Dr. Duru submits: The World Steel Association (worldsteel) forecasts for 2010 confirm my earlier view that steel demand (and production) most likely bottomed this year and some kind of recovery is underway. Worldsteel’s forecasts indicate that demand for steel in 2010 will return to 2008 levels after contracting in 2009 by 8.6%: Complete Story »
The Baseline Scenario submits: by James KwakAt a panel discussion at the Pew Charitable Trusts (captured for posterity by Planet Money), Alice Rivlin floated the idea of breaking up big banks. Luckily for us, Scott Talbott of the Financial Services Roundtable (a lobbying group for big banks) was there to slap that idea down.Complete Story »
The Baseline Scenario submits: by James KwakI think I know what it is, and if I’m right it’s very important to health care reform, but it hasn’t gotten a lot of attention.Complete Story »
Carl T. Delfeld submits: Another sign that emerging markets (EEM) may have a way to run is that the average pension fund only allocates an estimated 5 percent of its portfolio to emerging markets, yet they make up 30 percent of the world’s GDP, according to the International Monetary Fund.Mike Gomez, co-head of emerging markets portfolio management at Pimco, says: ”Without question this is an asset class that continues to expand and is structurally under-invested by the majority of longer term investors. This is an asset class that has gone from exotic to more mainstream over the past 10 years.”Complete Story »
Mark J. Perry submits: The chart above shows manufacturing output of selected countries and the BRIC countries, as a share of world manufacturing output in 2007, using United Nations data via the BLS (I haven't been able yet to find comparable data for 2008). It's interesting that U.S. factories produced almost twice as much output in 2007 as China, and the U.S. produced an amount equivalent to the total manufacturing output of the four BRIC countries combined (Brazil, Russia, India and China).Complete Story »
Bloomberg reports Monday that Citigroup (C) agreed to pay $600,000 in fines related to a charge Finra brought against the bank. The regulator claimed that Citigroup didn’t properly supervise specific transactions of foreign clients to skirt paying taxes on dividend payments. According to the Bloomberg article:Complete Story »
Bill Zielinski submits:The massive number of loan defaults that has put the entire banking industry on the brink of insolvency did not happen by accident. Banks recklessly extended credit, even to low income borrowers who obviously had the least ability to service their debts. What may have seemed like a virtuous circle of increased consumer consumption and higher banking profits has turned into a debt disaster for both borrower and lender - consider the Democratization of Credit: WSJ -The recession has forced a financial reckoning for Americans across the income spectrum. The pressure is especially acute for the low-income Americans who relied on borrowing for daily expenses or to gain the trappings of middle-class life. Shifting credit practices over several decades had enabled them to live beyond their means by borrowing nearly as readily as the more affluent.Complete Story »
Andrew Horowitz submits: So, where is gold heading? Some believe that it will be $2,000 in the not-too-distant future. Others think that it is well overvalued even at these levels. While the U.S. dollar has done a good deal to the recent upswing and concerns about inflation have helped to fuel the recent rally…. What next? Click chart for video discussion.Complete Story »
Cnooc covets Exxon's Ghana deal. Chinese state-owned CNOOC (CEO) is reportedly in advanced JV talkswith Ghana National Petroleum to pitch a rival bid to ExxonMobil's (XOM) $4B offer for Kosmos Energy's 23.5% stake in the giant Jubilee oil discovery. News of Exxon's agreement with Kosmos last week infuriated the Ghanaian government and GNPC, which was trying to boost its existing 13.8% stake in the field. But insiders recently said they were confident Ghana would approve the sale to Exxon because of its superior expertise in developing the find quickly and on budget, while handing the field over to the untested Chinese could be a gamble. Dollar dumping gets serious. Central banks are making good on their threats to dump the dollar, with 63% of the $413B policy makers poured into foreign currency holdings last quarter going to the euro and yen. While some see the move as reflecting a dim view on the U.S.'s policies and future, others say the diversification is no more than a reduction of concentration risks (and some actually think it's good news!). The record-breaking diversification likely means the greenback won’t rebound any time soon after losing 10.3% vs. a basket of currencies over the past half year. Bullard: ease up on the QE! St. Louis Fed president James Bullard on Sunday repeated his call to adjust the Fed's $1.75T scheme to buy mortgage loans and Treasurys, especially in light of its increasingly optimistic outlook of the economy. "There has been little indication of how or whether these amounts might be adjusted given incoming information on economic performance," he said, voicing concerns the policy is creating uncertainty in the markets, and could ultimately ignite inflation. (read Bullard's full speech (.pdf)) Summers talks up stimulus. Top Obama advisor Larry Summers defended the government's stimulus efforts in a letter to Republican House Leader John Boehner this morning: "Thanks largely to the Recovery Act, alongside an aggressive financial stabilization plan and a program