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domingo, 26 de agosto de 2012
Forex Flash: China GDP forecast downgraded - HSBC
Forex Flash: China GDP forecast downgraded - HSBC: FXstreet.com (Barcelona) - China's latest data flows suggested that the global headwinds facing...
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For more information, read our latest forex news.
Which Asset Classes Are Most Vulnerable To 'Policy' Disappointment?
Which Asset Classes Are Most Vulnerable To 'Policy' Disappointment?:
The lull in market activity over the past weeks is poised to give way to a multitude of events that could potentially determine the market direction for the remainder of the year. Policy responses from both sides of the Atlantic are awaited, though nuances rather than headlines may be more important. In the short run however, Deutsche Bank notes some indicators suggest that risky assets may be vulnerable. Specifically, relative to fundamentals they also find that the US equity rally over the past quarter has now been excessive relative to the US economic leading indicators. Looking at cross asset valuations by comparing the level of asset prices today vs. their peaks and troughs since Sep-2008 we also find that the S&P500 appears to be the richest relative to fundamentals.
Deutsche Bank: The cross asset view: Equities could be vulnerable in the short term
In the table below, we calculate a ‘pointer’ for each asset, corresponding to the position of today’s price relative to its historical peak and trough. A pointer equal to 0% means that the current price is equal to the historical trough, a pointer equal to 100% means the current price is equal to the historical peak. We use the pointer of the global PMI Composite as a benchmark (pointer of 68.5%). In this simple framework, assets with a pointer above/below this level have under-reacted or over-reacted to the deterioration of global fundamentals.
For the market to move further into a risk-on mode from current levels, positive developments regarding one or more of the following issues would be required:
The lull in market activity over the past weeks is poised to give way to a multitude of events that could potentially determine the market direction for the remainder of the year. Policy responses from both sides of the Atlantic are awaited, though nuances rather than headlines may be more important. In the short run however, Deutsche Bank notes some indicators suggest that risky assets may be vulnerable. Specifically, relative to fundamentals they also find that the US equity rally over the past quarter has now been excessive relative to the US economic leading indicators. Looking at cross asset valuations by comparing the level of asset prices today vs. their peaks and troughs since Sep-2008 we also find that the S&P500 appears to be the richest relative to fundamentals.
Deutsche Bank: The cross asset view: Equities could be vulnerable in the short term
In the table below, we calculate a ‘pointer’ for each asset, corresponding to the position of today’s price relative to its historical peak and trough. A pointer equal to 0% means that the current price is equal to the historical trough, a pointer equal to 100% means the current price is equal to the historical peak. We use the pointer of the global PMI Composite as a benchmark (pointer of 68.5%). In this simple framework, assets with a pointer above/below this level have under-reacted or over-reacted to the deterioration of global fundamentals.
For the market to move further into a risk-on mode from current levels, positive developments regarding one or more of the following issues would be required:
- Spain will need to make a formal application for the aid program, which, as Draghi mentioned, is a necessary though not sufficient condition for bond purchases by the ECB
- Political developments in Italy signaling an intention to follow Spain in seeking aid via the ECB/EFSF/ESM bond buying program
- Further clarity on the mechanism of ECB bond purchases: whether the ECB would target yields levels or pre-commit a potential size of asset purchases. Setting an explicit cap on yields could be politically contentious as it commits the ECB, at least theoretically, to unlimited bond purchases. In addition, a justification of the level of cap would be onerous
- Draghi mentioned that the ECB is working to address the seniority issue of ECB bond purchases, though exact details are yet to be specified. Ultimately, there will always be a risk that, in extreme situations, ECB does not fulfill its pledge of not being explicitly senior. The ECB could nevertheless make its commitment more credible by either (1) an explicit specification of the parri-passu nature of the purchases via a guarantee from the EFSF/ESM for any ECB on these purchases or (2) by retroactively being more supportive of the Greek PSI by allowing T-bill issuance refinanced at the Greek central bank to pay for redemption of bonds held by the ECB
- Resolution over the Greek negotiations: We maintain the view that a compromise agreement between Greece and the EU leaders is likely to be reached, with more time to Greece for fiscal adjustments. Recent political commentary does appear to suggest that a compromise may be feasible. Implementation, however, will continue to remain a concern, and Greece’s adherence to fiscal plans may be revisited again in the future.
- 30th August: Italian BTP auction
- 31st August: Bernanke’s Jackson Hole speech
- 6th September: Spanish bond auction
- 6th September: ECB meeting
- 6th September: Meeting between Rajoy and Merkel
- 12th September: German constitutional court ruling on the ESM
- 12th September: Dutch elections
- 12th/13th September: Fed meeting
- 14/15th September: EcoFin meeting
The soy price shock in the US will reverberate across China
The soy price shock in the US will reverberate across China:
The Chicago Board of Trade soy futures hit a new record Sunday evening as attention now shifts from corn to soy. Traders are coming to the realization that soy supply may not last long enough to be replenished by crops from South America.
Again, a number of analysts continue to argue that the North American drought should not have a significant impact on Asia. That is just not true. Some economists simply don't appreciate just how global agricultural markets have become.
The Chicago Board of Trade soy futures hit a new record Sunday evening as attention now shifts from corn to soy. Traders are coming to the realization that soy supply may not last long enough to be replenished by crops from South America.
