My Favorite Financial Articles

How the USA can beat China in the Trade War. How can we make Yuan stronger compared to USD.

2011-10-06T16:00:00.000-07:00

So far, this blog is used to archive my favorite articles- articles written by others. (Lately though, I have started using Facebook to store links to articles I like). I am in a mood to write something today- my own thoughts. So tighten your seat-belt and get ready to take a ride with my wild thoughts.

There is an increasing demand within US to force China to let its currency float freely. Everyone knows (or should I say believe) that China is keeping its currency artificially weak so the products made in China have significant competitive advantage in international markets. Now US is frustrated with slow economy and continuing higher unemployment at home. There is nothing much that can be done. Fed, Senate/Congress and President are trying. We tried monetary policy, Fiscal policy but looks like these tools have lost their edge. This economic animal no longer responds to these stimulus/injections. Jobs can not be harvested in a farm or made on an assembly line! Every job out there has to provide more value to its employer. A 60k per annum job has to provide at least 60k of value.  Now when a job/work is portable and can get done overseas for 10-20k, why would one pay 60k within the USA? I wouldn't. Probably you wouldn't either. In hiring a worker in the USA, a company has to pay 10-20k per annum in health benefits and other benefits. In such scenario, unless US employees become competitive, on the wages I mean, there is not much hope to get more jobs created. We kept saying about high productivity of US employees. That is also due to higher automation and subsequent efficiency gains which on the other hand causes job losses. (This can be a new article itself about why jobs are not springing up in the USA so I am going to stop talking about it here.)
Every businessman knows that US employees are expensive. Providing health benefits to employees is expensive. For the money that is spent by employers in highly inflated US Healthcare, and other benefits, a full job can be paid in many other countries. Why not we try to bring down Healthcare expenses? Healthcare costs is a signficant factor behind expensiveness of US employees!
Every politician knows, I guess, that creating jobs within US is a difficult job itself. So now starting a trade war against China can act as a morphine for 300 million Americans. Now we can divert public's attention and tell people that it is China that needs to be blamed for the problems in the world's most powerful nation. For lack of jobs at home, it is that dragon nation that needs to be cursed for subsiding its manufacturers by keeping its currency low. The politicions of the US are not at fauth for this problem at home; it is the China and it is its currency policy.
This tactical and vocal war between these nations is going to get worse and worse. If this intensifies, I can see the post-war picture. It is ugly. No one gains. Let us focus on the main topic here though. US needs someone to blame for the problems at home. And now we have found one. The way former President George Bush brain-washed Americans to get into a war with Irad, this is a relatively easily sellable idea to get into a trade-war with China.
When I think about this from China perspective, frankly, I don't know what is going on in their heads. But here is what I believe is going on. Let us first understand the current situation. China exports much more than it imports. So for businesses within the country, they have more dollars (Euros, Pounds etc but we will refer to USD for simplicity) coming in (as payment for exports) and the dollars going out for payment for imports. As per text books, this is a scenario of excess dollars with Chinese companies. In a market economy, this lower demand (or higher supply) of dollars should actually cause the value of dollar to drop. Now in reality, the Chinese government plays in the currency market and absorbs all excess dollars!  They buy dollars and sell Yuans. This prevents Yuan from appreciating (and dollar from depreciating). Over last many years, this constant buying of US dollars has resulted in Chinese government having accumulated 2.3 trillion dollars worth of foreign reserves!!!
What started as a way to encourage local exporters has become an issue now. This enormous forex reserve is stuck in the throat of China. It can not be swallowed or vomited out. Let me explain what I mean by this.

These foreign exchange reserves are mostly in US dollars and some in Euro, Yen etc. Not only US, now Euro and Japan aren't doing that great either. Interest rates in all these countries are also almost close to zero. So this giant portfolio of 2.3 trillion dollars in earning peanuts for China. I think the return on this portfolio is around .3% of so. On the other hand, Chinese government must have borrowed trillions of Yuans to finance these forex reserves (unless the government is running budget surplus every year and has built up reserves, or just prints currency to pay for dollars). Interest rates within China are much higher compared to rates in USA and Japan. So on this 2.3 trillion forex portfolio, if government is losing say 3% in interest rate differential (what it earns on forex reserves vs what it has to pay on government borrowings in Yuan), the annual losses are around 60 billion dollars. Take into the account the current appreciation in Yuan which is around 5%  vs dollars. In other words, the dollar is weakening by 5% per annum. (US Politicians want China to make Yuan stronger by 20-30%). This 5% depreciation in dollar value causes the 2.3 trillion portfolio to lose value of around 100 billion dollars compared to Yuan value. So to keep the Yuan weaker, China is losing (or spending) around 160 billion dollars a year!!! No one would like this kind of losses! I am sure the treasury department of China must be hating this too.
One's loss is usually some one's gain. China's loss here is probably US's gain. I am refering to just the financial side. China loses money on its forex reserves. This helps US borrow cheaply from China. This is one major reason why interest rates are low in the country right now. Bond pundits are forecasting for the last 5 years or so that interest rates would rise in the USA. On the contrary, they are falling. Now the Portfolio Manager on the US side, the Fed chairman, loves this like a kid with a sugar pot. He can keep interest rates lower in the name of helping millions of American. As a borrower with China, he knows that he is going to repay the debt with cheaper dollars in future! So this is a win situation for the US: we have a lender that lends money almost interest free and the lender will be paid back with cheaper dollars. This is a gain on current account as well as capital account.

