April 30 (Bloomberg) -- Just when the world is beginning to appreciate China’s biggest banks, unencumbered by Wall Street assets of no discernible value and fortified by record first- quarter lending, some analysts say it’s too good to be true.
While Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd., three of the world’s four largest banks by market value, led an increase in lending focused on investments in railways, roads and ports, similar state-directed loans caused bad debts to snowball in the 1990s. The resulting rescue cost $650 billion and took 10 years.
“We suspect some of the banks may have compromised their risk-management and risk-aversion attitude to meet targets and government expectations,” said Wen Chunling, a Beijing-based analyst at Fitch Ratings. “That will lead to a rebound in non- performing loans in the next few years.”Chinese banks tripled first-quarter lending to $670 billion as part of a government stimulus package designed to help the economy recover from its slowest growth in almost a decade.
Thursday, April 30, 2009
Wednesday, April 29, 2009
Tuesday, April 28, 2009
Sunday, April 26, 2009
Are Europe and the U.S. headed for a steel war with China? Brussels and Washington have long complained that China unfairly helps its steel makers. Now the recession — and the different way steel firms are responding to it — is adding to the angst.
In February the alliance of European steel manufacturers Eurofer accused China of systematically distorting steel markets through subsidies. The result, say Europe's steel makers, has been "irrational capacity extension." The European Commission has slapped duties on Chinese steel pipe imports, and is now threatening World Trade Organization action as well.
On April 8, the U.S. steel industry filed an antidumping suit with American authorities against Beijing, alleging that $2.7 billion of pipe steel was unfairly dumped onto the American market last year. Eurofer General Director Gordon Moffat calls it a "perfect storm" for a trade war. "Demand has fallen off a cliff since October," Moffat says. "We know China is simply waiting for demand to return before flooding the markets.
And India "investigates" dumping claims from several countries (which reads like a who's who of vulnerable countries)
The slow-motion crash continues...
Saturday, April 25, 2009
The firms were asked to project their credit losses and revenues for the two years 2009 and 2010, including the level of reserves that would be needed at the end of 2010 to cover expected losses in 2011, under two alternative economic scenarios. The baseline scenario reflected the consensus expectation in February 2009 among professional forecasters on the depth and duration of the recession, while the more adverse scenario was designed to characterize a recession that is longer and more severe than the consensus expectation. The firms were also asked to provide supporting documentation for their projected losses and resources, including information on projected income and expenses by major category, domestic and international portfolio characteristics, forecast methods, and important assumptions.
The baseline assumptions for real GDP growth and the unemployment rate for 2009 and 2010 were assumed to be equal to the average of the projections published by Consensus Forecasts, the Blue Chip survey, and the Survey of Professional Forecasters. The projections were based on forecasts available in February 2009 just before the commencement of the SCAP. The baseline scenario was intended to represent a consensus view about the depth and duration of the recession. The supervisors developed an alternative “more adverse” scenario to reflect the possibility that the economy could turn out to be appreciably weaker than expected under the baseline outlook. By design, the path of the U.S. economy in this alternative more adverse scenario reflects a deeper and longer recession than in the baseline. However, the more adverse alternative is not, and is not intended to be a “worst case” scenario. To be most useful, stress tests should reflect conditions that are severe but plausible.3The assumptions for house prices in the baseline economic outlook are consistent with the path that was implied by futures prices for the Case‐Shiller 10‐City Composite index in late February and the average response to a special question on house prices in the Blue Chip survey. For the more adverse scenario, house prices are assumed to be about 10 percent lower at the end of 2010 relative to their3 The “more adverse” scenario was constructed from the historical track record of private forecasters as well as their current assessments of uncertainty. In particular, based on the historical accuracy of Blue Chip forecasts made since the late 1970s, the likelihood that the average unemployment rate in 2010 could be at least as high as in the alternative more adverse scenario is roughly 10 percent. In addition, the subjective probability assessments provided by participants in the January Consensus Forecasts survey and the February Survey of Professional Forecasters imply a roughly 15 percent chance that real GDP growth could be at least as low, and unemployment at least as high, as assumed in the more adverse scenario.Since the announcement of the SCAP in late February, the economy has deteriorated somewhat and professional forecasters have revised their outlooks for GDP growth and the unemployment rate in 2009 and 2010. New information on house prices suggests that the market’s expectation for house price declines is similar to what was anticipated in February. A large share of projected losses at banks are expected to be related to house prices, and the specified path for house prices in the more adverse scenario still represents a severe level of stress. Although the likelihood that unemployment could average 10.3 percent in 2010 is now higher than had been anticipated when the scenarios were specified, that outcome still exceeds a more recent consensus projection by professional forecasters for an average unemployment rate of 9.3 percent in 2010.