Bloomberg: - “Corn was the story going into the crop tour and now soybeans are the story after leaving the fields this week,” Peter Meyer, a senior director of agriculture commodities at PIRA Energy Group in New York, said in an interview in Owatonna, Minnesota, after completing his sixth Pro Farmer tour. “Mother Nature shut down the soybean crop well before it reached its potential. The U.S. may run out of soybeans before the start of the South America harvests in February.”
 |
| Soy nearby contract (Bloomberg) |
Bloomberg: - China, the world’s largest buyer and consumer, purchased 165,000 metric tons of soybeans and 55,000 tons of soybean oil from the U.S., the USDA reported yesterday. China may import a record 59.5 million tons of soybeans in the year that begins Oct. 1, the agency said Aug. 10.Tight global supply of soy will translate into government subsidies and/or food inflation in China and elsewhere in Asia. Fear of food inflation is one of the reasons China has not been as aggressive with its stimulus programs in spite of slowing economy. Here is a quote from the LA Times that describes how these skyrocketing soy prices will reverberate across China.
World soybean supplies may shrink by 33 million to 35 million tons in September to February, compared with a year earlier, forcing China to reduce imports by 4 million tons, researcher Oil World said Aug. 21.
LA Times: - Construction laborer Yi Jichun has never heard of Illinois or Iowa. But the migrant worker's favorite comfort food comes straight out of the U.S. Midwest: soybean oil.
The world's biggest consumers of edible oils, Chinese households have developed a taste for the stuff that would make a county fair fry cook proud. Be it a simple stir-fry, poached fish or deep-fried pork ribs, many Chinese diners love their grub covered in an oily sheen. Jugs of the golden liquid make popular gifts for Chinese New Year.
"Without the oil, it would taste too plain," Yi said as he tucked into a lunch of sliced cucumbers and chicken drumsticks slathered with grease. "I wouldn't want to finish it."
And that has officials in Beijing worried. The worst U.S. drought in half a century is sending global grain prices soaring. The fallout is almost certain to be felt at dinner tables across China. The No. 1 foreign buyer of American soybeans, which are pressed into cooking oil and used for animal feed, China last year purchased about half of U.S. exports, more than $10.4 billion worth, according to the American Soybean Assn. China has also stepped up purchases of U.S. corn and wheat to feed the nation's growing appetite.
Poor U.S. harvests could fuel Chinese food inflation and social discontent. China has already begun tapping its grain reserves to ensure price stability. The government has ordered the nation's biggest cooking oil producers twice in recent months to keep their prices in check. And it's scouring the globe for alternative supplies.
It won't be easy. More than two-thirds of cooking oil consumed in China comes from soybeans, and most of those soybeans are supplied by the U.S., according to Ma Wenfeng, an analyst with Beijing Orient Agribusiness Consultant Co. For now, Chinese consumers are bound to the fortunes of farmers in the American heartland.
"Soybean oil is the most important edible oil in China ... which makes us vulnerable to the drought" gripping the U.S., Ma said.
SoberLook.com
www.SoberLook.com
The Next 21 Days
The Next 21 Days:
Bloomberg.com – ECB Said to Await German ESM Ruling Before Settling Plan
European Central Bank President Mario Draghi may wait until Germany’s Constitutional Court rules on the legality of Europe’s permanent bailout fund before unveiling full details of his plan to buy government bonds, two central bank officials said. With the court set to rule on Sept. 12, investors looking for Draghi to announce a definitive purchase program at his Sept. 6 press conference might be disappointed, according to the officials, who spoke on condition of anonymity because the deliberations are not public. The program is still being worked on and staff may not be able to finalize it by then, said the officials, who are familiar with thinking on the ECB Governing Council. An ECB spokesman in Frankfurt declined to comment.
Bloomberg.com – Dutch Elections Risk Muddying Merkel’s Crisis-Fighting Efforts
Next month’s Dutch elections risk complicating Europe’s efforts to resolve its debt crisis, with the coalition government that emerges likely to reflect both anti-European sentiment and resistance to more austerity. A third of Dutch voters in the run-up to the Sept. 12 vote back the Socialists, who oppose more spending cuts and refuse to hand over more sovereignty to Europe, or the Freedom Party, which seeks an exit from the European Union and the euro. That will make it tough for caretaker Prime Minister Mark Rutte’s Liberals to find support from perhaps three or four parties for a majority in parliament and keep cutting the deficit.
Comment
The quiet summer is about to give way to a three week period that will settle a lot of things. Consider:
Right now the odds of Obama winning the election are 57% on Intrade. According to Gallup, his approval rating is still below 50. So while he is leading, it is not a comfortable lead.
Next week is the Republican convention (starts Monday in Tampa, which is now under a hurricane watch). A week after that is the Democratic convention. If history is a guide (see the “D” and “R” on the chart below), a week after the last convention we should expect to see one of the candidates take a more commanding lead in the polls.
Click to enlarge:
Source: Bianco Research
Bloomberg.com – ECB Said to Await German ESM Ruling Before Settling Plan
European Central Bank President Mario Draghi may wait until Germany’s Constitutional Court rules on the legality of Europe’s permanent bailout fund before unveiling full details of his plan to buy government bonds, two central bank officials said. With the court set to rule on Sept. 12, investors looking for Draghi to announce a definitive purchase program at his Sept. 6 press conference might be disappointed, according to the officials, who spoke on condition of anonymity because the deliberations are not public. The program is still being worked on and staff may not be able to finalize it by then, said the officials, who are familiar with thinking on the ECB Governing Council. An ECB spokesman in Frankfurt declined to comment.