On the other hand, China is stuck in my opinion. There is no strong investible currency in the world. Canada and Australia are strong but they are not big enough to digest investment of 2 trillion dollars!!! Euro was coming up as an alternative to USD but now they have more issues with crisis in Spain, Greece etc! Japan is plagued with low rates for last two decades. IMO China is stuck with USD. US is stuck with low growth and high unemployment. So the US interest rates may stay lower for long time. US may be loving this interest free (almost) lending by China. US may also be loving this slow depreciation of USD!

Now if USA succeeds in getting China strengthen its currency by say 20%, the Chinese forex portfolio of dollars will lose that much value! Almost 500 billion dollars will change pockets- from Chinese government to US government in terms of value/purchasing power. It is not easy for China to sacrifice $300-400 billions in value of forex reserves. More importantly, the strengthening of Yuan will bring a slump in China's manufacturing sector. If their exports drop, yes, they will, if Yuan gets stronger, that can create a slow-down or recession in China. I don't believe China is ready to take any sudden move here where they will lose on thier Forex portfolio and willl cause economy to slow. Also, for China, the other alternative is to do nothing with regard to Yuan value and this will cause them to lose $150 billions a year. This is the annual cost for keeping Yuan weaker and dollar stronger. (If you were the Chinese premier, what would you choose?)

What alternatives are out there? Here are some crazy ideas.

1) US government can start playing the currency market too. They should start buying Yuan (Yuan is a really good investment! You buy Yuan and then lend this money in China. You will get around 5% return and your Yuan is expected to keep getting stronger. This is one of the best investments out there IMO). Now US government is almost bankrupt. Congress is not willing to raise the debt limit. So unless US starts printing dollars to pay for the Yuan, this is not a feasible alternative.

2) ....I am thinking...Do you have any idea? Please post it here.
(Got to go now. Will continue later)

India growing faster than China

2011-05-10T09:11:00.001-07:00

DID India grow faster than China last year without anyone so much as noticing? Many pundits, including this newspaper, have speculated about when India's growth might outpace China's. (The debate even spawned a meta-debate in India about whether the debate was worth having.) So it would be ironic if the moment had already come and gone, without any fuss, fanfare or felicitation.

China grew by 10.3% last year, a punishing pace to beat. India, according to the advance estimate by its Central Statistics Office (CSO), grew by 8.6%. Fast, but not fast enough. But today a colleague pointed me to the IMF's latest World Economic Outlook (Table 1.1), released earlier this week. It says that India grew by 10.4% in 2010. How can that be?

India has two idiosyncrasies in the way it reports its GDP figures. First, it reports growth for the fiscal year, not the calendar year. So the 8.6% estimate refers to the 12 months ending on March 31. That in itself makes little difference. But the second idiosyncrasy is more important. India typically reports its GDP "at factor cost". That means it adds up all the income earned in the course of producing the country's goods and services. Other countries, including China, typically report their GDP "by expenditure", adding up all the spending on domestically produced goodies. Since every purchase is a sale, expenditure should equate to income: every rupee spent by one person is a rupee earned by someone else. But a couple of things get in the way: taxes and subsidies.

http://www.economist.com/blogs/freeexchange/2011/04/india_outpaces_china

Analysis: U.S. politicians chose path to deficit 10 years ago

2011-05-02T11:40:00.001-07:00

A decade ago, the U.S. had a budget surplus and the Congressional Budget Office projected a growing surplus indefinitely. Today, instead of a $2 trillion surplus, the nation is on track to finish the year more than $10 trillion in debt. The change came because leaders decided to cut taxes, increase spending and fight two wars with borrowed money, according to The Washington Post. The Washington Post (30 Apr.)

http://www.washingtonpost.com/business/economy/running-in-the-red-how-the-us-on-the-road-to-surplus-detoured-to-massive-debt/2011/04/28/AFFU7rNF_story.html?hpid=z3

Bill Gross,Pacific Investment Management Co., reduced its holdings of government related debt

2011-02-17T12:28:00.001-08:00

Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co., reduced its holdings of government related debt to the lowest level since January 2009 while saying low yields cheat investors.
Gross cut the proportion of U.S. government and related securities in Pimco's $239 billion Total Return Fund to 12 percent of assets in January from 22 percent in December, according to the Newport Beach, California-based company's website. He increased the percentage of cash equivalent holdings to 5 percent, the highest since April.
Policy makers are robbing savers by driving down real interest rates as they keep borrowing costs at record lows in a "devil's bargain," Gross said in his monthly investment commentary on Feb. 2. He advised investors to reduce holdings of Treasuries and U.K. gilts and buy higher-returning securities such as debt from emerging-market nations.

Full article at : http://www.bloomberg.com/news/2011-02-14/pimco-s-gross-lowers-government-debt-holdings-to-lowest-since-january-2009.html

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States are likely to be allowed to be bankrupt

2011-01-21T14:44:00.001-08:00

Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.

Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign.

But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government's aid.

Beyond their short-term budget gaps, some states have deep structural problems, like insolvent pension funds, that are diverting money from essential public services like education and health care. Some members of Congress fear that it is just a matter of time before a state seeks a bailout, say bankruptcy lawyers who have been consulted by Congressional aides.

