« December 04, 2005 - December 10, 2005 | Main | December 18, 2005 - December 24, 2005 »
I've been generally skeptical of official economic numbers that come out of China. Richard McGregor writes in the Financial Times that there's good reason to be skeptical. Apparently, the Chinese economy grew 15 percent overnight:
"China is poised to announce that its economy is significantly larger than previous official measures following a national economic census that showed the country's thriving and mainly private service sector had been underestimated.The revision is set to retstate the size of its econoy, in effect adding on the equivalent of Turkey and gaining the rank of the world's fourth-largest economy. . . .
Beijing-based economists said they expected the revision to add Rmb2,000bn-Rmb2,400 bn ($248bn-$2967bn) to the size of GDP, which last year was Rmb13,650bn."
Posted by dan at 04:31 PM
Our ability to act as a global hegemon diminishes when the emerging economies no longer need our capital, or our resources.
Francesco Guerrera reports in the Financial Times:
"China National Petroleum Corporation and India's Oil and Natural Gas Corporation are close to clinching a purchase of Syrian assets worth about $1bn in a deal driven by the hunger for energy of two of the world's fastest growing economies. . ."
Posted by dan at 04:29 PM
Michael Rapoport and Steven D. Jones of Dow Jones Newswires report on how companies that are taking advantage of a tax break to repatriate cash earned overseas aren't really telling shareholders what they're doing with the cash.
Many, many dollars. Few words.So far, more than 400 U.S. companies say they will bring a total of about $222 billion in foreign earnings thanks to a "repatriation" tax break that congressional backers and others have said will add jobs and otherwise spur the economy.
And that is about all those companies have said about that money. The companies are required to tell the government how they will spend those funds, but they don't have to tell shareholders. Few have disclosed anything specific about their plans for the money, which, thanks to the 2004 American Jobs Creation Act, is being taxed at 5.25% rather than the corporate tax rate of 35%.
For example, companies like Hewlett-Packard Co. and DuPont Co. are bringing home sums that amount to a major portion of their capital. They have indicated they have settled on how they will spend the money, without publicly disclosing many details.
"Shareholders own the company, and shareholders have a right to know what's happening to the cash," says Lee Sheppard, a contributing editor at Tax Notes, a publication about tax issues.
To be sure, some companies, including Intel Corp., have detailed how they will spend their money. Critics contend the reluctance of most others to do the same casts doubt on whether the money really will create jobs.
The "provisions are broad enough that it will be difficult to tie repatriations directly to job creation," says Susan Albring, an assistant professor at the University of South Florida.
But Kevin Hassett, director of economic policy studies at American Enterprise Institute, a conservative think tank, has already reached a conclusion: "The tawdry secret about (repatriation) is that it is not likely to change domestic spending," he says. Even before repatriation, he explains, U.S. companies could borrow against cash in their subsidiaries abroad, thereby bringing foreign profits back home at relatively low cost.
When you've lost the support of Kevin Hassett for a corporate-friendly tax cut, that's really saying something.
Posted by dan at 04:12 PM
Daniel Snyder, the boy owner of the Washington Redskins, clearly has a thing for sports and sports ventures. But one wonders at his ability to execute. The Redskins have descended into mediocrity since he took control.
Now he's taken control of the flagging theme park company Six Flags after a boardroom fight. It's unclear what he's going to do with it, but it seems like it has something to do with sports and football. The entity he's using to take control of the company is called Red Zone. The guy who runs Six Flags today is Mark Shapiro, a former ESPN executive. And among the new board members Snyder is bringing along are former quarterback Jack Kemp. What do a bunch of jocks know about roller coasters? Probably as much as a direct marketing mogul knows about the cover two defense.
Posted by dan at 04:06 PM
Ken Lay returns to the public stage, and reveals that he's just as detached from reality as he was back in 2001.
Simon Romero reports in the New York Times:
It was a rare appearance for Mr. Lay, and particularly noteworthy because he goes on trial next month in Houston on criminal charges that could send him to prison for decades. He used the opportunity to make his case before the crowd of well-heeled Houstonians, forcefully proclaiming his innocence and contending he was the victim of a "wave of terror," in a speech invoking Scripture and the wisdom of Winston Churchill."We must create our own 'wave of truth,' " said Mr. Lay, 63. "I believe the return to sanity has begun."
The return to sanity hasn't begun quite yet.