Thursday, April 23, 2009
Wednesday, April 22, 2009
All sorts of news regarding the collapse in Dubai. For my part, this seemed [obvious] there was a bubble when this story came out.
Information does not diffuse itself in perfect 3-D space (much like a balloon inflating, with participants receiving information more or less simultaneously).
Valuable information naturally forms into an (linear) Ordinal system, with the last ranked number being the general public. This certainly holds true for markets as a significant portion of financial services deals with information arbitrage and the proper ranking of players that receive information. When information is generally diffused, any "value" that can be derived from that information has been necessarily extracted.
In political terms, information is controlled in linear time. The natural constraint of a normal working day for politicians requires that they triage information providers. Lobbyists then have the opportunity to frame issues and "proper" policy responses. Notice that I am not asserting than any malicious intent is involved. A politician is much more receptive to a person who has contributed to their election campaign (and in this sense the phrase "pay for play" is so redundant).
But herein lies a problem. With market-based information filters, competition will generally drive efficient distribution of resources. With political information filters, it becomes more "messy". Now, which information filtering device is more important at the present time in history?
Monday, April 20, 2009
And from a more secular perspective, functionally insolvent state and local governments must "find" revenue to continue upkeep (and patronage).
Last updated: 1:49 am
April 19, 2009
Posted: 1:28 am
April 19, 2009
The days of buying online to avoid paying sales taxes may soon be over.
A bill is expected to be introduced to Congress this week that would force retailers like eBay and Amazon.com to start collecting sales taxes on behalf of states from people who shop online or through mail order.
It's not a new effort: Attempts to close the online tax "loophole" have been going on for at least a decade.
But supporters of the bill think Congress may finally give in to their demands because of their own pressure to lend support to financially battered state governments.
And so this morning the information arbitrage continues...many blogs proclaiming they have the (terrible) results of the stress tests. I say informational arbitrage because "information" does not diffuse itself to all market participants simultaneously...if you know what I mean.
And so it goes. The various Fed and Treasury programs are still delaying what should have been decisive temporary nationalization via the Swedish model.
Friday, April 17, 2009
I would only ad "cui bono?" as a comment.
April 17 (Bloomberg) -- Federal Reserve Bank of San Francisco President Janet Yellen signaled that it was a mistake to allow Lehman Brothers Holdings Inc. to collapse, saying the firm was “too big to fail” and its bankruptcy caused a “quantum” jump in the magnitude of the financial crisis.
“I am told that Lehman had insufficient collateral” for the Fed to provide loans, Yellen said after a speech in New York yesterday. She noted that she was “sitting in California” at the time of the Fed deliberations and “wasn’t involved in anything having to do with it.”
Yellen’s remarks are the strongest to date by a Fed official blaming the Lehman failure for a worsening in the crisis. She echoed calls by Chairman Ben S. Bernanke for new powers for federal authorities to take over and resolve failing nonbank financial firms.
The San Francisco Fed chief, a chairman of former President Bill Clinton’s Council of Economic Advisers and ex Fed governor, also said she now sees a case for using Fed tools to prick asset bubbles to head off systemic crises.
The impact of Lehman’s failure “was devastating,” Yellen said yesterday. “That’s when this crisis took a quantum leap up in terms of seriousness.”
Tuesday, April 14, 2009
y Gabi Thesing
April 14 (Bloomberg) -- European Central Bank council
member Athanasios Orphanides signaled the bank may have to
continue easing monetary policy beyond next month to quell
deflation risks in the euro area.
“If inflation threatens to remain significantly below 2
percent for a considerable period of time, then additional
policy easing could be warranted to counter that eventuality,”
Orphanides, who heads the Central Bank of Cyprus, said in an
April 11 interview in Nicosia. “The risk of deflation has
increased somewhat in the past few months.”
ECB President Jean-Claude Trichet has indicated the central
bank will lower its key interest rate further from 1.25 percent
and announce additional non-standard measures next month to
counter the worst recession in over six decades. The ECB this
month cut the benchmark by a quarter point, less than economists
expected, and delayed a decision on new tools, fueling
speculation the 22-member Governing Council is split over the
best way forward.