Bankruptcy could permit a state to alter its contractual promises to retirees, which are often protected by state constitutions, and it could provide an alternative to a no-strings bailout. Along with retirees, however, investors in a state's bonds could suffer, possibly ending up at the back of the line as unsecured creditors.

Full story at http://www.nytimes.com/2011/01/21/business/economy/21bankruptcy.html?_r=1&hp

Is Fed getting into the business of making money?

2011-01-14T09:18:00.000-08:00

http://www.nytimes.com/2011/01/11/business/economy/11treasury.html?ref=businessThe following news caught my attention:
"The Federal Reserve will deliver a record $78.4 billion to the Treasury from its investments last year, a 65 percent increase from the $47.4 billion it transferred in 2009, according to preliminary estimates released Monday. "
So I was wondering from where the profit is coming and I found the biggest arbitrage business of the world! Fed is a big hedge fund and has found a great arbitrage opportunity in name of saving US.

The bank reserves with Fed have balloned over last two years!
* In 2008 Fed/US Government started paying interest (@ fed funds rate - 10 bp) on Bank Reserves with Fed so the reserves ballooned from 40b to 1,040 billions.
* Besides the temptation of earning interest, other reason behind this jump is the hesitation by US banks in lending/investing this money themselves. You, I and everyone has money in bank accounts which earn almost nothing. It seems that the banks are not lending this money to anyone either or they are not investing in mortgage or other higher interest instruments. Instead, seems like, banks are keeping these extra fund on demand deposits (I mean Reserves) with Fed.
See the following table that shows the jump in Reserves with Fed.

(see data here: http://www.federalreserve.gov/releases/h3/hist/h3hist1.txt

Month (Reserves with Fed in millions)

May 2008 45711
Jun 2008 45750
Jul 2008 45384
Aug 2008 46412
Sep 2008 103529
Oct 2008 315521
Nov 2008 609285
Dec 2008 820375
Jan 2009 857124
Feb 2009 700350
Mar 2009 779425
Apr 2009 880691
May 2009 900807
Jun 2009 809347
Jul 2009 795376
Aug 2009 828877
Sep 2009 922604
Oct 2009 1056642
Nov 2009 1140795
Dec 2009 1139002
Jan 2010 1108995
Feb 2010 1224790
Mar 2010 1185964
Apr 2010 1116368
May 2010 1109412
Jun 2010 1099258
Jul 2010 1087162
Aug 2010 1085607
Sep 2010 1048360
Oct 2010 1040217
Nov 2010 1038710

Fed announced few months back that they would be buying additional 600b dollars worth of mortgages. This is where yours, mine and everyone's money in our bank accounts is going. We are aware or we are not, but our money is used to hold our own mortages!
Think of this situation: Your money in bank accounts earn no interest but you are probably paying 5-7% interest on home mortgage. Fed is exactly in the opposite- they have money that costs very little but they are earning interests in the range of 4-6% by investing in out mortgages!
* Fed now invests this money in Mortgage and Treasury bonds repurchase (earning 4% to 6%)- earning net 50 billion dollars!!

This arbitrage may not be the main objective of Fed, but I am sure, Fed, Treasure and deficit-ridden US goverment would be loving this nice cashflow of 50 plus billions.

What is the cost here?
1) If banks start withdrawing this excess reserve, Fed will have to sell the bonds (causing rates to go up sharply) or print money. If they start selling these bonds, the bond prices will tend to fall. Lower bond prices mean higher interest rates. Higher rates in the economy--- lower economical growth.

See some notes, taken from an article on NYTimes:
Interest income from its investment portfolio has produced record profits for the Fed for two consecutive years. But over time, when economic conditions improve, the portfolio could become a risk, because the investments could lose value when interest rates eventually rise.

“From the taxpayers’ view, I think it is a mistake to make much of this number either way,” said John H. Cochrane, an economist who has been critical of the central bank. “The Fed is acting like a huge hedge fund on our behalf. It is borrowing at very low short-term rates and investing in long-term government bonds, mortgages and other risky loans. It made a profit on those investments last year, but it is bearing a lot of risk.”

Mr. Cochrane, a University of Chicago finance professor, said the Fed was intentionally bearing those risks to support housing and other markets.

“But inevitably, with a big portfolio of long-term bonds, mortgages and risky securities, the day will come when the Fed loses money on those investments, at least on a mark-to-market basis,” Mr. Cochrane added, referring to the accounting the Fed uses to fairly value its balance sheet.

2) If Fed does not want to sell the bonds, they will probably have to resort to print money to pay back those reserves.

3) Money spoils everyone. Though the Fed is entrusted with non-profit motives, it is very likely that their motives may be biased now. Directly or indirectly, the profit will keep coming in their economical decisions. Washington will also hate to lose this billions of dollars....so in the name of keeping the US vibrant, loweing unemployment, they would like to keep the game going...

4) We blamed Greenspan for causing housing bubble by keeping interest rates artificially lower... Current game is even bigger! The rates are artificially lower for long time...coupled with many benefits to troubled home-owners. If the home prices have to start booming, there will be even more players in the next housing boom because Real Estate investment now comes with a free Put option! If you get in losses, government is always there to bail you out! If you have profit in your real estate investments, it is yours to keep! Very advantageous proposition for investing in Real Estate compared to trading stocks or putting money in Cisco or Citibank!

