the visible hand

it is the theory which decides what can be observed – einstein

Archive for July, 2007

housing products and lumber shipments down

Posted by ecoshift on July 31, 2007

Bloomberg.com: Worldwide
Subprime Defaults Blamed for Corporate America Earning Setbacks
By Daniel Taub and Nick Baker

Aug. 1 (Bloomberg) — Railroads, chemical producers and insurance companies are blaming the worst U.S. housing slump in 16 years for their earnings woes.

Burlington Northern Santa Fe Corp., the second-biggest U.S. railroad, said lower shipments of housing products and lumber reduced second-quarter earnings. DuPont Co., the third-largest chemical maker, said slumping demand for kitchen and bathroom countertops was partly responsible for its profit drop. Genworth Financial Inc., the former insurance unit of General Electric Co., said earnings will be at the “lower end” of its forecast this year as mortgage-insurance claims increase.

“The subprime slime is oozing,” said Gary Shilling, president of A. Gary Shilling & Co. in Springfield, New Jersey, who correctly predicted the recession in 2001. “As home equity evaporates, that takes out the foundation of strong consumer spending growth, which has been the mainstay of the economy.”

U.S. profit growth has been cut by more than two-thirds because of the housing slowdown, according to David Rosenberg, chief North America economist at Merrill Lynch & Co. Earnings growth is running at 6 percent and would be 19 percent, he said. Business is suffering as home sales plunge more than economists estimate and foreclosure filings in the U.S. jumped 58 percent to 573,397 in the first half, according to RealtyTrac Inc.

“Companies that make anything that goes into a home, all the wiring, plumbing, anything related to coatings and fixtures, will certainly be suffering,” said Gene Pisasale, who helps manage $25 billion, including DuPont shares, at PNC Wealth Management in Baltimore.

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Posted in housing, market | 1 Comment »

Caveat emptor: deceptive credit card terms and conditions

Posted by ecoshift on July 31, 2007

It does seem that the ethical basis of solicitations coming to my mailbox, both analog and digital, have been in decline for a number of years. It is no longer safe to assume that there is a moral baseline, or regulatory environment, that ensures even minimal protection of customer interests.

As far as the credit card companies go, they can change the terms that apply to an existing balance at whim. Read the fine print. Here’s the line from the most recent offer to cross my desk: Rates, fees and terms may change: We reserve the right to change the account terms (including APRs) at any time for any reason, in addition to APR increases that may occur for failure to comply with the terms of your account.

Given the level of revolving debt that many people carry and diminished access to bankruptcy protections for ordinary citizens that line is really quite cheeky. Imagine loaning your buddy 10k and asking him to sign an agreement that allows you to change the terms of the agreement on the outstanding balance any time you feel like it.

Caveat emptor indeed…

Credit Card Buyer Beware – New York Times Editorial
Published: July 31, 2007

The federal agencies that are supposed to regulate the banking and credit card industries have failed utterly to keep pace with deceptive and unfair practices that have become shamefully standard in the business. As a consequence many hard-working Americans who pay their bills are mired in debt — and in danger of losing whatever savings they have, and perhaps their homes. Congress, which sat on its hands while the problem got worse and worse, needs to rein in this sometimes predatory industry…

A bill introduced by Senator Levin would limit “penalty” interest rates to an additional 7 percent above the previous rate. It would also prohibit retroactive penalties and double cycle billing, and it would limit the amount of fees companies could charge customers who exceed their credit limit.

Passing the Levin bill would be a good start. But Congress needs a comprehensive approach to this problem. Lawmakers need to ban deceptive card offers outright, strengthen federal oversight and toughen truth-in-lending laws.

Posted in credit, opinion, policy | 1 Comment »

Scorecard: Debt Dilemmas – the US may need a few reforms as well…

Posted by ecoshift on July 31, 2007

Of course the US may need a few reforms as well…

This listing is definitely worth a quick review.  If you think credit issues are confined to a few players… you’ll have to click on the link.

WSJ.com
SCORECARD: DEBT DILEMMAS
How Credit-Market Tremors Have Affected Junk Bonds, LBOs and Hedge Funds

The days of easy credit may be coming to an end. The jitters began with losses at two Bear Stearns hedge funds that invested in subprime-mortgage debt that now are worth almost nothing. And over the past few weeks, a string of companies has delayed or canceled debt offerings, a sign that investors may be less interested in debt deals that don’t adequately reward them for potential risk. — Compiled by Annelena Lobb and Cassandra Vinograd

Posted in credit, market | Leave a Comment »

Paulson says China needs broader reforms

Posted by ecoshift on July 30, 2007

FT.com – Paulson says China needs broader reforms
By Richard McGregor in Beijing
Published: July 30 2007 17:55

Currency policy is just one part of broader economic reforms that Beijing must undertake to maintain growth and competitiveness, Hank Paulson, US Treasury secretary, said on Monday ahead of talks in the Chinese capital.