Bloomberg.com – Dutch Elections Risk Muddying Merkel’s Crisis-Fighting Efforts
Next month’s Dutch elections risk complicating Europe’s efforts to resolve its debt crisis, with the coalition government that emerges likely to reflect both anti-European sentiment and resistance to more austerity. A third of Dutch voters in the run-up to the Sept. 12 vote back the Socialists, who oppose more spending cuts and refuse to hand over more sovereignty to Europe, or the Freedom Party, which seeks an exit from the European Union and the euro. That will make it tough for caretaker Prime Minister Mark Rutte’s Liberals to find support from perhaps three or four parties for a majority in parliament and keep cutting the deficit.
Comment
The quiet summer is about to give way to a three week period that will settle a lot of things. Consider:
Right now the odds of Obama winning the election are 57% on Intrade. According to Gallup, his approval rating is still below 50. So while he is leading, it is not a comfortable lead.
Next week is the Republican convention (starts Monday in Tampa, which is now under a hurricane watch). A week after that is the Democratic convention. If history is a guide (see the “D” and “R” on the chart below), a week after the last convention we should expect to see one of the candidates take a more commanding lead in the polls.
Click to enlarge:
- On August 31 Bernanke speaks in Jackson Hole. The Federal Reserve always tells us nothing ofpolicy substance will be in the speech. Last year Bernanke laid out Operation Twist and two years ago he laid out QE2. So, we’ll see.
- On September 6 the ECB governing council meets. Draghi was expected to detail his “whatever it takes” bond purchase program. But, as the story above says, this might be put on hold until September 12 (below).
- On September 7 the always-important payroll report will be released.
- On September 12 the German court rules on the constitutionality of the eurozone’s permanent rescue fund. This ruling is critical to Europe.
- On September 12 the Dutch election could have big implications on all of Europe, as noted above.
- The September 12/13 FOMC meeting is shaping up as the make-or-break moment for QE3. At this meeting the FOMC members update their forecasts and Bernanke holds a press conference. These events lend themselves well to policy changes (adding QE3), which is another reason many expect action at this meeting. Additionally, the next meeting is not until late October and that is perceived to be too close to the election.
Source: Bianco Research
The Up-To-The-Minute Guide For Understanding Europe
The Up-To-The-Minute Guide For Understanding Europe:
From Mark Grant, author of Out of the Box
THE UP-TO-THE-MINUTE GUIDE FOR UNDERSTANDING EUROPE
From the Merriam-Webster Dictionary: "To express in different terms and especially different words: Paraphrase (2): to express in more comprehensible terms: Explain, Interpret"
EUROSPEAK:
“I hail, I congratulate”—little or no meaning; words spoken by every politician in Europe when someone does something, anything and has an actual value of about zero. A reference to Roman times where Caesar hailed the conquering heroes which is a species that has been extinct on the Continent for some years now.
“I (we) will do everything to save the Euro”---we got ourselves into this mess and we will try to do something/anything to get out of it; rhetoric, hyperbole and more zero value talk. I am the head of the European Central Bank and this sentence was found in Chapter 18, paragraph three, “what to say to the Press when you have run out of things to say.” Chapter 18, paragraph four, by the way, is “divine right” and “the full support of God” so you may expect this shortly.
“End corruption, a more efficient tax system, sell government assets, debt to GDP ratio by (pick a date/any date), stop government waste, just asking for a delay, need more time, extension”---these are all Greekspeak for “Give us more money” and no other meaning should be appended to these phrases. These are all terms of the first sentence and then since any/all might be granted the second sentence will be since this or that has been granted that more money will be required to get there (about $50 billion at the present time).
“The debt to GDP ratio (pick a country/any country) will be X by the year (pick a year/any year)” has no bearing to anything in the real world and is not a mathematically based conclusion. These statements are manufactured by the IMF and created in the special secret room there built by Walt Disney & Co.
An example of practical usage:
“We will decide after we have seen the Troika report.”---Is it cheaper to give them another $50 billion or tell them “no more money?” If we give them more money they will ask for another $50 billion in three months and we have elections coming up. We must balance the economic cost against the political cost. I like being Chancellor and don’t intend to lose the job because of the idiots in Athens.
“It is a great victory for Europe…we are not negotiating with either the IMF or the EU…the money is for the banks and not the country…we have valued the Real Estate correctly…the numbers are accurate;” all from the Prime Minister of Spain. Here we have proof positive that Spain is a major drug producing country. They are not only producing various white powders but strong hypnotics, hallucinogens and other mind altering substances. Don Quixote has been found in Valencia and he is living with Timothy O’Leary and Elvis has returned to the house.
“We will raise the tax on the rich to 75%...we will increase Real Estate taxes for anyone that has had some success...all new taxes will be retroactive…everyone making any money will have to give most of it to everyone else so they can sit in the cafes and enjoy the croissants.” The President of France once took a course in economics at the Acadamie du Comedie but flunked it which is not public information and protected by the French courts. It turned out that the professor was from Marseilles and Hollande could not understand his accent. “Let them eat cake” worked for Marie Antoinette and it might work again. Where is Robespierre when we need him? Find Madame Defarge and offer her the Finance Ministry.