Fed’s Crisis Investments Are Showing Big Returns

2011-01-14T08:39:00.000-08:00

The Federal Reserve will deliver a record $78.4 billion to the Treasury from its investments last year, a 65 percent increase from the $47.4 billion it transferred in 2009, according to preliminary estimates released Monday.
"It's interest that the Treasury didn't have to pay to the Chinese," the Fed's chairman, Ben S. Bernanke, said, half-jokingly, during a Congressional hearing on Friday at which he offered a rough preview of the figures.
The transfer to the federal coffers is a byproduct of the ballooning Fed balance sheet, which now stands at nearly $2.5 trillion — nearly triple what it was at the end of 2007, when turmoil from the bursting of the housing bubble began to disrupt financial markets.
The Fed has been amassing assets in an effort to stimulate growth by holding down long-term interest rates. Short-term rates, which the Fed influences more directly, have been essentially zero for more than two years. Low long-term rates have made borrowing cheaper for corporations and households and have lifted securities markets, though unemployment remains stubbornly high.

Full story on New York Times: http://www.nytimes.com/2011/01/11/business/economy/11treasury.html?ref=business

China has overtaken the US as the world's biggest consumer of energy

2010-08-04T10:30:00.001-07:00

China v US energy consumption

China has overtaken the US as the world's biggest consumer of energy, according to preliminary data from the IEA

China's energy use has more than doubled over the last decade to overtake the United States as the word's biggest user, according to preliminary data from the International Energy Agency.
As the data from the IEA shows, China has gone from using 1,107 million tons of oil equivalent (Mtoe) in 2000, to 2,131 Mtoe in 2008 and is estimated to have consumed 2,265 Mtoe in 2009.

Full Article at http://www.guardian.co.uk/business/datablog/2010/aug/03/us-china-energy-consumption-data

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Rising profit in the U.S. boosts dividend and cash but not hiring

2010-07-26T16:46:00.001-07:00

Rising profit in the U.S. boosts dividend and cash but not hiring
Profit is increasing for many U.S. companies, but the benefit isn't flowing through to the labor market or the broader economy, economists said. The strengthening profit comes from cost cutting, and the money is being paid out as dividend or held on the company's books as cash, rather than being invested. Profit increased 40% between the end of 2008 and the first quarter of 2010, but wages are close to their recession low.
For full article, refer to: The New York Times (free registration)

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Nice collection of bullish sentiment for contrary investors. This was published on April 27. The day the downtrend started

2010-05-21T14:54:00.000-07:00

Looks like signs of a mature bull market!!
Bullish Sentiment on the Rise: Is It Time to Get Worried ... or Get on Board?

Posted Apr 27, 2010 08:15am EDT by Aaron Task in Investing

Related: ^DJI, ^GSPC, SPY, DIA, QQQQ, SCHW, ^IXIC

Sentiment is always tricky to measure - and something of a Rorschach test - but with the Dow up 71% from its March 2008 lows, the inevitable has started to happen: Bullish sentiment is rising.

Anecdotally, at least, the migration from investor "disbelief" in the rally to "acceptance" (if not "embrace") can be seen in a number of recent indicators, including:

* -- Newsweek's "America's Back" headline.

* -- An "S&P 3000 by 2020" prediction on Tech Ticker.

* -- A WSJ story about rising bullishness among technicians, featuring a prediction from Lowry's Paul Desmond's that "we could easily be getting into a speculative advance here, a real momentum move."

* -- A modicum of towel-tossing by noted bears such as Jeremy Grantham of GMO. In January, Grantham said the S&P was fairly valued at 850. In his most recent quarterly letter, the famed investor writes "the line of least resistance is a market move in the next 18 months or so back to the old highs, say, 1500 to 1600 on the S&P, accompanied by an equivalent gain in most risk measures, followed once again by a very dangerous break."

* -- A Bloomberg story about stocks being the cheapest since 1990, excluding the 2009 market trough.

* -- Rising optimism among private sector trade groups surveyed by the National Association for Business Economics, as detailed here.

Read full story at:
Bullish Sentiment on the Rise: Is It Time to Get Worried ... or Get on Board?

IEA cuts down 2010 demand growth forecast for crude

2010-05-13T16:52:00.001-07:00

IEA cuts down 2010 demand growth forecast for crude

Global oil demand growth this year will be slightly slower than previously expected, the International Energy Agency (IEA) said yesterday, lowering its forecast by 50,000 barrels per day to 1.62 million bpd from its estimate last month.
David Fyfe, head of the IEA's Oil Industry and Markets Division, said the downward revision was in response to new historical data and that demand from emerging markets would continue to push up the world's oil use.

For full article, click here.

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Debt of US UK and JAPAN: They should treated like debt of Greece

2010-05-13T16:50:00.001-07:00

After Greece, Portugal and Spain suffered rating downgrades in April due to escalating fiscal problems, investors ask if the same standards are being applied to advanced economies.

While there is a broad agreement among investors that credit rating agencies were justified in downgrading peripheral European sovereigns last month, investors are questioning why advanced economies such as the UK, the US and Japan – which face mounting fiscal problems of their own – have managed to retain their triple-A ratings.

According to the International Monetary Fund, US debt-to-GDP is predicted to hit 109.7% in 2015, up from 83.2% at the end of last year. Over the same period, the UK's debt ratio is expected to increase from 68.2% to 90.6%; while Japan's debt burden is forecast to reach 248.8% in 2015, up from 217.6% at the end of 2009.
"The rating agencies haven't been consistent and some countries have been singled out more than others," says Achilles Risvas, a managing partner at Dromeus Capital in Geneva.

