Daily Market Preview (1/6/09)
1. Aihh…they can’t do anything right
Steven M. Davidoff, a professor at the University of Connecticut School of Law, writes that the U.S. government’s rescue of GMAC Financial Services, the financing arm of General Motors, is a complicated one. Davidoff explains the various terms of the rescue, which appears to be a sweet deal for GMAC but not so sweet for taxpayers and competitors that opted against government aid.
2. Germany almost doubled spending on 2nd stimulus
Germany’s newly expanded economic stimulus — which could reach $68 billion, or 1.5% of the country’s GDP — brings it in line with efforts by its European neighbors, in some cases exceeding them. Chancellor Angela Merkel’s coalition seems close to agreement on the second stimulus, a combination of infrastructure construction, job protection, help for businesses and modest tax cuts.
3. Italy fell flat on its face following Bush’s move
U.S. President George W. Bush could not persuade Congress to privatize Social Security, but Italy went ahead and did it. The results are catastrophic, both for the government and for retirees. Workers who agreed to switch their contributions from a government plan to private funds offering higher yields saw the value of their savings collapse when the financial crisis hit. Is it timing or is it Bush?
4. Investment theme in India
Credit Suisse executives said while trying to predict the direction of the Indian market is pointless, they identified 10 themes that will have implications for investors, shareholders, corporations and policymakers in the first six months of this year. For example, policy easing will be unprecedented and recapitalization of a variety of companies is expected, as well as shareholder consolidation. Other themes are political events, loss allocation, regulator consolidation, increasing uncertainties and bank non-performing loans.
5. The resilient Dragon
Fund managers with Asian portfolios are betting that the region’s firms and economies will continue to grow and provide decent returns, while the financial crisis hits Europe and the U.S. Many Asian firms are expected to have learned their lessons from the 1997 Asian financial crisis, allowing them to weather the current turmoil better than their foreign rivals. “The region has undergone considerable change following the 1997 financial crisis and now has a healthy balance sheet with room to maneuver,” said Khiem Do, chairman of Baring Asset Management’s Asia multiasset team.
6. The table is turned
Fulfilling its longstanding plan to assume control of Volkswagen, Porsche increased its ownership from 42.6% to 50.76%, an event that automatically puts into effect a mandatory takeover offer for Swedish truck manufacturer Scania. Although Swedish law requires a takeover offer for Scania, in which Volkswagen holds about 69% of voting rights, Porsche had said that it has no interest in buying Scania shares.
7. Narrower spread between corp and cons on loans
After seeing that cutting its benchmark interest rate almost to zero failed to stimulate corporate and consumer lending, the Federal Reserve is looking for ways to narrow the spread between Treasury yields and loan interest rates. The problem is that, so far, interest rates charged on mortgages and other loans are not following Treasury yields as they go down.
8. Even the Lion Country is not immune this time
Economists are predicting the worst recession in Singapore’s history, a prospect that is unnerving to its Asian neighbors, which often see the country as an indicator of where the entire region is headed. Citigroup economist Kit Wei Zheng expects a 2.8% contraction in 2009.
9. Russia wants to come out on top
Gazprom said its conflict with Ukraine over natural gas is a purely commercial dispute, but Russia, although definitely in need of the money, also desperately wants to come out on top from a public-relations standpoint. Russia must find a way to avoid seriously alienating the EU, which is both a good cash-paying buyer for natural gas and a potential investor in future gas-development projects in the Arctic and East Siberia.
10. FSA lifting ban on short sales for financial stocks
The Financial Services Authority said a ban that began in September on short selling shares of more than 30 financial companies will end Jan. 16. The FSA will continue requiring investors to disclose their short positions. The practice has been blamed for spurring along the financial crisis, and critics still oppose it. “This is a worrying development. The ban was introduced because of the impact of short selling in banking stocks, which can be problematic because of the systemic risk they pose,” said Vince Cable, the U.K. Liberal Democrat economics spokesman. “If banks go down, the taxpayer has to pick them up.”
11. Dimon maybe next
Preemptively, It’s the reason he made a strategic decision to speak on television in pretty harsh terms— “November itself has been a terrible trading month…December so far is still pretty terrible…It will be a tough quarter” —about the challenges facing JPMorgan and its pending fourth-quarter results, these people tell me.
