Saturday, June 20, 2009

Noteworthy - Week of June 14th

The biggest story of the week, and possibly the year, is the recent election in Iran. Incumbent president, Mahmoud Ahmadinejad, allegedly won the election in a landslide against challenger Mir Hossein Mousavi; however, backers of Mousavi claim that the elections were rigged and took to the streets in demonstration. Iran, consequently, blamed the U.S. and U.K., as well as other western nations, for influencing the protesters. Iran's supreme leader, Ayatollah Ali Khamenei, declared that the results would be investigated but days later stated that the election was fair and named President Ahmadinejad the victor. On Friday, the supreme leader warned the protesters against taking to the streets. But on Saturday they returned to stand up for their freedom, showing the world the true feelings of the Iranian people and their desire to be heard.

In other news, the bipartisan Congressional Budget Office stated that the current health plan reform, which is currently in the Congress, will cost taxpayers between $1 and $1.6 trillion over the next decade, which many pundits believe is actually a low-ball estimate. Speaker of the House, Nancy Pelosi, and Connecticut Senator Chris Dodd both spoke out against the C.B.O.'s estimates soon after they were released. See both video clips here: Pelosi (min 10) and Dodd. Before viewing the videos, keep in mind that the C.B.O. is bipartisan and consists of each official's peers.

A new study by the Wall Street Journal and NBC shows that 49% of Americans are concerned "a great deal" and 20% are concerned "quite a bit" about the government's increased role. 58% of Americans believe that the government should focus on keeping the budget down.

President Obama's approval rating in handling the economy is slipping, although 46% of Americans believe that the Bush Administration is to blame for the deficit with 21% blaming the Democrats in the Congress and 6% blaming President Obama. Constituents also stated their feelings as to where the government should focus itself in a similar poll, which seems to offset their concerns over the government's deficit, with 31% of Americans feeling that the government should focus on job creation and economic growth and only 19% on debt reduction.

In a related story, critics of the government's intervention state that its actions "pits the 'gets' versus (the) 'get-nots'."

President Obama and Treasury Secretary Timothy Geithner submitted their plans to overhaul the financial services sector and increase regulatory oversight. The plan is receiving headwind in the Congress as Geithner announced that additional power would be given to the Federal Reserve. The bill would force brokerage firms to have more fiduciary responsibility over its clientele. Additionally, securitization would be overhauled, with firms being required to keep some "skin in the game," but the move would also cause trading to be more expensive. Views remain mixed on the new regulation within the financial services sector, as the Federal Reserve continues to walk a tight rope in the treasury market.

Additionally, the government is also looking to private equity for help with the banking crisis, as new research this week suggests that 10% of private equity firms are likely to default on their commitments during the next two years.

Rounding off the biggest stories of the week, in what was a very big week in news, indeed, word spread on Saturday that Apple CEO Steve Jobs, who took a leave of absence a few months ago from the company, which he founded, underwent a liver transplant during his time away. Jobs plans on returning to work in a few months, as originally planned.

News that lost its importance behind the big stories this week, but which are just as significant are:
  • The Obama Administration is considering abandoning the $1/share rule for money market funds in favor of a floating value, which, according to many, could destroy the product, especially if funds find themselves being valued at less than $1/share, as was the case last September. Many argue that an incident as such could create a run on the bank. More than $73 billion left money markets last week-- the biggest withdrawl since the money market sector got spooked last year as some fund values sunk below $1/share.
  • The state of North Carolina is close to passing of a bill that would force internet retailers to collect state sales tax from their marketing affiliates. said it would stop doing business with its affiliates if the law takes effect. Other cash strapped states are looking at adapting the same policy as North Carolina.
  • Expedia and its rivals are at risk of facing millions of dollars in damages as the Supreme Court of Georgia ruled this week that Expedia must pay the city of Columbus, Georgia the occupancy tax based on the room rate paid by customers online, not just the wholesale price the company pays to hotels. Other state and federal cases are pending.
In U.S. market-related news:

Money flowed into stock funds for a 13th consecutive week as "green shoot" bulls are finding more reasons to invest in the market.

