INFY Says Quarterly Profits Up 1.6%
MUMBAI, India – Indian outsourcing bellwether Infosys Technologies Ltd. reported a slight rise in quarterly profit and warned of a steep drop in revenue as its global clients struggle to cope with the economic slowdown.
Infosys, India’s second largest outsourcing firm, earned $313.0 million in net income for the quarter ended June 30 based on international accounting standards, a rise of 1.6 percent from a year earlier, it said Friday.
Revenues for the period fell 2.9 percent to $1.12 billion, but still beat analyst expectations.
The company said revenues would decline by 7.1 percent to 8.7 percent, to between $1.11 billion and $1.13 billion, in the current quarter.
Revenues for the fiscal year, which ends in March, will be $4.45 billion to $4.52 billion, the company predicted — a decline of 3.1 percent to 4.6 percent, but slightly more optimistic than its April forecast.
“We’ve had a good quarter,” chief executive S. Gopalakrishnan told The Associated Press by phone. “Medium to long term I’m very optimistic that this is still a growth industry.”
“In the short term, things are going to be challenging, volatile, and unpredictable. That’s why we are cautious,” he said…..
Banks Shrink Their Borrowing Signaling An Ease To the Credit Crisis
WASHINGTON – Banks trimmed borrowing from the Federal Reserve’s emergency lending facility over the past week and cut back on other programs designed to ease the financial crisis, promising signs that some credit problems are easing.
The Fed said Thursday commercial banks averaged $34.97 billion in daily borrowing over the week that ended Wednesday. That was down from $35.91 billion in the week ended July 1.
The identities of the financial institutions are not released. They pay just 0.50 percent in interest for the emergency loans.
The weekly lending report showed the Fed’s net holdings of “commercial paper” averaged $114 billion, a decrease of $5.5 billion from the previous week.
Commercial paper is the crucial short-term debt that companies use to pay everyday expenses, which the Fed began buying under the first-of-its-kind program on Oct. 27, a time of intensified credit problems. The central bank has said about $1.3 trillion worth of commercial paper would qualify.
The report also showed the Fed trimmed its purchases of mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. They averaged $462.4 billion over the past week, down $944 million from the previous week. The goal of the program, which started on Jan. 5, is to drive down mortgage rates and help the housing market…..
Oil Dips Below $60
VIENNA – Oil prices slid below $60 a barrel Friday as investors braced for company earnings reports next week that will provide clues on the strength of crude demand.
While global appetite for crude over the next few months remains unclear, expectations are that it will increase by next year, with the International Energy agency predicting a 1.7 percent rebound in demand by next year.
Benchmark crude for August delivery was down 69 cents at $59.72 a barrel by midday European electronic trading on the New York Mercantile Exchange. On Thursday, the contract rose 27 cents to settle at $60.41.
Oil has bobbed near $60 a barrel the last two days after dropping from an eight-month intraday high of $73.38 on June 30 on investor concern that a rally since March wasn’t justified by weak global crude demand.
“All the focus is on demand,” said Christoffer Moltke-Leth, head of sales trading for Saxo Capital Markets in Singapore. “The second quarter earnings season is going to be very important for crude.”
“If we see disappointments there, people will say we’ve gone too far, too fast.”
The Dollar & Yen Rise on Fear Factor
The dollar and the yen advanced on Friday as rising risk aversion boosted haven demand for both currencies.
Analysts said worries over the health of the global economy and concerns over the ongoing corporate earnings season were weighing on demand for risky assets.
Ashraf Laidi at CMC Markets said traders were clearly growing more nervous.
“The latest evidence of risk aversion can be seen via tumbling oil prices, falling bond yields and retreating equities and commodity prices,” he said.
The dollar rose 1 per cent to $1.3887 against the euro, climbed 0.6 per cent to $1.6246 against the pound and gained 1 per cent to $0.7760 against the Australian dollar.