12. Thanks for reading!!
Pacific Perspective
PACIFIC PERSPECTIVES:
AMERICA’S SLOW AND
UNSURE PASSAGE TO INDIA
January 5, 2009
BY TOM PLATE
Beverly Hills, California – The recent calamity in Mumbai, India, put India smack in the middle of the fiery geopolitical world stage.
Nevertheless, in general, the American public knows even less about India than it knows about China – and far less than it understands about the fiery Middle East. This has got to change.
The misplaced priorities of our educational system and our mass news media can be blamed, if obvious culprits are needed for fingering. Few Americans realize that India has more people than any other country except China and, like China, is a rising power with a nuclear arsenal. But the People’s Republic of China operates under a notorious one-party authoritarian system, whereas India operates under a multi-party, multi-ethnic parliamentary democracy. This makes it the world’s largest democracy, period.
Yet by and large, many Americans in the world’s greatest (though not
largest) democracy are probably more familiar with the general contours of the surface of the moon than with the contours of India, that ancient and enduring civilization.
Notable exceptions to this generalized ignorance are far and few between, but they do exist. For example, expertise about India can be found in those large clusters of Asian Indians who live in scattered communities around the U.S. Many Indians in America come from a professional class, are extremely well educated, and are totally plugged in to the developments back home in South Asia.
The states of Illinois and Texas can brag of more Indian residents than any other Asian ethnicity. In New York, their numbers are topped only by the Chinese and in California only by the Filipinos and the Chinese. These definitive figures come to us via the East-West Center in Honolulu, that invaluable trans-Pacific intellectual and policy bridge.
Its latest effort is bannered, appropriately, as “Asia Matters for America” (www.asiamattersforamerica.org). The study lays out the growing dimensions of America’s increasing Asian-ization. Between 2004 and 2006, it reports, the increase in America ’s “Asian alone”
population (people who are 100% ethnically Asian of one Asian nationality or more) was four times greater than general population growth. Today, of the entirety of America’s foreign-born population, fully a quarter hails from Asia. It turns out that the fastest growing Asian subgroups are Vietnamese, Filipino and Indian.
They do not all profile in the same way, to be sure. Each has different qualities, strengths and issues. Sometimes the Indian population is thought to be the politically quietest of the lot, but this is deceiving. They tend to be active politically, and, to tell the truth, they may be the least disinclined of all Asian groups to stick up for their viewpoint.
In one sense, you can’t blame them. Their extraordinary country deserves much better media coverage and a far better effort at a general understanding by the public.
Lately, however, elite groups in the U.S. have begun acting as if India’s time may have finally arrived in America. After years of preoccupation with China – understandably – major think-tank spotlights are moving to illuminate South Asian issues. Recently, the Pacific Council on International Policy, a foreign-policy study group anchored on the West Coast of the U.S.A., announced it will soon issue a major report on the U.S.-India relationship.
To produce the task-force report, U.S. business leaders have been working in close partnership with counterparts at the Federation of Indian Chambers of Commerce & Industry (FICCI), a blue-chip Indian business association. Key drivers of the effort at improving understanding are Richard F. Celeste, former U.S. ambassador to India, and Dr. Amit Mitra, FICCI’s secretary general.
Another important and useful effort is designed to appeal to a broader audience. Courtesy of the superb Public Broadcasting System, a six-hour documentary mini-series comes to American TV sets this month.
It is delightfully narrated by pop historian Michael Wood, in a gorgeous production by Maya Vision International. They are calling it nothing less grandiose than “The Story of India”, a TV series that originally was aired by the British Broadcasting Corp. in 2007 to mark, with respect, the 60th anniversary of the independence of India and Pakistan from you-know-who.
The engrossing documentary briskly traverses the 10,000-year history of the Indian subcontinent. It should serve to remind us Americans that, while our country is a relative national newbie, India’s (like
China’s) has been around, festering and developing, for millenia.
Maybe this will render us a little humble – and more eager to learn.