Orphanides indicated he favors extending the ECB’s “policy
package,” which has so far consisted of rate reductions and
loaning banks as much cash as they want. Policy makers are
discussing extending the maturities of those loans and buying
assets, he said.
While he didn’t want to “pre-judge” the discussion,
Orphanides couldn’t rule out the ECB announcing purchases of
securities such as commercial paper as soon as next month.
Sunday, April 12, 2009
By Kevin Hamlin and Dune Lawrence
April 12 (Bloomberg) -- China’s central bank said it will ensure sufficient liquidity to sustain economic growth, damping speculation regulators may seek to restrain credit after new loans jumped sixfold to a record in March.
The People’s Bank of China “will implement moderately loose monetary policy and maintain the continuity and stability of policy,” the central bank said on its Web site today. It pledged “ample liquidity” to “ensure money supply and loan growth meet economic development needs.”
The statement indicates that reviving growth remains China’s priority amid concern that the credit boom will lead to bad debts and asset bubbles. The world’s third-largest economy, while showing better-than-expected performance in the first quarter, still faces “great difficulties,” Premier Wen Jiabao told reporters in Thailand yesterday.
“It’s likely that the authorities will not change their stimulative policy at least for another month,” said Stephen Green, head of China research at Standard Chartered Plc in Shanghai. “This means fast loan growth will continue. The longer this goes on, though, the bigger the risk of asset bubbles developing becomes.”
New loans rose to 1.89 trillion yuan ($277 billion) in March, the central bank said yesterday. M2, the broadest measure of money supply, grew 25.5 percent, the most since Bloomberg began compiling data in 1998 and more than the 21.5 percent median estimate in a survey of 12 economists.
Thursday, April 09, 2009
DOW JONES NEWSWIRES
All 19 major U.S. banks will pass the government's stress tests, now
underway, but some may require additional assistance and a few may be forced to
change management or board membership, the New York Times reported Thursday on
its Web site, citing officials involved in the examinations. In addition, the
government may press some of those banks to sell problem assets and adopt more
stringent restrictions on employee compensation. Those banks coming up short in
the tests, conducted by the Federal Reserve, will be given six months to raise
capital from the private sector, and failing that, would be able to draw funds
from the Treasury Department. Overall, stress test results are showing more
strength in the banks than was generally expected, the officials said.
Nowotny Says Taking ECB Benchmark Below 1% Open for Discussion
2009-04-09 09:30:03.4 GMT
By Jana Randow and Christian Vits
April 9 (Bloomberg) -- European Central Bank council member Ewald Nowotny said cutting the benchmark rate below 1 percent is still open for debate and it would be “sensible” for the bank to buy corporate debt.
“It’s my personal opinion that the benchmark rate should not go below 1 percent, but this is a point that’s open for discussion,” Nowotny, who heads Austria’s central bank, said in a telephone interview from Vienna late yesterday. The purchase of commercial paper and corporate bonds is “a sensible and efficient measure,” Nowotny said, adding it may not be introduced immediately because it would take time to prepare.
The comments suggest the ECB council is split over the best way forward amid signs the euro-region economy is slipping deeper into recession. While Germany’s Axel Weber has signaled he’s opposed to buying corporate debt and doesn’t want to take the benchmark rate below 1 percent, Greece’s George Provopoulos this week indicated both remain options.
The ECB this month cut its key rate by a quarter point, less than economists forecast, to 1.25 percent and delayed a decision on new tools until May. The Federal Reserve, Bank of Japan and Bank of England are already pumping money into their economies by buying government and corporate debt.
“If you’re aiming at intensifying credit supply, measures which focus directly on credit supply are of interest,” Nowotny said. “For example the purchase of commercial paper, corporate bonds and similar things.”
Still, he said this would “take longer to prepare” than offering banks longer-term loans to ease credit tensions. The ECB currently lends banks as much as they want at the prevailing benchmark rate for up to six months.
Lengthening maturities is “the best option” as far as speed of implementation is concerned, Nowonty said. “That means going beyond the current six months to an extension of, for example, 12 months. That’s something that can be implemented immediately and takes effect promptly.”
Longer loans pose some complications. Banks may not take up the offer unless the ECB signals rate cuts are at an end, and securing cheap money for a year may distort efforts to raise borrowing costs once an economic recovery sets in.
“I would happily accept this problem if indeed the economic recovery comes faster than expected,” Nowotny said.
