Right….
Fears of OPEC-style gas cartel unfounded: Putin
Russian Prime Minister Vladimir Putin said Tuesday any fears that some countries could form an OPEC-style gas cartel were unfounded.
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Category Archives: Uncategorized
Goldman actions not illegal
Goldman urged bets against bonds it sold-paper
By Supantha Mukherjee
Goldman Sachs, which acted for the state of California in selling bonds, has urged some of its big clients to place investment bets against some of those bonds this year, the Los Angeles Times reported.
The paper said that Goldman declined to discuss the details of its trading strategy.
Goldman spokesman Michael DuVally told the paper that the firm was no longer giving the trading advice to clients. He declined to elaborate.
The newspaper said the company did not inform the office of California Treasurer Bill Lockyer that it was proposing a way for investment clients to profit from California’s economic downturn.
“It could exaggerate people’s worries about our credit,” the paper quoted Paul Rosenstiel, head of the public finance division of the treasurer’s office, as saying.
The investment bank’s actions are not illegal, the paper said.
Goldman is an important underwriter of California municipal securities and over the last five years has earned about $25 million in underwriting fees from California issues, the paper said.
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Demand destruction
Note the ‘demand destruction’ refers to the slowing of the growth of demand, not a contraction.
Oil Demand Forecast
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GM bailout
Seems to me GM and the banks need the same thing: people who have sufficient income to buy cars and make mortgage payments.
In general, direct public spending is for public goods: military, legal system, various infrastructure, etc.
To support private sector output the way to go is to support demand, and let consumers decide which products succeed and which don’t.
If government had declared a payroll tax holiday (treasury makes the fica payments for employees and for the business) three months ago, car sales would be up and mortgage delinquencies down.
And don’t forget to toss in something that reduces fuel consumption sustain our real terms of trade.
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Falling consumption
Falling consumption and rising unemployment means the private sector wants to work and get paid, but doesn’t want to spend its earnings on consumer goods.
No problem!
Depending on one’s politics, this allows government to increase spending to employ the idle resources for public purpose, such as infrastructure, etc.
Or alternatively, to cut taxes until consumption resumes. Or some combo of both.
The government spending is not financially constrained. The applicable constraint is the quantity of real resources offered for sale.
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Re: France threatens to seize banks
Yesterday’s news, but this kind of response is indicative of fear of a very large problem in the immediate future.
And forcing banks to lend to entities they don’t consider credit worthy only shifts private sector losses to the banks.
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> On Tue, Nov 4, 2008 at 7:38 AM, Dave wrote:
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France threatens to seize banks, German bail-outs escalate
By Ambrose Evans-Pritchard
The French state has threatened to seize control of the country’s banks and fire top staff unless they do their part to stabilise the economy by stepping up lending to companies in need.
“The banks have got to open up credit to business: they have the means to do it,” said prime minister Francois Fillon, accusing lenders of hoarding cash. “We don’t think the banks are stepping up to task as necessary. We can withdraw the credit that we have extended to them under the state’s contract with the banks, and that will put them in difficulty. At that moment the question arises whether we should take an equity stake, change their managers, and assume control over their strategy.”
Speaking on French television, he warned: “Broadly speaking, we’ll be able to judge over the next 10 days whether they are playing the game as they should, or not.”
Under last month’s rescue deal, banks agreed to raise lending to firms and households by 3pc to 4pc in exchange for a state injection of €10bn (£8bn) in fresh capital for the six largest banks, a modest sum compared to the bail-outs in Britain, Germany, Belgium and the Netherlands.
In Germany, HSH Nordbank – 59pc owned by the city of Hamburg and state of Schleswig-Holstein – rattled the markets yesterday by revealing that it would need €30bn in guarantees from Berlin’s €500bn stabilisation fund. It warned that further sums may be need`ed to meet capital adequacy ratios in the future.
“We are not under time pressure and will be holding in-depth discussions with our stockholders as to the strategy to pursue,” said Hans Berger, chief executive officer. The bank has had to write down €2.3bn over the last year, and suffered heavy losses from the collapse of Lehman Brothers.
Commerzbank said it would seek a combined guarantee and capital boost of €23bn, while BayernLB will seek €5.4bn. The giant property lender Hypo Real Estate is the biggest casualty so far, needing €50bn.
In Austria, a mini-crisis continued to simmer yesterday as the state stepped in “with a few hundred million” to rescue Kommunalkredit, after the public lender said it was suffering a “liqudity squeeze”. Austria’s banks have heavy exposure to the debt crisis in Ukraine, Hungary and the Balkans.
Europe’s banks are almost twice as leveraged as those in the US, according to the IMF. Many pursued a very aggressive lending strategy during the credit bubble. They account for the lion’s share of cross-border loans to Latin America, Asia and the entire $1.6 trillion pool of loans to Eastern Europe. Matt King, credit strategist at Citigroup, says they have waited too long to face up to their losses and will need to raise $400bn in fresh capital in a hostile global climate.
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Consumer spending falling
Consumer spending hit by crisis: MasterCard
By Nicole Maestri
NEW YORK (Reuters) – U.S. consumers slashed spending in October, shunning purchases of items over $1,000, as a global financial crisis battered their savings accounts and their psyches, according to figures released on Wednesday by SpendingPulse, the retail data service of MasterCard Advisors.
“The numbers for October are very negative across the board,” said Michael McNamara, vice president at MasterCard Advisors, of sales figures tracked by SpendingPulse.
“Any area that deals with consumer durables, especially areas like furniture, electronics and appliances … that relies heavily on sales purchases that exceed $1,000 in value are under significant pressure,” he said.
