Saturday, June 27, 2009

Noteworthy - Week June 21st

Tragedy continued throughout the world this week.

Although outside media continues have extremely limited access inside of Iran, there have been several reports of protesters of the election there last week being massacred in the streets by the police and military. Mir Hossein Mousavi vowed to continue the protests, as President Obama offered his harshest criticism yet of Iran's actions. Neda Salehi Agha-Soltan, who was slain last week during a protest, is being proclaimed as the "Angel of Freedom" in Iran.

This week the entertainment world also lost three significant figures of three different generations. Oddly, each occurred in ascending order, starting earlier in the week with the loss of Ed McMahon, long-time Johnny Carson sidekick and host of Star Search, and Thursday brought the shock of the deaths of Farrah Fawcett of Charlie's Angels fame, and the proclaimed "King of Pop," Michael Jackson, hours apart.

A Washington metro crash killed six and injured 70 people earlier this week. Blame is being focused on a tax shelter leasing arrangement.

It is appearing more and more clear everyday that the European banking industry is knocking on death's door, following down the path of that of the U.S. during the past six months or so, as the European Central Bank quietly injected $622 billion into their banking industry this week. Russia announced this week that it is considering even more intervention than that taken by the U.S. during the past year. Swiss bank UBS announced a $3.5 billion share offering this week to pad its losses. And rumor has it that the German banks are just around the corner. One can only wonder how Ms. Merkel will handle the situation once the Germans acknowledge the problem, based on the fact that she has been a strong critic of the U.S.'s inflationary policy. According to Financial Times commentary this week, "Europe cannot ignore its financial trilemma." The ECB is bracing of a record call on its one-year funds, according to the FT.

In other banking news, Ben Bernanke was in front of Congress this week defending his role in the sale of Merrill Lynch to Bank of America last year. With less than a year remaining on his term as Fed chairman, Mr. Bernanke is starting to take political heat for his alleged actions during last year's panic. Bank of America CEO Ken Lewis has stated that Bernanke and then Treasury of State Hank Paulson pressured Lewis to follow through with the purchase of Merrill, even though he wanted to back out after discovering just how significant the losses at Merrill were and would be in the future. Mr. Paulson has yet to comment on the situation.

Warren Buffett's Berkshire Hathaway made its debut on the options exchange this week, much to his dismay. Mr. Buffett also commented this week in an interview with CNBC on the U.S. economy. Simply stated, he doesn't see any "green shoots" on the horizon and thinks the economy could stagnate for quite some time. Mr. Buffett warns of significant inflationary pressure 2-3 years in the future but believes that equities remain the place to be in order to protect against it. He believes that Bernanke should remain chairman of the Federal Reserve, feeling that his response to the economy's collapse last year was superb. Buffett also believes that the U.S. Treasury is correctly inflating its currency, despite his concerns. Alan Greenspan offered commentary on U.S. inflation this week in the Financial Times.

Perhaps the biggest news in the U.S. economy this week was the House passing the new climate bill, also known as "Cap and Trade," which the Wall Street Journal stated this week was the "biggest tax in American history." The controversial bill also includes harsh trade penalties on nations that don't cap greenhouse gases. Many see this clause as being protectionist. One might refer to the Smoot-Hawley Tariff Act of 1930, which exacerbated the Great Depression. As mentioned in Common-Sense-Investing's noteworthy events last week, both China and the U.S. have included "Buy (Chinese/U.S.)" as a part of their stimuli bills, a tight rope for President Obama to walk as Asian counterparts struggle with the pressure to protect their own economies. The U.S. and U.K. brought a case against China's quotas raw materials to the WTO, in another sign of how nations are trying to protect their economies. The FT offered its take on the perils of protectionism.

Cap and trade, in essence, deals with the buying and selling of energy credits between corporations. According to the Journal's article, Britain's Taxpayer Alliance estimates that U.K. citizens are paying on average $1,200 per annum more due to similar energy taxes that were instituted only a short while ago there. The Heritage Foundation estimates that families will incur an increase in expenses of $1,870 by 2020 and $6,800 by 2035 if the climate bill passes. It is unclear if these estimates include the increase in the price of goods that consumers would incur as businesses pass its costs onto them in order to survive.

Warren Buffett, a Democrat, urged Congress not to pass the in his interview with CNBC, as the economy could not sustain such an increase at this time. Extrapolating Mr. Buffett's prediction that significant inflation could be on the horizon, the climate bill, appears to be the biggest risk to the economy at a time of, at best, instability. As The Wall Street Journal stated, "Americans should know that those Members who vote for this climate bill are voting for what is likely to be the biggest tax in American history. Even Democrats can't repeal that reality." The Democrats There is also concern that the bill will barely limit carbon emissions, despite the huge cost to consumers.

Health care reform is still at the forefront of debate in Congress and is being redesigned after the Congressional Budget Committee's analysis last week in which it stated that the current plan would cost taxpayers more than $1 trillion over the next decade. Critics point to Massachusetts, which is cutting $115 million from its public health care program due to tax revenue issues, as well as corporates shift to the lowest option under the program. They also point to the state's nearly $1 trillion 2009 deficit. According to a WSJ report, it doesn't pay to stay healthy.

South Carolina Governor Mark Sanford is the latest Republican politician to land in the "hot seat" after admitting to year long affair during a press conference on Thursday concerning his disappearance last week. He later stated that he would reimburse the state for all expenses related to his 2008 trip to Argentina, which was organized by the state's Commerce Department and a professional state visit, since he also met with his lover on the trip.

