The Ignorant Investor

Two stories caught my eye in today's Wall Street Journal.

BAITING HOLLOW, N.Y. -- Federal regulators are trying to hit the brakes on commercial real-estate lending. That annoys Bradley Rock, the chief executive officer of Smithtown Bancorp Inc.

Wheeling his black Lexus sedan toward the clubhouse of the Fox Hill Golf & Country Club, Mr. Rock gazed at the lush fairways of the 175-acre property, appraised at more than $15 million. The owners of the club owe $2.7 million to his bank. "You could sell the property for massively more than the debt," Mr. Rock said. "It's impossible for the bank to lose money."

"It's impossible for the bank to lose money. "

Is there anything more to say about the current attitude of bankers? Although it does seem hard to worry about a $2.7 million debt secured by property currently worth $15 million, the important think to note is that when commercial banks start tightening credit standards a lot less money flows into the system. Fewer new businesses start up, less equipment is bought, fewer construction workers building developments. The froth is harder to work up. The story is no big deal, but it does signal that the federales are beginning to worry about their companeros in the banking system.

FRANKFURT -- After years of sluggish spending, Europeans are finally snapping up a range of imports -- including running shoes and construction cranes -- stepping in to prop up the global economy just as economists expect American consumers to start closing their wallets. . . . European consumers have started spending again, boosting the region's imports to $871 billion in the first half of this year, up 18.3% from a year earlier. That compares with import growth of 13.6% in the U.S. over the same period.

Good news for business, until you read the details: Growth in Europe is expected to slow next year. And, by the way, the U.S. won't be getting a huge part of the new action. Instead that's going to China.

One additional item of interest in the article is that China is beginning to move up the manufacturing train, from shoes and clothing on up to machinery and transport equipment. Last may, China's sales of machinery to the region accounted for half of the $14.5 billion of its goods sold in Europe. In fact, China has quietly become the world's No. 4 maker of machinery, behind the U.S., Japan and Germany, after it left Italy and Britain in the dust. Chinese machinery production used to be about building for Chinese companies, says one economist, now it's competing with European and American firms for international orders.