Full Article at:

Sovereign ratings on UK, US, Japan under fire from credit investors

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Retail sales show strongest gain since before the recession

2010-03-05T15:51:00.001-08:00

Sales soar 4% from a year earlier as every sector except drugstores performs better than predicted, though weak 2009 figures skew comparisons.

Shoppers enter a Gap store in Pasadena. The chain's parent company, Gap Inc., reported a 3% sales increase in February. (Francine Orr, xx / March 3, 2010)

Read full story on LA Times website:

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Big Oil is being forced to rethink its future

2010-02-09T16:38:00.001-08:00

Beyond the black stuff

Big Oil is being forced to rethink its future

Feb 4th 2010 | From The Economist online

Shutterstock

ON THE face of it the world's big and publicly quoted oil companies should be celebrating some pleasing results this week. Royal Dutch Shell unveiled its results on Thursday February 4th, reporting that it had made $9.8 billion in 2009. Two days earlier BP boasted profits of $14 billion for the same year. Yet these billions are a disappointment compared with the bonanza of previous years (Shell, for example, raked in $31.4 billion in 2008 alone) when soaring oil prices pulled profits ever higher.
In the long term, however, the firms' success depends on sustaining reserves. The big western oil companies are trying to expand through acquisitions and investment, but the opportunities do so are becoming scarcer. The firms are spending where they can. Exxon Mobil, the biggest listed oil company, says that exploration and capital spending hit $27.1 billion in 2009, 4% higher than in 2008. The company expects to spend $25 billion to $30 billion annually to the same end over the next five years. BP intends to spend some $20 billion this year on investment in new projects and drilling, roughly the same level as last year.

For full Article, please visit http://www.economist.com/businessfinance/displaystory.cfm?story_id=15473681

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net short positions represents more than 40,000 contracts traded against the euro, equivalent to $7.6bn

2010-02-09T16:24:00.001-08:00

Traders make $8bn bet against euro

By Peter Garnham, Victor Mallet and David Oakley in London
Published: February 8 2010 11:48 | Last updated: February 8 2010 19:03

Traders and hedge funds have bet nearly $8bn (€5.9bn) against the euro, amassing the biggest ever short position in the single currency on fears of a eurozone debt crisis.
Figures from the Chicago Mercantile Exchange, which are often used as a proxy of hedge fund activity, showed investors had increased their positions against the euro to record levels in the week to February 2.

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The Economist reviews 2009

2009-12-30T17:22:00.000-08:00

The Economist reviews 2009
The Economist looks back at crucial events of the year. It began with a whirlwind of activity after the inauguration of Barack Obama as the 44th U.S. president. It ended with a Copenhagen conference on climate change. Obama was there, too. The Economist

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India's tax simplification could be good news for business

2009-12-30T17:15:00.001-08:00

India's tax simplification could be good news for business
Business could be the big winner if India goes ahead with tax reform based on a uniform goods and services tax. From the outside, India looks to be a huge market with more than a billion consumers, but it is actually a collection of 28 states, all with power to set their own tax rate. The governing Congress Party promised to "create a seamless national common market for our farmers, artisans and entrepreneurs," possibly through a national GST. The Economist

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Exxon Mobil is bullish on Natural Gas

2009-12-15T13:40:00.000-08:00

Exxon Mobil bets $31 billion on natural gas
XTO Energy deal seen as bold response to shifts in environmental regulations

With prices low, and the possibility of carbon emission caps looming, analysts expected it would be just a matter of time before one of the major energy companies took a plunge into the natural gas market. Now they expect others to follow suit.

“I think this is the first domino to fall,” said Curtis Trimble, a Houston-based analyst for Natixis Bleichroeder. “In future weeks, months or quarters we can expect to see other deals as well.”

That means American independent oil and gas producers such as Chesapeake Energy, Devon Energy and The Woodlands-based Anadarko, may get a look from other energy companies seeking an entrée into the gas market.

Full article here

Tax On Financial Transactions

2009-10-20T12:02:00.000-07:00

This week, the left-leaning Economic Policy Institute floated the idea of a national transaction tax that would raise $100 billion to $150 billion a year. The tax, at a rate of 0.1% to 0.25% of the value of the trade, would be levied on all financial transactions such as stock trades, but not on consumer transactions such as with credit cards.

Full Article at

Tax On Financial Transactions

Companies are borrowing but not spending

2009-10-15T06:24:00.001-07:00

Companies are borrowing but not spending
Many companies worldwide are issuing bonds to raise capital, but they are not spending that money. Most of the $2.3 trillion raised with corporate bonds this year is going toward repairing finances, or the companies are hoarding the cash, according to Dealogic. This is bad news for the economy, which needs investment to support recovery. A large part of the cash is going into mergers and acquisitions, but that does not help the economy much, analysts said. The Wall Street Journal/Real Time Economics blog (13 Oct.)

Oil Options Hit Highs as Verleger Predicts 44% Plunge

2009-09-25T15:53:00.000-07:00

Sept. 21 (Bloomberg) -- Oil traders are paying more than ever in the options market to protect against a plunge in crude prices.

