We are resolved to ensure long-term fiscal sustainability and price stability and will put in place credible exit strategies from the measures that need to be taken now to support the financial sector and restore global demand. We are convinced that by implementing our agreed policies we will limit the longer-term costs to our economies, thereby reducing the scale of the fiscal consolidation necessary over the longer term.

We are sure we can pull back from the fiscal stimulus before it bankrupts us and from the monetary stimulus before hyperinflation breaks out.  You don't get to be a head of state by lacking in confidence, and this was a meeting of 20 heads of state or government.

12. We will conduct all our economic policies cooperatively and responsibly with regard to the impact on other countries and will refrain from competitive devaluation of our currencies and promote a stable and well-functioning international monetary system. We will support, now and in the future, to candid, even-handed, and independent IMF surveillance of our economies and financial sectors, of the impact of our policies on others, and of risks facing the global economy.

If the independent surveillance of the economy by the IMF applies to the U.S. then this is big news.  More likely there are no teeth to this.  If the U.S were any other country, the IMF would have long ago pressed us to nationalize the banks, clean them up and sell them off.

Strengthening financial supervision and regulation

13. Major failures in the financial sector and in financial regulation and supervision were fundamental causes of the crisis. Confidence will not be restored until we rebuild trust in our financial system. We will take action to build a stronger, more globally consistent, supervisory and regulatory framework for the future financial sector, which will support sustainable global growth and serve the needs of business and citizens.

Deregulation was a VERY bad idea when it comes to financial institutions.  With the world now interconnected more than ever before, regulations need to be strengthened and made more consistent across boarders.

14. We each agree to ensure our domestic regulatory systems are strong. But we also agree to establish the much greater consistency and systematic cooperation between countries, and the framework of internationally agreed high standards, that a global financial system requires. Strengthened regulation and supervision must promote propriety, integrity and transparency; guard against risk across the financial system; dampen rather than amplify the financial and economic cycle; reduce reliance on inappropriately risky sources of financing; and discourage excessive risk-taking. Regulators and supervisors must protect consumers and investors, support market discipline, avoid adverse impacts on other countries, reduce the scope for regulatory arbitrage, support competition and dynamism, and keep pace with innovation in the marketplace.

Everyone has to regulate, no trying to lure financial activity to your country by promising to look the other way when institutions take on excessive risk in the hunt for short term profits.

15. To this end we are implementing the Action Plan agreed at our last meeting, as set out in the attached progress report. We have today also issued a Declaration, Strengthening the Financial System.

In particular we agree:

• to establish a new Financial Stability Board (FSB) with a strengthened mandate, as a successor to the Financial Stability Forum (FSF), including all G20 countries, FSF members, Spain, and the European Commission;
  that the FSB should collaborate with the IMF to provide early warning of macroeconomic and financial risks and the actions needed to address them;
  to reshape our regulatory systems so that our authorities are able to identify and take account of macro-prudential risks;
• to extend regulation and oversight to all systemically important financial institutions, instruments and markets. This will include, for the first time, systemically important hedge funds;
• to endorse and implement the FSF's tough new principles on pay and compensation and to support sustainable compensation schemes and the corporate social responsibility of all firms;
• to take action, once recovery is assured, to improve the quality, quantity, and international consistency of capital in the banking system. In future, regulation must prevent excessive leverage and require buffers of resources to be built up in good times;
• to take action against non-cooperative jurisdictions, including tax havens. We stand ready to deploy sanctions to protect our public finances and financial systems. The era of banking secrecy is over. We note that the OECD has today published a list of countries assessed by the Global Forum against the international standard for exchange of tax information;
• to call on the accounting standard setters to work urgently with supervisors and regulators to improve standards on valuation and provisioning and achieve a single set of high-quality global accounting standards; and
  to extend regulatory oversight and registration to Credit Rating Agencies to ensure they meet the international code of good practice, particularly to prevent unacceptable conflicts of interest.

That is a long list of reforms and areas for tighter supervision.  Mostly it amounts to more international cooperation on regulation, in a more formal and institutionalized way.  The call for regulation and oversight of the Credit Rating agencies (i.e. Moody's and S&P) is long overdue, as their lack of action and incompetence was a major factor in this whole mess occurring.  All big financial institutions, including hedge funds need to be regulated.

16. We instruct our Finance Ministers to complete the implementation of these decisions in line with the timetable set out in the Action Plan. We have asked the FSB and the IMF to monitor progress, working with the Financial Action Taskforce and other relevant bodies, and to provide a report to the next meeting of our Finance Ministers in Scotland in November.

We hope we can get our act together by November.

That is about half of the statement, I will have a follow up post on the rest of it.  In general the basic thrust of the statement is that it endorses aggressive government actions, both on the fiscal and monetary front to address the crisis.  It calls for much stronger regulation.  Perhaps the most significant news is a very large commitment to strengthening the resources of the IMF to help some of the emerging economy's deal with the fallout of this mess that they did not create.