Mr Paulson said the currency had become a “proxy for reform” but that it had to be addressed alongside other structural problems in China – such as underdeveloped open capital markets.

Posted in china | Leave a Comment »

Blackstone share slump costs China $540 million

Posted by ecoshift on July 30, 2007

Blackstone share slump costs China $540 million
But investment in Blackstone wasn’t just about returns, analysts say

By Chris Oliver, MarketWatch
Last Update: 9:55 AM ET Jul 30, 2007

HONG KONG (MarketWatch) — Blackstone Group L.P.’s slumping share price isn’t likely what Beijing had in mind when it pumped $3 billion into the leveraged buyout firm last month.

Since its June debut Blackstone (BX) has tumbled 21%, making it the worst-performing initial public offering among deals worth $500 million or more this year.

Posted in china, market | Leave a Comment »

Lobbying Intense As Google Seeks To Open Market

Posted by ecoshift on July 30, 2007

As the owner of a cell phone whose bluetooth capabilities were disabled by verizon, a dual boot XPpro/Ubuntu PC and a regular user of Open Office my hat is off to Google for this attempt to loosen, or should I say unlock, the strangle hold the major cell carriers have on innovation in wireless markets.

Go Google.

FCC to Rule on Wireless Auction – washingtonpost.com
Lobbying Intense As Google Seeks To Open Market

By Kim Hart
Washington Post Staff Writer
Monday, July 30, 2007; Page A01

The Federal Communications Commission will set the rules tomorrow governing the auction of $15 billion of public airwaves, a decision with stakes so high that the major U.S. cellular carriers and Google have spent millions of dollars on a lobbying campaign in an attempt to influence the outcome. The decision could dramatically alter the nation’s cellphone industry.

Google, the giant Internet search company, wants to extend its popular tools, which include e-mail and video, to the rapidly expanding mobile phone market. To do so, it may spend billions to build a new, open network it says will loosen the grip telecom operators have over how consumers use their cellphones.”

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Spillover

Posted by ecoshift on July 30, 2007

Spillover – New York Times Editorial
Published: July 30, 2007

By the end of last week, any lingering hope that the housing downturn would be contained had vanished. As this week begins, signs of contagion seem to be everywhere.

Unnerved by mounting losses in mortgage- related investments, investors have started to shun tens of billions of dollars in corporate debt offers as well — and seem likely to go on doing so for months to come. That would stanch the flow of easy money that has fueled the leveraged buyout boom, which would, in turn, expose the extent to which stocks have also come to depend on cheap credit. Stocks took a dive last week because debt-driven buyouts had long boosted the share prices of targeted companies. Stocks have also benefited directly from easy money because public companies have borrowed heavily to buy back their own stock, a ploy to drive up earnings per share.

The fallout of housing-related turmoil is also likely to extend beyond financial markets. Among the deals that faltered last week were the $7.4 billion buyout of the Chrysler Group and the $5.6 billion purchase of the Allison Transmission unit of General Motors. Unless investor capital is forthcoming, it could become increasingly difficult for the automakers to avoid bankruptcy. At the same time, the housing slump has also driven down analysts’ monthly forecasts for car and truck sales to levels not seen in nearly a decade.

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A Chinese dilema, US initiatives

Posted by ecoshift on July 29, 2007

I’m puzzled by US policy initiatives vis a vis China. They seem poorly thought out and downright insulting with quite a lot of whining poor-loser thrown in.

I realize that China is still a communist state. While I’ve been only a little surprised at corporate willingness to throw democratic ideology to the wind in pursuit of competitive advantage I do somehow expect a bit more coordination in overall foreign policy objectives.

Imagine you are a Chinese leader in the previous decade.

The US, in hopes that your participation in the global economy will turn you into a Republican, or at least a Democrat, wants to invest in your economy. Okay, okay. The US really hopes to make some serious money on the deal. The intention is to exploit your cheap labor and your lax environmental standards to lower production costs while maintaining US distribution channels and marketing savvy. They intend to make a killing. You know it. They know it. You let them invest. You work hard. You watch carefully. You learn. Your domestic companies start offering to provide components, products and services to US companies. Soon your domestic firms are exporting directly into US markets in various partnerships with US firms. Fast forward 10 or 15 years.