The Fed is in a holding pattern as to what its next steps interventionist steps will be. But it continues to back the commercial-paper market. There are worries of systemic risk in the CMBS industry. Bonds back by CMBS are at risk of losing their AAA rating from S&P under new tightened scrutiny.

New documents fueled concerns over the Fed's expanding role.

Central bank actions this week reduced the hopes of "green shoots" in the world economies.

Consensus is forming on how to catch potential bubbles in the future, according to the FT.

Regulators are starting to focus on the transparency of stimulus and bailout monies.

Obama and his party are clashing over spending.

California home prices rose for the third consecutive month in May in a sign that the state's real estate market may have bottomed.

But have home buyers learned their lesson?

Apparently Congress has not, as Barney Frank and Anthony Weiner are urging Fannie Mae and Freddie Mac to ease their mortgage standards on new condominiums.

As rising unemployment continues to cause a rise in foreclosures.

The unemployed are hitting the road for work.

Michigan is bracing for a surge in welfare applications as citizens near the end of their unemployment benefits. Michigan has a nation leading 14.1% unemployment rate.

Corporate cuts are here to stay, according to many U.S. firms.

The home care industry, one of the fastest growing in the U.S., is discussing whether to mandate federal overtime and minimum wage benefits to its employees. 80% of home care is covered by Medicare and Medicaid.

Disposable personal income rose 1.4% in May as a result of stimulus programs. Consumer savings rose to 6.9%, the largest since December 1993, from 5.6% in April. Durable goods orders continue to strengthen but orders are down 26.8% since a year ago. Analysts say stable housing prices remains the key to economy. Mark Gongloff of the WSJ thinks that "housing statistics need closer inspection." Home builders are grabbing up cheap land.

Retailers are dramatically cutting back on the number of varieties they offer consumers. Brand loyalty is suffering as consumers turn frugal.

An update on the sale of Delphi.

European discount retailer H&M is fairing well in the downturn.

Even "Softy" is cutting margins to gain sales.

Congress' consumer credit protection bill could hurt banks.

Exxon may turn to liquefied natural gas for profits.

Shell has discovered the largest natural gas field in Norway since possibly 1997.

Big oil is ready to make its push into Iraq.

Assistance with student loan repayment is growing on the hill but is still seldom in the private sector.

Amazon has cut ties with its North Carolina affiliates due to tax reasons. Last week included a link to the original story.

The are new rules for the money market industry.

Pepsi opened a factory in China this week and is planning five more within the next two years.

Former GE CEO Jack Welch is investing more than $2 million, or a 12% share, in Chancellor University System, an online educator, which will use his name for their MBA program.

Hard-pressed technology companies are being forced to offer for lower margin online software programs to customers.

Executives continue to sell their company shares in a sign of pessimism.

Boeing's Dreamliner test flight is delayed yet again... Qantas pulls its order due to adverse market conditions.

ESPN is entering the English Premier League.

Harvard cut 275 jobs this week, as its endowment continues to take a hit.

***
International News:

Honduras is on the verge of a political crisis as its president, Manuel Zelaya, is attempting to re-write its constitution. Mr. Zelaya states that the current constitution favors elites. He is a close ally of Venezuela's Hugo Chavez and former Cuban dictator Fidel Castro.

Infosys founder, Nandan Nilekani, was tapped by India's prime minister, Manmohan Singh, in order create a national ID system for the country's 1.2 billion people. The aim is to ensure efficient delivery of public services, as well as identification for services such as bank accounts. Indian banks are targeting low-end consumers for earnings.

India is seeking foreign investment in roads.

Spain's banks are headed for a crisis and are looking at their government for help.

Ireland's depression continues and its citizens are heading to Northern Ireland for better deals. According to the IMF, Ireland is facing the worst recession in the developed world.

Sinopec officially agreed to buy Addex Petroleum. But is China overpaying for acquisitions?

Global M&A activity is the lowest in five years.

China stated is desire for a new global reserve currency again this week.

The Shanghai index continued its rise, posing new questions to BRIC nations; the nation also announced plans to open a new exchange in Shenzhen for small to medium-sized Chinese companies.

China increased its cigarette tax this week in an effort to curb smoking.

Hong Kong office sales are apparently on the rise again according to recent sales data.

Nissan is planning a major push into electric cars.

A strong New Zealand dollar is hurting dairy farmers there.

Siemens expects to receive $21 billion from global stimulus programs. Government subsidies are saving Germany's economy from unemployment concerns, but companies are unprepared for a long downtown.

The World Bank warns that emerging nations' GDP will grow just 1.2% this year.

The FT issued a report on the state of Britain this week.

French Prime Minister Nicolas Sarkozy called burqas "a sign of enslavement and debasement" of women this week. A sentiment, which will certainly not sit well with the Middle East.

The Russian market has sold off 21% since its high on June 1, lending credence to the argument that it is the weakest of the BRIC nations.

Gazprom's $2.5 billion gas deal with Nigeria is raising concerns in Europe that it will increase Russia's stronghold on energy there.

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Commodities:

Oil hovered around $70/barrel this week.

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Miscellaneous:

Warren Buffett's son, Howard, is making his philanthropic mark in Africa.

The Academy of Motion Picture Arts and Sciences will double the number of best picture nominations to 10 next year, causing debate within the industry.

An appreciation for the late, great Michael Jackson with photos chronicling his life.

This week's Alan Abelson.

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