“There will be no Referendum in Britain.” I know the country is a democracy but as Prime Minister this is an inappropriate question. The people in Dover and Manchester can’t spell Referendum much less understand what it means. The British people hated taking Latin in school and it is bad politics to remind them of the experience. I won’t get invited anymore to the fancy dinners in Brussels and our laws don’t allow for Champagne on the dinner vouchers. Britain doesn’t make any decent red wines and I will be cut-off and have to suffer. I am not a “Bangers and Mash” kind of chap.
“Mark Grant is writing mischievous comments.” This was found on the official government website of Ireland eighteen days before they went bankrupt. This phrase may soon appear on the Spanish website (“Mark Grant está escribiendo comentarios maliciosos”) and after that perhaps on the Italian website (“Mark Grant scrive commenti maliziosi”). The translation of “mischievous” here is quite tricky. It means reading the writing on the wall, utilizing the complex mathematical propositions of addition and subtraction, having a rational basis for a conclusion and stating the obvious when those in power do not wish to hear it. [Please refer to “Eurospeak for Foreign Dummies” for a further explanation.]
“I want Greece to remain part of the Eurozone…”---Merkel, Hollande, Rajoy, Cameron, Kenney, Coelho, Katainen et al. This phrase is taken from the movie, “The Wizard of Oz,” and is generally attributed to Judy Garland and her famous song, “Somewhere over the Rainbow.”
Someday I'll wish upon a star
And wake up where the clouds are far behind me.
Where troubles melt like lemon drops,
High above the chimney tops,
That's where you'll find me.
"We are not asking for more money. We are asking for air to breathe as we plunge to the depths."
-Greek Prime Minister Antonis Samaras on August 24, 2012
Here we have the new revival, the newest rendition of the Trojan horse; the play made famous by Odysseus, the famous Greek actor. It is a time tested Athens stratagem where, having gained admission, Pandora’s Box is unleashed. You will recall Virgil's famous line "Timeo Danaos et dona ferentes" (I fear Greeks even those bearing gifts). So it is not all Greek to you; the correct translation of Mr. Samaras’ comment is “Knock, Knock; Please let me in.”
"I don’t envisage, not even for one second, Greece leaving the euro area. This is nonsense. This is propaganda. We have to respect Greek democracy…
and
"When it becomes serious, you have to lie."
-Jean-Claude Juncker
No translation necessary
From Mark Grant, author of Out of the Box
THE UP-TO-THE-MINUTE GUIDE FOR UNDERSTANDING EUROPE
From the Merriam-Webster Dictionary: "To express in different terms and especially different words: Paraphrase (2): to express in more comprehensible terms: Explain, Interpret"
EUROSPEAK:
“I hail, I congratulate”—little or no meaning; words spoken by every politician in Europe when someone does something, anything and has an actual value of about zero. A reference to Roman times where Caesar hailed the conquering heroes which is a species that has been extinct on the Continent for some years now.
“I (we) will do everything to save the Euro”---we got ourselves into this mess and we will try to do something/anything to get out of it; rhetoric, hyperbole and more zero value talk. I am the head of the European Central Bank and this sentence was found in Chapter 18, paragraph three, “what to say to the Press when you have run out of things to say.” Chapter 18, paragraph four, by the way, is “divine right” and “the full support of God” so you may expect this shortly.
“End corruption, a more efficient tax system, sell government assets, debt to GDP ratio by (pick a date/any date), stop government waste, just asking for a delay, need more time, extension”---these are all Greekspeak for “Give us more money” and no other meaning should be appended to these phrases. These are all terms of the first sentence and then since any/all might be granted the second sentence will be since this or that has been granted that more money will be required to get there (about $50 billion at the present time).
“The debt to GDP ratio (pick a country/any country) will be X by the year (pick a year/any year)” has no bearing to anything in the real world and is not a mathematically based conclusion. These statements are manufactured by the IMF and created in the special secret room there built by Walt Disney & Co.
An example of practical usage:
“We are waiting for the Troika report.”---Of course we have seen the Troika report. It makes you want to throw up. We have everyone from the Finance Ministry to the janitor looking at it trying to figure out if there is anything at all that can be spun positively without invoking laughter in the Press. We have sent it to every government on the Continent and so far the best suggestion has been to use it for wallpaper in the lieu. We are using the computer at the Particle Accelerator in Cern, Switzerland in hopes that they can find something and the process time ends October 16 so we are waiting until then to make any announcements.“Christine what number should we use this time?”
“I don’t know Angela what does Mario think?”
“To which Mario are you referring Christine?”
“Do you think it really matters Angela?”
“Where is the Ouija Board anyway?”
“We will decide after we have seen the Troika report.”---Is it cheaper to give them another $50 billion or tell them “no more money?” If we give them more money they will ask for another $50 billion in three months and we have elections coming up. We must balance the economic cost against the political cost. I like being Chancellor and don’t intend to lose the job because of the idiots in Athens.