Finally, please go see “Slumdog Millionaire” for a quick cinematic fix on India. It’s set in Mumbai, a city with a population of 13 million – of which 60% live in what are now officially Asia’s largest slums. In India itself, more than 200 million suffer from hunger; half the nation’s small children are malnourished. The film’s brilliance is that it doesn’t skate over this reality, even as it entertains and becomes the easiest-going-down quick passage to India I can imagine.
It’s a gem, and you’ll learn some things. I did.
Daily Market Preview (1/5/09)
1. 310 Billion in tax cuts?
Faced with warnings that the recession could slide into a lengthy period of deflation and stagnation, U.S. President-elect Barack Obama is preparing to ask Congress for as much as $310 billion in tax cuts as part of his huge stimulus package. Data are painting an ever-darker picture of the economy, with a report on U.S. jobs that is scheduled for release this week expected to show that at least 500,000 jobs disappeared in December.
2. Credit Card company is feeling the pinch
Credit-card companies are facing the grim reality that as the economy continues to deteriorate, many consumers will not have the funds to repay their bills. For self-preservation, the companies are going to drastic measures, including forgiving as much as 70% of credit-card debt. Major credit-card lenders are allowing their collection agents greater leeway to make adjustments for struggling consumers.
3. Another one…Italian bond scandal
Officials in Milan, Italy, said they are looking into legal action against a group of banks that struck a deal to help the city manage repayments on bonds it purchased to finance public spending. Milan is rapidly losing money on the derivative contract it took out with Deutsche Bank, JPMorgan Chase, UBS and Depfa Bank. Some estimates put the city’s liabilities at €35 billion.
4. What else new from these guys?
Analysts of the auto industry expect the six biggest manufacturers, foreign and domestic, to report that December sales were down at least 30% in the U.S. Last year was the worst year for car and truck sales since 1992, analysts said, with General Motors and Chrysler suffering the severest declines.
5. Russia is tightening the noose
Russia raised the stakes in its natural-gas dispute with Ukraine, with Gazprom announcing that it is demanding $450 per 1,000 cubic meters, compared with its previous offer of $418. Ukraine argued that when Russia’s gas monopoly raises prices, Ukraine should get a higher fee for using its pipelines to deliver gas to Europe.
6. Brown pushing harder
British Prime Minister Gordon Brown said he will launch a public-works program to create 100,000 jobs and require banks to start making credit available again to consumers and businesses under terms that were in effect before the credit crunch. He said a major goal of the government is to “get the banks doing what they said they would do after recapitalization
7. No exit, no entry
Veterans of the venture-capital market in Silicon Valley said disappearing opportunities for investors to exit profitably from startups will reduce technology investment. Dixon Doll, chairman of the National Venture Capital Association, blamed the trend on excessive investment during the dot-com boom, followed by a feeble market for initial public offerings.
8. Saudi to become more business friendly
Saudi Arabia is implementing a plan to be rated by the World Bank as one of the 10 most business-friendly nations by 2010. The country is relaxing restrictions on investment and taking down barriers for doing business there.
9. ECB+Fed vs. Deflation
Speaking at a meeting of the American Economics Association, representatives of the European Central Bank and the Federal Reserve said they will act decisively to fight global deflation. Lucas Papademos, vice president of the ECB, and Janet Yellen, president of the Federal Reserve Bank of San Francisco, agreed that inflation has fallen too far and that deflation is a serious threat.
10. Celtic tiger having tooth problem
Ireland, long celebrated as the Celtic Tiger and the fourth-wealthiest country in the Organization for Economic Cooperation and Development, is being hit hard by the global recession, which arrived early in the country and seems to be digging in for a long stay. Joblessness is closing in on 10%, the price of bank stocks is down 90% or more, and housing prices are off by as much as 50%.
11. Suspicious but afraid
Some of the biggest names on Wall Street had doubts about the legitimacy of Bernard Madoff’s investment business, even discreetly steering customers away from him, but they did not reveal their suspicions to regulators, U.S. bankers said. Executives were reticent in their criticism of Madoff because they were afraid of offending clients who were investing with him. My question is: what about fiduciary duty??