Posted by dan at 04:03 PM
Two interesting and surprising tidbits from Brazil today, courtesy of the Wall Street Journal.
First, it's paying off IMF debt and saving tons on interest. Michelle Mackenzie reports:Brazil said it will pay off loans from the International Monetary Fund two years ahead of schedule, making for the biggest single repayment to the IMF.
The government said it will make a $15.46 billion early payment, directly from Brazilian foreign reserves, eliminating Brazil's debt with the multilateral lender by the end of the month. The move, the government said, reflects the strength of Latin America's biggest economy.
According to Finance Minister Antonio Palocci, owing to the early payments, Brazil will save some $900 million in interest expense in 2006 and 2007. Mr. Palocci said Brazil expects to continue "close and friendly" relations with the IMF.
Risk premiums on Brazil dollar-denominated debt tightened on the news, narrowing 0.10 percentage point to 3.07 percentage points over comparable U.S. Treasurys on the J.P. Morgan Emerging Market Bond Index Plus.
Second, a big U.S. company is increasing its investment in Brazil:
"LISBON, Portugal -- Wal-Mart Stores Inc. is buying the Brazilian stores of Portuguese conglomerate Sonae for €635 million ($764 million), the companies announced Wednesday.Wal-Mart, the world's largest retailer, said the purchase would improve its position as a national retailer in Brazil.
"This acquisition reinforces our commitment to Brazil," Mike Duke, vice-chairman of Wal-Mart, said in a statement.
Sonae's Brazilian division includes 140 hypermarkets, supermarkets and wholesale outlets and employs about 20,000 people. The stores stretch across four Brazilian states, including three in the south.
In 2004, Wal-Mart acquired the 118-store Bompreco chain in northeastern Brazil from Dutch retailer Ahold NV. The latest acquisition means the U.S. company will operate more than 250 units in 17 of Brazil's 26 states.
Posted by dan at 03:59 PM
On Monday, I noted in Slate that lenders would likely be reluctant to foreclose on borrowers for a host of reasons, even as more people fall behind on their payments. Today, the Mortgage Bankers Association reports that in the third quarter, the delinquency rate rose and the foreclosure rate fell.
Posted by dan at 03:50 PM
In this Richard Stevenson article in the New York Times, President Bush apparently thinks he's responding to the Gulf Coast tragedy in much the same way Harry S. Truman responded to the post-war crisis in Western Europe.
"The administration has been criticized about the pace of efforts to rebuild New Orleans and other hard-hit areas, and Mr. Bush has not been to the region in two months. Asked whether he had considered a domestic Marshall Plan, he said that "we're doing that" but that "the devastation is so big it's going to take a while to rebuild."Mr. Bush said his goal was a New Orleans that was a "shining light down there and a Gulf Coast of Mississippi that's been rebuilt and is vibrant and thriving."
We're doing a domestic Marshall Plan in the Gulf Coast? Lets go to that troubling thing we call history.
Starting in 1947, the Marshall Plan budgeted $13 billion in cash for the reconstruction of Western Europe over four fiscal years. It may sound like a pittance, but $13 billion was a lot of coin back then. Here are some numbers on GDP for the years in which the Marshall Plan was active. (You can get them at the BEA's website.) 1948: $269.2 billion; 1949: $267.3 billion; 1950: $293.8 billion; 1951: $339.3 billion. That adds up to about $1.17 trillion. Which is to say that the U.S. committed about 1.16 percent of its GDP over a four-year period to the effort.
Now, this year, GDP should amount to something approaching $12.5 trillion. To do something on the order of the Marshall Plan -- i.e. committing 1.16 percent of GDP over a four-year period -- would mean the U.S. would be committing about $145 billion this year, and more than $145 billion in each of the next three years to rebuild the Gulf Coast. The total commitment for a domestic Marshall Plan would have to be about $600 billion.
How much does President Bush want Congress to appropriate to rebuild the Gulf Coast? Well, for next year, Bush asked for $17.1 billion.
Here's a snippet from the Wall Street Journal on the latest state of play in the budget game.
"Katrina aid is a huge issue for Senate Appropriations Committee Chairman Thad Cochran, whose home state of Mississippi was devastated by the hurricane.But to appease conservatives, House budget clerks have been instructed to make only minimal additions to a $17.1 billion request by the administration, which only reluctantly has begun to signal a willingness to go up close to $25 billion. That is still $10 billion less than Mr. Cochran wanted."