The yen fared even better, rising 0.3 per cent Y92.63 against the dollar, climbing 1.3 per cent to Y128.67 against the euro and gaining 1 per cent to Y150.26 against the pound.
CSCO To Cut 2ooo Jobs
NEW YORK (Reuters) – Cisco Systems Inc (CSCO.O) is in the process of cutting between 1,500 and 2,000 jobs. according to an report from Thomas Weisel analyst Hasan Imam.
A Cisco representative was not immediately available to comment on the report, which also said that the company could exceed its plan to cut annual costs by $1 billion with job cuts.
“Our checks indicate Cisco is aggressively managing expenses as management navigates through the downturn,” Imam said in the research report…..
The Obama Administration is Asking For More Mortgage Modification
The Obama administration is pressing mortgage-servicing companies to step up their efforts to modify troubled loans under its housing-rescue program, the latest sign of frustration with the pace at which mortgage companies are reworking troubled loans.
“We believe there is a general need for servicers to devote substantially more resources to this program for it to fully succeed and achieve the objectives we all share,” Treasury Secretary Timothy Geithner and Housing and Urban Development Secretary Shaun Donovan said in a letter to 25 mortgage-servicing firms.
The letter was sent Thursday to the chief executives of companies that have signed contracts to participate in the government program, which provides financial incentives for mortgage companies and investors to reduce borrowers’ payments to affordable levels.
More than 270,000 borrowers have received modification offers under the program. But housing counselors complain many borrowers are waiting for help as mortgage-servicing companies get up to speed. The administration has said its program could help as many as four million homeowners.
The administration has “started to see a significant ramp-up” in modification activity, the letter said. But it added, “there appears to be substantial variation among servicers in performance and borrower experience.” It called on mortgage-servicing companies to beef up staffing and training, and to provide “an escalation path for borrowers dissatisfied with the service they have received.” Freddie Mac, which serves as compliance agent for the program, will be developing a “second look” process in which it will audit a sample of rejected modification applications, the letter said.
The letter also called on mortgage companies to suggest ways the administration can improve the program’s design.
Housing counselors say they have been disappointed by the lack of progress under the administration’s program. “We are not getting anywhere near the level of resolutions we expected,” said Bruce Dorpalen, national director of housing counseling for Acorn Housing Corp., which works with financially troubled borrowers. “The real issue is that generally the servicers are not up to speed.”….
European Markets & U.S. Futures Slupm On A Summer’s Friday
By Sarah Jones
July 10 (Bloomberg) — European stocks retreated as the Dow Jones Stoxx 600 Index headed for a fourth straight weekly drop. U.S. index futures slid.
DnB NOR ASA slid 3.7 percent after Norway’s largest bank reported reduced profit on increased loan writedowns. Sapporo Holdings Ltd., Japan’s fourth-biggest brewer, advanced 4.8 percent as the country’s beer shipments rose. Infosys Technologies Ltd., India’s second-largest software exporter, rose 2.6 percent after reporting better-than-estimated earnings.
The Stoxx 600 dropped 0.8 percent to 197.92 as of 12:08 p.m. in London, on course for the longest stretch of weekly declines since March 6. The gauge has retreated 7.9 percent since June 11 on speculation share prices have outpaced the outlook for the economy after a three-month rally pushed valuations to the highest level since 2004.
“What we are really witnessing is a reining in of risk appetite,” said Julian Chillingworth, chief investment officer at Rathbone Unit Trust Management in London. “I suspect investors got a little carried away, which is typical of an economy that is troughing along the recessionary trail,” he told Bloomberg Television.
Standard & Poor’s 500 Index futures slid 0.7 percent after the benchmark gauge for U.S. equities rebounded from a two-month low yesterday. The MSCI Asia Pacific Index lost 0.2 percent as declines among shipping companies and Japanese property developers offset gains by consumer and mining shares.
Bloomberg Survey
The Stoxx 600 is still up 26 percent since March 9 on optimism that the deepest global recession since World War II is easing. A Bloomberg News survey showed the U.S. economy will expand faster than previously forecast in the second half of this year and in 2010 as a revival in consumer spending signals an end to the recession.