“I think our task is currently to fight the worst economic slump in the post-War period with all available tools. If an improvement becomes apparent, I’d be happy about it.”
Wednesday, April 08, 2009
New York, April 08, 2009 -- Moody's Investors Service has downgraded the insurance financial strength (IFS) rating of National Indemnity Company (National Indemnity) to Aa1 from Aaa and the long-term issuer rating of its ultimate parent, Berkshire Hathaway Inc. (Berkshire -- NYSE: BRKA), to Aa2 from Aaa. The rating agency has also downgraded the IFS ratings of Berkshire's other major insurance subsidiaries to Aa1 from Aaa (see list below). Berkshire's Prime-1 short-term issuer rating has been affirmed. The rating outlook for all of these entities is stable.
"Today's rating actions reflect the impact on Berkshire's key businesses of the severe decline in equity markets over the past year as well as the protracted economic recession," said Bruce Ballentine, Moody's lead analyst for Berkshire. For National Indemnity, falling stock prices have reduced its investment portfolio value and, in turn, its capital cushion relative to ongoing insurance and investment exposures. For some of Berkshire's non-insurance businesses, the recession has caused a meaningful drop in earnings and cash flows, particularly for businesses tied to the US housing market, construction, retailing or consumer finance. "These extraordinary market pressures have reduced the excess cushion available from National Indemnity and the other affected operations to support potential funding needs of the parent company,"
Saturday, April 04, 2009
Yes, some of the language is somewhat polemic, but one must be vigilant when things like the following come across the news board:
P1MCO'S EL-ER!AN SAYS OB@MA MUST LEAD WORLD ECONOMY FROM CRISIS
Thursday, April 02, 2009
South Africa 361.2
Saudi Arabia 227.5
United Kingdom 122.5
United States of America 59.7
(No quotes available at moment for Canada, India, South Korea.)
Explanation of these prices (bassis, etc.) can be found here:http://en.wikipedia.org/wiki/Credit_default_swap
Wednesday, April 01, 2009
by James Surowiecki
MARCH 30, 2009
In American politics, “Europe” is usually a code word for “big government.” So in the midst of a global recession, with the U.S. and China shelling out trillions in fiscal stimulus, you might expect that European governments would be spending furiously, too. Far from it. While the U.S. is devoting almost six per cent of its G.D.P. to fiscal stimulus, France and Germany are spending a barely noticeable twenty-six billion euros and fifty billion euros, respectively. Whereas the U.S. hopes that the upcoming G20 summit will lead to a global stimulus package, European policymakers have been warning against the dangers of “crass Keynesianism.” The U.S. Federal Reserve has been flooding our economy with money, but the European Central Bank has cut interest rates slowly and reluctantly. Far from wild-eyed leftists, Europeans are looking downright conservative.
Europe’s response has earned it plenty of criticism, with pundits arguing that its politicians are oblivious of the seriousness of the crisis. There may be some truth in this charge, but Europe’s caution also reflects important differences between its economy and ours, as well as a profoundly different attitude toward things like inflation and debt. If European and American policymakers seem, in their public statements, to be dealing with two very different financial crises, it’s because, in some sense, they are.
To begin with, the biggest European countries, which have the most influence on policy, have not been crushed by this recession. In countries like Ireland and Spain, where huge housing bubbles burst, the devastation has been immense. But in Germany, where there was no bubble, fewer people are struggling with debt or watching their wealth go up in smoke. To be sure, Germany’s economy, which is heavily dependent on exports, is not in good shape; it looks set to shrink more this year than the U.S. economy. But the unemployment rate in Germany has risen much less than it has here. Indeed, in most of Europe job losses have been less severe, in part because unemployment was already quite high. The U.S. unemployment rate has risen nearly three percentage points since January, 2008. Europe’s is up barely one per cent.
In addition, since most European countries have an elaborate social safety net, a recession has a less dramatic impact on people’s daily lives. In the U.S., unemployment insurance pays relatively little and runs out relatively quickly, so losing a job usually means a precipitous decline in income. In European countries, unemployment benefits are typically substantial and long-lasting. This is not entirely a plus—it probably makes unemployment higher than it otherwise would be—but in hard times it keeps money in people’s pockets. (And paying for it means that European government spending automatically rises quite a bit during recessions.) Furthermore, universal health care enables Europeans to see a doctor even if they’re out of work.