Chinese success

Your economy is kicking butt. The quality of your products is increasing. Money from sales to US markets is pouring into your economy. You own massive amounts of US debt in order to maintain access to US markets and to keep US markets viable. You are financing US foreign wars, tax breaks for wealthy US stockholders and anything else the US government can’t afford to buy.

Real US values falter

But, the US stock market has been in decline against basket of global currencies for five years. The US Fed is desperately printing money while US investment bankers, money managers and corporate executives squander it on stock buybacks and speculative asset bubbles. Smart money in the US continues to flow to overseas. US manufacturing capacity is in decline. Sophisticated (well, at least complicated) and perhaps fraudulent leveraged financial machinations keep US asset bubbles appreciating in dollar terms. US companies struggle to compete in the global economy and US consumers are dependent on low-cost imports to maintain debt-driven lifestyles. You know this.

A Chinese dilema

The US appears more than willing to allow the value of US currency to steadily fall. Every 5% decline in the dollar’s value drops the value of your foreign reserves 65 billion dollars against that same basket of currencies. As the Yuan follows the dollar down you loose additional purchasing power in global markets. The interest rates you are earning on your US bonds don’t even come close to making up the difference. Other holders of US currency reserves are starting to let go. You need export sales to the US, but you are wondering how long you can continue to support failing US economic strategies. You are carefully evaluating the aggregate strength of global markets without US growth: Europe, India, Brazil, Japan, your own domestic economy. IS it time to change your strategy?

You hold the value of US currency in your hand. If you sell dollars the dollar will tank, US inflation will go through the roof and take interest rates with it. The US consumer will succumb to his credit cards amid rising fuel costs and a crashing housing market. You know this. You are looking at your options. Direct investment in US assets? Purchase US equities? Creation of a sovereign wealth fund for overseas investments? Can you afford to let the US dollar down? How badly do you need faltering US markets?

US initiative

It’s a delicate situation: liquidity drying up, housing prices falling, bridge loans desperately in need of buyers and globalization backfiring on the US economy. US leaders confidently step up to the plate with a sophisticated negotiation strategy:

  1. They angrily complain that you aren’t playing fair. That you win too much and that US manufacturers can’t compete in their own domestic markets. They demand that you allow your currency to appreciate… closing the door long after a herd of US manufacturing horses have been reallocated to ranches far away from the barn.
  2. As US credit markets begin to seriously falter the champions of multilateral investments float legislation that will not allow foreign (this means you) direct investment in strategic US assets.
  3. Then someone comes sidling up to the side door, opens up his trench coat, and offers to sell you an assortment of toxic mortgage backed securities.
  4. Finally the financial guys come forward and managers start to offer you equity stakes in their operations.

Seems like an inconsistent slap in the face to country that understands face. With stock market drops of over 700 points in week I can imagine China is sorely tempted to sell treasuries and drop any plans to participate in or support collapsing US asset bubbles and credit markets.

If the US plan is to somehow rebuild a strong US manufacturing component based on new found competitive advantage in export markets from a declining dollar, US companies and senators may want to look carefully at the percentage of imported commodities, parts, components and even finished products in US exports. After two decades of outsourcing, downsizing and reallocation of US manufacturing offshore I believe that horse will need a significant influx of capital to realize any advantage…. capital that no one will want to invest in a popping bubble… unless they happen to be burdened with 1.3 trillion in dollar denominated reserves.

If I’m missing something here, let me know…

Posted in china, dollar, market, opinion, policy | Leave a Comment »

US stock fund outflows highest in 5 years

Posted by ecoshift on July 28, 2007

Investors run from mutual funds, sell $5.5 billion in 1 day
U.S. stock fund outflows highest in 5 years
Investors cash out a net $11.3 billion for the week through Thursday, TrimTabs data show.
By Rob Kelley, CNNMoney.com staff writer
July 27 2007: 4:21 PM EDT

NEW YORK (CNNMoney.com) — Mirroring the sell-off in U.S. stocks, this week saw the biggest outflow from U.S. stock mutual funds in five years, according to TrimTabs.

For the week ending Thursday, fund investors cashed out a net of $11.3 billion. The biggest outflow came Tuesday, when investors cashed out a net $5.5 billion, making it the second-highest daily outflow of the year. The highest occurred on Feb. 27, when investors sold a net $6.5 billion worth of U.S.-focused funds following a plunge in the Chinese stock market.

On Thursday, when the Dow tumbled 311 points, the funds saw a net outflow of $4.2 billion.

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Financial advice for hedge fund managers…

Posted by ecoshift on July 27, 2007

And here, for a friday afternoon, is a little financial advice. Although this product was originally aimed at consumers much of the advice it offers will be just as useful for hedge fund managers and investment bankers…

Posted in humor, video | 2 Comments »