Paulson says everything is going to be OK

Treasury Secretary Henry Paulson was on a tear last week in Asia, boosting the global economy and prodding the Chinese to speed up reforms in its financial markets. He downplayed the recent worldwide market sell-off that erased $3.3 trillion of stock market value around the world, calling global economic growth “solid” and citing “low inflation and high levels of liquidity.”
Mr. Paulson visited South Korea, Japan and China — the region’s three largest economies. The recent market plunge, he said, was not a cause for concern. “Markets very seldom move in a straight line,” Mr. Paulson said. “You are always going to have volatility.” Market reforms in China, Mr. Paulson added, would ease the ups and downs.
He also warned that China’s growth was becoming “increasingly imbalanced,” because it was too dependent on exports. “Financial sector development,” Mr. Paulson declared, “is the key to China’s transition into an economy that is less reliant on industrial activity.”
Despite his optimism, a Wall Street Journal/NBC News poll last week showed declining confidence in the economy. Nearly one-third of Americans now expect it to get worse over the next year, double the proportion who said so in January.

Private equity’s pizazz
Another Wall Street luminary weighed in last week on another front-page topic: private equity.
The halcyon days of the much-
scrutinized industry, epitomized by the $45 billion buy of Dallas-based TXU Corp., are not over yet, according to Philip Purcell, president of Chicago-based Continental Investors LLCand former chairman and CEO of New York-based Morgan Stanley. Private equity is highly regarded because “public markets are failing to allocate capital efficiently,” he wrote in the Financial Times. “This is not a bubble but a cyclical trend that is likely to end only as public companies become more efficient.”
Private equity also benefits the economy, Mr. Purcell said, arguing that taking companies private spurs innovation. And since private capital focuses on “the internal rate of return,” capital flows to “high-return investments.”

Mutual fund warning
Financial advisers who are high on mutual funds may want to be on the lookout for the May issue of the Journal of Investment Management. Bloomberg reported last week that in a paper titled “Measuring the True Cost of Active Management by Mutual Funds,” Ross Miller, a professor of finance at the State University of New York at Albany, argues that the stock picking performance of many mutual fund managers may be suffering because they are being deprived of critical market intelligence.
That’s because analysts from top Wall Street securities firms are spending more time with hedge funds that pay high fees and less time with institutional investors, he writes. In fact, Bloomberg cited data compiled byGreenwich Associates in Connecticut showing that last year Wall Street collected $33 million in stock trading commissions from the average hedge fund, compared with $16 million from the average mutual fund or equivalent investment manager.

Spam purge
“Ready to explode?” Well, yes,
e-mail users undoubtedly are after receiving an estimated 100 million fraudulent spam e-mails a week hyping penny stocks with subject lines that promise “Fast money” and an invitation to “Ride the bull.”
But it was the Securities and Exchange Commission that rode to the rescue of clogged digital mailboxes across the land last week with “Operation Spamalot.” The initiative so far has led to the suspension of trading in the stock of 35 companies that allegedly benefited from the spam hyping their thinly traded stocks. The companies, including Bloomfield, Conn.-based Apparel Manufacturing Associates Inc., saw stock prices rise after a spamming campaign and subsequently fall when the e-mail blasts stopped.
“When spam clogs our mailboxes, it’s annoying,” said SEC Chairman Christopher Cox. “When it rips off investors, it’s illegal and destructive.”

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