The gap between prices of options betting on a decline and those that would profit from a rise in oil widened to a record 10 percentage points, according to five years of data compiled by Banc of America Securities-Merrill Lynch. Crude stockpiles in the U.S. are 14 percent larger than a year ago and OPEC is pumping 600,000 barrels a day more than the world needs, according to the International Energy Agency.

While the recovery from the first global recession since World War II pushed oil up 62 percent this year to $72.04 a barrel in New York, growth alone isn’t likely to erode the glut by the end of next year because production exceeds demand, data from the Paris-based IEA shows. A drop in prices would penalize companies from Exxon Mobil Corp. to BP Plc and exporters Russia and Saudi Arabia.

Full Article at: Oil Options Hit Highs as Verleger Predicts 44% Plunge

Ual Corp (NASDAQ:UAUA): Upgraded to Overweight at JP Morgan; Positive comments from Barclays

2009-09-10T09:30:00.000-07:00

Ual Corp (NASDAQ:UAUA): Upgraded to Overweight at JP Morgan; Positive comments from Barclays

Airlines and particularly Ual Corp (NASDAQ:UAUA) are getting are getting some commentary this morning:

- Barclays is out saying they think many underestimate the potential for a significant airline revenue recovery, particularly for the legacy carriers. With recovery expectations muted, they think even a relatively modest recovery would pave the way for a profitable 2010 and materially higher share prices. They continue to favor legacy airlines over low-fare carriers, with top picks DAL and UAUA, the former getting no respect lately. Among the low-fare airlines, the firm also favors ALGT and JBLU.

Firm believes current thinking on the industry revenue environment and potential for recovery is very small relative to the potential. They understand that companies need to plan for a revenue environment that remains very soft. They also understand that revenue has been headed in a single direction (down) the entire year. While it’s easy to extrapolate these negative trends for a considerable period of time, the firm urges investors to consider two things...

Full details at http://notablecalls.blogspot.com/

Bankers Beat Odds in Toxic Pay Plan

2009-08-07T14:56:00.000-07:00

Credit Suisse has taken perhaps the most aggressive approach. Starting at the end of 2008, the bank took a significant portion of the annual bonus pool and switched it from stock to shares in a fund made up primarily of distressed assets. In essence, this means the performance of bets these bankers were originally involved in structuring will help determine whether their 2008 compensation turns into big money or big losses down the road.
Credit Suisse has said one of the reasons it decided on the pay plan was to show regulators in the U.S. and Europe it took the financial crisis seriously.

For full details:
Bankers Beat Odds in Toxic Pay Plan

US Budget Deficit- Crossing a trillion mark...Where are we headed?

2009-07-16T10:18:00.001-07:00

Meltdown 101: How did $1 trillion deficit happen?

By MARTIN CRUTSINGER – 2 days ago

WASHINGTON (AP) — In a year of eye-popping numbers, add one more: The government's annual budget deficit has topped $1 trillion.
And with three months left in the budget year, it will actually get even worse. The administration is projecting that the deficit will hit $1.84 trillion for the current budget year, four times the size of last year's deficit. Last year's number was the all-time leader at the time, at $454.8 billion — a figure that now seems rather puny in comparison.
Here are some questions and answers about what happened to the federal budget, which began the new century with the longest string of surpluses in seven decades.
Q: Just how did we go from a string of four consecutive surpluses from 1998 through 2001 to the fix we are in now?
A: The surpluses at the end of the last decade reflected a boom-time economy, which was enjoying the longest uninterrupted expansion in U.S. history.
When the last recession began in 2001, that cut into revenues. Then the government's budget picture darkened even further after the 2001 terrorist attacks as government spending was increased to pay for wars in Afghanistan and Iraq.
Q: But weren't things getting better at the end of the Bush administration?
A: Until President George W. Bush's last year in office, the deficit had been shrinking, hitting a five-year low of $161.5 billion in 2007. But that was followed by the record deficit of $454.8 billion in 2008, the budget year that ended on Sept. 30 of last year.

Click here for full article:

the European Central Bank poured 442 billion euros (375.6 billion pounds) of one-year funds into money markets

2009-06-25T17:31:00.000-07:00

Seeking to spur bank lending and pull the economy out of recession, the European Central Bank poured 442 billion euros (375.6 billion pounds) of one-year funds into money markets on Wednesday, its biggest fund injection ever.
The massive loan, the central bank's first money market operation with a term as long as one year, immediately pushed some bank-to-bank borrowing costs to fresh record lows.
That, the ECB hopes, may give banks enough financial security for them to make more long-term loans to companies and consumers.
A record 1,121 banks rushed to take up the ECB's offer of umlimited funds at a fixed rate of 1 percent, betting they might not see such cheap money again. Recent data suggests the euro zone economy may start a slow recovery late in 2009, making the ECB unlikely to cut interest rates further.

the European Central Bank poured 442 billion euros (375.6 billion pounds) of one-year funds into money markets

White paper on Obama's regulatory overhaul

2009-06-19T12:46:00.000-07:00

White paper on Obama's regulatory overhaul

Japan's government: world's No.2 economy has bottomed out

2009-06-19T12:38:00.000-07:00

Japan's government raised its assessment of the economy for the second straight month and said the world's No.2 economy has bottomed out as exports and factory output recover from sharp declines.