DnB NOR dropped 4.2 percent to 43.94 kroner after the Norwegian bank said net income fell to 1.2 billion kroner ($185 million) from 3.3 billion kroner a year earlier. Writedowns on loans and guarantees rose to 2.32 billion kroner from 275 million kroner.
Sapporo climbed 4.8 percent to 505 yen. Kirin Holdings Co., Japan’s biggest beverage maker, gained 1.1 percent to 1,291 yen.
Shipments of regular, low-malt and alternative beers by Japan’s five biggest brewers rose 6.1 percent in June to 46.46 million cases, the Brewers Association of Japan and Brewers Council of Happoshu Taxation said in a report.
Infosys Gains
Infosys rallied 2.6 percent to 1,721.15 rupees in Mumbai trading after India’s second-largest software exporter reported a better-than-estimated 18 percent increase in profit as the company won orders and the rupee’s decline against the dollar boosted overseas earnings.
Net income rose to 15.3 billion rupees ($314 million) in the three months ended June 30. That compared with the 13.9 billion-rupee median of 23 analyst estimates compiled by Bloomberg.
Renault SA, France’s second-largest carmaker, retreated 1.8 percent to 22.34 euros after Chief Executive Officer Carlos Ghosn told Europe1 Radio the expiry of government-backed sales may prevent a European auto-market recovery next year.
UniCredit SpA, which generates about 28 percent of its revenue in eastern Europe, lost 1.8 percent to 1.68 euros. Swedbank AB, the largest bank in the Baltics, fell 3.2 percent to 44.9 kronor.
The International Monetary Fund is discussing aid programs with at least 10 Eastern European governments, Handelsblatt reported, citing unidentified IMF officials. The Fund intends to decide as soon as possible about the requests and a majority of the IMF management supports the help, the newspaper said.
Bodycote Plc plunged 13 percent to 109 pence after the U.K. supplier of metal strengthening services to Ford Motor Co. said earnings in 2009 will be “materially below” analysts’ estimates.
FDIC May Not Support CIT Debt
By Caroline Salas and Pierre Paulden
July 9 (Bloomberg) — The Federal Deposit Insurance Corp. is unwilling to give CIT Group Inc. access to its Temporary Liquidity Guarantee Program because the commercial lender’s credit quality is deteriorating, according to people familiar with the regulator’s thinking.
The FDIC, which has backed $274 billion in bond sales under the TLGP since Nov. 25, is concerned that guaranteeing CIT debt would put taxpayer money at risk, said the people, who declined to be identified because the application process is private.
The federal agency is continuing talks with CIT about how the lender can strengthen its financial position to get approval, such as by raising capital, said one of the people. CIT’s measures to improve its credit quality, such as by transferring assets to its bank, have been insufficient, the person said.
CIT, the century-old lender to 950,000 businesses, became a bank in December to qualify for a government bailout and received $2.33 billion in funds from the U.S. Treasury. The New York-based lender has reported more than $3 billion of losses in the last eight quarters, faces $10 billion of maturing debt through 2010 and hasn’t had access to the corporate bond market in more than a year, according to data compiled by Bloomberg.
Without access to TLGP, CIT may default as soon as April, when a $2.1 billion credit line matures, according to Fitch Ratings.
Application ‘Remains Outstanding’….
JPM Say’s Take It To The Street If We Can Not Purchase Warrants On The Cheap
WASHINGTON — Several Wall Street firms seeking to buy back warrants held by the government as part of the $700 billion financial bailout are complaining that the Treasury Department is demanding too high a price, according to people familiar with the matter.