Posted by dan at 02:24 PM
If General Motors ever goes bankrupt, nobody will able to say that Standard & Poor's didn't warn them. The ratings agency issued an unusually forthright and aggressive statement on GM while slashing its debt rating again. To see it, go here, and then click on the December 12 update.
Some choice quotes:
The downgrade reflects our increased skepticism about GM's ability to turn around the performance of its North American automotive operations. If recent trends persist, GM could ultimately need to restructure its obligations (including its debt and contractual obligations), despite its currently substantial liquidity and management's statements that it has no intention of filing for bankruptcy.GM has suffered meaningful market share erosion in the U.S. this
year, despite prior concerted efforts to improve the appeal of its product offerings. At the same time, the company has experienced marked deterioration of its product mix, given precipitous weakening of sales of its midsize and large SUVs, products that had been highly disproportionate contributors to GM's earnings. This product mix deterioration has partly reflected the aging of GM's SUV models, but with SUV demand having plummeted industrywide, particularly during the second half of 2005, it is now dubious whether GM's new models, set to be introduced over the next year, can be counted on to help restore the company's North American operations to profitability.In addition, GM is paring the product scope of its brands. The
company has also announced recently that it will be undertaking yet
another significant round of production capacity cuts and workforce
rationalization. But the benefits of such measures could be undermined unless its market share stabilizes without the company's resorting again to ruinous price discounting. . .This year has witnessed a stunning collapse of GM's financial
performance compared with 2004 and initial expectations for 2005. In light of results through the first nine months of 2005, we believe the full-year net loss of GM's North American operations could approach a massive $5 billion-–before substantial impairment and restructuring charges and that the company's consolidated net loss could total about $3 billion (again before special items). With nine-month 2005 cash outflow from automotive operations a negative $6.6 billion (after capital expenditures, but excluding GMAC), we expect full-year 2005 negative cash flow from automotive operations to be substantial. GMAC's cash generation has only partly mitigated the effect of these losses on GM's liquidity. . . ."
Posted by dan at 02:17 PM
Kris Maher and Daniel Machalabe write in the Wall Street Journal on the impending public sector cramdowns.
"Like their private-sector counterparts, public-sector unions are coming under increasing pressure to make concessions on health-care benefits and pensions, stirring labor disputes like the threatened transit strike in New York City.While the fiscal picture for many state and local budgets has brightened this year, double-digit increases in health-care costs and steep investment losses for pension funds in recent years have clouded the longer-term financial outlook for many state and local governments. In many cases, a growing demand for services is also putting pressure on tax revenues.
As a result, more public administrators are trying to rein in benefit costs by seeking concessions that have become commonplace in the private sector, such as increasing employee health-care contributions, says Charles Zettek Jr., director of government management services for the Center for Governmental Research, a nonprofit public-policy group in Rochester, N.Y.
"Demand for government services is just outstripping governments' ability to pay for them," he said. "It's very difficult to ratchet back salary schedules, so they're going to go after benefits," he adds.
Administrators argue that current benefit costs in the highly unionized government sector are unsustainable. Health benefits for state and local government workers account for 11% of total compensation costs, compared with 6.8% for private-sector workers, for instance, according to the Bureau of Labor Statistics. In 2004, 31% of state workers and 41% of local-government workers belonged to a union, compared with 7.9% of private-sector workers.
That bit about "demand for government services" is a nice euphemism. It means people are demanding things like education, roads, sewers, water systems, health care, etc., but that they're not willing to pay for it.
Posted by dan at 02:07 PM
Remember Wally O'Dell, the CEO of voting-machine and ATM-maker Diebold? Last year, he was widely criticized for raising lots of cash for the president and promising to help deliver Ohio for Bush.
Well, President Bush isn't the only one whose stock has sunk since hitting a high in November 2004. The company's stock is off about 30 percent for the year, and is back where it was in the fall of 2001.
Yesterday, Diebold's board of directors showed Mr. O'Dell the door.
Posted by dan at 09:58 AM
Are hedge funds the new mutual funds -- an asset class that has grown too big, too fast, and has too few skilled managers? Perhaps.
Lets see what the Financial Times' Lex Column has to say. Refelcting on the recent performance numbers, Lex writes:
"the numbers should be kept in persepctive. Overall, hedge funds returned just 7 basis points last month and are still down 40bps so far this quarter. Looking ahead, a sample of fund of hedge funds managers surveyed by Mercer Investment Consulting expects average returns of 0-5 per cent over the next 12 months. That is down from a previous target range of 5-10 per cent."
