Saturday, August 22, 2009

Noteworthy - Week of August 16th

Oddly enough, the biggest story of the week, in my opinion, which broke late Friday afternoon, did not appear in either the Wall Street Journal or Financial Times print editions on Saturday, at least to the nearest I can tell. It certainly wasn't on the front page, like the story that housing rose 7.2% during the month of July. (Incidentally, foreclosures accounted for 31% of the sales.) Interestingly, on Friday the WSJ reported that 1 in 8 households with mortgages was in foreclosure or late on its payments-- up 1.1% from the previous quarter and 4.2% from the previous year.

In a week with a lot of news, the most noteworthy news of the week was that the Obama administration is raising its forecast for the 10-year federal budget deficit to $9 trillion from $7.1 trillion. To put it another way, that's $2,000 billion extra or a 14% rise from a previous estimate... less than six months ago. One has to wonder, especially the Chinese and Japanese, who are our largest debt holders, if another revision will follow later in the year or next year.

The revision is certain to have an impact on health care reform, which the White House can't seem to make up its mind if they will offer a public option or not when it comes to health care reform, regardless of the CBO's anticipated price tag of $1.6 trillion over the next 10-years. The House of Representative Democratic leadership can't even make up their mind what they want but have threatened to use their majority to push through legislation. Speaker Pelosi (D-CA) said this week, "There’s no way I can pass a bill in the House of Representatives without a public option." A day later, House Majority Leader, Steny Hoyer (D-MD), said that, "We believe the public option is a necessary, useful and very important aspect of this, but we’ll have to see because there are many other important aspects of the bill as well." Huh? (Read: Don't count on a public option passing any time soon.)

A battle is brewing between drug companies and Congress over the disclosure of drug prices.

Naturally, a growing deficit also largely affects the U.S. dollar's strength, as well as other budgetary, monetary and legislative decisions. The federal deficit will affect all of us in every aspect of our lives; therefore, it is this week's top story, regardless of what the WSJ or FT reports.

Fed Chairman Bernanke stated this week from a central banker's retreat in Jackson Hole, Wyoming that the global economy is leveling out and that the prospects of growth in the next year appear to be good.

Warren Buffett penned an op-ed piece in the NY Times this week stating his concerns with the economy and its (and the government's) effect on the U.S. dollar.

Not to be outdone, bond fund giant PIMCO also penned some interesting articles on the economy, U.S. dollar and emerging markets this week as well.

Swiss Bank UBS has agreed to terms in its tax-evasion case with the U.S. government and is now setting its sights on Hong Kong. A key informant in the trial received more than three years in jail for his role in the tax-evasion case. Separately, the Swiss government is exiting from its $5.6 billion stake in UBS with a $1.1 billion gain.

The "Cash for Clunkers" program will end Monday at 8 P.M. EST. The program is ending earlier than anticipated as government officials worry that there might not be enough money in the program to reimburse car dealers. Analysts worry that sales and manufacturing data will dissipate in the coming months.

The Federal Reserve and U.S. Treasury extended the $200 billion TALF program to March 2010 for newly issued ABS and legacy CMBS and June 2010 for new CMBS deals. The program allows the Fed to loan money to those wanting to buy securitized loans.

Spain's BBVA is hoping to use the banking crisis in the U.S. to expand in the southern states. This week it won an auction for the assets of Guaranty Financial. The FDIC has eased its rules to buy failed banks in order to ease the stress being put on it by the crisis. Pension funds are fighting the FDIC's new ruling, as private-equity buy-outs would require three times the tier one mandates as the banks.

Firms that match buyers and sellers of illiquid assets are thriving, as sellers of the once heavily sought assets are unable to sell through regular markets.

Officials arrested a 28-year old American man, along with two Russian accomplices, who are said to have stolen at least 130 million credit card numbers.


Nigeria's central bank published a list of its top debtors this week, putting some of the country's rich and powerful on notice.

The Americas:

Mexico's output shrank faster than any time on record during the 2nd quarter, as GDP plummeted 10.3% from the same period one year ago. The U.S. recession, falling oil production and the H1N1 virus all contributed to the massive decline.

Mexico is easing its ban on drug possession. The U.S. charged 43 people with "major drug trafficking" crimes this week, including some major cartel leaders.

A pesticide lawsuit against Dole Foods in Nicaragua has been tainted by trial lawyer fraud.

Entrepreneurs are looking to harvest fish that could feed on the algae in current dead zones created by fertilizer run-off in hopes of processing them for their oil.

Sears posted a $94 million loss this week. Analysts scurried to revise their earnings downward.

Las Vegas Sands has filed an application for listing on the Hong Kong Exchange.

Starbucks is raising its prices on larger, complex drinks and lowering its price on smaller, more basic drinks.

Supermarket shoppers are losing patience with a growing average wait time in line.