“It is a great victory for Europe…we are not negotiating with either the IMF or the EU…the money is for the banks and not the country…we have valued the Real Estate correctly…the numbers are accurate;” all from the Prime Minister of Spain. Here we have proof positive that Spain is a major drug producing country. They are not only producing various white powders but strong hypnotics, hallucinogens and other mind altering substances. Don Quixote has been found in Valencia and he is living with Timothy O’Leary and Elvis has returned to the house.
“We will raise the tax on the rich to 75%...we will increase Real Estate taxes for anyone that has had some success...all new taxes will be retroactive…everyone making any money will have to give most of it to everyone else so they can sit in the cafes and enjoy the croissants.” The President of France once took a course in economics at the Acadamie du Comedie but flunked it which is not public information and protected by the French courts. It turned out that the professor was from Marseilles and Hollande could not understand his accent. “Let them eat cake” worked for Marie Antoinette and it might work again. Where is Robespierre when we need him? Find Madame Defarge and offer her the Finance Ministry.
“There will be no Referendum in Britain.” I know the country is a democracy but as Prime Minister this is an inappropriate question. The people in Dover and Manchester can’t spell Referendum much less understand what it means. The British people hated taking Latin in school and it is bad politics to remind them of the experience. I won’t get invited anymore to the fancy dinners in Brussels and our laws don’t allow for Champagne on the dinner vouchers. Britain doesn’t make any decent red wines and I will be cut-off and have to suffer. I am not a “Bangers and Mash” kind of chap.
“Mark Grant is writing mischievous comments.” This was found on the official government website of Ireland eighteen days before they went bankrupt. This phrase may soon appear on the Spanish website (“Mark Grant está escribiendo comentarios maliciosos”) and after that perhaps on the Italian website (“Mark Grant scrive commenti maliziosi”). The translation of “mischievous” here is quite tricky. It means reading the writing on the wall, utilizing the complex mathematical propositions of addition and subtraction, having a rational basis for a conclusion and stating the obvious when those in power do not wish to hear it. [Please refer to “Eurospeak for Foreign Dummies” for a further explanation.]
“I want Greece to remain part of the Eurozone…”---Merkel, Hollande, Rajoy, Cameron, Kenney, Coelho, Katainen et al. This phrase is taken from the movie, “The Wizard of Oz,” and is generally attributed to Judy Garland and her famous song, “Somewhere over the Rainbow.”
Someday I'll wish upon a star
And wake up where the clouds are far behind me.
Where troubles melt like lemon drops,
High above the chimney tops,
That's where you'll find me.
"We are not asking for more money. We are asking for air to breathe as we plunge to the depths."
-Greek Prime Minister Antonis Samaras on August 24, 2012
Here we have the new revival, the newest rendition of the Trojan horse; the play made famous by Odysseus, the famous Greek actor. It is a time tested Athens stratagem where, having gained admission, Pandora’s Box is unleashed. You will recall Virgil's famous line "Timeo Danaos et dona ferentes" (I fear Greeks even those bearing gifts). So it is not all Greek to you; the correct translation of Mr. Samaras’ comment is “Knock, Knock; Please let me in.”
"I don’t envisage, not even for one second, Greece leaving the euro area. This is nonsense. This is propaganda. We have to respect Greek democracy…
and
"When it becomes serious, you have to lie."
-Jean-Claude Juncker
No translation necessary
GM Seeks Bigger Credit Line To Shrink Pension Obligations; Déjà Vu Pension Woes
GM Seeks Bigger Credit Line To Shrink Pension Obligations; Déjà Vu Pension Woes: Going into debt to fund pensions seems like a ridiculous thing to do, especially for a company had a chance to shed more of those pension obligations in bankruptcy.
Please consider the Wall Street Journal story GM Wants to Up Credit Line
On June 1, 2012 the Chicago Tribune reported GM to cut about one-fourth of U.S. pension liability
Inquiring minds investigating GM's Balance sheet will notice about $32 billion in cash, $11 billion in securities, and another $11 billion or so in accounts receivable.
However, GM has $10 billion in long-term debt and another $43 billion in other liabilities. Current liabilities are roughly $56 billion. Total Liabilities are $110 billion of which at least $31 billion are pension and retirement benefits.
Assets include a very questionable $28 billion in goodwill, and a questionable $25 billion in property.
The balance sheet above does not seem to match the Tribune's calculation of $83 billion in pension liabilities (109-26). The $109 billion figure does match total liabilities.
Déjà Vu Pension Woes
Borrowing $5 billion to shore up its pension plan certainly would have worked well in 2009. However, GM wants to do it now, a foolish undertaking in my opinion.
Pension obligations helped sink GM the first time, and it may happen again, especially if GM borrows money to throw at the stock market. If stocks decline and auto sales decline as well, GM will be in serious trouble once again.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Please consider the Wall Street Journal story GM Wants to Up Credit Line
General Motors Co. is in preliminary talks with banks to potentially double its $5 billion line of credit as the auto maker looks to strengthen its balance sheet and shrink pension obligations, according to people with knowledge of the discussions.GM's Pension Liabilities
The world's largest auto maker by sales is in no danger of running short on cash. The Detroit company has very little debt and held about $33 billion in available cash at June 30. Analysts believe it needs roughly $20 billion to operate comfortably. It currently has an available line of credit of $5 billion.