0-5 percent over the next 12 months? You can do better with a bank CD. And that return is guaranteed, insured, and not encumbered by big fees.
Posted by dan at 09:51 AM
I hate to be alarmist, but the nation may be running out of its capacity to borrow. As of last Friday, the national debt was $8,131,290,646,119.43.
As far as I can divine, the national debt ceiling is now about $8,180,000,000,000.00.
By my calculation, the government has the capacity to add another $48,709,353,880.57 to its debt. Now, $48.7 billion may sound like a lot of money. But considering the national debt grew by $39 billion between November 30 and December, it's not much. In other words, somewhere around Christmas Day, the U.S. will crash through the debt ceiling, again. Is anybody home at the Treasury Department? In Congress? In the White House? Hello?
Posted by dan at 09:41 AM
Andrew Ward reports in the Financial Times that Pepsi is now a bigger deal in the stock market than Coke is ($ required).
"PepsiCo yesterday overtook Coca-Cola in market capitalisation for the first time in 112 years of fierce competition.The milestone highlighted the contrasting fortuens of the two cola giants over recent years, as PepsiCo has replaced Coca-Cola as Wall Street's favourite beverage stock.
Shares in PepsiCo have risen 14 per cent this year, pushing the company's stock value to a record high of $98.4 bn yesterday.
Coca-Cola's shares hvae declined 1.2 per cent, depressing the company's worth to $97.9 bn.
Posted by dan at 09:36 AM
Jeff Birnbaum writes in the Washington Post of one entrepreneur's plans to roll up a bunch of lobbying shops and take them public. I'm sure that will end well.
Bonus: if this guy manages to pull it off, lobbyists will be able to execute a two-fer. They'll be able to screw over the public and public investors at the same time while lining their pockets.
Posted by dan at 09:30 AM
It's only one month's data, but it's reason not to get too excited about the presumed improvement in the federal budget picture.
The Treasury Department just published its latest monthly update. And the news isn't all good.
In November, revenues were up 3.1 percent year over year, but spending was up 15.3 percent. For the first two months of 2005, revenues are up 6.2 percent, but spending is up more than 8 percent. For the first two months fiscal 2006, the deficit is $130 billion. For the first two months of fiscal 2005, it was $115 billion.
Posted by dan at 02:55 PM
Apparently, AOL founder Steve Case thinks it's not a good idea to have a giant internet portal business reside under the same roof as a bunch of other media companies.
Posted by dan at 10:08 AM
Pessimists and optimists about the short-term future of the human race may have a new financial tool at their disposal.
Jennifer Hughes and Norma Cohen report ($ required) in the Financial Times:
"CSFB is this week launching what it says will be the first US index aimed at helping insurers and pension schemes to hedge their longevity risk.Longevity risk, the risk that insured lives last longer than expected, is one that cannot be hedged anywhere in the reinsurance market. . .
The main index representss expected average lifetime for women, men and a composite of both. To make the data more flexibl and tradeable, sub-indices of attained ages of 50, 55, 60, 65, 70, 75 and 80 show expected average lifetime of different age groups."
Posted by dan at 10:05 AM
Khozem Merchant and Jo Johnson note in the Financial Times that a big economy may be soon be coping with a shortfall in the number of skilled workers. And it's not the U.S. It's India.
Money graph:
"India's dynamic information technology industry faces a shortfall of 500,000 professionals by 2010 that threatens its dominance of global offshore IT services, warns a report to be published this week by McKinsey, the business consultancy and Nasscom, the premier Indian IT association."
Posted by dan at 09:59 AM
In the current issue of Forbes, there's an ad for Houston run by the Greater Houston Partnership. It features a hazy view of Houston's skyline, with a white sun barely peeking through the gloom. The theme of the text underneath the picture is of dreams. "Are they still called dreams when they come true?" I suppose there is something dreamlike about the photo. But you would think that a city that has been known for years for its poor air quality would choose a photo that didn't portray the product being marketed as being shrouded in smog.
Posted by dan at 04:49 PM
In Japan, somme commodities are apparently to valuable and important to trade. David Turner and Kaori Suzuki report in the Financial Times on the future of rice futures.
