Concerns about a slowdown in China’s economy and the effect it will have on the earnings of big companies based there have begun to hammer the stock market. The Shanghai Composite suddenly fell 2.7% overnight. That is equivalent to a 350 point drop in the DJIA. Chinese investors have every right to be concerned. The nation’s PMI has shown industry contraction in several of the past few months. Property values have begun to fall in most cities. The cost of labor in the People’s Republic has encouraged some manufactures to look elsewhere for locations of new facilities.
Goldman Sachs Management
Pressure from the American Federation of State, County and Municipal Employees, a Goldman Sachs (NYSE: GS) shareholder, to change the investment bank’s board composition has dropped. That has not stopped senior management and the board from considering a new management structure that has been adopted by a number of other large U.S. companies. The change would mean a separation of the roles of chairman and CEO. Lloyd Blankfein holds both titles now. If there is a shakeout as part of a new structure, Blankfein, who is plagued by missteps by Goldman, may be out altogether.
UK Gross Domestic Product
UK GDP fell more than previously forecast in the final quarter of last year. The Office of National Statistics reported the contraction was 0.3% in the fourth quarter of 2011 and not the 0.2% previously reported. For the year 2011, GDP in volume terms increased by 0.7%. Taken together, the numbers show the UK economy slipping toward possible recession levels if the fourth-quarter trend continued into the current one. The figures will revive the debate over whether the government has cut expenses too sharply. These cuts, some economists say, were so widespread that any stimulus that might have strengthened housing and employment is gone.
Obama vs. Gas Prices
Energy prices have begun to smother President Obama’s popularity. A new Reuters/Ipsos shows that 68% of Americans do not approve of how Obama has handled the gas price crisis. Reuters reports that:
The disapproval reaches across party lines, potentially spelling trouble for Obama in the election, although the online survey showed voters hold oil companies or foreign countries more accountable than politicians for the price spike.
The blame placed on oil companies may not spare the president in the national election. Gas prices have risen well above $3.80 and likely will reach $4 in the months leading to the November election.
Douglas A. McIntyre