But GM could have hefty cash needs ahead. Its European operations are racking up major losses, it is increasing capital spending on new vehicles, and it may want to repurchase shares held by the U.S. Treasury. GM also wants to reduce its U.S. pension obligations. Pensions for hourly, union workers and retirees are underfunded by about $10 billion and have been a major concern for investors.
GM is spending around $4 billion to shift responsibility of its $26 billion salaried retiree pension program to Prudential Financial Inc. PRU +1.52% in a deal set to close by year-end. A bigger drag on the company is the $71 billion in pension obligations it has to union-represented hourly workers and retirees. That account is underfunded by $10 billion, according to public filings.
On June 1, 2012 the Chicago Tribune reported GM to cut about one-fourth of U.S. pension liability
General Motors Co will cut nearly a quarter of its U.S. pension obligation by transferring the management of its pension plans for 118,000 white-collar retirees to a third party and offering lump-sum buyouts.GM's Balance Sheet
The two moves unveiled on Friday will cut $26 billion from the automaker's massive U.S. pension liability of nearly $109 billion. GM's pension overhang is a top concern for investors. It was one of a handful of issues left untouched during GM's U.S.-financed bankruptcy restructuring three years ago.
UAW PENSIONS IN FOCUS
A growing concern for decades as U.S. automakers lost market share to foreign-based automakers in their home country, pension costs became an albatross for the U.S. industry with the sector's downturn five years ago.
Inquiring minds investigating GM's Balance sheet will notice about $32 billion in cash, $11 billion in securities, and another $11 billion or so in accounts receivable.
However, GM has $10 billion in long-term debt and another $43 billion in other liabilities. Current liabilities are roughly $56 billion. Total Liabilities are $110 billion of which at least $31 billion are pension and retirement benefits.
Assets include a very questionable $28 billion in goodwill, and a questionable $25 billion in property.
The balance sheet above does not seem to match the Tribune's calculation of $83 billion in pension liabilities (109-26). The $109 billion figure does match total liabilities.
Déjà Vu Pension Woes
Borrowing $5 billion to shore up its pension plan certainly would have worked well in 2009. However, GM wants to do it now, a foolish undertaking in my opinion.
Pension obligations helped sink GM the first time, and it may happen again, especially if GM borrows money to throw at the stock market. If stocks decline and auto sales decline as well, GM will be in serious trouble once again.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
GM Seeks Bigger Credit Line To Shrink Pension Obligations; Déjà Vu Pension Woes
GM Seeks Bigger Credit Line To Shrink Pension Obligations; Déjà Vu Pension Woes: Going into debt to fund pensions seems like a ridiculous thing to do, especially for a company had a chance to shed more of those pension obligations in bankruptcy.
Please consider the Wall Street Journal story GM Wants to Up Credit Line
On June 1, 2012 the Chicago Tribune reported GM to cut about one-fourth of U.S. pension liability
Inquiring minds investigating GM's Balance sheet will notice about $32 billion in cash, $11 billion in securities, and another $11 billion or so in accounts receivable.
However, GM has $10 billion in long-term debt and another $43 billion in other liabilities. Current liabilities are roughly $56 billion. Total Liabilities are $110 billion of which at least $31 billion are pension and retirement benefits.
Assets include a very questionable $28 billion in goodwill, and a questionable $25 billion in property.
The balance sheet above does not seem to match the Tribune's calculation of $83 billion in pension liabilities (109-26). The $109 billion figure does match total liabilities.
Déjà Vu Pension Woes
Borrowing $5 billion to shore up its pension plan certainly would have worked well in 2009. However, GM wants to do it now, a foolish undertaking in my opinion.
Pension obligations helped sink GM the first time, and it may happen again, especially if GM borrows money to throw at the stock market. If stocks decline and auto sales decline as well, GM will be in serious trouble once again.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Please consider the Wall Street Journal story GM Wants to Up Credit Line
General Motors Co. is in preliminary talks with banks to potentially double its $5 billion line of credit as the auto maker looks to strengthen its balance sheet and shrink pension obligations, according to people with knowledge of the discussions.GM's Pension Liabilities
The world's largest auto maker by sales is in no danger of running short on cash. The Detroit company has very little debt and held about $33 billion in available cash at June 30. Analysts believe it needs roughly $20 billion to operate comfortably. It currently has an available line of credit of $5 billion.
But GM could have hefty cash needs ahead. Its European operations are racking up major losses, it is increasing capital spending on new vehicles, and it may want to repurchase shares held by the U.S. Treasury. GM also wants to reduce its U.S. pension obligations. Pensions for hourly, union workers and retirees are underfunded by about $10 billion and have been a major concern for investors.
GM is spending around $4 billion to shift responsibility of its $26 billion salaried retiree pension program to Prudential Financial Inc. PRU +1.52% in a deal set to close by year-end. A bigger drag on the company is the $71 billion in pension obligations it has to union-represented hourly workers and retirees. That account is underfunded by $10 billion, according to public filings.
On June 1, 2012 the Chicago Tribune reported GM to cut about one-fourth of U.S. pension liability
General Motors Co will cut nearly a quarter of its U.S. pension obligation by transferring the management of its pension plans for 118,000 white-collar retirees to a third party and offering lump-sum buyouts.GM's Balance Sheet
The two moves unveiled on Friday will cut $26 billion from the automaker's massive U.S. pension liability of nearly $109 billion. GM's pension overhang is a top concern for investors. It was one of a handful of issues left untouched during GM's U.S.-financed bankruptcy restructuring three years ago.