Rival Japanese exchanges have drawn up plans to resurrect Japan's ancient rice futures market, which formed the basis of what many experts describe as the world's first ever organised futures exchange in the 17th century.But the launch of rice contracts has been delayed by the opposition of farmers' groups. . .
But JA Zenchu, the powerful union of Agricultural cooperatives with two members on the Grain subcommittee, "disagreed" with proposals for rice futures. It said: "We worry whether it is a good idea for Japan to trade our staple food in the futures market, because it would createa a great price movement."
Posted by dan at 04:43 PM
There are pennies, dimes, and dollar bills lying all over the floor. Companies, governments, and individuals that figure out how to use less energy are picking them up. Anthony DePalma reports in the New York Times:
For years, New York has been the city that not only never sleeps, but the city that hardly ever remembers to turn the lights out. On the coldest days of winter, New Yorkers raise their windows to let out the heat. In the dog days of summer, a husky could freeze in the open doorway of a Fifth Avenue boutique.But now, measures like more efficient traffic lights and refrigerators are speeding up a long trend making New York one of the most energy-efficient cities in the nation - and officials in cities like Portland and Seattle that might, in the public mind, seem more environmentally conscious are taking notice.
Environmentalists and urban planners from around the nation hail some of New York City's efforts at energy efficiency as models for doing more with less and, importantly, doing it without asking sacrifices of anyone.
"I'm not aware of any other municipalities going to that extreme," said Dana L. Banks, a senior program manager at Portland Energy Conservation Inc., which works on energy-efficiency programs throughout the Northwest. "New York is looking for every single opportunity it can to save energy it can find."
Posted by dan at 04:33 PM
Timothy Egan reports in the New York Times on how credit card companies, emboldeneds by the new bankruptcy law, are carpet-bombing the newly bankrupt with offers.
"Under the new law, which the banking industry spent more than $100 million lobbying for, they may be even more attractive because it makes it harder for them to escape new credit card debt and extends to eight years from six the time before which they could liquidate their debts through bankruptcy again."The theory is that people who have just declared bankruptcy are a good credit risk because their old debts are clean and now they won't be able to get a new discharge for eight years," said John D. Penn, president of the American Bankruptcy Institute, a nonprofit clearinghouse for information on the subject. . . .
But the new law makes for an even better gamble for lenders, consumer groups say. It not only makes bankrupt debtors wait eight years to clear their debts again, but it also requires many of those who do go back into bankruptcy to pay previous credit card bills that may have been excused under the old law.
Bankers defend the practice of soliciting the newly bankrupt, saying it gives them a chance to build a new credit history.
"The people coming out of bankruptcy need an opportunity to get back on their feet," said Laura Fisher, a spokeswoman for the American Bankers Association, the industry's largest trade group.
"If you take away the opportunity to get credit," Ms. Fisher said, "it's like taking away the want ads from a job-seeker."
Posted by dan at 04:24 PM
Milt Freudenheim and Mary Williams Walsh write in the New York Times on the great cram-down soon to be felt by millions of public-sector employees. The reason: government leaders -- Democrats, Republicans, independents, appointed and elected alike -- have never really bothered to tally up the costs of the reitrement health care promises they made to workers:
"Off the government balance sheets - out of sight and out of mind - those obligations have been ballooning as health care costs have spiraled and as the baby-boom generation has approached retirement. And now the accounting rulemaker for the public sector, the Governmental Accounting Standards Board, says it is time for every government to do what Duluth has done: to come to grips with the total value of its promises, and to report it to their taxpayers and bondholders.The board has issued a new accounting rule that will take effect in less than two years. . . .Some experts are warning of tax increases, or of an eventual decline in the quality of public services. States, cities and agencies that do not move quickly enough may see their credit ratings fall. In the worst instances, a city might even be forced into bankruptcy if it could not deliver on its promises to retirees. . .
The new accounting rule is to be phased in over three years, with all 50 states and hundreds of large cities and counties required to comply first. Those governments are beginning to do the necessary research to determine the current costs and the future obligations of their longstanding promises to help pay for retirees' health care. Local health plans vary widely and have to be analyzed one by one. No one is sure what the total will be, only that it will be big.
Stephen T. McElhaney, an actuary and principal at Mercer Human Resources, a benefits consulting firm that advises states and local governments, estimated that the national total could be $1 trillion. "This is a huge liability," said Jan Lazar, an independent benefits consultant in Lansing, Mich. "If anybody understands it, they'll freak out."
Posted by dan at 04:16 PM