![[James Dimon]](http://ibankcoin.com/cronkite/wp-content/imagescaler/2002b22b62b1aec9a5c9d405c1809378.gif)
James Dimon
The Treasury has rejected the vast majority of valuation proposals from banks, saying the firms are undervaluing what the warrants are worth, these people said. That has prompted complaints from some top executives. J.P. Morgan Chase & Co. Chief Executive James Dimon raised the issue directly with Treasury Secretary Timothy Geithner, disagreeing with some of the valuation methods that the government was using to value the warrants.
The inability to agree on a price has already prompted J.P. Morgan to take the next step in a complex process to remove the warrants from the hands of the government. The bank has waived its right to buy the warrants and will allow the Treasury to auction them in the public market, which bank executives say will result in an actual market price.
“We’re very supportive of the Treasury’s process regarding the warrants,” a J.P. Morgan spokesman said. The bank said it took the action after the Treasury rejected its bid that was based on an independent appraisal.
The disagreement between banks and the Treasury indicates that the banking sector, despite being pilloried for its role in the financial crisis, is becoming increasingly confident in its dealings with Washington. Some banks have begun pushing back against some government initiatives, a move fraught with political risk.
![[Timothy Geithner]](http://ibankcoin.com/cronkite/wp-content/imagescaler/bfc2c59fd9b2db4cd9c5354184c6aa6d.gif)
Timothy Geithner
It also is an indication of how tricky it is going to be for the government to extricate itself from its unprecedented investment in the financial sector. The U.S. has flooded the financial sector with hundreds of billions of dollars, most of which is expected to eventually be repaid and, possibly, create a profit for taxpayers.
Many banks have repaid their Troubled Asset Relief Program funds. But the government still holds warrants giving the U.S. the right to buy common equity in those firms for a set price. The warrants are difficult to value because they don’t trade and depend on an estimate of a bank’s future stock price.
Some banks argue they shouldn’t have to pay much, saying the government’s investment was essentially a short-term loan they accepted under duress to help stabilize the financial sector.
Others argue that the government shouldn’t be draining bank capital at such a fragile time. At least one bank has argued it shouldn’t have to pay the government anything at all.
But the Treasury is under pressure to extract as much money as possible for the warrants and avoid seeming to favor Wall Street over taxpayers. Lawmakers and the bailout’s independent overseers have warned the Treasury against settling for too low a price and robbing taxpayers of a richer return.
A Treasury spokesman said the government “has laid out a consistent and clear process for valuing warrants which is the same for all institutions, large and small. We believe our process goes a long way in protecting taxpayers.”……
Chevron’s Q Is Not So Good
By Braden Reddall
SAN FRANCISCO (Reuters) – Chevron Corp (CVX.N) warned that second-quarter earnings would be hit by a sharp decline in U.S. refining margins and that any benefits from higher oil prices were largely offset by a weaker dollar, sending its shares down 1.8 percent.
The outlook from the second-largest U.S. oil company only contributed to the gloom surrounding the country’s refiners in the face of toughening regulation and a depressed fuel market.
Chevron said on Thursday the decline in second-quarter U.S. refining margins more than offset an increase in marketing margins, while margins were mixed outside its home country.
Refining margins have been squeezed by higher crude prices, which lift input costs, and weak demand due to the recession.
“Downstream results are projected to be significantly lower than the first quarter,” Chevron said in its interim update.
Chevron said U.S. oil-equivalent production in April and May was 682,000 barrels per day (bpd), up from 671,000 in the first quarter, while international output was 1.979 million bpd, down by 13,000 bpd from the previous quarter.
Chevron is targeting overall average output of 2.63 million bpd for 2009. In late May, about 100,000 bpd of production in Nigeria was shut in due to violence. But a series of projects are also starting up this year, including its Frade project off the coast of Brazil.
DIPPING DOLLAR….
GE Sells Foreign Finance Units
BANGKOK, July 10 (Reuters) – Thailand’s Bank of Ayudhya BAY.BK, 33 percent owned by a unit of General Electric (GE.N), said on Friday it would purchase financial businesses in Thailand from GE Capital worth a total 13.7 billion baht ($400 million).