SpendingPulse data is derived from aggregate sales in the MasterCard U.S. payment network, coupled with estimates on all other payments including cash and checks.
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China News Highlights
Much of the world seems to be going this way.
Enough fiscal will turn this around.
China’s Hu Calls for Efforts to Increase Demand, Xinhua Says
By Wang Ying
Nov. 1 (Bloomberg) — Chinese President Hu Jintao said the government needs to continue efforts to boost domestic demand to bolster financial stability and counter the impact of the global credit crisis, the state-run Xinhua News Agency reported.
The authorities will continue to consolidate the “foundational position” of agriculture and to deepen economic reforms and openness, Hu was quoted as saying. Hu spoke during a visit to the northwestern province of Shaanxi between Oct. 28 and Oct. 29, according to the report late yesterday.
China’s economy, the world’s fourth largest, expanded in the third quarter by 9 percent from a year earlier, the slowest pace since 2003. The government lowered interest rates three times in the past two months, increased export rebates and cut property transaction taxes.
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Hungary to meet euro terms earlier
Note the contractionary terms highlighted below:
Hungary Pays With Growth Prospects for IMF-Led Bailout Package
By Zoltan Simon
Oct. 29 (Bloomberg) — Hungary will meet euro-adoption term faster than previously planned after securing a 20 billion-euro ($25.5 billion) aid package to stabilize its recession-bound economy.
The country should adopt the euro “the faster the better,” Economy Minister Gordon Bajnai and Andras Simor, the head of the central bank told reporters today. The aid package will “unequivocally” stem the financial crisis in local markets, Bajnai said.
Hungarian stocks, bonds and the currency plunged this month because of concern that the country may have difficult financing its budget and current account deficits.
The aid package will help Hungary with its balance of payments and increase investor confidence by more than doubling foreign-currency reserves, Simor said.
The central bank, which raised the benchmark interest rate last week to 11.5 percent, the EU’s highest, from 8.5 percent to halt the currency’s plunge, will “think it over” on the direction of monetary policy after the rescue plan, Simor said. The bank continues to aim for price stability, he said.
To reduce country’s reliance on external financing, Prime Minister Ferenc Gyurcsany plans to cut spending next year by freezing salaries and canceling bonuses for public workers and reducing pensions. Hungary today also canceled all government bond auctions through the end of the year.
The standby loan, which Hungary can draw on as needed, will more than double the country’s 17 billion euros worth of foreign currency reserves, Simor said. The loan carries an interest rate of 5 percent to 6 percent, a standby fee of 0.25 percent annually and can be repaid in three to five years. Hungary can access the funds until March 2010, Simor said.
Part of the loan will be used to provide liquidity to banks, Simor said, without elaborating. Banks in Hungary have started to curtail or suspend foreign currency lending because of the difficulty in accessing euros and Swiss francs, the most popular foreign currency loans.
Euro applicants must keep inflation, debt and budget deficits within check. Hungary expects consumer prices to rise 4.5 percent, with a budget deficit at 2.6 percent of gross domestic product and declining debt next year.
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Austria abandons bond offering
Not looking at all promising.
Austria abandons bond offering
By David Oakley
Austria, one of Europe’s stronger economies, cancelled a bond auction yesterday in the latest sign that European governments are facing increasing problems raising debt in the deepening credit crisis.
The difficulties of Austria, which has a triple A credit rating, highlights the extent of the deterioration, which saw benchmark indicators of credit risk such as the iTraxx index hit fresh record wides yesterday.
Austria is the fourth European country to cancel a bond offering in recent weeks amid growing worries over its exposure to beleaguered eastern European economies such as Hungary.
Hungary, which has been forced to turn to the International Monetary Fund to shore up its crisis-hit economy, also scrapped an auction for short-term government bills after only attracting Ft5bn ($22.5m) in a Ft40bn offering.
Analysts said Austria had dropped plans to launch a bond next week because investors wanted bigger premiums to offset the credit worries and fears over lending by its banks to eastern Europe.
The Austrian Federal Financing Agency did not give a reason for the move.
Spain, another triple A rated country, and Belgium have cancelled bond offerings in the past month because of the turbulence, with investors demanding much higher interest rates than debt managers had bargained for.
Market conditions have steadily deteriorated in recent days with the best gauge to credit sentiment, the iTraxx investment grade index, which measures the cost to protect bonds against default in Europe, widening to more than 180 basis points, or a cost of €180,000 to insure €10m of debt over five years, yesterday.
This is a steep increase since Monday of last week, when the index closed at 142bp.
Huw Worthington, European strategist at Barclays Capital, said: “These are difficult markets. Austria did not need to raise the money, so it has decided to hold off but, if these conditions persist, it could prove a problem for some governments as their debt needs to be refinanced.”
Analysts warn that the huge pipeline of government bonds due to be issued in the fourth quarter and next year could increase problems for some countries, particularly those already carrying large amounts of debt that needs to be refinanced or rolled over.
European government bond issuance will rise to record levels of more than €1,000bn in 2009 – 30 per cent higher than 2008 – as governments seek to stimulate their economies and pay for bank recapitalisations.
The eurozone countries will raise €925bn ($1,200bn) in 2009, according to Barclays Capital. The UK, which is expected to increase its bond issuance from the current €137.5bn in the 2008-09 financial year, will take the figure above €1,000bn.
Italy, with a debt-to-gross domestic product ratio of 104 per cent, is most exposed to continuing difficulties in the credit markets. Analysts forecast that it will need to raise €220bn in 2009.
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