to keep responsible homeowners in their homes, we have walked a substantial distance back from the economic abyss and are on the path toward economic recovery." Summers said the president will not be satisfied until the U.S. returns to "robust job growth," and called the significant reduction in the pace of job loss over the last six months "an essential first step in that direction." Killer quarter coming up. Economists boosted their Q3 GDP growth outlook to 3.2% - the strongest in two years - fueled by a rebound in personal consumption expenditures, the first increase in residential investment since the Q1 2005, and a reduced rate of business inventory reduction. KB faces accounting probe. KB Home (KBH) disclosed it's being investigated by the SEC over accounting and disclosure issues, adding to the homebuilders legal issues, not to mention a still soft U.S. housing market. In May, homeowners brought a federal racketeering lawsuit against KB, accusing it of colluding with Countrywide and appraiser LandSafe to fraudulently inflate sales prices of KB homes. Shares -4% premarket. Blackstone to list eight firms, sell five.Blackstone (BX) is planning to publicly list up to eight of its portfolio companies. According to a letter sent to investors Friday, Blackstone is positioning hospital staffing firm Team Health for an IPO, and assessing the potential for seven others. The letter also says Blackstone is in the process of five realizations (exits), which sources say includes the sale of its stake in Kosmos Energy's Ghanian oil interests (see above for more on this). Lazard's CEO hospitalized with serious heart condition. Lazard (LAZ) chairman and CEO Bruce Wasserstein was hospitalized over the weekend for 'serious' heartbeat irregularity. Wasserstein, 61, is personally leading the team advising Kraft (KFT) on its $16B takeover bid for Cadbury (CBY). Experts say a company's ability to continue functioning after the incapacity of a CEO depends significantly on his level of day-to-day interaction with operations, which in Wasserstein's case is high. Shares were down about 1% in Frankfurt Monday morning. (read Lazard's statement) Citigroup fined by Finra. Sources say Citigroup (C) will pay $600,000 to settle charges it failed to supervise international customers, thereby allowing them to avoid dividend taxes. Citigroup has already paid the IRS $24M in taxes to settle claims it concocted derivatives to help clients circumvent taxes. Earnings Koninklijke Philips Electronics (PHG): Q3 profit of €174M, vs. consensus of €41M loss. Sales of €5.62B (-11%) vs. consensus of €5.45B. Operating margin 6.1% vs. 0.9% in prior-year quarter. Free cash flow of €353M vs. Ebitda of €344M. Shares +6.5% in Amsterdam. (MW) Today's MarketsAsia markets were mixed Monday, with heavy gains in India offset by losses in Hong Kong and China. Europe is broadly higher, and U.S. stocks are poised to open higher.Complete Story »
IPE at UNC submits: by Kindred WinecoffRemember last month when Ryan Grim wrote a terrible article arguing that the Fed had taken over the entire economics profession and didn't allow dissent? I went ballistic on him at the time, but it now appears that his timing couldn't've been worse. First was the "saltwater" vs. "freshwater" argument started by Krugman that showed that economic theory is not as unified as Grim makes out. But now we see deep divisions within the Fed, even at the top levels:Complete Story »
Cam Hui submits: I see that Bill Miller made it to the cover of Barron's this week. His fund, LMVTX, has made a remarkable comeback after several years of poor performance.Miller sticks to his gunsGiven the headlines I thought that it would be a useful exercise to analyze Miller’s macro bets and see what he did to achieve his returns this year. The chart below shows the fund’s exposure to the Financial sector. Miller had been known to be a big believer in Financials and had been overweight the sector going into the Lehman crisis and out. The bet in the sector was responsible for the freefall in returns but the recovery of the sector also contributed to his turnaround in 2009. Click to enlarge imagesMiller’s critics might accuse him of being a stopped clock, but the next chart, which shows his fund’s exposure to the cyclical sector, indicates that he was prescient in his timing. LMVTX began to increase its cyclical exposure in mid-2008, pulled back and then went all-in with its pro-cyclical bet in early 2009. That bet has paid off handsomely in 2009. The timing of the cyclical bet was remarkable given the low level of turnover the fund has historically exhibited.Complete Story »
Neil Carvin submits: The GCFR Overall Gauge of Home Depot (NYSE: HD) inched up from 27 to 29 of the 100 possible points in early August, when the second quarter ended. Our income statement, financial gauge, and gauge update analyses explained in some detail how the score was attained.Complete Story »
Nick Gogerty submits: Understanding the value of something is always a relationship thing. Picking the right relationship is the key to understanding the opportunities/risks provided by a divergence between price and value. Another thing to recognize is that like social relationships, financial relationships can get seriously irrational on either the upside or downside.One of my favorite relationships is house price values relative to median income. Houses, when viewed in an ecological framework, are physically constrained to a given catchment area. The resources that keep them strong (value wise) are the available incomes in that catchment area.Complete Story »