The businesses included personal loan and credit card businesses, the Thai bank told the Stock Exchange of Thailand. ($1=34.06 Baht) (Reporting by Arada Therdthammakun; Editing by Alan Raybould)
AIG Common Stock Mat be Worthless, But Bonuses Are Scheduled To Go Out
WASHINGTON (Reuters) – American International Group is preparing to pay millions of dollars more in bonuses to several dozen top corporate executives, after an earlier round of payments set off a national furor, The Washington Post reported on Thursday.
The report said AIG has been pressing the U.S. government to approve the payments in hopes of shielding itself from renewed public outrage.
AIG does not need the permission of Kenneth Feinberg, appointed last month to oversee the compensation of top executives at seven firms that have received large federal bailouts, the Post said.
But AIG officials have been reluctant to move forward without political cover from the government, according to the report.
“Any time we write a check to anybody” it is highly scrutinized, an AIG official told the Post, speaking on condition of anonymity. “We would want to feel comfortable that the government is comfortable with what we are doing.”
AIG’s upcoming payments do not fall under Feinberg’s official purview because they involve bonuses delayed from 2008, the article said.
As a result, some Treasury officials believe they are under no obligation to offer an advisory opinion in this case, which could leave company officials to decide the matter on their own, the Post said, citing a person familiar with the talks.
China Attacks $ Dominance
China has launched its highest-profile criticism of the dominant role of the US dollar as a global reserve currency at a meeting of the world’s biggest economies.
Dai Bingguo, Chinese state councillor, raised the issue on Thursday when he joined the leaders of four other emerging economies for talks with the leaders of the Group of Eight industrialised nations – including US President Barack Obama – in the earthquake-damaged Italian town of L’Aquila.
The remarks, in front of Mr Obama, caused concern among western leaders, some of whom fear that even discussion of long-term currency issues could unsettle markets and undercut economic recovery.
Gordon Brown, Britain’s prime minister, said he did not remember Mr Dai making the remarks. But he said the focus should be on moving the world out of recession.
“We don’t want to give the impression that big change is around the corner and the present arrangements will be destabilised,” said Mr Brown.
”We should have a better system for reserve currency issuance and regulation, so that we can maintain relative stability of major reserve currencies exchange rates and promote a diversified and rational international reserve currency system,” said Mr Dai, according to the Chinese foreign ministry.
While he did not name the dollar, Mr Dai was unequivocal in calling for the world to diversify the reserve currency system and aim at relatively stable exchange rates among leading currencies.
The dollar weakened in early trading, although it was difficult to tell whether this was due to the Chinese remarks or cross-currents in risk appetite and economic data.
Spirnt & Ericsson Join In A $5bln Venture
By Paul Taylor in New York
Published: July 10 2009 03:00 | Last updated: July 10 2009 03:00
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Sprint Nextel, the struggling US mobile network operator, is to outsource the management and day-to-day running of its two nationwide networks to Sweden’s Ericsson in a seven-year deal worth between $4.5bn and $5bn.
The deal, believed to be the largest network management deal to date, represents a coup for Ericsson and the latest in a series of moves by Sprint to streamline its operations, stem customer defections and return to financial health.
Sprint, the third-largest US mobile operator, is the first of the large US network operators to adopt the outsourced managed services model, which has become increasingly popular among mobile telecommunications groups in recent years.
“This is a very important agreement for us,” said Hans Vestberg, Ericsson’s chief financial officer, who will succeed Carl-Henric Svanberg as chief executive at the start of 2010.
Mr Vestberg emphasised that Ericsson would focus on ensuring the success of the Sprint agreement, but he hoped it would lead to other deals in the US.
Sprint, formed through the $36bn merger of Sprint Communications and Nextel Communications in 2005, said yesterday it would retain full control of its networks…..
Stimulus To Hit Energy Companies Momentarily
The government released some details on its plan to grant big blocks of cash to renewable project developers today.
