Saturday, September 5, 2009

Noteworthy - Week of August 30th

After 50 years in power, Japanese voters ousted the Liberal Democratic Party in favor of the Democratic Party of Japan, which promises to stimulate the Japanese economy, reevaluate the country's ties to the U.S. and cut bureaucracy in the nation.

The August index of manufacturing data rose in the U.S., Australia, China, France and other major economies, while the rate of decline slowed in others, suggesting that the world economy might be turning around.

G-20 policy makers agreed that signs of a recovery are taking shape, however, stated that it was much too early to withdraw stimulus measures, fearing a "double dip" in the world economy without it. The finance ministers also discussed larger reserve requirements and caps on bonuses for banks.

Unemployment rose to its highest level since 1983 (9.7%) in August. State and local governments, once seen as safe havens, reduced payroll for the third consecutive month. States are shutting down offices one day per week in order to save cash. Temporary jobs appear to be leveling off, however.

Continued worry over mortgage defaults have raised concern that the Federal Housing Administration might need to be bailed out. The value of the agency's reserves, which are mandated by Congress, will be released on September 30th in the FHA's annual review. Commercial real estate still lurks in the background as the next potential mortgage crisis.

The Mortgage Bankers Association has recommended that Congress break up Fannie Mae and Freddie Mac into several smaller privately held companies that would issue government-guaranteed mortgage securities.

Senate Finance Committee Chairman Max Baucus (D-MT) plans to unveil a comprehensive health care reform bill to a bipartisan group of senators next week, as Congress returns from its August recess with a long "to-do" list. President Obama will address a joint session of Congress on Wednesday and is expected to relaunch his bid for health care reform, although there is debate over what he will propose after weeks of waffling.

China agreed to buy $50BB in International Monetary Fund bonds using the Yuan, making it the 1st nation to sign an agreement to buy the bonds.

The World Trade Organization ruled that Airbus received illegal subsidies from European governments, a ruling likely to help Chicago-based Boeing and provide the ammunition the firm is looking for to contest future funding for its largest competitor.

Trade ministers agreed to revive the Doha Round of trade talks, which stalled in July 2008, after the Obama administration named a new ambassador to the WTO this week.

BP lobbied the UK in late 2007 for a prisoner transfer agreement between Scotland and oil-rich Libya for convicted Lockerbie bomber, Abdel Basret al-Megrahi. Qatar lobbied Scotland in June of this year.

The SEC's inspector general released a 477-page report, which showed the extent to which the agency missed several red flags, some as early as 1992, into the Madoff Ponzi Scheme.

Two new antibodies in the AIDS virus may provide fresh leads in the quest for a vaccine.

Retail sales declined 2.9% during August. In a changing trend, however, sales of mid-priced retailers gained versus discounters. August's weak back-to-school sales do not bold well for holiday sales this year.

The Treasury Department backed away from its request for independence with regards to special inspector general of TARP, Neil Barofsky, who is in charge of tracking how TARP money is spent.

The World Bank is encouraging China to invest more in Africa, in an effort to boost economic growth in the continent.

China's market correction this week might threaten the latest run in equities.

The IRS is expanding a program designed to find inconsistencies between mortgage payments and declared income in its continued effort to find missing tax revenue.


Gabon declared Ali Bongo Ondimba, son of the country's long-time ruler, the winner of its recent presidential election, amid allegations of voter fraud.

The Americas:

Brazilian beef giant JBS SA is set to acquire Pilgrim's Pride for roughly $2.5BB.

Columbia's Congress passed a bill allowing President Alvaro Uribe to seek a third consecutive term.

Google's YouTube is in discussion with major movie studios about streaming movies on a rental basis.

Pfizer pleaded guilty to improper marketing of its painkiller Bextra and agreed to pay $2.3BB in fines.

Pernod Ricard SA, the French liquor giant, which purchased the Absolut vodka brand for 5.3BB Euros last year, is struggling with sales amid the U.S. recession, as Americans are turning to less expensive brands.

Southwest Airlines will introduce a new $10 fee for priority boarding.

Las Vegas Sands secured $600MM in short-term financing through its bankers ahead of its planned Hong Kong IPO of its Macau assets.

In a cost saving measure, Walmart will start paying its employees via debit card if they decline direct deposit to a bank.

Ebay sold 65% of its Skype business to private investors for $2BB.

Disney has acquired Marvel for $4BB.

Tobacco firms are seeking to block various provisions of a new federal law that places the industry under the FDA umbrella, claiming that it violates their 1st Amendment rights.

Legal prostitution is under pressure in Rhode Island.

Marijuana plantations are on the rise in the U.S., as growers target U.S. forests amid a border crackdown.


China will require music sites to seek approval from censors for all foreign songs distributed via the Internet.

China's environmental minister called for new measures to deal with heavy metal poisoning, following recent incidents of lead poisoning in children living near smelters.

Google is struggling amid intensifying competition in China.

Property developers in China are rushing to raise billions of dollars for investments that just a few months ago seemed to be doomed.

A Myanmar court will hear the appeal of Suu Kyi, who was convicted of violating the terms of her house arrest on August 11th.

The Dalai Lama visited Taiwan this week.

Morgan Stanley and Citigroup invested $100MM each to finance separate wind farms in August, possibly re-igniting growth in green energy.


Champagne producers agreed to pick 32% fewer grapes this year, allowing the remaining harvest to go to waste, in order to counter reduced supply.

Angela Merkel's CDU party suffered heavy losses in regional elections last weekend, potentially putting her rein of chancellor at risk.

Llloyds PLC is considering moving away from a UK government program to guarantee its assets, citing the firm's rising stock price and slowing of loan defaults.

Middle East:

Israel announced that it would authorize the construction of hundreds of new homes in the West Bank, just as the U.S. and Israel had appeared close to deal that would halt settlement growth in the area and allow Israeli-Palestinian peace talks to continue.

Afghan civilians were hit during an air strike there this week, straining its alliance with the U.S. American public support of the war in Afghanistan is waning, putting pressure President Obama to rally support for the war.


Australia's trade deficit widened to $1.3BB USD in July to more than triple that of June's totals due to strengthened currency and increased consumer demand for imports.


BP announced a major find in the Gulf of Mexico in a continuing sign that the gulf remains one of the world's most promising exploration regions.

Baker Hughes has agreed to acquire BJ Services for $5.5BB, which will create a new rival to oil service giants Schlumberger and Halliburton.

Commodity prices rose during the week as the USD fell from poor job data and a stronger world economic outlook.

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.

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