UAW PENSIONS IN FOCUS
A growing concern for decades as U.S. automakers lost market share to foreign-based automakers in their home country, pension costs became an albatross for the U.S. industry with the sector's downturn five years ago.
Inquiring minds investigating GM's Balance sheet will notice about $32 billion in cash, $11 billion in securities, and another $11 billion or so in accounts receivable.
However, GM has $10 billion in long-term debt and another $43 billion in other liabilities. Current liabilities are roughly $56 billion. Total Liabilities are $110 billion of which at least $31 billion are pension and retirement benefits.
Assets include a very questionable $28 billion in goodwill, and a questionable $25 billion in property.
The balance sheet above does not seem to match the Tribune's calculation of $83 billion in pension liabilities (109-26). The $109 billion figure does match total liabilities.
Déjà Vu Pension Woes
Borrowing $5 billion to shore up its pension plan certainly would have worked well in 2009. However, GM wants to do it now, a foolish undertaking in my opinion.
Pension obligations helped sink GM the first time, and it may happen again, especially if GM borrows money to throw at the stock market. If stocks decline and auto sales decline as well, GM will be in serious trouble once again.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
martes, 14 de agosto de 2012
The Economic 'Recovery' In Historical Context
The Economic 'Recovery' In Historical Context:
How does the current 'recovery', which according to the NBER officially began in June 2009, compare to those of the past? The Council on Foreign Relations updates its recovery chartbook and succinctly notes that "the current recovery remains an outlier among post-war recoveries along several dimensions." Consumers remain reluctant to take on new debt and the stock of debt is lower than it was when the recovery officially began. The global economic slowdown is beginning to manifest itself in world trade. After staging the strongest recovery of the post–World War II era, growth in world trade has begun to decelerate.
How does the current 'recovery', which according to the NBER officially began in June 2009, compare to those of the past? The Council on Foreign Relations updates its recovery chartbook and succinctly notes that "the current recovery remains an outlier among post-war recoveries along several dimensions." Consumers remain reluctant to take on new debt and the stock of debt is lower than it was when the recovery officially began. The global economic slowdown is beginning to manifest itself in world trade. After staging the strongest recovery of the post–World War II era, growth in world trade has begun to decelerate.
- Real GDP is growing, but less rapidly than in any other postwar recovery.
- Thirty-six months after the start of the economic recovery, GDP is only 6.7 percent higher than it was when the recovery officially began.
- As of the second quarter of this year, real GDP is 1.7 percent above its pre-crisis peak, having first surpassed this peak in the fourth quarter of 2011.
- Although housing starts have recently recovered, nominal home prices have yet to follow.
- Soft home prices have been central to the weakness of the recovery. Prices have continued to fall even after the recession officially ended.
- The continued weakness of nominal home prices is a postwar anomaly.
- In every previous postwar recovery, the stock of household debt has risen as the recovery has begun.
- In the current recovery, the collapse in home prices has severely damaged household balance sheets. As a result, consumers have avoided taking on new debt.
- The result is weak consumer demand and a slow recovery.
- The relative weakness of this recovery is obvious in the labor market.
- Job losses continued throughout the first eight months of the recovery.
- Payrolls have increased for the past twenty-two consecutive months, but there are still five million fewer Americans on nonfarm payrolls than there were at the start of 2008.
- Because of the depth of the recent recession, one might expect stronger-than-average improvement in industrial production.
- Despite the predicted snapback, the increase in industrial production during this recovery has been fairly typical of postwar recoveries.
- Capacity in manufacturing, mining, and electric and gas utilities usually grows steadily from the start of a recovery; however, during the current recovery, investment was initially so slow that capacity declined.
- Since the start of last year, this trend has reversed itself and industrial capacity has been steadily rising.
- The pace of growth in world trade has slowed in recent months as global economic growth has decelerated.
- World trade volume initially recovered more quickly than in any other post–World War II recovery; however, this reflected the depth of the fall during the recession.
- The federal deficit was much larger at the start of this recovery than it was in any other postwar recovery.
- Although the deficit as a percent of GDP has shrunk slightly, its level creates significant challenges for policymakers and the economy.
New “China Beige Book” Sees Growth Rebounding
New “China Beige Book” Sees Growth Rebounding: A private research firm has taken a leaf out of the Federal Reserve's book by creating a "Beige Book" for China.
By Prabha Natarajan
A private research firm has taken a leaf out of the Federal Reserve’s book by creating a “Beige Book” for China.
The quarterly report, similar to the Fed’s snapshots of U.S. regional conditions (which come out eight times a year), is an effort to provide foreign investors with a better understanding of the economic workings of China. The report drills down to sectors, and to China’s eight regions, including Tibet. It doesn’t focus on broad macroeconomic data like GDP or manufacturing.
“The data helps investors understand the evolving dynamics on the ground in China,” said Leland Miller, president of CBB International, the publisher of China Beige Book.
While working independently of the Fed, the firm relies on the U.S. central bank’s methodology and questionnaires for its research. When it comes to China, people are worried about the quality of the data, their comprehensiveness and ability to span the country’s diverse and complex industries, said Craig Charney, director of research at CBB International.
“It’s hard to ensure the quality of data,” Mr. Charney said, but he relies on extensive pretesting and surveys to ensure clean readings.