The government lowered its outlook on capital expenditure, however, after Finance Ministry data earlier this month showed corporate spending posted a record fall in the first quarter from a year earlier, signalling that weak domestic demand will weigh on the recovery from the worst recession since World War Two.
'While the economy is in a difficult situation, movements of picking up are seen in some areas,' the Cabinet Office said in the monthly report released on Wednesday.
The report omitted an expression used to describe the economy last month, when it said 'the pace of deterioration is slowing'.
The upgrade is equivalent to saying Japan has hit bottom but further weakness cannot be ruled out, a Cabinet Office official said.

Full post at: Japan govt says economy bottomed out, upgrades view

Economists see pause in recession

2009-06-10T12:23:00.001-07:00

By Chris Giles and Daniel Pimlott
Published: June 7 2009 22:02 Last updated: June 7 2009 22:02
The recession is over for now, the majority of City economists polled by the Financial Times believe.
In a survey conducted at the end of last week, 11 out of 20 economists said the economy had stopped contracting in June and was likely to start growing in coming months. The majority of those believing the economy was still shrinking thought the bottom of the downturn was near.
The survey suggests the government’s forecast in the Budget that growth would return only by the fourth quarter of this year may have been too pessimistic. It also offers hope for Gordon Brown that if he can hold on to his job he may be able to reap the benefits of an upturn.

Full Article: Economists see pause in recession

Banks stand to reap billions because of accounting rule

2009-05-26T07:40:00.000-07:00

Banks stand to reap billions because of accounting rule
An accounting rule could allow JPMorgan Chase to benefit from bad loans it acquired when it bought Washington Mutual. Transforming the loans into income could lead to a $29 billion windfall for JPMorgan. Bank of America, Wells Fargo and other financial institutions are similarly poised to reap rewards from acquiring home lenders and their troubled loans. "It will benefit these guys dramatically," said Robert Willens, who runs a tax and accounting consulting firm in New York. "There's a great chance they'll be able to record very substantial gains going forward." Bloomberg (26 May.)

Read Full story on Bloomberg.com

Times Online: Credit crunch has ended, according to Ted and Libor

2009-05-20T11:14:00.000-07:00

Economists called the end of the credit crunch yesterday as the short-term interest rate that banks charge to borrow from each other fell to a record low on dollar, euro and pound-denominated loans.
The continuing decline in the London interbank offered rate (Libor) signalled a return to normality for the credit markets for the first time since May 2007, according to Peter Chatwell, an interest rate strategist at Calyon, the investment banking unit of Crédit Agricole. “This marks a return to normal territory and gives us hope that we can cope with anything that comes now. It indicates that the banks are well capitalised, with no more surprises. It gives us hope that we have a functioning banking system and that we can now go about the job of running the broader economy,” Mr Chatwell said.

Read the full news online at Times Online: Credit crunch has ended, according to Ted and Libor

GM's survival is made difficult by CDSs

2009-05-12T06:14:00.000-07:00

GM debt holders could make billions off credit default swaps: The large number of credit default swaps written on General Motors debt is making it increasingly unlikely that GM's debt holders will support a restructuring for the troubled automaker. Owners of the debt stand to make billions of dollars on the swaps in the event of a default but would put those proceeds at risk by trading their debt for an equity stake in a restructured GM. Financial Times (11 May.)

Bloomberg: Mutual Funds, Traders, Companies Oppose Resurrection of Uptick

2009-05-06T16:49:00.000-07:00

May 5 (Bloomberg) -- Mutual funds, traders and even companies that blame short-sellers for driving down share prices oppose bringing back the so-called uptick rule, which may deter U.S. regulators from resurrecting the provision.
Fidelity Investments opposes all five rules the Securities and Exchange Commission proposed last month to regulate short- selling, including a return of the uptick measure, senior vice president Brian Conroy said at a public meeting in Washington today. Executives from companies including General Electric Co. said they prefer an alternative to the uptick.
The SEC is weighing options to dictate when traders can bet shares will fall after lawmakers said short-sellers attacked banks reeling amid the worst financial crisis since the Great Depression. SEC Chairman Mary Schapiro said any new rules will uphold the benefits of short-selling while restricting market abuses.

Click here for full article:
Mutual Funds, Traders, Companies Oppose Resurrection of Uptick

Geithner, Member and Overseer of Finance Club

2009-04-27T12:09:00.000-07:00

Geithner, Member and Overseer of Finance Club

Wow what a long article! I could barely go past page 1...but there are 7 pages!!! Full article at link below:

All about our Treasury Secretary and the most part of his world-- connections with WallStreet.

Crash of 1929: 25 Years for the market to Bounce Back? Try 4½

2009-04-27T11:51:00.000-07:00

HISTORICAL stock charts seem to show that it took more than 25 years for the market to recover from the 1929 crash — a dismal statistic that has been brought to investors’ attention many times in the current downturn. As per article in NY Times, it took only around four and a half years.

Here is the link to the full article on New York Times. 25 Years to Bounce Back? Try 4½

will do even better once market-to-market accounting takes effect।

2009-04-23T06:40:00.000-07:00

And that has some investors hoping that financial earnings, which have been better-than-expected so far, will do even better once market-to-market accounting takes effect।

For full article on CNBC.com, click here.

Another problem with Derivatives: It can kill an innocent company too

2009-04-17T17:29:00.000-07:00

In the previous post, we talked about AIG and how their pursuit for smaller profit (CDS- credit Default Swap) got them into troubles. (Sorry, the AIG did not get into troubles; we all got into troubles as our Government had to bail them out with our money). That was the result of derivative contracts which shifted risks from risk-averse to risk seekers like AIG for a small amount.