Project developers can apply for cash grants worth 10-30% of the cost of a project from the Treasury by the end of the month. The project must be under construction or in service, which means property for the project is ready and available for its specific use.
The developer will receive its money 60 days after their application is submitted, so long as the application is approved.
The program lasts three years. The last chance to apply is October 1, 2011.
This is part of the stimulus. Previously, the government made 10-30% of the project costs available as tax credits. The tax credit plan is a hold over from policies that date back to the Carter administration.
At the time Carter, couldn’t just cut checks for renewable energy, so he created the tax incentive. The problem with a tax incentive is that many renewable energy companies don’t earn any income at first, so they don’t have taxes to pay. As a result, the tax incentive did nothing for them. They wound up connecting with investment banks to build their projects and take advantage of the tax credits. When Wall Street fell apart last fall, the renewable projects were screwed. (See this excellent Atlantic article for more information.)
The program will provide a welcome source of financing for renewable projects struggling with tight credit markets, but FBR Capital released a note this afternoon reiterating that it doesn’t see this program helping a great deal this year.
The Treasury and DOE estimate that the project will cost around $3 billion, but there is no cap on spending. So it could be worth $10-14 billion, it all depends on how many projects are built.
A Little VIX Analysis For You
Interesting confluence of seasonal, fundamental and technical elements all coming together here. Researchers at Citi tie together the technicals and seasonal factors nicely:
“most importantly we have opened up a significant topside gap between the 55 and 200 day moving averages (About 14% gap) that appears to be the widest topside gap between these averages posted since our data begins back in 1986.
While we may not see a decisive break of the 55 day moving average (At least a daily close) the implications if we do, look quite serious:
• It would suggest the potential for a quite rapid move towards the 200 day moving average now at 44.88%
• The last time we saw a good move of this magnitude (A virtual doubling of volatility) was in November 2008 with impulsive rallies of lesser proportion in January 2009 and Feb. 2008
• This yielded losses of 26%; 15% and 24% respectively over periods of 3-4 weeks.”
I would generally cast off such technical analysis if it wasn’t backed by highly suspicious options trading a few weeks back, strong seasonal trends and deteriorating stock market fundamentals (which we’ve covered quite thoroughly here at TPC). Just days after getting short at S&P 945 we noted suspicious options trading that traders at the CBOE pointed our way:
However, the noise coming out of the Chicago Board Options Exchange today is over a July call spread using VIX options that relies on a market swan dive over the coming 41 days before it would earn profits. One trader spent an $850,000 premium on buying 20,000 July calls at the 45 strike while selling the same amount of 55 strike calls, thus lowering the overall premium to 42.5 cents. The VIX hasn’t traded above 40 since April 21 and we’re wondering what this guy knows that no one else does.
It doesn’t end there. Citi goes on to note some interesting seasonal facts over the course of the last 25 years:
1982: DJIA having started to turn sharply lower had a short-term bounce which peaked at 843.80 on 21st July. (Missing the magic date by 4 days) But by 09 August it was nearly 9% lower
1987: DJIA was in a solid bull market, which peaked at a new high of 2,520 on 17th July. By 21st July it was 2.7% lower and while it then rallied strongly we of course ended up with a stock market crash in October.
1990: DJIA was in a solid bull market, which peaked at 3,011 on 17th July. By 23rd July it was 5.25% lower and by mid October it was 20% lower.
1998: DJIA was in a solid bull market, which peaked at 9,413 on 17th July. By 28th July it was 6.6% lower and by mid September it was over 20% lower.
2001: DJIA hit a corrective high of 10,758 on 19th July (again a small miss of the magic date). By 25th July it was 5.5% lower and by the 21 September it was over 26% lower.
2002: DJIA hit a corrective high of 8,765 on 17th July. By 24th July it was 13% lower and by October lower still at the base of the bear market.