In its second China Beige Book released last month to clients, the report noted there were signs of a rebound largely fueled by increased retail sales, but problems continue to persist in industries like mining and minerals. While metro regions continued to see the strongest surges in retail spending, there were also sizeable spending increases in the central and northern regions, Mr. Charney said.
There are also signs of government stimulus in addition to monetary easing throughout the economy, he said. For instance, state-owned firms are investing in mining and transportation. There also are policies geared to boost consumer spending, including purchases of homes and cars. Consumer spending and services are picking up the slack in exports and some manufacturing sectors, according to the report.
“The data is fresh and we put it out so fast that it will serve as an early indicator of what is coming in official data later,” Mr. Miller said.
By Prabha Natarajan
A private research firm has taken a leaf out of the Federal Reserve’s book by creating a “Beige Book” for China.
The quarterly report, similar to the Fed’s snapshots of U.S. regional conditions (which come out eight times a year), is an effort to provide foreign investors with a better understanding of the economic workings of China. The report drills down to sectors, and to China’s eight regions, including Tibet. It doesn’t focus on broad macroeconomic data like GDP or manufacturing.
“The data helps investors understand the evolving dynamics on the ground in China,” said Leland Miller, president of CBB International, the publisher of China Beige Book.
While working independently of the Fed, the firm relies on the U.S. central bank’s methodology and questionnaires for its research. When it comes to China, people are worried about the quality of the data, their comprehensiveness and ability to span the country’s diverse and complex industries, said Craig Charney, director of research at CBB International.
“It’s hard to ensure the quality of data,” Mr. Charney said, but he relies on extensive pretesting and surveys to ensure clean readings.
In its second China Beige Book released last month to clients, the report noted there were signs of a rebound largely fueled by increased retail sales, but problems continue to persist in industries like mining and minerals. While metro regions continued to see the strongest surges in retail spending, there were also sizeable spending increases in the central and northern regions, Mr. Charney said.
There are also signs of government stimulus in addition to monetary easing throughout the economy, he said. For instance, state-owned firms are investing in mining and transportation. There also are policies geared to boost consumer spending, including purchases of homes and cars. Consumer spending and services are picking up the slack in exports and some manufacturing sectors, according to the report.
“The data is fresh and we put it out so fast that it will serve as an early indicator of what is coming in official data later,” Mr. Miller said.
domingo, 5 de agosto de 2012
Treasury Audits the NY Fed’s Gold Vault
Treasury Audits the NY Fed’s Gold Vault:
This is cool shit, the Treasury Dep't has been quietly auditing the gold vaults of the New York Fed, in part to put persistent conspiracy theories to rest. They've been counting and testing and even drilling into some of the ingots according to a story at the Chicago Tribune:
Source:
What's in your vault? Uncle Sam audits its stash of gold at the New York Fed (Chicago Tribune)
This is cool shit, the Treasury Dep't has been quietly auditing the gold vaults of the New York Fed, in part to put persistent conspiracy theories to rest. They've been counting and testing and even drilling into some of the ingots according to a story at the Chicago Tribune:
In New York, about $21 billion in U.S. gold is locked inside the Fed's vault. It's stored alongside bullion from three dozen other countries and organizations such as the International Monetary Fund. All told, about 23% of the world's official gold reserves are stored in the central bank's vaults.No Bruce Willis and/or Jeremy Irons do not show up, but the whole thing is worth a read.
The audit, which began in January, took place 80 feet below the Fed's limestone and sandstone Italian Renaissance building in Manhattan's financial district. Visitors to the vault make their way through a steel and concrete entrance where a 90-ton door rotates open.
Inside, a massive scale is ringed by 122 blue cages that hold about 530,000 gold bars — 34,021 of which belong to Uncle Sam. The auditing team counted the U.S. stash, selecting more than 350 bars from which to extract samples for assaying.
Source:
What's in your vault? Uncle Sam audits its stash of gold at the New York Fed (Chicago Tribune)
HOT: Merkel’s Coalition Members Signal Acceptance Of ECB Bond-Buying
HOT: Merkel’s Coalition Members Signal Acceptance Of ECB Bond-Buying: Members of German Chancellor Angela Merkel’s coalition parties signaled they won’t stand in the way of European Central Bank chief Mario Draghi’s plan to buy government bonds, Bloomberg is reporting..
The envisaged move to purchase troubled euro states’ government bonds is “a wise middle way” to solve the region’s debt crisis, Elmar Brok, a European Parliament lawmaker and executive-committee
The envisaged move to purchase troubled euro states’ government bonds is “a wise middle way” to solve the region’s debt crisis, Elmar Brok, a European Parliament lawmaker and executive-committee
Pimco’s El-Erian Says World in Serious Slowdown
Pimco’s El-Erian Says World in Serious Slowdown: Pacific Investment Management Co.’s Mohamed El-Erian called the recent declines in purchasing manager indexes in Europe and Asia “frightening” and said the world economy is suffering its severest slowdown since the global recession ended in 2009, reports Bloomberg.
“This is a serious, synchronized slowdown,” El-Erian said in an interview today.
El-Erian is correct. He may not know what is
“This is a serious, synchronized slowdown,” El-Erian said in an interview today.
El-Erian is correct. He may not know what is
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