Now what I am going to tell you is the effect of derivatives on innocent players. Yesterday two companies declared bankruptcies- AbitibiBowater, a newsprint producer, and General Growth Properties, a mall owner. Usually when companies (bond issuers) are in trouble, they renegotiate their debt terms with their lenders. Lenders also respond. Instead of losing all money, they let go some of it and often the company restructures and this little or big sacrifice by bond holders/lenders helps the company, its employees, suppliers, stock holders, customers etc. Many bankruptcies are avoided this way and such companies get another chance.
Now welcome to the new world of derivatives and CDS! The lender has bought 'bond insurace' from companies like AIG so they care less if the company survives or goes under. They have the insurance to get full value back!!! I read somewhere that for these two companies- AbitibiBowater and General Growth Properties- they were pushed in bankruptcy because some of the their biggest lenders were less interested in these companies' future because they had the insurance. So for them, the best thing was to care less and get full value from their CDS partners (bond insurers). So the lenders just did not respond to SOS by these two companies and their reluctance in my opinion played a key role in pushing them into bankruptcies. In normal world- world withour derivatives, they may have survived, or maybe not, who knows.
This is just one perspective on how the rules of the game are shifting now.

One problem of Derivatives- It can bankrupt a solid company

2009-04-17T06:57:00.000-07:00

Derivatives- we all used to love them as the financial invention and they sounded like all win-win until the sub-prime mess came up.
I am sure you know what happened with AIG. Here is my explanation of AIG mess-up for a common man. AIG's businesses are strong. However like many insurance companies, they found an easy avenue for 'Free' money I guess 10 years back. This money was there in 'insuring bonds' of other companies and mortgages. (Fancy word for this is: CDS Credit Default Swap. Technical Defination of CDS: A credit default swap (CDS) is a credit derivative contract between two counterparties. The buyer makes periodic payments to the seller, and in return receives a payoff if an underlying financial instrument defaults)
Like any auto insurance or a home insurance, which pays you money in case of an accident or a loss to you, 'bond insurance' pays the bondholders if something goes wrong with the bond-prices or the bond-issuing company (watch the words- bond-issuing company, say Abitibi or General Growth Properties, vs bond-insuring company- AIG). Let us say you are holding these bonds but you are scared that Abitibi might go bankrupt or its bond-prices may plummet, so to protect yourself, you can go to AIG which will write you an insurance policy to protect you. Innovative, right? In return of this protection, you will pay 'insurance premium' of say 1% per year. In normal world, based on historical data, AIG and others expected the defaults to be on average say 0.70% (I am just throwing up this number) so for them, there is .30% of total premiums to keep as profit every year, or as long as the party is going well LOL.
Sailing is smooth as long as weather is fine., but when it got stormy, many ships started sinking. The bond prices started going down and AIG had problems keeping their promises. For say 30 cents profit, they were taking risk for as much as 100 dollars!!! They needed billions to pay to their Bond Insurance policy holders!!! This is what caused them to run out of money. For gain of few pennies, they risked thousands!! As long as things were normal, they enjoyed the profit. Then things got bad and you and me got stuck with their losses (I mean US Government)

I am getting on a sidetrack. (also running out of time..Got to go out and do jogging so will come back to this one later on.)

Recycling vs. Interest Earnings: What Makes More Green Cents?

2009-04-10T14:55:00.000-07:00

Recycling vs. Interest Earnings: What Makes More Green Cents?

Is the money you would earn recycling higher than that on a savings account? With the national average annual percentage yield lingering at a dire 0.34%, if you let $10,000 sit in an interest checking account, it would make the same amount as if you recycled 2 cans or bottles a day.

Full story at this link

(Source: http://informa-blog-of-interest.blogspot.com/2009/03/recycling-vs-interest-earnings-what.html)

Barclays Maroons Secret of Stable Banking in Suburb

2009-04-10T09:39:00.000-07:00

Barclays Maroons Secret of Stable Banking in Suburb
“The historic switch in focus to the income statement from the balance sheet helped hide the asset bubble and bust,” said Neil Dwane, who helps oversee $83 billion as chief investment officer for Europe at Allianz Global Investors’ RCM unit in London. “We must refocus attention on the balance sheet.”
The credit crisis is proving a painful reminder of why it’s important to constrain assets and liabilities. Profit at London- based Barclays more than tripled to 4.38 billion pounds ($6.45 billion) in the 10 years through 2008, while its balance sheet swelled more than ninefold to 2.05 trillion pounds, exceeding the size of the U.K. economy.

Full article at: Barclays Maroons Secret of Stable Banking in Suburb

Study finds lobbying in Washington extremely profitable

2009-04-10T09:31:00.000-07:00

Data prepared by University of Kansas professors show that hundreds of millions of dollars spent by major corporations lobbying for a 2004 change in tax law generated a return on investment of 22,000%. The study focused on 93 companies that spent as much as $282.7 million in 2003 and 2004 to persuade lawmakers to enact a one-year tax holiday on overseas profit. In return, the companies got about $62.5 billion in tax savings, the study found. The New York Times/The Associated Press (09 Apr.)

Full article at :Study finds lobbying in Washington extremely profitable