12. PE might be back in the spotlight with the melting of the retailers
Any business burdened under a debt pile — like most of those in private-equity hands — is likely to find itself in deeper trouble this month. Thus the secretive private equity industry may find itself thrust back into the limelight. Anthony Gent, an analyst at OC&C, the consultant, said: “Any retail business bought by private equity over the last two or three years will likely be highly leveraged and, given current trading trajectory, could be heading towards covenant breach.”
13. Thanks for reading!!
Pacific Perspective
A GIANT FALLS, BUT HIS IDEAS WON’T DIE
December 29, 2008
BY TOM PLATE
Beverly Hills, California —- A giant died the other day. His name was Samuel Huntington.
Harvard Professor Huntington’s gigantism was intellectual. His ideas left huge footprints on our intellectual landscape, the way giant storms can impact the earth. Minds were shaken, sometimes stirred and never left untouched.
His two most famous books burst on the scene decades apart. “The Soldier and the State” came out in 1957. “Clash of Civilizations”
came out in 1996. The former offered a theory of how a strong military can and should function in a democratic system. It needs to form a professional caste and operate all but autonomously, yet remain always under civilian control.
The latter book offered a theory about the basic nature of future conflicts in international relations. Huntington put it this way: “It is my hypothesis that the fundamental source of conflict in this new world will not be primarily ideological or primarily economic. The great divisions among humankind and the dominating source of conflict will be cultural. Nation states will remain the most powerful actors in world affairs, but the principal conflicts of global politics will occur between nations and groups of different civilizations. The clash of civilizations will dominate global politics. The fault lines between civilizations will be the battle lines of the future.”
Critics insinuated that Huntington was a militarist perhaps because of the deeply respectful way he wrote about the military, as well as a crypto-racist, because of his emphasis on points about gigantic cultural, religious and racial fault-lines that threaten to smash the globe into viciously competing civilizations.
But in the aftermath of Sept. 11, 2001, the question arose: How right might the Prof be? Five years before, with the book’s publication, I took the view in my Los Angeles Times column that Huntington’s certitude about the near-unavoidability of conflict between civilizations and cultures (especially religions) was excessive to the point of morbidity. It amounted to a kind of apolitical fatalism: If widely credited in the West, it could turn into a self-fulfilling prophecy of cultural isolation, rather than engendering a vigorous and open-minded internationalism.
Today we would all have to admit that his basic vision may yet prove more right than wrong in a way that compels us to pay attention to the problem of, say, Islam and the West, if only to manage the dangerous tension. To his credit, Huntington was an honest scholar as well as a great one, forever adding nuance to his views. At the annual World Economic Forum conclave held in 2002 in New York, he agreed that differences in values and cultures among civilizations need to be bridged rather than merely accepted.
Huntington, to be sure, was never very gung-ho about the upside potential of the U.S.-China relationship. A functional level of intimacy or ever cooperative parallelism seemed to him to swim against the tide of cultural direction. The challenge, he once said, was to figure out whether the bridge to cross is a “bridge over a chasm, a wide ocean, a changing stream or what?” But he did not quarrel with the effort to traverse civilizations, cultures and religions.
“Differences in culture and civilization don’t necessarily have to lead to conflict,” he admitted.
He was especially strong in his belief that the West’s political values and beliefs lack universal applicability. He tended toward the view that the quality of governance was more important than the form of government: “The differences between democracy and dictatorship are less than the differences between those countries whose politics embodies consensus, community, legitimacy, organization, effectiveness, stability, and those countries whose politics is deficient in these qualities….Men may, of course, have order without liberty, but they cannot have liberty without order.”
As always with Huntington, his views were more likely to make you think than to lure you into easy agreement. His scholarship was solid and at Harvard he was revered by his students as a great teacher. But he was anything but a feeble footnote academic, gathering up tiny seeds and nuts like a squirrel stockpiling for winter. His approach to politics and history was as a gigantic harvest machine, cutting through the chaff and the wheat of the times to yield a bumper crop of insight.
It was a tragedy that even the best U.S. newspapers underplayed the news of his death earlier this week. The story should have been on our front pages; it wasn’t. Perhaps America’s editors didn’t agree with his views, or are afraid of them. But we ignore this great mind at our peril. He has left us with much to think about.
