[Archived] The End Of Global Capitalism?

[AussieinUk]

The biter bit.......

"Even Porsche may come to rue its coup. 'They may struggle to sell 911s to hedge-fund managers for years and years to come,' says one investor. "

Hey Theno, ironic as that is, here is something quirker... Porsche make more money in yearly profit (over the last three years), doing money market transactions and the like, than they do in selling luxury cars..

Smart buggers IMV.. took advantage of a once-in-ten-year opportunity and it pulled off! Sneaky sausage smugglers those Germans! (and before the PC brigade hit me on that, I am half German!!)

[yoda]

Hey Theno, ironic as that is, here is something quirker... Porsche make more money in yearly profit (over the last three years), doing money market transactions and the like, than they do in selling luxury cars..

Smart buggers IMV.. took advantage of a once-in-ten-year opportunity and it pulled off! Sneaky sausage smugglers those Germans! (and before the PC brigade hit me on that, I am half German!!)

Do you put half a towel on the beach in early hours?

[AussieinUk]

Do you put half a towel on the beach in early hours?

No, far too much Australian in me, to do something that despicable...

[thenodrog]

(and before the PC brigade hit me on that, I am half German!!)

PC Brigade!!??!! They would certainly attack you for that Aussie ...... but only if they existed...... which of course they don't!

[AussieinUk]

Few updates on today's market and the week ahead...

On the back of the analysis I provided last week on Lloyds TSB, it now seems possible that there may be a foreign bidder in the works... This European financial services company is considered a genuine contender and has already spoken with the UK govt. This potential new bidder currently doesn't have a high street presence in the UK, so it is assumed that this offer will protect domestic jobs and create no overlap of roles, as would happen in the case of a Lloyd's takeover. The identity of this new bidder is still unknown.

Last week on the whole, was quite a positive one in light of recent weekly downturns. Not only did Friday end on an up tick, but the week followed through with four consecutive days of strong gain. Weekly movements gauged;

- US up 10%

- UK up 12%

- EURO up 14%

- Japan up 13%

- Aust up 4%

EDIT: Forgot to mention the news on the credit markets - the 3M LIBOR ($) continues to drop, this is now at 3.03% (31/10), after hitting a high of 4.82% on 10/10 (a drop of over 50%).

Moving on, today looks quite positive with most Euro, US and UK markets, indicating strong investor sentiment. Current index futures are indicative of a 1-1.5% gain on day end. Asian stocks rose for the fifth consecutive trading day, with the indicies of Asia-Pacific countries (except Japan, which was closed) up 4.6 percent on average. Other newstoday was the South Korean govt announced $11 billion in new spending and tax cuts.

Watch for the expected jump on the Nikkei tomorrow... also keep an eye on Soc Gen today, could be big gains on the back of Friday's US close.

To the week ahead... many central banks meet to determine rate decisions with all looking towards cuts in the cash rate. RBA (Aust) is meeting tomorrow on a forecasted 50bps drop, bringing the base rate to 5.5% (this could even go lower)... On Thursday, the ECB and the BoE meet, with expected drops of 25bps and 50bps respectively. That would put Euro rates at 3.5% and the UK at 4%.

[AussieinUk]

Thought I mentioned this earlier, but the US Fed is now finalising plans for a CDS clearing house, that could be up and running before the year is out. About time IMO.

Also of note, last Friday marked the end to the fiscal year of US managed funds whose selling requirement for tax reasons had been weighing down on the market trend.

EDIT;, Euro rating agencies may face a shakeup to change their goverance structure. New rules will be put forward by European regulators in Brussels on November 12. Rating agencies have been heavily criticised recently, due to them underestimating the risks attached to huge volumes of mortgage-related bonds, CDO's & CLO's. This issue has created some of the huge losses seen within financial investment industry.

[philipl]

A bunch of things moving in the right direction.

LIBOR is the key indicator in my book where the 50% drop is very welcome but it is still at an unconscionably large number compared with normal historical levels. Formal interest rate cuts will have minimal effect until that drops back.

Business Week upbeat article on CDS backs up what you are saying AiUK but still ends on the inevitable "what if" there's a huge black hole when all this lot is unravelled.

The obvious answer is the black hole will be the same size as the payroll/bonuses and operating costs of the global banking system over the past six years or so.

Is there any sentiment that the mega-bonuses are at an end or is it business as usual?

[AussieinUk]

Is there any sentiment that the mega-bonuses are at an end or is it business as usual?

There is sentiment, but it will still be BAU in most cases, I'm afraid.

[AussieinUk]

Yesterday's UK & Euro markets closed at expected levels (mentioned in yesterday's post) of 1.51% & 1.27% (averaged) respectively. US Indices remained flat with a quiet day based on the upcoming election, as investors play a 'wait & see' outcome. The Nikkei also rebounded in line with previous comments made (currently up, at nearly 3.5% or over 300pts). Soc Gen, although closing marginally up on the previous days close, it did reach expected predicted highs, giving an investor 'two bites of the cherry' in achieving 3% daily gains. Soc Gen's price dropped off from daily highs, due to company news on third-quarter profits falling, $183m EUR on credit-related write downs. This equated to an 84% fall on their profit margin. Looking at the bigger picture, global auto sales came in, with massive drops (lowest in over 25 years) and this is re-affirming beliefs that turbulent times are still ahead... and although generally most equities are trading 40% better than they were nearly month ago, I wouldn't be looking at a sustained rally, as the expected recession hasn't started to kick in yet.