2007: DJIA hit a trend high of 14,022 on 17th July. By 01 August it was 6.3% lower and by mid August nearly 11% lower
2008: DJIA had started to move lower but began a bounce on15th July. On 23rd July it had a quick 3 day fall of just under 5% It then rallied again into 11th August but we of course ended up with a stock market crash in October/November in a development eerily similar to 1987.
“So if we look back over all these major years in over a quarter of a century (9 instances) in 7 of them the period from the 17th to the 21st July we have begun a significant move lower in equities. In the 2 instances (1987 and 2008) that we did not immediately head lower we ended up with stock market crashes later in the year…..all in all an ominous set up.”
Despite having moved to a more neutral position yesterday the high risks in the equity markets remain on the long side. With skepticism creeping back into the fundamentals, the technicals collapsing, suspicious trading from big players and highly unfavorable seasonal trends it would not be surprising to see the losses pick up momentum towards S&P 800 as summer comes to a close – hardly a crash as Citi calls for, but painful nonetheless.
Port Statisitcs Are Revealing
Port statistics are revealing. They were a leading indicator before the production collapse in the Japan, Europe, and the US over the winter, and they may be telling us something again.
Amrita Sen at Barclays Capital says the number of Baltic Dry ships waiting to berth — mostly in China and Australia — has begun to fall after peaking at 154 in mid-June.
The Capesize Iron Ore Port Congestion Index (a new one for me, I must confess) is replicating the pattern seen a year ago just before the commodity boom tipped over.
“The anecdotal evidence we are hearing is that vessel queues have been falling. There are reports of cancelled tonnage from China pointing to a slowdown in Chinese buying of coal and iron ore.
“We are definitely expecting a correction. People have been building stocks of iron ore too quickly in anticipation of the stimulus package in China,” she said.
The Baltic Dry Index measuring freight rates jumped 450pc in the first half of the year on the China rebound, but has begun to fall back over the last two weeks. (Sen doubts freight rates will recover much since 1000 new ships are hitting the market this year and again next year, compared to 300 in normal years. There is obviously a horrendous shipping glut).
Over at Naked Capitalism they are reporting that international port traffic for containers (ie finished goods) is as dire as ever. The rates for 40-foot container from Asia and America’s West have actually fallen this year from $1,400 to $920.
“There has never been a decline like this before,” said Neil Drecker from the Drewry Report. “The container industry is looking at a $20-billion black hole of losses. We can expect a lot of casualties.”
As readers can guess, I remain extremely sceptical of this commodity rally (although it was to be expected as part of the inventory restocking effect). It is not underpinned by real global demand.
It is a anti-inflation play by funds betting that quantitative easing by the world’s central banks will lead to systemic currency debasement. That may ultimately happen, but the more immediate threat is the abrupt slowdown/contraction of the broad money supply (M3, adjusted M4) and the collapse in the velocity of money, as well a post-War low in capacity use (68pc in the US), and a massive global “output gap”.
All the deeper signs suggest to me that action by the Fed, Bank of Japan, Bank of England, and the European Central Bank is still not enough to offset the deflation shock. Though I recognize that this is a deeply unpopular view these days in the blogosphere…..
GM To Emerge From Bankruptcy
DETROIT – The new General Motors is about to roll off the assembly line as a leaner, greener model, maybe even a profitable one, too. Once the world’s largest and most powerful automaker, the troubled company was expected to emerge from bankruptcy protection by early Friday cleansed of massive debt and burdensome contracts that would have sunk it without federal loans.
The new company, 61 percent owned by the U.S. government, will clear bankruptcy in record time to face a brutally competitive global automotive market in the middle of the worst sales slump in a quarter-century.
Yet despite massive cost reductions, experts say GM must produce vehicles that people want to buy, and change its image from a lumbering bureaucracy that makes gas guzzlers to one on the cutting edge of efficiency and quality.
“It is the smaller, leaner, tougher, better cost-focused GM,” said George Magliano, an automotive analyst with the consulting firm IHS Global Insight. “But they still have to deal with the problems that they faced longer-term.”