Daily Market Update (1/2/09)
1. Record outflow
In one of the biggest flights to safety in the industry’s history, mutual funds recorded a net $320 billion outflow in 2008. But in December, investors put a net $23 billion into equity funds and withdrew only $3.5 billion from bond funds, a much smaller outflow than bond funds experienced earlier in the year. This suggests that the trend may have reversed in the closings weeks of the year.
2. Worst year ever for commodities
Crude oil, grains and industrial metals took the worst hits as commodities in 2008 posted their worst performance in history. During the first half of the year, commodities outperformed most other asset classes, but then the market turned against them, and losses accelerated into the fourth quarter.
3. M&A slide 29%
The deal volume for mergers and acquisitions in 2008 was down 29% from a record-high 2007, according to Dealogic. In the U.S., dollar volume fell to $1.1 trillion, while the worldwide figure dropped to $3.3 trillion.
4. 09 could be as bad for I-bankers
Investment bankers took a beating in 2008 as the volume of securities underwriting slid to a six-year low and a 38% drop from 2007. Analysts said investors are likely to remain wary of capital markets, at least through the first half of 2009.
5. Yale buying up
Yale, the second-richest university in the U.S., is buying distressed debt to help its endowment recover from losses in the economic downturn. David Swensen, the school’s chief of investment, said a wide range of debt assets are “priced at really extraordinarily cheap levels.”
6. MB spread tightens
News that the Federal Reserve is accelerating its schedule for buying $500 billion in mortgage bonds tightened spreads on Fannie Mae, Freddie Mac and Ginnie Mae mortgage bonds. Spending $500 billion in six months is “a lot of ammo to keep mortgage rates down,” said Art Frank, head of mortgage-bond research at Deutsche Bank in New York.
7. Municipal bond market is gasping for air
Municipal-bond sales in 2008 by state and local borrowers were down 9% from 2007, and this year’s sales are projected to fall a further 6%. The market’s decline comes at a bad time for states, which face a combined budget deficit of $42 billion.
8. Thousands to close this year
A disastrous drop in retail sales in 2008 is certain to trigger bankruptcy filings and store closures by the thousands in 2009, experts said. Michael Burden, an executive with retail adviser Excess Space Retail Services, said California, Florida and Nevada will be among the states hardest hit by store closures.
9. Unwinding is boon to Yen
The long-suffering Japanese yen was the hot currency in the second half of 2008, as the global financial turmoil forced a savage unwind of the carry trade. The British pound plummeted to a string of all-time lows, coming close to parity with the euro.
10. Tough questioning by the panel
The U.S. Treasury’s 13-page response to a critical report from the Congressional Oversight Panel, which was set up to keep an eye on the government’s bank bailout, leaves many tough questions raised by the panel unanswered. The response offers a summary of actions taken but fails to outline the Treasury’s definition of success or explain whether and how these actions helped prevent foreclosures.
11. Maybe there will be extension on short sale ban
With the Financial Services Authority’s temporary ban on short selling of bank shares set to expire in two weeks, merits of extending the ban are being discussed by members of the U.K. Parliament.
12. Emerging econ to blame?????
Failure to recognize the rapid and persistent growth of emerging economies set the stage for the credit crisis, U.S. Treasury Secretary Henry Paulson said. Imbalances that showed up in huge account deficits and surpluses depressed interest rates and lured investors into ever-riskier assets as they searched for higher yields, he said.
13. Madoff to influence re-regulation
Congress members intend to draw lessons from the investigation into a $50 billion fraud allegedly managed by Bernard Madoff as they begin rewriting U.S. laws governing the financial sector. Rep. Paul Kanjorski, D-Penn., said lawmakers are undertaking “the most substantial rewrite of the laws governing the U.S. financial markets since the Great Depression.”
14. Ukraine not worried about Russia’s move
Because the recession has reduced demand for energy in Europe, Russia’s cutoff of gas delivery to Ukraine — through which some of Europe’s gas is sent — is not seen as a crisis. Even Ukraine, which refused the Kremlin’s demand for a price hike, took the action calmly, saying it is holding enough natural gas in storage to carry it through the winter.
15. Thank for reading and happy new year!!