Reader's Digest is filing for bankruptcy protection.

Universal Music secured the international rights to 38 albums of Frank Sinatra ahead of the 40th anniversary of the release of My Way.

Investment bankers and traders are seeking employment with boutique firms.

MySpace bought the iLike application, one of Facebook's most popular services, for $20 million.

Solar power in the U.S. is seen as the "next big thing" in the growing "green" space after languishing behind Europe during the economic downturn.

Wind power firms have been shaken by the financial meltdown.


Chinese commodity imports are expected to slow during the 2nd half of the year, as impact of the country's stimulus package fades away.

China is putting an end to petitioning ahead of the 60th anniversary of the People's Republic.

The country is also issuing prison terms and fines for software piracy, in a positive move for industries involving copyrights.

China Mobile lost ground to smaller rivals during the 2nd quarter as the company reported its slowest growth since it listed in 1997. The firm reached a deal with Dell to sell the Texas-based company's smart phone.

Levi Strauss is the latest in a line of companies, which have made it possible for Indian customers to pay in installments for their products. The San Francisco-based company will allow its customers to pay in three monthly installments for products priced at Rs 1,599 ($33 USD) and above.

Indian conglomerate Essar has bid on three of Shell's European refineries.

Japan's GDP expanded 0.9% during the 2nd quarter but fears remained that reduced export demand and reduced government spending would dissipate the country's growth.

The UN warned Nepal's feuding political parties that social inequities must be addressed in order for the country to achieve a lasting and stable peace.

North Korea has agreed to reopen its border with South Korea, which would allow tourism and family reunions to resume.


Scotland released a convicted bomber in the 1998 Lockerbie tragedy this week, citing his terminal prostate cancer. The release created a global public uproar.

Germany's investor confidence rose 16.6 points in August to 56.1-- the highest reading in three years. Europe's largest economy hopes that it has finally pulled out of its recession.

Richard Pipes, a professor of history at Harvard, issued an interesting report on Russia this week in the WSJ entitled "Pride and Power." The essay is a must-read for anyone thinking about investing in the country.

Former Porsche executives are being investigated for insider trading.

In a change of policy, Spain said that it would raise taxes on its rich in order to overcome its current deficit.

The EU is contemplating banning the fishing of blue fin tuna, as its numbers have collapsed amid growing demand from sushi lovers, according to the group's environmentalists.

Poland's treasury ministry is in talks with German utility firm RWE for a 67% stake in Enea, Poland's only listed utility company. RWE agreed to purchase Essent, a Dutch utility company, in June.

Middle East:

Afghanistan's presidential election on Thursday was effected by violence, low turnout and allegations of fraud.

Egyptian president Hosni Mubarak pressed President Obama to bring out his own initiative on the Middle East, especially as it pertains to Israel, this week.

Mahmoud Ahmadinejad said that he would nominate at least three female ministers to his cabinet, reaching out to the women who have been most active in post-election protests. The appointments would be the first time a woman has served in a cabinet in Iran.

Saudi Arabia convicted its first criminal of insider trading this week as the nation attempts to crack down on its market irregularities.

Dubai's malls are still bustling, but sales are suffering. The city's property market is faltering just as badly.

Lack of banking transparency in the region is bringing fears of hidden financial concerns.


Investment bank Macquarie sealed its largest foreign deal by purchasing Delaware Investments from Lincoln Financial for $428 million. The firm also reached a joint venture deal with China Everbright, a Chinese state-controlled offshore investment company, which plans to raise $1.5 billion to invest in infrastructure projects in China, Hong Kong and Taiwan.


Oil ended the week up 9.4%, trading near $74 by week's end.

Natural gas hit a 7-year low amid glut concerns, finishing the week down 11.8% for the week at $2.86m Btu. A hedge fund placed a multi-million dollar bet last week to buy contracts at $10m Btu in January and February of 2010 in the first bullish sign for the oil alternative in a long while.

Sugar remained nearly flat for the week at $21/pound.

According to the World Gold Council, demand for gold sank to a 5-1/2 year low during the 2nd quarter. While investment appeal remained strong, demand for jewelry fell by 20% compared to a year ago.

Industrial demand for silver is languishing, according to Fresnillo, a silver mining company, but investor demand for the metal is keeping its prices elevated. CEO Jamie Lomelin stated that the firm expects silver to stay within a $13-15/oz band for the remainder of the year.

Tea prices have risen more than 25% since January amid tighter supplies.

Et Cetera:

This week's Barron's "Up & Down Wall Street" by Alan Albelson.

Barron's review of this week's market news and its preview of next week's market events.

Columnist Robert Novak passed away this week.

The Ricketts family, who founded TD Ameritrade, has bought 95% of the Chicago Cubs for $845 million.

The FT ran an interesting article on how attitudes toward relocation are changing.

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