Credit card company MasterCard posted better than expected profits for the last quarter, exceeding analysts expectations by over 10%. This is in spite of renewed credit card defaults in the US over the last previous two financial quarters... It does need to be mentioned, that both Visa and MasterCard agreed last week, to pay up to $2.75 billion in an antitrust settlement, to Discover Financial Services. MasterCard's portion of this agreed settlement is approx $863 million.

On interest rates, the Australian RBA dropped rates by 75bps (above the expected 50bps) to 5.25%. The RBA has demonstrated an aggressive approach now for the last two months dropping the base rate by 1.75%.

Interestingly, the CDS spread on govt debt for G7 debt issuers, has dramatically changed since the beginning of Aug. For a standard of $10m notional face on a 5yr, the figures illustrate an alarming trend upwards, of predicted default. These spreads are a good indicator of troubled economies and the insurance related cost attached to each country.

1. US CDS spread risen from 15bps ($15k) to 32bps ($32k) - 188% up

2. UK CDS spread risen from 35bps ($35k) to 60bps ($60k) - 171% up

3. German CDS spread risen from 7bps ($7k) to 33bps ($33K) - 471% up

4. French CDS spread risen from 24bps ($24k) to 43bps ($43K) - 179% up

5. Italian CDS spread risen from 57bps ($57k) to 111bps ($111K) - 195% up

6. Japan CDS spread risen from 18bps ($18k) to 58bps ($58K) - 322% up

7. Canada CDS spread risen from 7bps ($7k) to 13bps ($13K) - 186% up

To note from the above numbers, Germany has nearly had a five fold increase (last 2 months) and to me that is very concerning... On the plus side, the sovereign credit debt spread of Hungary has improved week on week with a 30% drop. So to have Turkey and Russia, posting similar numbers (%-wise). Also, notice I have highlighted Italy and their associated high cost of defualt insurance.. this obviously goes against what others have said on here, that Italy is reasonably sound.

Lastly, Oil (US WTI) is now trading below the $64 marker, with demand still dropping, this which should be good news for some... especially with the upcoming winter months ahead. Most other commodities are trending in expected bands.

EDIT - Oh nearly forgot about today's markets - Nothing really exciting at the moment. All major indexes look flat and I would be surprised if anyone posted a decent gain or loss by close. Again, this is probably indicative of investors awaiting preliminary results from the US election.

[philipl]

Thanks- this is really helpful.

[philipl]

The BBC seem surprised that Swiss Re posted a loss.

[AussieinUk]

Well, yesterdays strong gains in all markets were very nice in the sense that this is the sixth consecutive day. I myself was a little shocked expecting a quite day, with elections still in play. I guess the investors in the market decided that this campaign was already a full gone conclusion...

Nothing massive in general corporate news. UK banking sector has had some positive and negative reporting, with Lloyds announcing that it has paid its preferential shareholders and thus allowing the company to pay next years dividend payment to non-pref shareholders. On the downside, both RBS (£260m & HBOS (another £2.6b) announced that further asset write-downs will occur, throughout this year and into the first quarter of 09'. This adds to what I posted a while ago, that banks need to come clean, rather than drag this pain out. RBS also announced that the next forecasted dividend will not be paid out to shareholders, due to the current cumulative write-downs and the extra unforeseen costs in the ABN AMRO takeover deal. Essentially this translates into a loss for FY 08' and the first for RBS, in its recent corporate history. On the continental banking front UBS has posted a decent quarterly profit of 296m CHF and that was on the back of four negative quarters of losses.

Another economic indicator was released by the US commerce dept. yesterday, manufacturing figures on new orders dropped for the second month running. This further adds to the current slow down and the potential of job cuts in the US

On commodities, Oil has spiked back up to around $70 USD p/b and the cost of steel has dropped by 80% over the last 4 months. Interestingly, and staying on commodities, the current production costs of mining business' globally, has seen huge changes within the current environment and many new IPO or recent listings in this sector, could close/merge, due to the new associated production costs. Looking at the breakdown of the industrial metals sector;

- Copper producers up 15%

- Aluminum producers up 25%

- Zinc producers up 50%

- Nickel producers up 30%

- Iron ore producers up 10%

For investment purposes, it may be wise to look for established firms (mature more than 3 years) and those with specific core business' (non diverse models) plans. I know many planned mining projects have been shelved, based on this costing issue.

The USD/EUR pairing for currency market's, has seen the greenback rise on the predicted Obama victory. This is most likely indicative of the fact, that investors see Obama as the man to speed up the US recovery in both the housing & financial markets.