Rep. Gary Peters, whose Michigan district is home to three GM factories, said the company’s emergence signals a new era for the domestic auto industry and the thousands of people it employs.
“With bankruptcy in the rearview mirror, U.S. auto companies will even more aggressively pursue new technologies, become more globally competitive,” he said. “Decades from now, our nation will be glad we did not let a global credit crisis put an end to the American automobile.”
On Thursday, a bankruptcy court order allowing GM to sell most of its assets to a new company went into effect.
Under plans that CEO Fritz Henderson will announce Friday, GM will cut another 4,000 white-collar jobs, including 450 top executives. The company still employs 88,000 people in the U.S. and 235,000 worldwide….
Ca.’s IOU’s To Be Traded Like Equities
By MARCY GORDON
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WASHINGTON (AP) – The recipients of billions of dollars in IOUs being issued by California soon may have a regulated market where they could sell them.
Some of the nation’s largest banks say that, starting Friday, they will no longer accept the IOUs. The banks want to pressure the state to end its budget impasse, but their action could leave many businesses and families with fewer options for getting their money.
The Securities and Exchange Commission is going to recommend that the IOUs, which carry an annual interest rate of 3.75 percent, be regulated by the Municipal Securities Rulemaking Board as a form of municipal debt. The guidance could come as soon as Thursday, according to two people familiar with the matter who spoke on condition of anonymity because the SEC hasn’t yet acted.
A regulated market for the IOUs would make it easier for individuals holding them to sell them at a fair price, analysts said.
The SEC oversees rules set by the nongovernment MSRB. SEC spokesman John Nester declined to comment Thursday.
With Bank of America Corp., Wells Fargo & Co., Citigroup Inc. and some regional banks in the state having said they won’t accept the IOUs for payment after Friday, attention has turned to the possibility of a secondary market to buy up the notes.
A spokesman for JPMorgan Chase & Co. left open the possibility Thursday of a change in that bank’s policy, but spokesmen for Bank of America and Wells Fargo said those banks still planned to cease honoring the notes. Citigroup had no immediate comment.
“A safe conclusion would be to consider them securities,” said Paul Maco, an attorney at Vinson & Elkins in Washington who was a director of the SEC’s Office of Municipal Securities.
A regulated market for the IOUs “makes it even more advantageous” for individuals holding them, who could sell them at a fair price, Maco said. The price they receive may be discounted in accordance with the market’s perception of the risk of the state repaying the notes, but it would be an orderly market price, he said.
SecondMarket, which creates marketplaces for the trading of illiquid assets, has received “decent interest” from hedge funds, municipal bond and distressed asset investors as potential buyers of the IOUs, Jeremy Smith, the New York-based company’s chief strategy officer, said this week.
As California legislators haggle over how to close a $26.3 billion budget deficit, the state is expected to send out $3.3 billion in IOUs this month to an array of individuals, small businesses and local governments.
It marks the first time since 1992, and only the second time since the Great Depression, that California has sent out notes promising repayment at a later date instead of paying its bills on time.
Most California state government offices will be closed on Friday, the first of three monthly furlough days intended to save the state money. The shutdowns are part of Gov. Arnold Schwarzenegger’s order to give state employees three days off a month without pay, effectively cutting their income about 14 percent.
The IOUs are referred to as registered warrants.
California Attorney General Jerry Brown has said they are valid and binding obligations of the state, a characterization that experts say qualifies them as municipal securities.
Federal regulators, including the Federal Reserve and the Federal Deposit Insurance Corp., told banks in guidance issued Wednesday that they should exercise “the same prudent judgment and sound risk management practices” regarding the IOUs as they would with any other state debt securities.
“The California registered warrants have the hallmarks of securities, and if they are securities, they are pretty clearly municipal securities,” MSRB General Counsel Ernesto Lanza said. “To the extent that municipal securities dealers are involved in the sale and trading of the warrants, our rules would apply. We would be especially concerned about dealers’ obligations to customers with respect to fair pricing.”
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