None of this means that Europeans are indifferent to recessions or unemployment. But it does reduce the pressure to get their economies moving again at any cost. Furthermore, there seems to be an underlying difference in psychology. Americans talk a good game about the need for balanced budgets and fiscal responsibility, but we’ve proved ourselves happy to borrow trillions in order to maintain our life styles. And, while Americans hate inflation, they love economic growth more: the Federal Reserve’s mission is not just to fight inflation but also to maximize employment. Europe runs a much tighter ship: if an E.U. member has a deficit of greater than three per cent of G.D.P., it’s subject to disciplinary action. And the European Central Bank has only one mandate: keep inflation low.
European economic policy seems to reflect the conviction that inflation, not stagnation, is the greatest threat to an economy. If the episode that haunts the U.S. is the Great Depression, in Europe, where the Germans have been dominant in shaping economic policy, the defining historical moment is the hyperinflation of Weimar Germany, when prices rose more than seventy-five billion per cent in just one year, 1923, and, in the words of Walter Benjamin, “trust, calm, and health” vanished. The legacy of that episode lives on not just in German policymakers’ inflation phobia but also in their sense that there is something fundamentally distasteful about debt. For Germany, fiscal rectitude even in the face of a crisis is not just economically sensible but morally correct.
There’s a price to be paid for hostility toward fiscal stimulus and easy money: Europe and, arguably, the world will take longer to recover. But European policymakers seem willing to weather this outcome in exchange for stability. They’re also probably counting on the fact that, even as they sit tight, their economies will get a boost from the American and Chinese stimulus packages. The thing about government spending is that it “leaks”: a good chunk of our stimulus package will buy other countries’ goods. So Europeans can avoid getting too deeply into debt and still reap some of the benefits of our borrowing. This is unfair: in effect, Europe is refusing to carry its share of the global economic burden and is piggybacking on us. But it’s hard to see how things could have turned out otherwise. The U.S. economy, much more than Europe’s, is like the proverbial shark: if it doesn’t keep moving forward, it dies (or at least creates a lot of misery). In some sense, we need economic growth more than Europe does. It’s not surprising that we’re going to be the ones who end up paying for it. ♦
The Nigerian Stock Exchange All Share Index fell 37 percent this year, the steepest quarterly decline in more than a decade and the worst of 89 benchmark indexes tracked by Bloomberg. Stocks in Africa’s largest oil-producing nation reached a five- year low last week, even as a rebound in crude spurred gains in commodity-exporting countries from Russia and Norway to Brazil.
Investors have been fleeing “the good, the bad and the ugly” of the financial industry since Nigerian regulators allowed banks to delay booking losses on so-called margin loans backed by shares, emerging-markets brokerage Renaissance Capital says. The lack of disclosure left investors unable to identify potential losses. The All Share Index may fall another 9 percent, according to Moscow-based Renaissance and London-based Exotix Holding Ltd.
“Without meaningful disclosure investors will be hesitant to come back, especially in the financials,” said Christopher Hartland-Peel, an equity analyst at Exotix. “No one can really tell how the companies are faring.”
Lenders may be holding as much as $10 billion of toxic assets, equal to about half of their capital, according to Eurasia Group, the New York-based research firm that publishes the Global Political Risk Index with Citigroup Inc. Banks have provided at least 1 trillion naira ($6.8 billion) of margin loans to allow investors to buy shares, Bank of America Corp. said in a report last week.
Growth of Nigeria’s economy may slow to 1.5 percent this year because of lower revenue from oil, which accounts for 20 percent of gross domestic product, according to Standard & Poor’s. The naira weakened 20 percent against the dollar since Nov. 26, when the Central Bank of Nigeria began limiting the supply of foreign exchange to banks to protect foreign reserves. The bank’s naira rate was unchanged at 148.10 per dollar today, compared with 172 versus the dollar in unofficial street trading, according to Mohammed Kuza, a currency dealer in Lagos.
Renaissance expects the All Share Index to drop to 18,000 in the first half from yesterday’s closing level of 19,825.08. Exotix forecast the same drop, without giving a time frame.
No Bank Failures
The market has a daily turnover of between $10 million and $20 million and a total capitalization of $30.1 billion, according to Renaissance and UBA Capital, the brokerage unit of Lagos-based United Bank for Africa Plc. That compares with an average turnover of $30.2 billion a day this year on the New York Stock Exchange and a U.S. market capitalization of $9.38 trillion, Bloomberg data show.