Today's markets still looks like making further modest gains, with current equity futures up on most Euro, UK & US indexes. There could be another potential 1-2% gain in this area. Asian stocks have been mostly flat, with the exception of HK, which post a strong 5% return by close.

[philipl]

The fall in the metals sector was massively over done.

The Swiss to order repayment of UBS bonuses?

[grizfoot]

I'm sure you've all heard that the Bank of England has cut the interest rate by one and a half percent to 3%. This move should hopefully help get the credit market flowing again. Can't help but think that this is all a little late now, we are heading for recession and there's nothing we can to do to prevent hopefully this interest rate will help cushion the blow of this reession.

A little bit childish maybe but someone posted a reply on the BBC blog about the topic saying that this interest cut is like 'farting at thunder'.

Albeit a very bad simile it is probably somewhat true.

[Damage]

I'm sure you've all heard that the Bank of England has cut the interest rate by one and a half percent to 3%. This move should hopefully help get the credit market flowing again. Can't help but think that this is all a little late now, we are heading for recession and there's nothing we can to do to prevent hopefully this interest rate will help cushion the blow of this reession.

lol a little late! even erstwhile socialists (with an understanding of economics!) realise that the system is knacked! in theory interest rates cuts are the opposite of what the system needs but the reality is that cuts are not passed on to the "general" economy but used to increase profit margins of financiers! welcome to the new paradigmn! 6 months and america will realise that its messiah president has no room for movement (manoover at this time of night!!!). anyway back to what i said about 2 month ago ............. the system is broken! get aleasehold on some nice allotment! self-provision is the way forward!

[AussieinUk]

I'm sure you've all heard that the Bank of England has cut the interest rate by one and a half percent to 3%..... Can't help but think that this is all a little late now...

Agreed - Can't help but think that such a massive drop (30%) in the base rate, is indicative that the MPC has been asleep at the wheel..

[philipl]

Combination of too much rear view mirror and laughing at the Americans for driving on the wrong side of the road.

They have suddenly looked through the windscreen and seen a dirty big dumper truck called depression right in front of them.

[thenodrog]

I guess sales of the FT have dwindled to nothing in Blackburn these past few weeks.

[philipl]

Robert Peston explains everything in 6 minutes

[philipl]

There were always going to be volatile ups and downs following such a massive disruption to the world's finance system but quite apart from the stock markets there are hugely worrying signs of a next round of contagion:

- Citigroup looking non-too healthy

- For the first time, the British major insurers are coming under significant pressure focussed on them rather than the market as a whole

- Ireland showing the first signs of Icelandic-style stress with the price on Government debt getting into significant worry of sovereign default territory

- Dramatic slow down in India in the last two months

- Northern Rock has burnt through its Government money and is likely to be back for another £3bn before Christmas

Crashing oil prices might make one or two countries less problematic politically but it makes somewhere like the Yemen even more of a terminal basket case.

[AussieinUk]

There were always going to be volatile ups and downs following such a massive disruption to the world's finance system but quite apart from the stock markets there are hugely worrying signs of a next round of contagion:

- Citigroup looking non-too healthy

- For the first time, the British major insurers are coming under significant pressure focussed on them rather than the market as a whole

- Ireland showing the first signs of Icelandic-style stress with the price on Government debt getting into significant worry of sovereign default territory

- Dramatic slow down in India in the last two months

- Northern Rock has burnt through its Government money and is likely to be back for another £3bn before Christmas

Crashing oil prices might make one or two countries less problematic politically but it makes somewhere like the Yemen even more of a terminal basket case.

Agree with you there Phil, except the section I have highlighted.

Citigroup needed to 're-size' for quite some time and many of current measures, should have been implemented when Prince was given the 'boot' back in 07'.

[philipl]

I have to say I am now getting really scared with the way the crisis has suddenly returned with renewed force.

The Bush administration and now Paulson in particular have totally blown their credibility and what on earth is going to happen over the Christmas period?

Paul Krugman writing in the New York Times.

[philipl]

Agree with you there Phil, except the section I have highlighted.

Citigroup needed to 're-size' for quite some time and many of current measures, should have been implemented when Prince was given the 'boot' back in 07'.

Sign of the times- the Citigroup share price absolutely tanks in four days but because they are in no imminent danger of going bust, they are not regarded as being in trouble!

[philipl]

Britain = a bigger Iceland?

Good to see that Wall Street bucked up a few points on news that Geithner will replace Paulson.

Now can everybody in banking and finance take a long Christmas holiday from now until 21 January. I suggest they would all do an awful lot better for themselves and the rest of us lying on a beach than going into work.

[philipl]

This crisis will make 1929 look like a walk in the park.

As far as I can see there were two encouraging signs yesterday-

Obama effectively taking control of US financial policy now

Resource companies rising to more realistic valuations on the LSE

However, LIBOR remains stuck at a historically unprecedented level and I guess we are only about half way through all the bad news being revealed in the financial sector- if we are lucky.

One unexpected feature of the crisis, the Russians have stopped drinking themselves to oblivion on expensive booze and there is a vast lake of unsold premium vodkas building up.