Uncertainty in the U.S. economy its markets are putting creditors in a tough spot.

Bankruptcy court is "the Street's" new place to be and be seen.

The diminishing newspaper industry takes advice from the music industry.

A small brokerage firm burns the big boys.

Another hedge fund (Cantillion) bites the dust.

Starbucks is getting gimmicky in an attempt to ward off stronger competition.

Insiders are divesting their IPO shares into the market.

Bailed out bank CEOs are still jet-setting on the taxpayers' dime.

California is considering a flat tax to solve its revenue woes.

Facebook's applications stir concern over privacy infringement.

Google books might be too advantageous for its own good, causing anti-trust issues.

The FCC is reviewing cell phone provider/manufacturer contracts.

Fidelity is considering a referral fee.

The U.S. chooses four utility firms to revive the nuclear energy industry.

The IRS states that business cell phone users should be taxed 25% of their monthly bill toward personal income... and then does an about face.

The Black Swan author, Nassim Nicholas Taleb, is betting big on soaring inflation.

The finance industry appears to be hiring again.

In mixed U.S. economic news:

Weekly jobless claims increased this week.

The Consumer Price Index rose 0.1% from April to May; a 1.3% decrease from a year ago-- the largest decline since 1950.

FT commentary on how this global recession is tracking the Great Depression.

Kiplinger offers 10 quirky ways of telling how well the economy is doing.

Forbes offers the best cities in the U.S. for employment opportunities.

And The Wall Street Journal offers advice on how to control one's emotions in today's market.

In consumer news:

Hotels are starting to add more charges to client bills.

Buses are becoming a popular mode of transportation again.

Credit card customers are taking their frustration out on their cards.

Luxury good sellers are seeing buyers return to high-priced items.

And U.S. consumers are starting to buy cars again, thanks to government assistance.


There were many big stories out of China this week.
  • China and its companies are continuing to send its excess reserves throughout the world. China's sovereign wealth fund plans on investing $500 million in Blackstone, one of the world's largest asset managers.
  • Many trading partners are concerned over China's explicit "Buy Chinese" stimulus plan, which is seen as being clearly protectionist in nature.

Other stores in Asia include: Indians having a thirst for IPOs, Taiwan Semiconductor revving up for a 2009 turnaround, and emerging countries wanting more say in a changing world.

In Europe, meanwhile, the Swiss are looking to limit the size of banks so as to be proactive against future systemic risks, as the European Central Bank says more write-downs are to come and Standard and Poor's offered a negative outlook on the European banking industry. But, interestingly, the Wall Street Journal states that "the Street" doesn't believe European banks are as stressed as they may seem, at least, when compared to U.S. banks.

In the U.K., consumers are still addicted to consumption, casting a shadow on its long-term economic sustainability.

Europe will need to be careful as to how it raises revenue, as it struggles to keep its "single market" system alive.

Latvia is at risk of becoming the 2nd nation in Europe to default.

Israeli Prime Minister Netanyahu speaks on Palestine.

In the commodities markets:

Gold ATMs are arriving in Germany.

Swiss commodity firm Glencore, which was founded by the now infamous Mark Rich, is considering an IPO.

Crude prices remained steady at $70/barrel even as protesters took to the streets in Iran. Investors don't seem concerned by capacity. The WSJ offers this insight into how the market is pricing oil. China remains a focal point.

Natural gas continues to slide; however, analysts and the media believe that it could stay cheap for quite some time due to oversupply. Analysts believe natural gas could start to replace coal as an energy source and hamper the move toward clean energy in the U.S.

Russia might cut off gas to the Ukraine again, this time due funding issues. Russia is urging the IMF to give funds to the Ukraine.

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